UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-6477
SM&R Investments, Inc.
P.O. Box 58969
Houston, TX 77258-8969
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
(800) 231-4639
Fiscal year end: August 31
Reporting period: February 29, 2008
Item 1 Report to Shareholders
<Page>
SEMI-ANNUAL REPORT
[GRAPHIC]
SM&R INVESTMENTS, INC.
SM&R Growth Fund
SM&R Equity Income Fund
SM&R Balanced Fund
SM&R Government Bond Fund
SM&R Tax Free Fund
SM&R Primary Fund
SM&R Money Market Fund
SEMI-ANNUAL REPORT
FEBRUARY 29, 2008
<Page>
The report contained herein is included for the general information of our
shareholders. This report is not authorized for distribution to prospective
investors unless it is preceded or accompanied by a current prospectus. ALL
INVESTORS ARE ADVISED TO CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES OF THE INVESTMENT COMPANIES CAREFULLY BEFORE INVESTING. THE
PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANIES.
YOU SHOULD READ IT CAREFULLY BEFORE INVESTING.
The investment adviser is responsible for exercising the voting rights
associated with the securities purchased and held by the Funds. A description of
the policies and procedures the investment adviser uses in fulfilling this
responsibility is included in the Funds' Statement of Additional Information and
is available without charge, upon request, by calling 1-800-231-4639. The
policies and procedures are also available on the Securities and Exchange
Commission's (SEC) website at http://www.sec.gov. Information on how the Funds
voted proxies relating to portfolio securities during the most recent 12 month
period ended June 30 is available without charge, upon request, by calling
1-800-231-4639 and is also available on the SEC's website at http://www.sec.gov.
The Funds file their complete schedule of holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q is
available on the SEC's website, beginning with the November 30, 2004 report, at
http://www.sec.gov. You may review and make copies at the SEC's Public Reference
Room in Washington, D.C. You may also obtain copies after paying a duplicating
fee by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102
or by electronic request to publicinfo@sec.gov. A copy of the quarterly holdings
report is available, without charge, upon request, by calling 1-800-231-4639.
<Page>
AN EXAMPLE OF ONGOING EXPENSES (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, September 1, 2007, and held for six months ending
February 29, 2008.
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 (09/01/07) RATIOS (02/29/08) (1) PERIOD (2) (02/29/08) (1) PERIOD (2)
- -------------------- ---------- ---------- -------------- ---------- -------------- ----------
Growth Fund
Class A $1,000.00 1.36% $889.89 $6.41 $1,018.15 $6.84
Class B 1,000.00 1.86% 885.99 8.75 1,015.66 9.35
Class T 1,000.00 1.13% 887.22 5.32 1,019.30 5.69
Equity Income Fund
Class A 1,000.00 1.26% 902.84 5.98 1,018.65 6.34
Class B 1,000.00 1.76% 901.62 8.34 1,016.16 8.85
Class T 1,000.00 1.13% 902.88 5.36 1,019.30 5.69
</Table>
1
<Page>
<Table>
<Caption>
ACTUAL HYPOTHETICAL
-------------------------- --------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES
ACCOUNT ANNUALIZED ACCOUNT PAID ACCOUNT PAID
VALUE EXPENSE VALUE DURING VALUE DURING
FUNDS (09/01/07) RATIOS (02/29/08) (1) PERIOD (2) (02/29/08) (1) PERIOD (2)
- -------------------- ---------- ---------- -------------- ---------- -------------- ----------
Balanced Fund
Class A $1,000.00 1.30% $ 934.18 $6.27 $1,018.46 $6.54
Class B 1,000.00 1.80% 933.05 8.67 1,015.96 9.05
Class T 1,000.00 1.21% 933.74 5.83 1,018.90 6.09
Government Bond Fund
Class A 1,000.00 0.73% 1,069.21 3.77 1,021.29 3.68
Class B 1,000.00 1.23% 1,066.07 6.34 1,018.80 6.19
Class T 1,000.00 0.73% 1,068.07 3.76 1,021.29 3.68
Tax Free Fund
Class A 1,000.00 0.75% 1,018.07 3.77 1,021.19 3.78
Class B 1,000.00 1.25% 1,015.70 6.28 1,018.70 6.29
Class T 1,000.00 0.75% 1,018.04 3.77 1,021.20 3.78
Primary Fund 1,000.00 0.80% 1,021.40 4.03 1,020.95 4.03
Money Market Fund 1,000.00 0.50% 1,019.31 2.52 1,022.44 2.52
</Table>
(1) The actual ending account value is based on actual total return of each
class of each of the funds for the period September 1, 2007 to February 29,
2008 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 182/365 (to reflect the six month period).
2
<Page>
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
On November 15, 2007, the Board of Directors of SM&R Investments, Inc. (the
"Board") unanimously approved the renewal and extension of the investment
advisory agreements with Securities Management and Research, Inc. (the
"Manager") for the 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 ("the Funds"). The Board considered a variety of factors in
connection with its review of the advisory contracts (the "Contracts"), also
taking into account information provided by the Manager during the course of the
year, as discussed below:
NATURE, EXTENT, AND QUALITY OF SERVICES
The Board considered the nature, quality and extent of the services provided to
the Funds by the Manager based upon information and discussion provided by the
Manager relating to the services performed by the Manager under the Contracts
and relating to the Manager's operations, systems, and personnel. These services
included, but were not limited to, management of the investment portfolios and a
variety of activities related to investment portfolio management.
The Board also took into account its familiarity with the Manager's investment
management for the Funds through regular Board meetings, discussions and reports
during the preceding year. The Board further considered the Manager's research
and portfolio management capabilities and that the Manager also provides
oversight of day-to-day fund operations, including fund accounting and
administration and assistance in meeting legal and regulatory requirements.
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 total expense
ratios of each of the Funds as compared to other open-end investment companies
deemed to be comparable based upon the Morningstar Principia Pro database with
similar Morningstar category and prospectus objective to each Fund. The Board
compared the total expense ratios of the Funds for the quarter ending September
30, 2007 to funds advised by other advisors that were deemed comparable by the
Morningstar database for the quarter ending September 30, 2007. The SM&R Growth
Fund (Classes A, B & T), SM&R Equity Income Fund (Classes A & T), SM&R Balanced
Fund (Classes A, B & T), SM&R Government Bond Fund (Classes A, B & T) and SM&R
Tax Free Fund (Classes A, B & T), all had total expense ratios that were lower
than the Morningstar Fund Analysis average total expense ratios. The total
expense ratios for the SM&R Equity Income Fund (Class B) and the SM&R Primary
Fund were slightly higher than the Morningstar average total expense ratios.
Therefore, the Board took into account that the Manager has voluntarily agreed
to waive fees and/or limit expenses of the applicable Funds through December 31,
2008, so that total expenses are limited to a specified percentage of average
daily net assets of each Fund. Total expenses include the management fees and
administrative service fees which are paid to the Manager, but do not include
interest, taxes, commissions, and other expenses incidental to portfolio
transactions. Also taken under consideration were the current size of each Fund,
and the level and method of computing the management fees. In light of these
factors, the Board concluded that the fee paid to the Manager by the Funds is
reasonable.
The Board reviewed the Funds' average annual total returns and compared these
returns to comparable performance measures supplied by Lipper and Morningstar.
On the basis of this evaluation of investments results, the Board concluded that
the Funds' performance was satisfactory.
3
<Page>
COST, BENEFITS, PROFITS AND ECONOMIES OF SCALE
The Board reviewed detailed information regarding the revenues received by the
Manager under the Contracts and other benefits that the Manager may have
realized from its relationship with the Funds. The Board also received
information on the direct costs incurred by the Manager as well as profits
realized. After careful consideration of this information, the Board concluded
that the Manager's profits were reasonable in light of the services provided to
the Funds.
APPROVAL OF THE CONTRACTS
As noted, the Board approved the renewal of the Contracts. No single factor was
considered in isolation or to be determinative to the decision. Rather, the
Board concluded, in light of a weighing and balancing of all factors considered,
that the advisory fee structures are fair and reasonable and that the Contracts
should be renewed.
4
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R GROWTH FUND
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ -----
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--1.83%
Newell Rubbermaid Inc. 23,200 $ 526,640
Stanley Works (The) 23,000 1,116,420
-----------
1,643,060
HOTELS RESTAURANTS & LEISURE--0.51%
Starwood Hotels & Resorts Worldwide, Inc. 9,650 456,735
MEDIA--1.77%
Walt Disney Co. (The) 49,000 1,588,090
MULTILINE RETAIL--1.81%
Citi Trends Inc.* 18,900 274,239
J.C. Penney Co., Inc. 10,700 494,447
Target Corp. 16,200 852,282
-----------
1,620,968
SPECIALTY RETAIL--3.05%
Bed Bath & Beyond Inc.* 13,900 393,926
Best Buy Co., Inc. 31,200 1,341,912
Home Depot, Inc. (The) 13,000 345,150
Limited Brands, Inc. 12,000 183,000
Lowe's Companies, Inc. 19,400 465,018
-----------
2,729,006
-----------
TOTAL CONSUMER DISCRETIONARY--8.97% 8,037,859
-----------
CONSUMER STAPLES--
BEVERAGES--3.44%
Coca-Cola Co. (The) 24,000 1,403,040
PepsiCo, Inc. 24,000 1,669,440
-----------
3,072,480
FOOD & STAPLES RETAILING--0.82%
SUPERVALU INC. 9,350 245,437
Wal-Mart Stores, Inc. 10,000 495,900
-----------
741,337
HOUSEHOLD PRODUCTS--2.29%
Procter & Gamble Co. (The) 31,000 2,051,580
-----------
TOTAL CONSUMER STAPLES--6.55% 5,865,397
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--4.30%
Baker Hughes Inc. 15,800 1,063,182
Schlumberger Ltd. 19,900 1,720,355
Transocean Inc.* 3,000 421,530
Weatherford International Ltd.* 9,400 647,848
-----------
3,852,915
OIL, GAS & CONSUMABLE FUELS--9.69%
Anadarko Petroleum Corp. 10,600 675,644
BP PLC ADR 11,700 758,979
Chevron Corp. 20,922 1,813,101
Exxon Mobil Corp. 45,000 3,915,450
Noble Corp. 16,400 806,060
Royal Dutch Shell PLC, ADR 10,000 714,500
-----------
8,683,734
-----------
TOTAL ENERGY--13.99% 12,536,649
-----------
FINANCIALS--
COMMERCIAL BANKS--6.25%
Bank of America Corp. 15,000 596,100
PNC Financial Services Group, Inc. 29,000 1,781,470
U.S. Bancorp 40,000 1,280,800
Wachovia Corp. 42,600 1,304,412
Washington Mutual, Inc. 13,400 198,320
Wells Fargo & Co. 15,000 438,450
-----------
5,599,552
DIVERSIFIED FINANCIAL SERVICES--5.80%
American Express Co. 5,000 211,500
Bear Stearns Companies Inc. (The) 4,450 355,377
Charles Schwab Corp. (The) 29,400 576,534
Citigroup Inc. 38,550 914,021
Discover Financial Services* 7,500 113,175
FHLMC Gtd. Mtg. Certificate 10,250 258,094
Goldman Sachs Group, Inc. (The) 4,000 678,520
JPMorgan Chase & Co. 13,800 560,970
Merrill Lynch & Co., Inc. 5,000 247,800
Morgan Stanley 15,000 631,800
National Financial Partners Corp. 6,250 148,563
Principal Financial Group 9,000 497,070
-----------
5,193,424
INSURANCE--6.52%
Allstate Corp. (The) 12,300 587,079
American International Group, Inc. 28,000 1,312,080
Aspen Insurance Holdings Ltd. 20,350 588,929
Brown & Brown, Inc. 24,400 435,052
Hartford Financial Services Group, Inc. (The) 16,400 1,146,360
Prudential Financial, Inc. 16,500 1,204,005
RenaissanceRe Holdings Ltd. 10,400 570,960
-----------
5,844,465
-----------
TOTAL FINANCIALS--18.57% 16,637,441
-----------
</Table>
5
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ -----------
HEALTH CARE--
BIOTECHNOLOGY--4.67%
Amgen Inc.* 7,600 $ 345,952
Celgene Corp.* 18,400 1,037,208
Genzyme Corp.* 12,000 851,040
Gilead Sciences, Inc.* 24,000 1,135,680
Given Imaging Ltd.* 36,900 585,234
PDL BioPharma Inc.* 14,600 233,308
-----------
4,188,422
HEALTH EQUIPMENT & SUPPLIES--2.22%
Advanced Medical Optics, Inc.* 5,500 125,840
Covidien Ltd.* 4,650 198,973
Hologic, Inc.* 9,000 542,790
Medtronic, Inc. 14,650 723,124
Varian Medical Systems Inc.* 7,600 398,620
-----------
1,989,347
HEALTH CARE PROVIDERS & SERVICES--0.80%
DaVita, Inc.* 5,025 249,391
UnitedHealth Group Inc. 10,000 464,800
-----------
714,191
PHARMACEUTICALS--6.21%
Abbott Laboratories 13,900 744,345
Allergan, Inc. 5,000 296,150
Endo Pharmaceuticals Holdings Inc.* 11,450 300,677
Eli Lilly & Co. 41,200 2,060,824
Merck & Co. Inc. 38,000 1,683,400
Wyeth 11,000 479,820
-----------
5,565,216
-----------
TOTAL HEALTH CARE--13.90% 12,457,176
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--5.49%
Boeing Co. (The) 13,000 1,076,270
Goodrich Corp. 20,000 1,184,600
Honeywell International Inc. 14,500 834,330
Rockwell Collins, Inc. 13,000 765,700
United Technologies Corp. 15,000 1,057,650
-----------
4,918,550
AIR FREIGHT & LOGISTICS--1.36%
FedEx Corp. 4,700 414,211
United Parcel Service, Inc. (Class B) 11,400 800,736
-----------
1,214,947
CONSTRUCTION & ENGINEERING--0.61%
Cemex SAB de C.V. ADR 20,000 551,000
ELECTRICAL EQUIPMENT--0.17%
Tyco Electronics Ltd.* 4,650 152,985
INDUSTRIAL CONGLOMERATES--2.86%
3M Co. 10,000 784,000
General Electric Co. 48,000 1,590,720
Tyco International Ltd. 4,650 186,279
-----------
2,560,999
MACHINERY--2.87%
Barnes Group Inc. 9,600 218,304
Caterpillar Inc. 7,500 542,475
Danaher Corp. 24,400 1,809,260
-----------
2,570,039
-----------
TOTAL INDUSTRIALS--13.36% 11,968,520
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--5.58%
Arris Group Inc.* 23,000 132,250
Cisco Systems, Inc.* 84,500 2,059,265
Harris Corp. 13,100 639,673
Motorola, Inc. 30,900 308,073
Nokia Oyj ADR 34,100 1,227,941
QUALCOMM Inc. 15,000 635,550
-----------
5,002,752
COMPUTERS & PERIPHERALS--2.46%
EMC Corp. 30,800 478,632
Hewlett-Packard Co. 20,500 979,285
International Business Machines Corp. 6,500 740,090
-----------
2,198,007
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.32%
Agilent Technologies, Inc.* 9,300 284,673
INTERNET SOFTWARE & SERVICES--0.36%
Akamai Technologies Inc.* 9,100 319,956
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.06%
Analog Devices, Inc. 15,600 419,952
Intel Corp. 50,000 997,500
KLA-Tencor Corp. 11,600 487,316
Linear Technology Corp. 15,200 421,192
Marvell Technology Group Ltd.* 14,500 163,995
Maxim Integrated Products, Inc. 13,600 248,472
-----------
2,738,427
</Table>
6
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ -----------
SOFTWARE--3.45%
Intuit Inc.* 24,800 $ 658,688
Microsoft Corp. 44,400 1,208,568
Oracle Corp.* 65,700 1,235,160
-----------
3,102,416
-----------
TOTAL INFORMATION TECHNOLOGY--15.23% 13,646,231
-----------
MATERIALS--
CHEMICALS--1.75%
Dow Chemical Co. (The) 12,000 452,280
PPG Industries, Inc. 18,000 1,115,640
-----------
1,567,920
CONTAINERS & PACKAGING--0.67%
Sealed Air Corp.* 25,000 605,250
-----------
TOTAL MATERIALS--2.42% 2,173,170
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--2.65%
AT&T Inc. 27,000 940,410
Sprint Nextel Corp. 34,007 241,790
Verizon Communications Inc. 32,800 1,191,296
-----------
2,373,496
-----------
TOTAL TELECOMMUNICATION SERVICES--2.65% 2,373,496
-----------
UTILITIES--
ELECTRIC UTILITIES--2.12%
Ameren Corp. 11,100 473,970
Dominion Resources, Inc. / VA 12,000 479,280
Exelon Corp. 9,100 681,135
Wisconsin Energy Corp. 6,100 266,082
-----------
1,900,467
GAS UTILITIES--1.40%
El Paso Corp. 60,800 991,040
Sempra Energy 5,000 265,650
-----------
1,256,690
-----------
TOTAL UTILITIES--3.52% 3,157,157
-----------
TOTAL COMMON STOCK--99.16% (Cost $80,252,139) 88,853,096
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 2.36% (a) 46,869 46,869
-----------
TOTAL MONEY MARKET FUND--0.05% (Cost $46,869) 46,869
-----------
</Table>
<Table>
<Caption>
FACE
COMMERCIAL PAPER AMOUNT VALUE
-------- -----------
CONSUMER DISCRETIONARY--
MEDIA--0.64%
Donnelley(R.R) & Sons, 3.47%, 03/03/08 $575,000 $ 574,889
-----------
TOTAL CONSUMER DISCRETIONARY--0.64% 574,889
-----------
TOTAL COMMERCIAL PAPER--0.64% (Cost $574,889) 574,889
-----------
TOTAL INVESTMENTS--99.85% (Cost $80,873,897) 89,474,854
CASH AND OTHER ASSETS, LESS LIABILITIES--0.15% 135,370
-----------
NET ASSETS--100.00% $89,610,224
===========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
29, 2008. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
9.63% Consumer Discretionary
6.56% Consumer Staples
14.01% Energy
18.59% Financials
13.92% Health Care
13.38% Industrials
15.25% Information Technology
2.43% Materials
0.05% Miscellaneous
2.65% Telecommunication Services
3.53% Utilities
</Table>
7
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $80,827,028) $89,427,985
Investment in affiliated money market fund (Cost $46,869) 46,869
-----------
Total investments (Cost $80,873,897) 89,474,854
Prepaid expenses 35,236
Receivable for:
Investment securities sold 12,260
Capital stock sold 16,072
Dividends 210,796
Expense reimbursement 1,553
Other assets 93,341
-----------
TOTAL ASSETS 89,844,112
-----------
LIABILITIES
Investment securities purchased 12,260
Capital stock reacquired 81,886
Payable to investment adviser for fund expenses 19,060
Accrued:
Investment advisory fees 54,608
Administrative service fees 18,202
Distribution fees 6,527
Other liabilities 41,345
-----------
TOTAL LIABILITIES 233,888
-----------
NET ASSETS $89,610,224
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $77,620,102
Undistributed net investment income 144,998
Accumulated net realized gain (loss) on investments 3,244,167
Net unrealized appreciation of investments 8,600,957
-----------
Net assets $89,610,224
===========
NET ASSETS:
Class A $ 3,866,876
-----------
Class B $ 1,881,442
-----------
Class T $83,861,906
-----------
TOTAL NET ASSETS $89,610,224
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 929,004
-----------
Class B:
Authorized 25,000,000
Outstanding 462,978
-----------
Class T:
Authorized 95,000,000
Outstanding 19,737,761
-----------
Class A:
Net asset value and redemption price per share $ 4.16
Offering price per share: (Net assets value of $4.16 / 95%) $ 4.38
-----------
Class B:
Net asset value and offering price per share $ 4.06
-----------
Class T:
Net asset value and redemption price per share $ 4.25
Offering price per share: (Net assets value of $4.25 / 94.25%) $ 4.51
-----------
</Table>
See notes to financial statements.
8
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
SM&R GROWTH FUND
<Table>
<Caption>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $2,160) $ 1,289,526
Interest 10,320
Interest from affiliated money market fund 782
------------
TOTAL INVESTMENT INCOME 1,300,628
------------
EXPENSES
Investment advisory fees 369,883
Administrative service fees 123,123
Professional fees 13,950
Custody and transaction fees 9,976
Directors' fees and expenses 3,118
Compliance expenses 1,276
Qualification fees
Class A 2,478
Class B 2,275
Class T 8,462
Shareholder reporting expenses
Class A 4,105
Class B 2,335
Class T 22,307
Distribution fees
Class A 5,461
Class B 8,996
Insurance expenses 19,731
------------
TOTAL EXPENSES 597,476
LESS EXPENSES REIMBURSED (9,687)
------------
NET EXPENSES 587,789
------------
INVESTMENT INCOME (LOSS)--NET 712,839
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 3,242,411
Change in unrealized appreciation of investments (15,344,323)
------------
NET GAIN (LOSS) ON INVESTMENTS (12,101,912)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(11,389,073)
============
</Table>
See notes to financial statements.
9
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2008 2007
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 712,839 $ 587,133
Net realized gain (loss) on investments 3,242,411 7,856,000
Change in unrealized appreciation of investments (15,344,323) 7,954,927
------------ ------------
Net increase (decrease) in net assets resulting from operations (11,389,073) 16,398,060
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (26,476) (24,253)
Class B (11,209) (2,530)
Class T (648,552) (579,962)
Capital gains
Class A (109,437) (189,752)
Class B (63,999) (107,537)
Class T (2,390,940) (3,084,431)
------------ ------------
Total distributions to shareholders (3,250,613) (3,988,465)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (1,272,523) (589,528)
Class B (645,707) (728,123)
Class T (1,152,400) (6,546,075)
------------ ------------
Total capital share transactions--net (3,070,630) (7,863,726)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (17,710,316) 4,545,869
NET ASSETS
Beginning of period 107,320,540 102,774,671
------------ ------------
End of period $ 89,610,224 $107,320,540
============ ============
Undistributed Net Investment Income $ 144,998 $ 118,396
============ ============
</Table>
See notes to financial statements.
10
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ --------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $ 4.83 $ 4.31 $ 4.09 $ 3.79 $ 3.45 $ 3.15
Income (loss) from investment operations
Investment income (loss)--net 0.02 0.02 0.01 0.04 0.02 0.01
Net realized and unrealized gain (loss) on investments (0.54) 0.67 0.23 0.30 0.34 0.30
------ ------ ------ ------ ------ ------
Total from investment operations (0.52) 0.69 0.24 0.34 0.36 0.31
------ ------ ------ ------ ------ ------
Less distributions
Investment income--net (0.03) (0.02) (0.02) (0.04) (0.02) (0.01)
Capital gains (0.12) (0.15) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.17) (0.02) (0.04) (0.02) (0.01)
------ ------ ------ ------ ------ ------
Net asset value, end of period $ 4.16 $ 4.83 $ 4.31 $ 4.09 $ 3.79 $ 3.45
====== ====== ====== ====== ====== ======
Total return (1) (11.01)** 16.16% 6.00% 9.05% 10.41% 10.00%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,867 $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% 1.36%
Ratio of expenses without reimbursement to average
net assets 1.61%* 1.47% 1.66% 1.69% 1.54% 1.60%
Ratio of net investment income (loss) to average net assets 1.16%* 0.34% 0.52% 1.03% 0.44% 0.42%
Portfolio turnover rate 5.00% 23.79% 56.05% 24.18% 4.93% 22.97%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ---------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $ 4.73 $ 4.22 $ 4.00 $ 3.72 $ 3.39 $ 3.11
Income (loss) from investment operations
Investment income (loss)--net (0.02) (0.04) -- 0.02 0.01 (0.01)
Net realized and unrealized gain (loss) on investments (0.51) 0.70 0.23 0.29 0.33 0.29
------- ------ ------ ------ ------ ------
Total from investment operations (0.53) 0.66 0.23 0.31 0.34 0.28
------- ------ ------ ------ ------ ------
Less distributions
Investment income--net (0.02) -- (0.01) (0.03) (0.01) (0.00)***
Capital gains (0.12) (0.15) -- -- -- --
------- ------ ------ ------ ------ ------
Total distributions (0.14) (0.15) (0.01) (0.03) (0.01) 0.00
------- ------ ------ ------ ------ ------
Net asset value, end of period $ 4.06 $ 4.73 $ 4.22 $ 4.00 $ 3.72 $ 3.39
======= ====== ====== ====== ====== ======
Total return (1) (11.40)** 15.89% 5.71% 8.27% 9.93% 9.12%
======= ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 1,881 $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% 1.86%
Ratio of expenses without reimbursement to
average net assets 2.18%* 2.03% 2.24% 2.20% 2.09% 2.24%
Ratio of net investment income (loss) to
average net assets 0.69%* (0.17)% 0.02% 0.52% (0.06)% (0.08)%
Portfolio turnover rate 5.00% 23.79% 56.05% 24.18% 4.93% 22.97%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.36% for Class
A and 1.86% for Class B until December 31, 2008.
See notes to financial statements.
11
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------- ------- -------- -------- --------
Net asset value, beginning of period $ 4.95 $ 4.40 $ 4.17 $ 3.87 $ 3.52 $ 3.21
Income (loss) from investment operations
Investment income (loss)--net 0.03 0.03 0.03 0.05 0.03 0.03
Net realized and unrealized gain (loss) on investments (0.58) 0.70 0.23 0.30 0.35 0.30
------- ------- ------- -------- -------- --------
Total from investment operations (0.55) 0.73 0.26 0.35 0.38 0.33
------- ------- ------- -------- -------- --------
Less distributions
Investment income--net (0.03) (0.03) (0.03) (0.05) (0.03) (0.02)
Capital gains (0.12) (0.15) -- -- -- --
------- ------- ------- -------- -------- --------
Total distributions (0.15) (0.18) (0.03) (0.05) (0.03) (0.02)
------- ------- ------- -------- -------- --------
Net asset value, end of period $ 4.25 $ 4.95 $ 4.40 $ 4.17 $ 3.87 $ 3.52
======= ======= ======= ======== ======== ========
Total return (1) (11.28)** 16.73% 6.28% 9.01% 10.67% 10.30%
======= ======= ======= ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $83,862 $98,760 $93,937 $101,643 $104,756 $100,383
Ratio of expenses to average net assets 1.13%* 1.12% 1.18% 1.19% 1.12% 1.15%
Ratio of net investment income (loss) to
average net assets 1.43%* 0.58% 0.70% 1.20% 0.68% 0.63%
Portfolio turnover rate 5.00%* 23.79% 56.05% 24.18% 4.93% 22.97%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
12
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
COMMON STOCK
SHARES VALUE
------ -----------
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.68%
McDonald's Corp. 15,100 $ 817,061
Starwood Hotels & Resorts Worldwide, Inc. 12,900 610,557
-----------
1,427,618
HOUSEHOLD DURABLES--1.94%
Newell Rubbermaid Inc. 17,800 404,060
Stanley Works (The) 16,000 776,640
Tupperware Brands Corp. 13,000 474,240
-----------
1,654,940
LEISURE EQUIPMENT & PRODUCTS--0.22%
Eastman Kodak Co. 10,850 184,233
MEDIA--0.48%
CBS Corp. (Class B) 17,900 408,478
MULTI-LINE RETAIL--0.45%
J.C. Penney Co., Inc. 8,350 385,854
SPECIALITY RETAIL--1.21%
Limited Brands, Inc. 40,000 610,000
TJX Companies, Inc. (The) 13,300 425,600
-----------
1,035,600
-----------
TOTAL CONSUMER DISCRETIONARY--5.98% 5,096,723
-----------
CONSUMER STAPLES--
BEVERAGES--2.20%
Coca-Cola Co. (The) 16,000 935,360
PepsiCo, Inc. 13,500 939,060
-----------
1,874,420
FOOD PRODUCTS--3.94%
Bunge Limited 4,400 487,696
ConAgra Foods, Inc. 34,000 751,400
H.J. Heinz Co. 19,000 838,090
Kraft Foods Inc. (Class A) 4,844 150,987
McCormick & Co., Inc. (b) 18,000 620,100
Sensient Technologies Corp. 19,000 511,860
-----------
3,360,133
FOOD & STAPLES RETAILING--1.56%
SUPERVALU INC. 13,000 341,250
Wal-Mart Stores, Inc. 20,000 991,800
-----------
1,333,050
HOUSEHOLD PRODUCTS--2.44%
Kimberly-Clark Corp. 13,600 886,448
Procter & Gamble Co. (The) 1,800 1,191,240
-----------
2,077,688
PERSONAL PRODUCTS--1.78%
Alberto-Culver Co. 10,575 283,410
Avon Products, Inc. 15,000 570,900
Colgate-Palmolive Co. 8,675 660,081
-----------
1,514,391
TOBACCO--0.88%
Altria Group, Inc. 5,000 365,700
Reynolds American Inc. 6,000 382,320
-----------
748,020
-----------
TOTAL CONSUMER STAPLES--12.80% 10,907,702
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--2.89%
Boardwalk Pipeline Partners, LP 16,500 391,380
Schlumberger Ltd. 12,000 1,037,400
Weatherford International Ltd.* 15,000 1,033,800
-----------
2,462,580
OIL, GAS & CONSUMABLE FUELS--11.85%
Anadarko Petroleum Corp. 18,500 1,179,190
BP PLC ADR 17,510 1,135,874
Chevron Corp. 2,001 1,733,287
Enterprise Products Partners L.P. 10,700 331,378
Exxon Mobil Corp. 37,000 3,219,370
Natural Resource Partners L.P. 18,000 577,440
Plains All American Pipeline, L.P. 8,500 405,875
Royal Dutch Shell PLC, ADR 15,000 1,071,750
Spectra Energy Corp. 19,300 446,023
-----------
10,100,187
-----------
TOTAL ENERGY--14.74% 12,562,767
-----------
FINANCIALS--
COMMERCIAL BANKS--9.44%
Bank of America Corp. 47,000 1,867,780
Comerica Inc. 18,000 652,320
Fifth Third Bancorp 24,000 549,600
KeyCorp 17,100 377,055
National City Corp. 31,100 493,246
PNC Financial Services Group, Inc. 15,000 921,450
Regions Financial Corp. 17,782 376,978
TrustCo Bank Corp NY 45,000 389,250
U.S. Bancorp 32,700 1,047,054
Washington Mutual, Inc. 13,700 202,760
Wells Fargo & Co. 40,000 1,169,200
-----------
8,046,693
</Table>
13
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ -----------
DIVERSIFIED FINANCIAL SERVICES--7.30%
Allied Capital Corp. 18,000 $ 406,620
Charles Schwab Corp. (The) 30,250 593,203
Citigroup Inc. 68,400 1,621,763
Colonial Properties Trust 6,000 146,160
FHLMC Gtd. Mtg. Certificate 9,700 244,246
JPMorgan Chase & Co. 30,000 1,219,500
New York Community Bancorp, Inc. 26,000 424,580
Principal Financial Group, Inc. 17,050 941,672
Weingarten Realty Investors 19,000 610,090
-----------
6,207,834
INSURANCE--3.87%
Allstate Corp. (The) 8,000 381,840
Aspen Insurance Holdings Ltd. 20,825 602,676
Prudential Financial, Inc. 12,225 892,058
RenaissanceRe Holdings Ltd. 9,000 494,100
Travelers Companies, Inc. (The) 20,000 928,200
-----------
3,298,874
REAL ESTATE INVESTMENT TRUSTS--4.96%
BRE Properties, Inc. 8,600 370,316
Duke Reality Corp. 12,000 275,040
General Growth Properties, Inc. 9,800 346,038
HCP, Inc. 16,000 466,880
Health Care REIT, Inc. 9,000 370,440
Hospitality Properties Trust 11,400 414,162
Liberty Property Trust 11,300 335,723
Mack-Cali Realty Corp. 20,000 689,800
National Retail Properties Inc. 10,000 207,000
Plum Creek Timber Co., Inc. 11,000 447,590
ProLogis Trust 5,600 301,728
-----------
4,224,717
-----------
TOTAL FINANCIALS--25.57% 21,778,118
-----------
HEALTH CARE--
BIOTECHNOLOGY--0.83%
Genzyme Corp.* 4,650 329,778
Gilead Sciences, Inc.* 8,000 378,560
-----------
708,338
HEALTH CARE PROVIDERS & SERVICES--0.69%
DaVita, Inc.* 4,000 198,520
LTC Properties, Inc. 16,000 386,240
-----------
584,760
HEALTH EQUIPMENT & SUPPLIES--0.34%
Advanced Medical Optics, Inc.* 5,475 125,268
Covidien Ltd.* 3,750 160,462
-----------
285,730
PHARMACEUTICALS--9.52%
Abbott Laboratories 20,000 1,071,000
Eli Lilly & Co. 20,350 1,017,907
Johnson & Johnson 35,000 2,168,600
Merck & Co. Inc. 23,000 1,018,900
Pfizer Inc. 85,580 1,906,722
Wyeth 21,325 930,197
-----------
8,113,326
-----------
TOTAL HEALTH CARE--11.38% 9,692,154
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.08%
United Technologies Corp. 13,000 916,630
COMMERCIAL SERVICES & SUPPLIES--0.79%
Deluxe Corp. 9,000 187,470
Sovran Self Storage, Inc. 7,500 289,125
Standard Register Co. (The) 23,000 196,650
-----------
673,245
ELECTRICAL EQUIPMENT--0.14%
Tyco Electronics Ltd.* 3,750 123,375
INDUSTRIAL CONGLOMERATES--4.56%
3M Co. 10,200 799,680
General Electric Co. 88,500 2,932,890
Tyco International Ltd. 3,750 150,225
-----------
3,882,795
MACHINERY--0.24%
Barnes Group Inc. 9,000 204,660
ROAD & RAIL--0.62%
Burlington Northern Santa Fe Corp. 6,000 526,680
TRANSPORTATION--0.25%
Seaspan Corp. 7,500 214,275
-----------
TOTAL INDUSTRIALS--7.68% 6,541,660
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--1.29%
Harris Corp. 12,750 622,582
Motorola, Inc. 19,125 190,676
Nokia Oyj ADR 8,000 288,080
-----------
1,101,338
COMPUTERS & PERIPHERALS--0.80%
Diebold, Inc. 8,250 198,990
International Business Machines Corp. 4,250 483,905
-----------
682,895
</Table>
14
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ -----------
INTERNET SOFTWARE & SERVICES--0.23%
StarTek, Inc.* 23,000 $ 198,030
OFFICE ELECTRONICS--0.33%
Pitney Bowes Inc. 7,925 283,557
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.18%
Intel Corp. 39,550 789,023
Linear Technology Corp. 7,750 214,752
-----------
1,003,775
SOFTWARE--1.34%
Microsoft Corp. 41,725 1,135,755
-----------
TOTAL INFORMATION TECHNOLOGY--5.17% 4,405,350
-----------
MATERIALS--
CHEMICALS--1.96%
Dow Chemical Co. (The) 20,100 757,569
E. I. du Pont de Nemours and Co. 10,000 464,200
PPG Industries, Inc. 7,200 446,256
-----------
1,668,025
METALS & MINING--0.65%
Alcoa Inc. 15,000 557,100
PAPER & FOREST PRODUCTS--0.82%
International Paper Co. 7,725 244,883
Potlatch Corp. 11,000 453,970
-----------
698,853
-----------
TOTAL MATERIALS--3.43% 2,923,978
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--5.53%
AT&T Inc. 49,950 1,739,759
Citizens Communications Co. 59,000 633,660
FairPoint Communications, Inc. 54,500 536,280
Verizon Communications Inc. 37,000 1,343,840
Windstream Corp. 39,000 458,640
-----------
4,712,179
-----------
TOTAL TELECOMMUNICATION SERVICES--5.53% 4,712,179
-----------
UTILITIES--
ELECTRIC UTILITIES--5.71%
Ameren Corp. 12,100 516,670
Consolidated Edison, Inc. 16,000 654,240
DTE Energy Co. 16,000 637,920
Duke Energy Corp. 36,000 631,440
Integrys Energy Group, Inc. 10,000 459,700
Pinnacle West Capital Corp. 19,000 675,450
Progress Energy, Inc. 13,000 544,830
Southern Co. 10,000 345,300
Xcel Energy, Inc. 20,000 396,400
-----------
4,861,950
GAS UTILITIES--1.16%
Nicor Inc. 12,000 409,200
NiSource Inc. 34,000 584,460
-----------
993,660
-----------
TOTAL UTILITIES--6.87% 5,855,610
-----------
TOTAL COMMON STOCK--99.15% (Cost $75,401,774) 84,476,241
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 2.36% (a) 3,254 3,254
-----------
TOTAL MONEY MARKET FUND--0.00% (Cost $3,254) 3,254
-----------
COMMERCIAL PAPER FACE
AMOUNT
--------
MATERIALS--
PAPER & FOREST PRODUCTS--0.54%
Avery Dennison Corp., 3.6%, 03/03/08 $460,000 459,908
-----------
TOTAL MATERIALS--0.54% 459,908
-----------
TOTAL COMMERCIAL PAPER--0.54% (Cost $459,908) 459,908
-----------
TOTAL INVESTMENTS--99.69% (Cost $75,864,936) 84,939,403
CASH AND OTHER ASSETS, LESS LIABILITIES--0.31% 264,273
-----------
NET ASSETS--100.00% $85,203,676
===========
</Table>
15
<Page>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
29, 2008. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
6.00% Consumer Discretionary
12.84% Consumer Staples
14.79% Energy
25.64% Financials
11.41% Health Care
7.70% Industrials
5.19% Information Technology
3.99% Materials
5.55% Telecommunication Services
6.89% Utilities
</Table>
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
ASSETS
Investments in unaffiliated securities, at value (Cost $75,861,682) $84,936,149
Investment in affiliated money market fund (Cost $3,254) 3,254
-----------
Total investments (Cost $75,864,936) 84,939,403
Prepaid expenses 35,451
Receivable for:
Investment securities sold 228,365
Capital stock sold 35,332
Dividends 272,396
Expense reimbursement 2,965
Other assets 62,725
-----------
TOTAL ASSETS 85,576,637
-----------
LIABILITIES
Investment securities purchased 215,362
Capital stock reacquired 27,727
Payable to investment adviser for fund expenses 16,433
Accrued:
Investment advisory fees 52,076
Administrative service fees 17,359
Distribution fees 12,259
Other liabilities 31,745
-----------
TOTAL LIABILITIES 372,961
-----------
NET ASSETS $85,203,676
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $73,440,749
Undistributed net investment income 394,180
Accumulated net realized gain (loss) on investments 2,294,280
Net unrealized appreciation of investments 9,074,467
-----------
Net Assets $85,203,676
===========
NET ASSETS:
Class A $ 7,632,708
-----------
Class B $ 3,719,713
-----------
Class T $73,851,255
-----------
TOTAL NET ASSETS $85,203,676
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized $50,000,000
Outstanding 389,286
-----------
Class B:
Authorized 25,000,000
Outstanding 196,411
-----------
Class T:
Authorized 75,000,000
Outstanding 3,602,421
-----------
Class A:
Net asset value and redemption price per share $ 19.61
Offering price per share: (Net assets value of $19.61 / 95%) $ 20.64
-----------
Class B:
Net asset value and offering price per share $ 18.94
-----------
Class T:
Net asset value and redemption price per share $ 20.50
Offering price per share: (Net assets value of $20.50 / 94.25%) $ 21.75
-----------
</Table>
See notes to financial statements.
17
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $3,488) $ 1,787,884
Interest 11,206
Interest from affiliated money market fund 398
------------
TOTAL INVESTMENT INCOME 1,799,488
------------
EXPENSES
Investment advisory fees 354,267
Administrative service fees 118,017
Professional fees 13,459
Custody and transaction fees 11,664
Directors' fees and expenses 3,119
Compliance expenses 1,344
Qualification fees
Class A 2,972
Class B 2,734
Class T 7,566
Shareholder reporting expenses
Class A 3,603
Class B 2,622
Class T 12,762
Distribution fees
Class A 11,181
Class B 16,141
Insurance expenses 19,288
------------
TOTAL EXPENSES 580,739
LESS EXPENSES REIMBURSED (16,232)
------------
NET EXPENSES 564,507
------------
INVESTMENT INCOME (LOSS)--NET 1,234,981
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 2,910,680
Change in unrealized appreciation of investments (13,384,471)
------------
NET GAIN (LOSS) ON INVESTMENTS (10,473,791)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (9,238,810)
============
</Table>
18
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- ------------
2008 2007
----------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 1,234,981 $ 2,943,762
Net realized gain (loss) on investments 2,910,680 6,169,578
Change in unrealized appreciation of investments (13,384,471) 1,985,569
------------ ------------
Net increase (decrease) in net assets resulting from operations (9,238,810) 11,098,909
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (134,022) (282,083)
Class B (55,373) (159,657)
Class T (1,172,835) (2,534,256)
Capital gains
Class A (544,666) (571,917)
Class B (256,895) (394,523)
Class T (4,643,731) (5,134,379)
------------ ------------
Total distributions to shareholders (6,807,522) (9,076,815)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (1,390,968) 1,129,114
Class B (955,236) (1,484,680)
Class T (1,335,205) (3,460,806)
------------ ------------
Total capital share transactions--net (3,681,409) (3,816,372)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (19,727,741) (1,794,278)
NET ASSETS
Beginning of period 104,931,417 106,725,695
------------ ------------
End of period $ 85,203,676 $104,931,417
============ ============
Undistributed Net Investment Income $ 394,180 $ 521,429
============ ============
</Table>
See notes to financial statements.
19
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ---------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------- ------ ------ ------ ------
Net asset value, beginning of period $23.40 $23.12 $23.22 $22.11 $20.03 $19.04
Income (loss) from investment operations
Investment income (loss)--net 0.25 0.64 0.45 0.35 0.26 0.22
Net realized and unrealized gain (loss)
on investments (2.38) 1.71 1.70 1.68 2.10 1.01
------ ------- ------ ------ ------ ------
Total from investment operations (2.13) 2.35 2.15 2.03 2.36 1.23
Less distributions
Investment income--net (0.32) (0.68) (0.40) (0.39) (0.28) (0.24)
Capital gains (1.34) (1.39) (1.85) (0.53) -- --
------ ------- ------ ------ ------ ------
Total distributions (1.66) (2.07) (2.25) (0.92) (0.28) (0.24)
------ ------- ------ ------ ------ ------
Net asset value, end of period $19.61 $23.40 $23.12 $23.22 $22.11 $20.03
====== ======= ====== ====== ====== ======
Total return (1) (9.72)%** 10.31% 9.89% 9.25% 11.79% 6.61%
====== ======= ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,633 $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% 1.26%
Ratio of expenses without reimbursement
to average net assets 1.47%* 1.43% 1.54% 1.50% 1.43% 1.50%
Ratio of net investment income (loss)
to average net assets 2.47%* 2.57% 2.00% 1.53% 1.08% 1.21%
Portfolio turnover rate 5.81% 11.40% 47.59% 18.45% 6.74% 7.57%
</Table>
<Table>
<Caption>
CLASS B SHARES
----------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ --------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $22.63 $22.33 $22.49 $21.46 $19.44 $18.56
Income (loss) from investment operations
Investment income (loss)--net 0.11 0.40 0.29 0.23 0.13 0.13
Net realized and unrealized gain (loss)
on investments (2.20) 1.84 1.69 1.61 2.07 0.94
------ ------ ------ ------ ------ ------
Total from investment operations (2.09) 2.24 1.98 1.84 2.20 1.07
Less distributions
Investment income--net (0.26) (0.55) (0.29) (0.28) (0.18) (0.19)
Capital gains (1.34) (1.39) (1.85) (0.53) -- --
------ ------ ------ ------ ------ ------
Total distributions (1.60) (1.94) (2.14) (0.81) (0.18) (0.19)
------ ------ ------ ------ ------ ------
Net asset value, end of period $18.94 $22.63 $22.33 $22.49 $21.46 $19.44
====== ====== ====== ====== ====== ======
Total return (1) (9.84)%** 10.20% 9.40% 8.64% 11.36% 5.85%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,720 $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% 1.76%
Ratio of expenses without reimbursement
to average net assets 2.06%* 1.95% 2.06% 2.05% 1.95% 1.99%
Ratio of net investment income (loss)
to average net assets 1.97%* 2.09% 1.45% 1.04% 0.58% 0.71%
Portfolio turnover rate 5.81% 11.40% 47.59% 18.45% 6.74% 7.57%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.26% for Class
A and 1.76% for Class B until December 31, 2008.
See notes to financial statements.
20
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS T SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 24.40 $ 23.97 $ 23.97 $ 22.77 $ 20.56 $ 19.51
Income (loss) from investment operations
Investment income (loss)--net 0.31 0.69 0.50 0.40 0.28 0.27
Net realized and unrealized gain (loss)
on investments (2.54) 1.81 1.76 1.72 2.21 1.04
------- ------- ------- ------- ------- -------
Total from investment operations (2.23) 2.50 2.26 2.12 2.49 1.31
Less distributions
Investment income--net (0.33) (0.68) (0.41) (0.39) (0.28) (0.26)
Capital gains (1.34) (1.39) (1.85) (0.53) -- --
------- ------- ------- ------- ------- -------
Total distributions (1.67) (2.07) (2.26) (0.92) (0.28) (0.26)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 20.50 $ 24.40 $ 23.97 $ 23.97 $ 22.77 $ 20.56
======= ======= ======= ======= ======= =======
Total return (1) (9.71)%** 10.60% 10.04% 9.35% 12.14% 6.83%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $73,851 $89,034 $90,698 $95,744 $97,802 $94,943
Ratio of expenses to average net assets 1.13%* 1.12% 1.15% 1.14% 1.10% 1.12%
Ratio of net investment income (loss)
to average net assets 2.59%* 2.72% 2.09% 1.66% 1.24% 1.36%
Portfolio turnover rate 5.81%* 11.40% 47.59% 18.45% 6.74% 7.57%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
21
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R BALANCED FUND
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ ----------
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.36%
Host Hotels & Resorts Inc. 2,265 $ 36,670
McDonald's Corp. 2,850 154,213
Starwood Hotels & Resorts
Worldwide, Inc. 3,000 141,990
Wyndham Worldwide Corp. 1,020 22,613
----------
355,486
HOUSEHOLD DURABLES--0.96%
Newell Rubbermaid Inc. 3,800 86,260
Stanley Works (The) 3,400 165,036
----------
251,296
LEISURE EQUIPMENT & PRODUCTS--0.16%
Eastman Kodak Co. 2,450 41,601
MEDIA--2.00%
CBS Corp. (Class B) 2,000 45,640
Time Warner Inc. 9,000 140,490
Viacom Inc. (Class B)* 2,000 79,500
Walt Disney Co. (The) 8,000 259,280
----------
524,910
MULTILINE RETAIL--1.39%
J.C. Penney Co., Inc. 2,200 44,440
Kohl's Corp.* 1,000 101,662
Target Corp. 4,150 218,331
----------
364,433
SPECIALTY RETAIL--1.86%
Best Buy Co., Inc. 3,000 129,030
Limited Brands, Inc. 7,600 115,900
Lowe's Companies, Inc. 5,800 139,026
TJX Companies, Inc. (The) 4,000 102,400
----------
486,356
----------
TOTAL CONSUMER DISCRETIONARY--7.73% 2,024,082
----------
CONSUMER STAPLES--
BEVERAGES--1.78%
Coca-Cola Co. (The) 4,000 233,840
International Flavors & Fragrances Inc. 900 38,817
PepsiCo, Inc. 2,800 194,768
----------
467,425
FOOD PRODUCTS--2.11%
Bunge Limited 1,000 110,840
H.J. Heinz Co. 2,600 114,686
McCormick & Co., Inc. (c) 3,700 127,465
Sensient Technologies Corp. 7,400 199,356
----------
552,347
FOOD & STAPLES RETAILING--1.30%
SUPERVALU INC. 3,475 91,219
Wal-Mart Stores, Inc. 5,000 247,950
----------
339,169
HOUSEHOLD PRODUCTS--1.56%
Kimberly-Clark Corp. 2,200 143,396
Procter & Gamble Co. (The) 4,000 264,720
----------
408,116
PERSONAL PRODUCTS--1.06%
Alberto-Culver Co. 1,800 48,240
Avon Products, Inc. 3,050 116,083
Colgate-Palmolive Co. 1,475 112,233
----------
276,556
----------
TOTAL CONSUMER STAPLES--7.81% 2,043,613
----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.76%
Schlumberger Ltd. 2,475 213,964
Weatherford International Ltd.* 3,600 248,112
----------
462,076
OIL, GAS & CONSUMABLE FUELS--7.12%
Anadarko Petroleum Corp. 3,600 229,464
BP PLC ADR 5,092 330,318
Chevron Corp. 6,001 520,047
Exxon Mobil Corp. 9,000 783,090
----------
1,862,919
----------
TOTAL ENERGY--8.88% 2,324,995
----------
FINANCIALS--
COMMERCIAL BANKS--3.92%
Bank of America Corp. 10,000 397,400
PNC Financial Services Group, Inc. 3,000 184,290
U.S. Bancorp 6,000 192,120
Wachovia Corp. 3,600 110,232
Wells Fargo & Co. 4,800 140,304
----------
1,024,346
</Table>
22
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ ----------
DIVERSIFIED FINANCIAL SERVICES--5.54%
Allied Capital Corp. 3,400 $ 76,806
Bear Stearns Companies Inc. (The) 900 71,874
Charles Schwab Corp. (The) 5,650 110,797
Citigroup Inc. 14,500 343,795
Discover Financial Services* 3,000 45,270
FHLMC Gtd. Mtg. Certificate 2,075 52,248
Goldman Sachs Group, Inc. (The) 1,000 169,630
JPMorgan Chase & Co. 2,092 85,040
Morgan Stanley 6,000 252,720
National Financial Partners Corp. 1,250 29,712
Principal Financial Group, Inc. 3,850 212,636
----------
1,450,528
INSURANCE--4.23%
Allstate Corp. (The) 2,300 109,779
American International Group, Inc. 4,700 220,242
Aspen Insurance Holdings Ltd. 4,125 119,378
Genworth Financial Inc. (Class A) 6,200 143,716
Prudential Financial, Inc. 3,000 218,910
RenaissanceRe Holdings Ltd. 2,000 109,800
Travelers Companies, Inc. (The) 4,000 185,640
----------
1,107,465
----------
TOTAL FINANCIALS--13.69% 3,582,339
----------
HEALTH CARE--
BIOTECHNOLOGY--0.78%
Amgen Inc.* 1,300 59,176
Genzyme Corp.* 875 62,055
Gilead Sciences, Inc.* 1,750 82,810
----------
204,041
HEALTH CARE PROVIDERS & SERVICES--0.38%
DaVita, Inc.* 925 45,908
Patterson Companies Inc.* 1,500 52,800
----------
98,708
HEALTH EQUIPMENT & SUPPLIES--1.48%
Advanced Medical Optics, Inc.* 1,025 23,452
Beckman Coulter, Inc. 2,000 135,000
Covidien Ltd.* 900 38,511
Varian Medical Systems, Inc.* 1,550 81,298
Zimmer Holdings, Inc.* 1,460 109,923
----------
388,184
PHARMACEUTICALS--6.55%
Abbott Laboratories 4,200 224,910
Allergan, Inc. 2,000 118,460
Eli Lilly & Co. 3,850 192,577
Endo Pharmaceuticals Holdings Inc.* 1,750 45,955
Johnson & Johnson 6,000 371,760
Merck & Co. Inc. 5,300 234,790
Pfizer Inc. 15,000 334,200
Wyeth 4,400 191,928
----------
1,714,580
----------
TOTAL HEALTH CARE--9.19% 2,405,513
----------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.63%
General Dynamics Corp. 1,400 114,590
Goodrich Corp. 1,900 112,537
L-3 Communications Holdings, Inc. 1,000 106,290
Northrop Grumman Corp. 1,200 94,332
----------
427,749
AIR FREIGHT & LOGISTICS--0.30%
FedEx Corp. 875 77,114
COMMERCIAL SERVICES & SUPPLIES--0.46%
Cintas Corp. 2,000 57,560
R. R. Donnelley & Sons Co. 2,000 63,660
----------
121,220
ELECTRICAL EQUIPMENT--0.11%
Tyco Electronics Ltd.* 900 29,610
INDUSTRIAL CONGLOMERATES--2.87%
3M Co. 1,925 150,920
General Electric Co. 17,000 563,380
Tyco International Ltd. 900 36,054
----------
750,354
MACHINERY--2.20%
Barnes Group Inc. 2,000 45,480
Caterpillar Inc. 1,100 79,563
Danaher Corp. 1,400 103,810
Eaton Corp. 1,100 88,693
Illinois Tool Works Inc. 1,800 88,326
Ingersoll-Rand Co. Ltd (Class A) 1,900 79,534
Parker Hannifin Corp. 1,000 90,482
----------
575,888
</Table>
23
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
------ -----------
ROAD & RAIL--0.45%
Burlington Northern Santa Fe Corp. 1,350 $ 118,503
TRADING COMPANIES & DISTRIBUTORS--0.31%
W.W. Grainger, Inc. 1,100 81,026
TRANSPORTATION--0.19%
Seaspan Corp. 1,750 49,998
TRANSPORTATION INFRASTRUCTURE--0.40%
Ryder System, Inc. 1,800 103,698
-----------
TOTAL INDUSTRIALS--8.92% 2,335,160
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--2.73%
Arris Group Inc.* 3,900 22,425
Cisco Systems, Inc.* 11,700 285,129
Harris Corp. 2,300 112,309
Motorola, Inc. 6,200 61,814
Nokia Oyj ADR 6,500 234,065
-----------
715,742
COMPUTERS & PERIPHERALS--2.40%
Dell Inc.* 6,800 134,980
EMC Corp. 7,500 116,550
Electronics for Imaging, Inc.* 1,950 29,367
Hewlett-Packard Co. 5,000 238,850
International Business Machines Corp. 950 108,167
-----------
627,914
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.18%
Agilent Technologies, Inc.* 1,525 46,680
INTERNET SOFTWARE & SERVICES--0.26%
Akamai Technologies, Inc.* 1,900 66,804
IT SERVICES--0.16%
Global Payments Inc. 1,075 42,645
OFFICE ELECTRONICS--0.24%
Pitney Bowes Inc. 1,725 61,720
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.41%
Intel Corp. 13,000 259,350
Linear Technology Corp. 1,500 41,565
Texas Instruments Inc. 2,300 68,908
-----------
369,823
SOFTWARE--3.49%
Electronic Arts Inc.* 1,500 70,935
Microsoft Corp. 23,300 634,226
Oracle Corp.* 11,100 208,680
-----------
913,841
-----------
TOTAL INFORMATION TECHNOLOGY--10.87% 2,845,169
-----------
MATERIALS--
CHEMICALS--0.76%
Dow Chemical Co. (The) 1,600 60,304
Eastman Chemical Co. 600 39,486
PPG Industries, Inc. 900 55,782
Sigma-Aldrich Corp. 800 44,016
-----------
199,588
CONTAINERS & PACKAGING--0.12%
Ball Corp. 700 30,870
METALS & MINING--0.61%
Freeport-McMoRan Copper & Gold, Inc. 268 27,030
Nucor Corp. 1,200 77,484
United States Steel Corp. 500 54,225
-----------
158,739
PAPER & FOREST PRODUCTS--0.30%
International Paper Co. 1,300 41,210
Louisiana-Pacific Corp. 1,000 10,880
MeadWestvaco Corp. 1,000 25,660
-----------
77,750
-----------
TOTAL MATERIALS--1.79% 466,947
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--2.86%
AT&T Inc. 11,325 394,450
Sprint Nextel Corp. 10,263 72,970
Verizon Communications Inc. 5,450 197,944
Windstream Corp. 7,100 83,496
-----------
748,860
WIRELESS TELECOMMUNICATION SERVICES--0.59%
Vodafone Group PLC ADR 4,812 155,091
-----------
TOTAL TELECOMMUNICATION SERVICES--3.45% 903,951
-----------
</Table>
24
<Page>
<Table>
<Caption>
COMMON STOCKS
SHARES VALUE
-------- -----------
UTILITIES --
ELECTRIC UTILITIES--3.36%
Ameren Corp. 3,000 $ 128,100
CenterPoint Energy, Inc. 5,500 80,740
Constellation Energy Group 5,000 441,750
Exelon Corp. 1,400 104,790
Southern Co. 1,600 55,248
Wisconsin Energy Corp. 1,600 69,792
-----------
880,420
-----------
TOTAL UTILITIES--3.36% 880,420
-----------
TOTAL COMMON STOCK--75.69% (Cost $17,020,450) 19,812,189
-----------
CORPORATE BONDS FACE
AMOUNT
------
CONSUMER STAPLES--
PERSONAL PRODUCTS--2.04%
Avon Products, Inc., 7.15%, 11/15/09 $500,000 533,247
-----------
TOTAL CONSUMER STAPLES--2.04% 533,247
-----------
FINANCIALS--
COMMERCIAL BANKS--2.86%
Royal Bank of Scotland GRP PLC, yankee bond,
6.40%, 04/01/09 500,000 513,271
Washington Mutual Inc., 4.20%, 01/15/10 250,000 236,026
-----------
749,297
DIVERSIFIED FINANCIAL SERVICES--5.30%
General Electric Capital Corp., 3.75%, 12/15/09 350,000 356,792
JPMorgan & Co., Inc., 6.00%, 01/15/09 500,000 509,317
Weingarten Realty Investors, 7.35%, 07/20/09 500,000 521,438
-----------
1,387,547
INSURANCE--2.13%
Mony Group Inc. (The), 8.35%, 03/15/10 500,000 556,375
-----------
TOTAL FINANCIALS--10.29% 2,693,219
-----------
INDUSTRIALS--
ROAD & RAIL--2.01%
Vulcan Materials, 6.40%, 11/30/17 500,000 525,642
TRANSPORTATION--1.64%
Hertz Corp., 7.40%, 03/01/11 455,000 431,112
-----------
TOTAL INDUSTRIALS--3.65% 956,754
-----------
TOTAL CORPORATE BONDS--15.98% (Cost $4,058,798) 4,183,220
-----------
U S GOVERNMENT AGENCY SECURITIES--
U S GOVERNMENT AGENCY SECURITIES--2.81%
Federal Home Loan Mortgage Corp., Pool #284839,
8.50%, 01/01/17 4,171 4,148
Federal National Mortgage Association, 4.75%,
08/25/08 (b) 700,000 707,120
Federal National Mortgage Association,
Pool #048974, 8.00%, 06/01/17 22,353 23,116
-----------
734,384
-----------
TOTAL US GOVERNMENT AGENCY SECURITIES--2.81%
(Cost $722,305) 734,384
-----------
MONEY MARKET FUND SHARES
------
SM&R Money Market Fund, 2.36% (a) 1,362 1,362
-----------
TOTAL MONEY MARKET FUND--0.00% (Cost $1,362) 1,362
-----------
COMMERCIAL PAPER FACE
AMOUNT
------
ENERGY--
OIL, GAS & CONSUMABLE FUELS--2.44%
Laclede Gas Co, 3.30%, 03/04/08 $640,000 639,824
-----------
TOTAL ENERGY--2.44% 639,824
-----------
</Table>
25
<Page>
<Table>
<Caption>
COMMERCIAL PAPER FACE
AMOUNT VALUE
-------- -----------
CONSUMER DISCRETIONARY--
MEDIA--2.73%
Donnelley (R.R.) & Sons, 3.47%, 03/03/08 $714,000 $ 713,862
-----------
TOTAL CONSUMER DISCRETIONARY--2.73% 713,862
-----------
TOTAL COMMERCIAL PAPER--5.17% (Cost $1,353,490) 1,353,686
-----------
TOTAL INVESTMENTS--99.65% (Cost $23,156,405) 26,084,841
CASH AND OTHER ASSETS, LESS LIABILITIES--0.35% 91,490
-----------
NET ASSETS--100.00% $26,176,330
===========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
29, 2008. A complete listing of the fund's holdings are included in these
financial statements. This fund and the 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
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
10.50% Consumer Discretionary
9.88% Consumer Staples
11.37% Energy
24.06% Financials
9.22% Health Care
12.62% Industrials
10.91% Information Technology
1.79% Materials
0.01% Miscellaneous
3.46% Telecommunication Services
2.81% U.S. Government
3.37% Utilities
</Table>
See notes to financial statements.
26
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R BALANCED FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $23,155,044) $26,083,480
Investment in affiliated money market fund (Cost $1,362) 1,362
-----------
Total investments (Cost $23,156,406) 26,084,842
Prepaid expenses 19,977
Receivable for:
Investment securities sold 842
Capital stock sold 4,795
Dividends 53,389
Interest 92,673
Expense reimbursement 1,652
Other assets 15,067
-----------
TOTAL ASSETS 26,273,237
-----------
LIABILITIES
Investment securities purchased 51,005
Capital stock reacquired 270
Payable to investment adviser for fund expenses 9,677
Accrued:
Investment advisory fees 15,826
Administrative service fees 5,275
Distribution fees 4,797
Other liabilities 10,057
-----------
TOTAL LIABILITIES 96,907
-----------
NET ASSETS $26,176,330
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $23,025,809
Undistributed net investment income 94,750
Accumulated net realized gain (loss) on investments 127,335
Net unrealized appreciation of investments 2,928,436
-----------
Net Assets $26,176,330
===========
NET ASSETS:
Class A $ 3,240,222
-----------
Class B $ 1,499,154
-----------
Class T $21,436,954
-----------
TOTAL NET ASSETS $26,176,330
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 193,975
-----------
Class B:
Authorized 25,000,000
Outstanding 88,699
-----------
Class T:
Authorized 25,000,000
Outstanding 1,233,707
-----------
Class A:
Net asset value and redemption price per share $ 16.70
Offering price per share: (Net assets value of $16.70 / 95%) $ 17.58
-----------
Class B:
Net asset value and offering price per share $ 16.90
-----------
Class T:
Net asset value and redemption price per share $ 17.38
Offering price per share: (Net assets value of $17.38 / 94.25%) $ 18.44
-----------
</Table>
See notes to financial statements.
27
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
SM&R BALANCED FUND
<Table>
INVESTMENT INCOME
Dividends $ 235,065
Interest 209,382
Interest from affiliated money market fund 110
-----------
TOTAL INVESTMENT INCOME 444,557
-----------
EXPENSES
Investment advisory fees 103,955
Administrative service fees 34,652
Professional fees 4,895
Custody and transaction fees 8,337
Directors' fees and expenses 3,119
Compliance expenses 366
Qualification fees
Class A 2,660
Class B 1,964
Class T 6,878
Shareholder reporting expenses
Class A 2,006
Class B 1,406
Class T 2,225
Distribution fees
Class A 4,408
Class B 6,278
Insurance expenses 5,479
-----------
TOTAL EXPENSES 188,628
LESS EXPENSES REIMBURSED (10,281)
-----------
NET EXPENSES 178,347
-----------
INVESTMENT INCOME (LOSS)--NET 266,210
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 349,300
Change in unrealized appreciation of investments (2,438,041)
-----------
NET GAIN (LOSS) ON INVESTMENTS (2,088,741)
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,822,531)
===========
</Table>
See notes to financial statements.
28
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
---------------- -----------
2008 2007
---------------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 266,210 $ 600,719
Net realized gain (loss) on investments 349,300 301,453
Change in unrealized appreciation of investments (2,438,041) 2,340,504
----------- -----------
Net increase (decrease) in net assets resulting from operations (1,822,531) 3,242,676
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (34,683) (90,358)
Class B (12,635) (43,762)
Class T (227,632) (496,856)
Capital gains
Class A (62,795) (270,917)
Class B (28,506) (158,886)
Class T (403,880) (1,312,231)
----------- -----------
Total distributions to shareholders (770,131) (2,373,010)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A (834,122) (179,987)
Class B (538,982) (669,560)
Class T (56,076) 602,782
----------- -----------
Total capital share transactions--net (1,429,180) (246,765)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,021,842) 622,901
NET ASSETS
Beginning of period 30,198,172 29,575,271
----------- -----------
End of period $26,176,330 $30,198,172
=========== ===========
Undistributed Net Investment Income $ 94,750 $ 103,490
=========== ===========
</Table>
See notes to financial statements.
29
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ --------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $18.37 $17.91 $18.19 $17.60 $16.65 $15.93
Income (loss) from investment operations
Investment income (loss)--net 0.13 0.36 0.32 0.35 0.28 0.32
Net realized and unrealized gain (loss) on investments (1.31) 1.57 0.50 0.65 1.18 0.77
----- ------ ------ ------ ------ ------
Total from investment operations (1.18) 1.93 0.82 1.00 1.46 1.09
Less distributions
Investment income--net (0.16) (0.37) (0.31) (0.35) (0.30) (0.37)
Capital gains (0.33) (1.10) (0.79) (0.06) (0.21) --
----- ------ ------ ------ ------ ------
Total distributions (0.49) (1.47) (1.10) (0.41) (0.51) (0.37)
----- ------ ------ ------ ------ ------
Net asset value, end of period $16.70 $18.37 $17.91 $18.19 $17.60 $16.65
====== ====== ====== ====== ====== ======
Total return (1) (6.58)%** 11.09% 4.65% 5.73% 8.83% 7.02%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,240 $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% 1.30%
Ratio of expenses without reimbursement to average net
assets 1.64%* 1.54% 1.71% 1.73% 1.64% 1.69%
Ratio of net investment income (loss) to average net
assets 1.84%* 1.93% 1.90% 1.85% 1.51% 2.02%
Portfolio turnover rate 6.95% 8.35% 21.82% 23.18% 11.15% 23.83%
</Table>
<Table>
<Caption>
CLASS B SHARES
----------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ --------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $18.56 $18.08 $18.37 $17.78 $16.83 $16.18
Income (loss) from investment operations
Investment income (loss)--net 0.04 0.21 0.24 0.25 0.20 0.24
Net realized and unrealized gain (loss) on investments (1.25) 1.67 0.51 0.66 1.19 0.72
----- ------ ------ ------ ------ ------
Total from investment operations (1.21) 1.88 0.75 0.91 1.39 0.96
Less distributions
Investment income--net (0.12) (0.30) (0.25) (0.26) (0.23) (0.31)
Capital gains (0.33) (1.10) (0.79) (0.06) (0.21) --
----- ------ ------ ------ ------ ------
Total distributions (0.45) (1.40) (1.04) (0.32) (0.44) (0.31)
----- ------ ------ ------ ------ ------
Net asset value, end of period $16.90 $18.56 $18.08 $18.37 $17.78 $16.83
====== ====== ====== ====== ====== ======
Total return (1) (6.70)%** 10.70% 4.20% 5.15% 8.33% 6.10%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,499 $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% 1.80%
Ratio of expenses without reimbursement to average
net assets 2.27%* 2.07% 2.24% 2.23% 2.13% 2.18%
Ratio of net investment income (loss) to average
net assets 1.35%* 1.43% 1.40% 1.36% 1.00% 1.51%
Portfolio turnover rate 6.95% 8.35% 21.82% 23.18% 11.15% 23.83%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.30% for Class
A and 1.80% for Class B until December 31, 2008.
See notes to financial statements.
30
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ------- ------- ------- ------- -------
2008 2007 2006 2005 2004 2003
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $19.13 $ 18.60 $ 18.85 $ 18.21 $ 17.18 $ 16.42
Income (loss) from investment operations
Investment income (loss)--net 0.18 0.39 0.36 0.36 0.29 0.34
Net realized and unrealized gain (loss) on
investments (1.41) 1.65 0.51 0.68 1.24 0.77
----- ------- ------- ------- ------- -------
Total from investment operations (1.23) 2.04 0.87 1.04 1.53 1.11
Less distributions
Investment income--net (0.19) (0.41) (0.33) (0.34) (0.29) (0.35)
Capital gains (0.33) (1.10) (0.79) (0.06) (0.21) --
----- ------- ------- ------- ------- -------
Total distributions (0.52) (1.51) (1.12) (0.40) (0.50) (0.35)
----- ------- ------- ------- ------- -------
Net asset value, end of period $17.38 $ 19.13 $ 18.60 $ 18.85 $ 18.21 $ 17.18
====== ======= ======= ======= ======= =======
Total return (1) (6.63)%** 11.28% 4.79% 5.77% 8.95% 6.95%
====== ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $21,437 $23,651 $22,373 $22,798 $22,785 $21,569
Ratio of expenses with reimbursement to average net assets 1.21%* 1.20% 1.25% 1.24% 1.23% 1.25%
Ratio of expenses without reimbursement to average
net assets 1.21%* 1.20% 1.29% 1.24% 1.23% 1.26%
Ratio of net investment income (loss) to average net assets 1.92%* 2.02% 1.95% 1.92% 1.58% 2.08%
Portfolio turnover rate 6.95% 8.35% 21.82% 23.18% 11.15% 23.83%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge.
See notes to financial statements.
31
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CORPORATE BONDS
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
-------- --------- ---------- -----------
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--1.70%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 528,320
-----------
TOTAL FINANCIALS--1.70% 528,320
-----------
MATERIALS--
METALS & MINING--3.64%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 1,133,743
-----------
TOTAL MATERIALS--3.64% 1,133,743
-----------
TOTAL CORPORATE BONDS--5.34%
(Cost $1,508,187) 1,662,063
-----------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--42.92%
Federal Home Loan Bank 07/17/09 5.375 1,250,000 1,302,125
Federal Home Loan Mortgage Corp. 11/15/13 4.875 1,000,000 1,069,035
Federal National Mortgage Association 02/15/10 3.875 1,100,000 1,132,377
Federal National Mortgage Association 12/15/10 4.750 1,900,000 2,001,741
Federal National Mortgage Association 02/01/11 6.250 1,850,000 2,004,978
Federal National Mortgage Association 03/15/11 5.500 1,300,000 1,396,160
Federal National Mortgage Association 03/26/12 5.400 1,100,000 1,102,029
Private Export Funding Corp. 01/15/10 7.200 15,000 16,318
U S Treasury Bond 05/15/17 8.750 2,375,000 3,336,134
-----------
13,360,897
U S GOVERNMENT SECURITIES--39.25%
U S Treasury Bond 05/15/16 7.250 800,000 1,020,125
U S Treasury Note 02/15/09 3.000 1,000,000 1,011,953
U S Treasury Note 08/31/11 4.625 1,500,000 1,629,375
U S Treasury Note 10/31/11 4.625 2,500,000 2,720,898
U S Treasury Note 11/15/12 4.000 2,000,000 2,137,500
U S Treasury Note 05/15/14 4.750 1,319,000 1,463,163
U S Treasury Note 02/15/15 4.000 600,000 635,953
U S Treasury Note 05/15/15 4.125 1,500,000 1,597,266
-----------
12,216,233
-----------
TOTAL U S GOVERNMENT AGENCY and
U S GOVERNMENT SECURITIES--82.17%
(Cost $24,238,986) 25,577,130
-----------
</Table>
32
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
-------- --------- ---------- -----------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--11.52%
Federal Home Loan Bank 03/05/08 2.600 $ 840,000 $ 839,757
Federal Home Loan Bank 03/07/08 2.830 150,000 149,929
Federal Home Loan Bank 03/12/08 2.850 1,500,000 1,498,693
Federal Home Loan Mortgage Corp. 03/03/08 2.700 600,000 599,910
Federal Home Loan Mortgage Corp. 03/20/08 2.800 500,000 499,261
-----------
3,587,550
-----------
TOTAL U S GOVERNMENT AGENCY
SHORT-TERM OBLIGATIONS--11.52%
(Cost $3,587,550) 3,587,550
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 2.36% (a) 975 975
-----------
TOTAL MONEY MARKET FUND--0.00%
(Cost $975) 975
-----------
TOTAL INVESTMENTS--99.03%
(Cost $29,335,698) 30,827,718
CASH AND OTHER ASSETS, LESS LIABILITIES--0.97% 301,517
-----------
NET ASSETS--100.00% $31,129,235
===========
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at February
29, 2008. 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.
See notes to financial statements.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
1.71% Financials
3.68% Materials
94.61% U.S. Government
</Table>
33
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $29,334,723) $ 30,826,743
Investment in affiliated money market fund (Cost $975) 975
------------
Total investments (Cost $29,335,698) 30,827,718
Prepaid expenses 21,420
Receivable for:
Capital stock sold 710
Interest 312,464
Expense reimbursement 5,590
Other assets 2,782
------------
TOTAL ASSETS 31,170,684
------------
LIABILITIES
Capital stock reacquired 4,515
Distribution payable 494
Payable to investment adviser for fund expenses 10,045
Accrued:
Investment advisory fees 12,185
Administrative service fees 6,092
Distribution fees 1,549
Other liabilities 6,569
------------
TOTAL LIABILITIES 41,449
------------
NET ASSETS $ 31,129,235
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 30,087,000
Undistributed net investment income 83
Accumulated net realized gain (loss) on investments (449,868)
Net unrealized appreciation of investments 1,492,020
------------
Net Assets $ 31,129,235
============
NET ASSETS:
Class A 1,123,080
Class B 538,590
Class T 29,467,565
------------
TOTAL NET ASSETS $ 31,129,235
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,001,150
Outstanding 102,852
------------
Class B:
Authorized 100,000,000
Outstanding 49,429
------------
Class T:
Authorized 23,000,000
Outstanding 2,734,836
------------
Class A:
Net asset value and redemption price per share $ 10.92
Offering price per share: (Net assets value of $10.92 / 95.25%) $ 11.46
------------
Class B:
Net asset value and offering price per share $ 10.90
------------
Class T:
Net asset value and redemption price per share $ 10.77
Offering price per share: (Net assets value of $10.77 / 95.5%) $ 11.28
------------
</Table>
See notes to financial statements.
34
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $ 649,924
Interest from affiliated money market fund 666
----------
TOTAL INVESTMENT INCOME 650,590
----------
EXPENSES
Investment advisory fees 71,746
Administrative service fees 35,873
Professional fees 4,687
Custody and transaction fees 4,004
Directors' fees and expenses 3,118
Compliance expenses 329
Qualification fees
Class A 2,705
Class B 2,155
Class T 7,609
Shareholder reporting expenses
Class A 714
Class B 584
Class T 869
Distribution fees
Class A 1,232
Class B 1,937
Insurance expenses 4,868
----------
TOTAL EXPENSES 142,430
LESS EXPENSES REIMBURSED (33,937)
----------
NET EXPENSES 108,493
----------
INVESTMENT INCOME (LOSS) - NET 542,097
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 10,122
Change in unrealized appreciation of investments 1,414,680
----------
NET GAIN (LOSS) ON INVESTMENTS 1,424,802
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,966,899
==========
</Table>
See notes to financial statements.
35
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
---------------- -----------
2008 2007
---------------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 542,097 $ 1,140,936
Net realized gain (loss) on investments 10,122 (25,100)
Change in unrealized appreciation of investments 1,414,680 305,449
----------- -----------
Net increase (decrease) in net assets resulting from
operations 1,966,899 1,421,285
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (18,658) (41,848)
Class B (8,477) (23,067)
Class T (514,987) (1,076,489)
----------- -----------
Total distributions to shareholders (542,122) (1,141,404)
CAPITAL SHARE TRANSACTIONS--NET
Class A 8,740 80,057
Class B (73,900) (114,106)
Class T 1,027,654 630,368
----------- -----------
Total capital share transactions--net 962,494 596,319
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,387,271 876,200
NET ASSETS
Beginning of period 28,741,964 27,865,764
----------- -----------
End of period $31,129,235 $28,741,964
=========== ===========
Undistributed Net Investment Income $ 83 $ 108
=========== ===========
</Table>
See notes to financial statements.
36
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ -----------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ---------- ------ ------
Net asset value, beginning of period $10.40 $10.30 $10.50 $10.56 $10.75 $10.88
Income (loss) from investment operations
Investment income (loss)--net 0.19 0.42 0.36 0.25 0.23 0.40
Net realized and unrealized gain (loss)
on investments 0.52 0.10 (0.20) (0.06) 0.11 (0.13)
------ ------ ------ ------ ------ ------
Total from investment operations 0.71 0.52 0.16 0.19 0.34 0.27
Less distributions
Investment income--net (0.19) (0.42) (0.36) (0.25) (0.23) (0.40)
Capital gains -- -- -- (0.00)*** (0.30) --
------ ------ ------ ------ ------ ------
Total distributions (0.19) (0.42) (0.36) (0.25) (0.53) (0.40)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.92 $10.40 $10.30 $10.50 $10.56 $10.75
====== ====== ====== ====== ====== ======
Total return (1) 6.92%** 5.15% 1.57% 1.93% 3.14% 2.51%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,123 $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% 0.73%
Ratio of expenses without reimbursement to average
net assets 1.77%* 1.76% 2.19% 2.32% 2.04% 1.75%
Ratio of net investment income (loss) to average
net assets 3.70%* 4.06% 3.46% 2.43% 2.13% 3.62%
Portfolio turnover rate 26.39% 50.01% 78.38% 51.35% 50.62% 99.26%
</Table>
<Table>
<Caption>
CLASS B SHARES
------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ -----------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------ ------ ---------- ------ ------
Net asset value, beginning of period $10.39 $10.29 $10.49 $10.55 $10.74 $10.86
Income (loss) from investment operations
Investment income (loss)--net 0.17 0.37 0.31 0.20 0.17 0.33
Net realized and unrealized gain (loss)
on investments 0.51 0.10 (0.20) (0.06) 0.11 (0.12)
------ ------ ------ ------ ------ ------
Total from investment operations 0.68 0.47 0.11 0.14 0.28 0.21
Less distributions
Investment income--net (0.17) (0.37) (0.31) (0.20) (0.17) (0.33)
Capital gains -- -- -- (0.00)*** (0.30) --
------ ------ ------ ------ ------ ------
Total distributions (0.17) (0.37) (0.31) (0.20) (0.47) (0.33)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.90 $10.39 $10.29 $10.49 $10.55 $10.74
====== ====== ====== ====== ====== ======
Total return (1) 6.61%** 4.66% 1.10% 1.44% 2.65% 1.96%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 539 $ 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% 1.23%
Ratio of expenses without reimbursement to average
net assets 2.62%* 2.25% 2.55% 2.34% 2.06% 1.95%
Ratio of net investment income (loss) to average
net assets 3.21%* 3.56% 2.94% 1.92% 1.65% 2.99%
Portfolio turnover rate 26.39% 50.01% 78.38% 51.35% 50.62% 99.26%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
A and 1.23% for Class B until December 31, 2008.
See notes to financial statements.
37
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------- ------- ----------- ------- -------
Net asset value, beginning of period $10.27 $ 10.17 $ 10.36 $ 10.43 $ 10.62 $ 10.75
Income (loss) from investment operations
Investment income (loss)--net 0.19 0.41 0.35 0.25 0.22 0.40
Net realized and unrealized gain (loss)
on investments 0.50 0.10 (0.19) (0.07) 0.11 (0.13)
------- ------- ------- ------- ------- -------
Total from investment operations 0.69 0.51 0.16 0.18 0.33 0.27
Less distributions
Investment income--net (0.19) (0.41) (0.35) (0.25) (0.22) (0.40)
Capital gains -- -- -- (0.00)*** (0.30) --
------- ------- ------- ------- ------- -------
Total distributions (0.19) (0.41) (0.35) (0.25) (0.52) (0.40)
------- ------- ------- ------- ------- -------
Net asset value, end of period $10.77 $10.27 $ 10.17 $ 10.36 $ 10.43 $ 10.62
======= ======= ======= ======= ======= =======
Total return (1) 6.81%** 5.16% 1.65% 1.84% 3.15% 2.46%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $29,467 $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% 0.73%
Ratio of expenses without reimbursement to average
net assets 0.91%* 0.93% 0.99% 0.96% 0.95% 0.91%
Ratio of net investment income (loss) to average
net assets 3.69%* 4.06% 3.47% 2.43% 2.12% 3.60%
Portfolio turnover rate 26.39% 50.01% 78.38% 51.35% 50.62% 99.26%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
T until December 31, 2008.
See notes to financial statements.
38
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R TAX FREE FUND
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(A) DATE RATE(%) AMOUNT VALUE
- -------------------------------------------------------------------------------- -------- --------- -------- ---------
ALABAMA--1.33%
Aa1/AA+ Alabama Drinking Water Financing Authority,
Revolving Fund Loan - Revenue Bonds, Series A 08/15/16 4.000 $180,000 $ 178,124
CALIFORNIA--0.15%
A1/A+ California State - General Obligation Bonds Unlimited 06/01/11 5.250 20,000 20,099
FLORIDA--6.22%
A/A Miami - Dade County, Florida Expressway Authority
Toll System - Revenue Bonds, Prerefunded to 07/01/2010 07/01/29 6.375 400,000 433,888
Aa1/AA+ Miami - Dade County, Florida Solid Waste System - Revenue Bonds 10/01/18 4.750 400,000 400,996
---------
834,884
HAWAII--2.00%
Aaa/AAA Honolulu, Hawaii City & County - General Obligation Bonds Unlimited 07/01/13 5.000 250,000 268,233
ILLINOIS--4.56%
Aa3/AA Chicago, Illinois Park District - General Obligation Bonds Unlimited,
Series C 01/01/16 4.850 230,000 232,859
Aaa/AA- Rockford, Illinois - General Obligation Bonds Unlimited 12/15/18 4.500 180,000 178,049
Aaa/AA- State of Illinois - General Obligation Bonds Unlimited 03/01/19 5.000 200,000 201,998
---------
612,906
INDIANA--4.30%
A1/A+ Aurora, Indiana Building Corp. - Revenue Bonds 07/15/13 4.500 405,000 421,014
Aaa/AAA South Bend, Indiana Building Corp. - Revenue Bonds 02/01/13 4.500 150,000 155,740
---------
576,754
LOUISIANA--6.59%
Aaa/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Prerefunded, Series C to 07/01/2008 (b) 07/01/19 5.000 335,000 341,124
Aaa/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Unrefunded, Series C 07/01/19 5.000 65,000 65,366
A/A Monroe, Louisiana Sales and Use Tax - Revenue Bonds 07/01/16 4.000 200,000 196,098
Aaa/AAA New Orleans, Louisiana Sewer Service - Revenue Bonds 06/01/18 5.000 300,000 281,616
---------
884,204
MISSISSIPPI--3.94%
Aa1/AA+ Greenville Mississippi Public School District - General Obligation
Bonds Unlimited 12/15/11 3.250 205,000 205,662
Aaa/AAA Mississippi Development Bank Special Obligation Clinton
Recreational Facilities & Municipal Building - Revenue Bonds 11/01/10 4.500 310,000 322,710
---------
528,372
NEW YORK--7.68%
Aaa/AA- New York City, New York - General Obligation Bonds
Unlimited, Series J 08/01/18 5.000 200,000 202,750
Aa1/AA+ New York City, New York - Transitional Financial Authority
Revenue Bonds, Unrefunded, Series C 05/01/19 5.000 250,000 258,808
Aa1/AA+ New York State Tollway Authority Highway & Bridge - Revenue
Bonds, Series B 04/01/10 3.850 200,000 204,064
Aa3/AA Triborough Bridge & Tunnel Authority, New York - Revenue
Bonds, General Purpose, Prerefunded, Series B to 01/01/2022 (b) 01/01/27 5.200 350,000 365,820
---------
1,031,442
</Table>
39
<Page>
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(A) DATE RATE(%) AMOUNT VALUE
- -------------------------------------------------------------------------------- -------- --------- -------- ----------
NORTH CAROLINA--1.52%
Aaa/AAA North Carolina State - General Obligation Bonds Unlimited 03/01/15 4.000 $200,000 $ 203,884
OHIO--2.40%
Aa1/AA+ Ohio State Department of Administrative Services - Certificate
Participation 09/01/15 5.250 300,000 322,146
TEXAS--33.70%
A1/A+ Aransas County, Texas Correctional Facility Improvements - General
Obligation Bonds Limited 02/15/13 3.875 250,000 250,927
Aa1/AA+ Austin, Texas Community College District - Revenue Bonds 02/01/10 4.000 100,000 101,383
Aaa/AAA Austin, Texas Independent School District - General Obligation
Bonds Unlimited, Series A 08/01/12 3.750 150,000 152,982
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/13 4.125 200,000 204,738
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/14 4.250 65,000 66,423
Aaa/AAA Collin County, Texas Community College District, Consolidated
Fund - Revenue Bonds 02/01/15 5.250 400,000 400,704
Aaa/AAA Dallas, Texas Independent School District - General Obligation
Bonds Unlimited 02/15/09 4.200 100,000 101,747
Aaa/AAA El Paso, Texas Public Improvement - General Obligation
Bonds Limited 08/15/17 4.000 270,000 263,939
Aa3/AA Flower Mound, Texas Refunding and Improvement - General
Obligation Bonds Limited, Unrefunded 03/01/17 5.500 10,000 10,019
Aa3/AA Galveston County, Texas Public Improvements - General
Obligation Bonds Unlimited 02/01/10 4.300 25,000 25,649
Aa1/AA+ Galveston County, Texas Public Improvements - General
Obligation Bonds Limited 02/01/11 4.375 125,000 129,358
Aaa/AAA Jefferson County, Texas - Public Improvement Certificates of
Obligation, Series B 08/01/16 4.125 255,000 252,187
Aaa/AA- League City, Texas Public Improvements - General Obligation
Bonds Limited 02/15/13 4.750 100,000 103,491
Aa3/AA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 273,695
Aaa/AAA Lubbock, Texas Municipal Drainage Utility - General Obligation
Bonds Limited 02/15/14 4.000 250,000 252,948
Aaa/AAA Mission, Texas Consolidated Independent School District - General
Obligation Bonds Unlimited 02/15/18 4.500 200,000 199,996
Aa1/AA+ Montgomery County, Texas Public Improvements - General
Obligation Bonds Limited 03/01/12 4.000 250,000 255,883
Aaa/AAA Rockwell, Texas Waterworks & Sewer - General Obligation
Bonds Limited 08/01/11 3.700 115,000 117,248
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited,
Prerefunded to 08/01/2009 (b) 08/01/11 4.400 100,000 102,256
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited, Unrefunded 08/01/11 4.400 150,000 152,390
Aaa/AAA San Antonio, Texas River Authority Sewer Refunding and
Improvement - Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 100,275
Aaa/NR Tarrant County Health Facilities Development Corp. - Health System
Revenue Bonds, (Harris Methodist Health System), Series 1994 (c) 09/01/14 6.000 200,000 221,110
Aa1/AA+ Texas A&M University Revenue and Financing System - Revenue
Refunding Bonds, Series A 05/15/17 5.000 250,000 261,320
</Table>
40
<Page>
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(A) DATE RATE(%) AMOUNT VALUE
- -------------------------------------------------------------------------------- -------- --------- -------- ----------
TEXAS--CONTINUED
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 $ 49,326
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 60,677
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 61,884
Aaa/AA- Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 248,067
NR/AAA Wylie, Texas Independent School District - General Obligation
Bonds Unlimited 08/15/12 4.375 100,000 103,365
----------
4,523,987
UTAH--0.04%
Aa2/AA Utah State Housing Financial Agency - Single Family
Revenue Bonds (d) 07/01/21 6.000 5,000 5,112
WASHINGTON--5.01%
Aaa/AAA Seattle, Washington Municipal Light & Power - Revenue Bonds,
Series B 06/01/24 5.000 100,000 97,068
Aa3/AA State of Washington - General Obligation Bonds Unlimited, Series B 05/01/18 5.500 300,000 321,585
Aa2/NR Tumwater, Washington Office Building - Revenue Bonds 07/01/15 5.250 240,000 254,431
----------
673,084
----------
TOTAL MUNICIPAL BONDS--79.44%
(Cost $10,485,160) 10,663,231
----------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--19.77%
Federal Home Loan Bank 03/07/08 2.800 575,000 574,732
Federal Home Loan Bank 03/19/08 2.850 114,000 113,837
Federal Home Loan Bank 03/26/08 2.880 575,000 573,850
Fannie Mae Discount Note 03/03/08 2.700 725,000 724,891
Federal National Mortgage Association 03/05/08 2.600 667,000 666,807
----------
2,654,117
----------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--19.77%
(Cost $2,654,117) 2,654,117
----------
</Table>
41
<Page>
<Table>
<Caption>
MONEY MARKET FUND SHARES VALUE
- ----------------- ------ -----------
SM&R Money Market Fund, 2.36% (e) 1,078 $ 1,078
-----------
TOTAL MONEY MARKET FUND--0.00%
(Cost $1,078) 1,078
-----------
TOTAL INVESTMENTS--99.21%
(Cost $13,140,355) 13,318,426
CASH AND OTHER ASSETS, LESS LIABILITIES--0.79% 105,975
-----------
TOTAL NET ASSETS--100.00% $13,424,401
===========
</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 February
29, 2008. 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.
See notes to financial statements.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
5.49% Development
17.72% Education
28.41% General Obligation
20.35% U.S. Government
0.04% Housing
4.68% Medical
5.81% Miscellaneous
3.03% Pollution
7.53% Transportation
6.94% Utilities
</Table>
42
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $13,139,277) $ 13,317,348
Investment in affiliated money market fund (Cost $1,078) 1,078
------------
Total investments (Cost $13,140,355) 13,318,426
Prepaid expenses 15,529
Receivable for:
Capital stock sold 240
Interest 99,933
Expense reimbursement 3,987
Other assets 3,211
------------
TOTAL ASSETS 13,441,326
------------
LIABILITIES
Distribution payable 835
Payable to investment adviser for fund expenses 4,934
Accrued:
Investment advisory fees 5,392
Administrative service fees 2,696
Distribution fees 419
Other liabilities 2,649
------------
TOTAL LIABILITIES 16,925
------------
NET ASSETS $ 13,424,401
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 13,246,066
Undistributed net investment income 3
Accumulated net realized gain (loss) on investments 261
Net unrealized appreciation of investments 178,071
------------
Net Assets $ 13,424,401
============
NET ASSETS:
Class A $ 293,760
------------
Class B $ 123,945
------------
Class T $ 13,006,696
------------
TOTAL NET ASSETS $ 13,424,401
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,101
Outstanding 28,315
------------
Class B:
Authorized 100,000,000
Outstanding 11,930
------------
Class T:
Authorized 21,000,000
Outstanding 1,262,364
------------
Class A:
Net asset value and redemption price per share $ 10.37
Offering price per share: (Net assets value of $10.37 / 95.25%) $ 10.89
------------
Class B:
Net asset value and offering price per share $ 10.39
------------
Class T:
Net asset value and redemption price per share $ 10.30
Offering price per share: (Net assets value of $10.30 / 95.5%) $ 10.79
------------
</Table>
See notes to financial statements.
43
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $290,114
Interest from affiliated money market fund 609
--------
TOTAL INVESTMENT INCOME 290,723
--------
EXPENSES
Investment advisory fees 32,761
Administrative service fees 16,380
Professional fees 2,939
Custody and transaction fees 3,626
Directors' fees and expenses 3,118
Compliance expenses 159
Qualification fees
Class A 2,210
Class B 1,564
Class T 7,940
Shareholder reporting expenses
Class A 253
Class B 242
Class T 386
Distribution fees
Class A 339
Class B 559
Insurance expenses 2,298
--------
TOTAL EXPENSES 74,774
LESS EXPENSES REIMBURSED (24,135)
--------
NET EXPENSES 50,639
--------
INVESTMENT INCOME (LOSS)--NET 240,084
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 12,884
Change in unrealized appreciation of investments (13,280)
--------
NET GAIN (LOSS) ON INVESTMENTS (396)
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $239,688
========
</Table>
See notes to financial statements.
44
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED FEBRUARY 29, AUGUST 31,
------------------ -----------
2008 2007
------------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 240,084 $ 507,900
Net realized gain (loss) on investments 12,884 148
Change in unrealized appreciation of investments (13,280) (128,539)
----------- -----------
Net increase (decrease) in net assets resulting from operations 239,688 379,509
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (4,985) (12,418)
Class B (2,357) (10,002)
Class T (232,781) (485,509)
Capital gains
Class A (254) (76)
Class B (147) (103)
Class T (12,370) (2,944)
----------- -----------
Total distributions to shareholders (252,894) (511,052)
CAPITAL SHARE TRANSACTIONS--NET
Class A 17,381 (51,604)
Class B (45,457) (278,609)
Class T 166,830 159,399
----------- -----------
Total capital share transactions--net 138,754 (170,814)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 125,548 (302,357)
NET ASSETS
Beginning of period 13,298,853 13,601,210
----------- -----------
End of period $13,424,401 $13,298,853
=========== ===========
Undistributed Net Investment Income $ 3 $ 42
=========== ===========
</Table>
See notes to financial statements.
45
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------
2008 2007 2006 2005 2004 2003
------------ -------- ----------- ----------- -------- --------
Net asset value, beginning of period $ 10.38 $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.89
Income (loss) from investment operations
Investment income (loss)--net 0.19 0.40 0.41 0.40 0.42 0.44
Net realized and unrealized gain (loss)
on investments (0.00) (0.12) (0.20) (0.11) 0.12 (0.18)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.19 0.28 0.21 0.29 0.54 0.26
Less distributions
Investment income--net (0.19) (0.40) (0.41) (0.40) (0.42) (0.44)
Capital gains (0.01) -- (0.00)*** (0.00)*** (0.02) --
-------- -------- -------- -------- -------- --------
Total distributions (0.20) (0.40) (0.41) (0.40) (0.44) (0.44)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.37 $ 10.38 $ 10.50 $ 10.70 $ 10.81 $ 10.71
======== ======== ======== ======== ======== ========
Total return (1) 1.81%** 2.74% 2.05% 2.72% 5.12% 2.40%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $293,760 $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% 0.75%
Ratio of expenses without reimbursement to
average net assets 2.92%* 2.63% 3.14% 2.73% 1.26% 1.24%
Ratio of net investment income (loss) to
average net assets 3.57%* 3.78% 3.80% 3.68% 3.84% 4.09%
Portfolio turnover rate 0.00% 0.00% 2.05% 7.50% 1.15% 18.23%
</Table>
<Table>
<Caption>
CLASS B SHARES
----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------
2008 2007 2006 2005 2004 2003
------------ -------- ------------ ------------ -------- --------
Net asset value, beginning of period $ 10.40 $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.90
Income (loss) from investment operations
Investment income (loss)--net 0.16 0.35 0.35 0.34 0.36 0.40
Net realized and unrealized gain (loss)
on investments 0.00 (0.10) (0.20) (0.11) 0.12 (0.19)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.16 0.25 0.15 0.23 0.48 0.21
Less distributions
Investment income--net (0.16) (0.35) (0.35) (0.34) (0.36) (0.40)
Capital gains (0.01) -- (0.00)*** (0.00)*** (0.02) --
-------- -------- -------- -------- -------- --------
Total distributions (0.17) (0.35) (0.35) (0.34) (0.38) (0.40)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.39 $ 10.40 $ 10.50 $ 10.70 $ 10.81 $ 10.71
======== ======== ======== ======== ======== ========
Total return (1) 1.57%** 2.47% 1.43% 2.20% 4.59% 1.91%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $123,945 $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% 1.25%
Ratio of expenses without reimbursement to
average net assets 4.02%* 2.69% 2.77% 2.85% 1.78% 1.74%
Ratio of net investment income (loss) to
average net assets 3.10%* 3.28% 3.29% 3.18% 3.34% 3.59%
Portfolio turnover rate 0.00% 0.00% 2.05% 7.50% 1.15% 18.23%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
A and 1.25% for Class B until December 31, 2008.
See notes to financial statements.
46
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ ---------------------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------- ----------- ----------- ------- -------
Net asset value, beginning of period $ 10.31 $ 10.41 $ 10.61 $ 10.72 $ 10.61 $ 10.80
Income (loss) from investment operations
Investment income (loss)--net 0.19 0.39 0.39 0.39 0.41 0.44
Net realized and unrealized gain (loss)
on investments (0.00) (0.10) (0.20) (0.11) 0.13 (0.18)
------- ------- ------- ------- ------- -------
Total from investment operations 0.19 0.29 0.19 0.28 0.54 0.26
Less distributions
Investment income--net (0.19) (0.39) (0.39) (0.39) (0.41) (0.45)
Capital gains (0.01) -- (0.00)*** (0.00)*** (0.02) --
------- ------- ------- ------- ------- -------
Total distributions (0.20) (0.39) (0.39) (0.39) (0.43) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.30 $ 10.31 $ 10.41 $ 10.61 $ 10.72 $ 10.61
======= ======= ======= ======= ======= =======
Total return (1) 1.80%** 2.87% 1.91% 2.72% 5.20% 2.38%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $13,006 $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% 0.75%
Ratio of expenses without reimbursement to
average net assets 1.04%* 1.05% 1.18% 1.05% 1.04% 1.03%
Ratio of net investment income (loss) to
average net assets 3.58%* 3.77% 3.79% 3.68% 3.83% 4.08%
Portfolio turnover rate 0.00% 0.00% 2.05% 7.50% 1.15% 18.23%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
T until December 31, 2008.
See notes to financial statements.
47
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R PRIMARY FUND
<Table>
<Caption>
COMMON STOCK
SHARES VALUE
-------- ----------
INDUSTRIALS--
BUILDING PRODUCTS--0.00%
Armstrong World Industries, Inc.* 88 $3,168
----------
TOTAL INDUSTRIALS--0.00% 3,168
----------
TOTAL COMMON STOCK--0.00%
(Cost $.01) 3,168
----------
</Table>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT
- ---------------- -------- --------- ----------
CONSUMER DISCRETIONARY--
AUTOMOBILES--4.60%
Nissan Motors Co. LTD. 03/03/08 3.400 $1,189,000 1,188,775
HOTELS, RESTAURANTS & LEISURE--9.13%
Marriott International Inc. 03/24/08 3.500 1,120,000 1,117,494
Starbucks Corp. 03/17/08 3.300 1,245,000 1,243,171
----------
2,360,665
MEDIA--4.29%
Comcast Corp. 03/21/08 3.400 1,112,000 1,109,897
----------
TOTAL CONSUMER DISCRETIONARY--18.02% 4,659,337
----------
CONSUMER STAPLES--
FOOD PRODUCTS--15.18%
Archer Daniels Midland 03/05/08 4.250 959,000 958,544
General Mills Inc. 03/04/08 3.320 1,168,000 1,167,676
Heinz (HJ) Finance Co. 03/13/08 3.300 851,000 850,062
Kraft Foods, Inc. 04/09/08 3.130 952,000 948,771
----------
3,925,053
HOUSEHOLD PRODUCTS--4.00%
Clorox Company 03/10/08 3.370 1,036,000 1,035,125
PERSONAL PRODUCTS--3.68%
Estee Lauder Companies 03/12/08 2.950 951,000 950,141
----------
TOTAL CONSUMER STAPLES--22.86% 5,910,319
----------
ENERGY--
OIL, GAS & CONSUMABLE FUELS--7.88%
Devon Energy Corp. 03/14/08 3.300 1,008,000 1,006,797
Sempra Energy Global 03/26/08 3.380 1,033,000 1,030,575
----------
2,037,372
----------
TOTAL ENERGY--7.88% 2,037,372
----------
</Table>
48
<Page>
<Table>
<Caption>
COMMERCIAL PAPER
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
-------- --------- ---------- -----------
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--3.74%
Textron Financial Corp. 03/19/08 3.350 $ 968,000 $ 966,376
INSURANCE--9.34%
Lincoln National Corp. 03/28/08 3.250 1,150,000 1,147,195
Wellpoint Inc. 04/01/08 3.200 1,272,000 1,268,492
-----------
2,415,687
-----------
TOTAL FINANCIALS--13.08% 3,382,063
-----------
INDUSTRIALS--
BUILDING PRODUCTS--3.79%
Home Depot, Inc. (The) 03/27/08 3.470 982,000 979,538
CONSTRUCTION & ENGINEERING--3.88%
Harsco Corp. 03/06/08 3.350 1,004,000 1,003,532
-----------
TOTAL INDUSTRIALS--7.67% 1,983,070
-----------
INFORMATION TECHNOLOGY--
IT SERVICES--4.01%
Computer Sciences Corp. 03/20/08 3.50 1,039,000 1,037,078
-----------
TOTAL INFORMATION TECHNOLOGY--4.01% 1,037,078
-----------
MATERIALS--
CHEMICALS--10.16%
Dow Chemical Co. (The) 04/08/08 3.500 1,049,000 1,045,112
PPG Industries, Inc. 03/13/08 3.400 526,000 525,404
Sherwin-Williams Co. 03/11/08 3.350 1,057,000 1,056,014
-----------
2,626,530
CONSTRUCTION MATERIALS--3.37%
Vulcan Materials Co. 03/07/08 3.200 872,000 871,534
-----------
TOTAL MATERIALS--13.53% 3,498,064
-----------
UTILITIES--
ELECTRIC UTILITIES--8.65%
Dominion Resources, Inc. 03/18/08 3.350 1,109,000 1,107,243
Idacorp Inc. 03/25/08 3.450 1,133,000 1,130,392
-----------
2,237,635
-----------
TOTAL UTILITIES--8.65% 2,237,635
-----------
TOTAL COMMERCIAL PAPER--95.70%
(Cost $24,744,938) 24,744,938
-----------
</Table>
49
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
U S GOVERNMENT SECURITIES DATE RATE(%) AMOUNT VALUE
- ------------------------- -------- --------- ---------- -----------
U S GOVERNMENT SECURITIES--4.32%
U S Treasury Bond 02/15/29 5.250 $1,000,000 $ 1,115,859
-----------
TOTAL U S GOVERNMENT SECURITIES--4.32%
(Cost $895,890) 1,115,859
-----------
TOTAL INVESTMENTS--100.02%
(Cost $25,640,828) 25,863,965
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.02)% (4,560)
-----------
TOTAL NET ASSETS--100.00% $25,859,405
===========
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
* - Non income producing securities
See notes to financial statements.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
18.01% Consumer Discretionary
22.85% Consumer Staples
7.88% Energy
13.08% Financials
7.68% Industrials
4.01% Information Technology
13.53% Materials
4.31% U.S. Government
8.65% Utilities
</Table>
50
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value
(Cost $25,640,829) $ 25,863,965
Prepaid expenses 3,799
Receivable for:
Investment securities sold 3,576
Capital stock sold 2,346
Interest 2,164
Expense reimbursement 3,522
Other assets 5,053
--------------
TOTAL ASSETS 25,884,425
--------------
LIABILITIES
Distribution payable 2
Payable to investment adviser for fund expenses 4,967
Accrued:
Investment advisory fees 10,401
Administrative service fees 5,201
Other liabilities 4,449
--------------
TOTAL LIABILITIES 25,020
--------------
NET ASSETS $ 25,859,405
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 25,878,879
Accumulated net realized gain (loss) on investments (242,610)
Net unrealized appreciation of investments 223,136
--------------
Net Assets $ 25,859,405
==============
SHARES OUTSTANDING ($.01 par value per share) 25,907,575
==============
NET ASSET VALUE $ 1.00
==============
SHARES AUTHORIZED 1,176,000,000
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $660,072
--------
TOTAL INVESTMENT INCOME 660,072
--------
EXPENSES
Investment advisory fees 63,795
Administrative service fees 31,898
Professional fees 4,477
Custody and transaction fees 5,701
Directors' fees and expenses 3,119
Compliance expenses 319
Qualification fees 8,800
Shareholder reporting expenses 1,057
Insurance expenses 4,589
Other expenses 18
--------
TOTAL EXPENSES 123,773
LESS EXPENSES REIMBURSED (19,342)
--------
NET EXPENSES 104,431
--------
INVESTMENT INCOME (LOSS)--NET 555,641
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (27)
Change in unrealized appreciation of investments 63,786
--------
NET GAIN (LOSS) ON INVESTMENTS 63,759
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $619,400
========
</Table>
See notes to financial statements.
51
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
------------- ------------
2008 2007
------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 555,641 $ 1,204,633
Net realized gain (loss) on investments (27) (137,592)
Change in unrealized appreciation of investments 63,786 260,017
----------- -----------
Net increase (decrease) in net assets resulting
from operations 619,400 1,327,058
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (555,641) (1,204,633)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET (1,010,006) 440,366
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (946,247) 562,791
NET ASSETS
Beginning of period 26,805,652 26,242,861
----------- -----------
End of period $25,859,405 $26,805,652
=========== ===========
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ -------------------------------------------
2008 2007 2006 2005 2004 2003
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 1.00 $ 0.99 $ 1.00 $ 0.99 $ 0.99 $ 0.99
Income (loss) from investment operations
Investment income (loss)--net 0.02 0.04 0.04 0.02 0.01 0.01
Net realized and unrealized gain (loss)
on investments 0.00*** 0.01 (0.01) 0.01 -- --
------- ------- ------- ------- ------- -------
Total from investment operations 0.02 0.05 0.03 0.03 0.01 0.01
Less distributions
Investment income--net (0.02) (0.04) (0.04) (0.02) (0.01) (0.01)
------- ------- ------- ------- ------- -------
Total distributions (0.02) (0.04) (0.04) (0.02) (0.01) (0.01)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 0.99 $ 1.00 $ 0.99 $ 0.99
======= ======= ======= ======= ======= =======
Total return 2.14%** 5.67% 2.73% 2.99% 0.83% 1.35%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $25,859 $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% 0.80%
Ratio of expenses without reimbursement to
average net assets 0.95%* 0.97% 0.92% 0.91% 0.91% 0.89%
Ratio of net investment income (loss) to
average net assets 4.25%* 4.52% 3.70% 1.94% 0.83% 1.35%
Portfolio turnover rate 0.00% 22.30% 25.75% 0.00% 70.47% 0.00%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) SM&R has voluntarily agreed to waive or reduce expenses to 0.80% until
December 31, 2008.
See notes to financial statements.
52
<Page>
SCHEDULE OF INVESTMENTS February 29, 2008 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
<Caption>
COMMERCIAL PAPER
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
---------- --------- ----------- ------------
MATERIALS--
CHEMICALS--5.75%
Praxair, Inc. 03/04/08 2.860 $ 6,300,000 $ 6,299,499
------------
TOTAL MATERIALS--5.75% 6,299,499
------------
INDUSTRIALS--
BUILDING PRODUCTS--4.74%
Lowe's Companies, Inc. 03/07/08 2.750 5,190,000 5,188,412
------------
TOTAL INDUSTRIALS--4.74% 5,188,412
------------
CONSUMER DISCRETIONARY--
AUTOMOBILES--5.52%
Dollar Thrifty 03/19/08 3.250 6,050,000 6,041,248
------------
TOTAL CONSUMER DISCRETIONARY--5.52% 6,041,248
------------
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--5.47%
FPL Fuels, Inc. 03/10/08 3.000 6,000,000 5,996,491
INSURANCE--5.70%
Alfa Corp. 03/05/08 3.080 6,239,000 6,237,931
------------
TOTAL FINANCIALS--11.17% 12,234,422
------------
UTILITIES--
ELECTRIC UTILITIES--3.89%
Nstar Electric Co. 03/17/08 2.920 4,268,000 4,263,151
------------
TOTAL UTILITIES--3.89% 4,263,151
------------
TOTAL COMMERCIAL PAPER--31.07%
(Cost $34,026,732) 34,026,732
------------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--69.08%
Federal Home Loan Bank 03/03/08 1.950 5,872,000 5,872,000
Federal Home Loan Bank 03/03/08 2.650 6,303,000 6,303,000
Federal Home Loan Bank 03/11/08 2.750 7,776,000 7,771,243
Federal Home Loan Bank 03/12/08 2.740 8,890,000 8,883,901
Federal Home Loan Bank 03/13/08 2.790 11,007,000 10,998,463
Federal Home Loan Bank 03/14/08 2.830 8,780,000 8,772,398
Federal Home Loan Bank 03/24/08 2.890 8,213,000 8,199,146
Federal Home Loan Bank 03/26/08 2.880 11,018,000 10,997,719
Federal Home Loan Mortgage Corp. 03/06/08 2.710 7,851,000 7,849,223
------------
75,647,093
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--69.08%
(Cost $75,647,093) 75,647,093
------------
TOTAL INVESTMENTS--100.15%
(Cost $109,673,825) 109,673,825
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.15)% (169,069)
------------
TOTAL NET ASSETS--100.00% $109,504,756
============
</Table>
See notes to financial statements.
53
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 29, 2008 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $ 109,673,825
Prepaid expenses 19,970
Receivable for:
Investment securities sold 1,035
Capital stock sold 38,123
Expense reimbursement 1,580
Other Assets 11,028
--------------
TOTAL ASSETS 109,745,561
--------------
LIABILITIES
Capital stock reacquired 163,592
Distribution payable 301
Payable to investment adviser for fund expenses 5,197
Accrued:
Investment advisory fees 26,449
Administrative service fees 25,394
Other liabilities 19,872
--------------
TOTAL LIABILITIES 240,805
--------------
NET ASSETS $ 109,504,756
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Undistributed net investment income $ 8
Capital (par value and additional paid-in) 109,504,748
==============
Net Assets $ 109,504,756
==============
SHARES OUTSTANDING ($.01 par value per share) 109,504,748
==============
NET ASSET VALUE $ 1.00
==============
SHARES AUTHORIZED 3,000,000,000
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 29, 2008 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $2,400,603
----------
TOTAL INVESTMENT INCOME 2,400,603
----------
EXPENSES
Investment advisory fees 140,078
Administrative service fees 136,794
Professional fees 12,232
Custody and transaction fees 5,435
Directors' fees and expenses 3,189
Compliance expenses 1,352
Qualification fees 14,636
Shareholder reporting expenses 2,230
Insurance expenses 13,201
Other expenses 168
----------
TOTAL EXPENSES 329,315
LESS EXPENSES REIMBURSED (46,262)
----------
NET EXPENSES 283,053
----------
INVESTMENT INCOME (LOSS)--NET $2,117,550
==========
</Table>
See notes to financial statements.
54
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
---------------- -----------
2008 2007
---------------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 2,117,550 $ 4,718,729
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (2,117,542) (4,718,729)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET 7,919,678 12,815,570
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 7,919,686 12,815,570
NET ASSETS
Beginning of period 101,585,070 88,769,500
------------ ------------
End of period $109,504,756 $101,585,070
============ ============
Undistributed Net Investment Income $ 8 $ --
============ ============
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------
2008 2007 2006 2005 2004 2003
-------- -------- ------- ------- ------- --------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income (loss) from investment operations
Investment income (loss)--net 0.02 0.05 0.04 0.02 0.01 0.01
-------- -------- ------- ------- ------- --------
Total from investment operations 0.02 0.05 0.04 0.02 0.01 0.01
Less distributions
Investment income--net (0.02) (0.05) (0.04) (0.02) (0.01) (0.01)
-------- -------- ------- ------- ------- --------
Total distributions (0.02) (0.05) (0.04) (0.02) (0.01) (0.01)
-------- -------- ------- ------- ------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= ======= ========
Total return 1.93%** 4.84% 4.04% 2.03% 0.58% 0.80%
======== ======== ======= ======= ======= ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $109,505 $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% 0.50%
Ratio of expenses without reimbursement to
average net assets 0.58%* 0.63% 0.73% 0.59% 0.60% 0.58%
Ratio of net investment income (loss) to
average net assets 3.73%* 4.74% 4.01% 1.98% 0.58% 0.84%
</Table>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
55
<Page>
NOTES TO FINANCIAL STATEMENTS February 29, 2008 (Unaudited)
SM&R INVESTMENTS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
SM&R Investments, Inc. (the "Company"), is a diversified open-end management
investment company registered as a series fund under the Investment Company Act
of 1940, as amended. The Company is comprised of the SM&R 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 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 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.
56
<Page>
FEDERAL INCOME TAXES:
For federal income tax purposes, each series is treated as a separate entity.
The Company intends to comply with requirements of the Internal Revenue Code
relating to regulated investment companies and intends to distribute
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is recorded in the accompanying financial
statements.
<Table>
<Caption>
TAX YEAR ENDING AUGUST 31, 2007 LOSS CARRYFORWARDS EXPIRATION 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.
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.
57
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES:
Securities Management and Research, Inc. ("SM&R") is the investment adviser and
principal underwriter for the Company. Investment advisory fees paid to SM&R are
computed as a percentage of the average daily net assets as follows:
EQUITY FUNDS
Growth, Equity Income and Balanced Funds
<Table>
<Caption>
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>
<Caption>
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>
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.
58
<Page>
Effective June 1, 2002, and until December 31, 2008, 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>
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, 2008
without notice to investors.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Company has adopted a 12b-1 Plan, for each series, except the Primary and
Money Market Funds, with respect to each series' Class A shares and Class B
shares (the "Class A Plan" and the "Class B Plan", respectively and
collectively, the "Plans"). The Plans permit each class a distribution fee to
compensate SM&R, or enable SM&R to compensate other persons, including
Distributors, for distribution costs such as service fees paid to dealers,
printing and distribution of prospectuses to prospective investors, sales
literature and other sales and distribution related activities. The Plans also
permit a shareholder servicing fee to compensate SM&R, or enable SM&R to
compensate Service Providers, for providing ongoing servicing to shareholders of
the Company. These fees are computed as an annual percentage of the average
daily net assets of each class of shares of a series, as follows:
GROWTH, EQUITY INCOME, BALANCED,
GOVERNMENT BOND AND TAX FREE FUNDS
<Table>
<Caption>
DISTRIBUTION SERVICE TOTAL 12b-1
FEE FEE FEE
------------ ------- -----------
Class A Shares 0.25% -- 0.25%
Class B Shares 0.50% 0.25% 0.75%
</Table>
For the period ended February 29, 2008, each series paid or accrued the
following, as compensation under the Plans:
<Table>
Growth Fund $14,457
Equity Income Fund $27,322
Balanced Fund $10,686
Government Bond Fund $ 3,169
Tax Free Fund $ 898
</Table>
59
<Page>
SALES CHARGES:
During the period ended February 29, 2008, 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
---------------- --------------------
Growth Fund $23,643 $483
Equity Income Fund $26,906 $735
Balanced Fund $ 8,714 $ 37
Government Bond Fund $ 1,822 $ 27
Tax Free Fund $ 63 $ --
</Table>
For the period ended February 29, 2008, SM&R received $10,409 for contingent
deferred sales charges imposed on the redemptions of Class B shares of capital
stock of the series.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of February 29, 2008, 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 247,675 1.17% 1,118,975 5.30% 1,627,879 7.70%
Equity Income Fund 27,218 0.65% -- 0.00% -- 0.00%
Balanced Fund 182,764 12.05% 102,682 6.77% 328,920 21.69%
Government Bond Fund 735,941 25.49% 177,091 6.13% 1,003,442 34.76%
Tax Free Fund 186,885 14.35% -- 0.00% 933,754 71.68%
Primary Fund 18,769 0.07% 22,431,168 86.58% 1,766,299 6.82%
Money Market Fund 2,333,810 2.13% 63,576,037 58.06% 34,186,504 31.22%
</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.
INVESTMENTS INTO AFFILIATED MONEY MARKET FUND:
The Company has received an exemptive order issued by the Securities and
Exchange Commission ("SEC") allowing the Company to sweep uninvested cash into
the SM&R Money Market Fund. The SM&R Money Market Fund is one of the eleven
funds included in the Company and is therefore considered to be affiliated. The
transactions in investments in the affiliated money market fund for the period
ended February 29, 2008 were:
<Table>
Purchases 12,453,521
Sales 12,523,780
</Table>
60
<Page>
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
---------- -----------
Growth Fund $5,095,212 $11,356,362
Equity Income Fund $5,616,432 $14,920,308
Balanced Fund $1,886,436 $ 3,570,623
Government Bond Fund $6,989,156 $ 7,479,120
Tax Free Fund $ -- $ 913,000
Primary Fund $ -- $ 1,000,000
</Table>
Gross unrealized appreciation and depreciation as of February 29, 2008, based on
the cost for federal income tax purposes is as follows:
<Table>
<Caption>
NET APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
----------- ------------ ------------ ----------------
Growth Fund $80,873,897 $17,206,214 $8,605,257 $8,600,957
Equity Income Fund $75,864,936 $17,942,828 $8,868,361 $9,074,467
Balanced Fund $23,156,406 $ 4,400,417 $1,471,981 $2,928,436
Government Bond Fund $29,335,698 $ 1,492,020 $ -- $1,492,020
Tax Free Fund $13,140,355 $ 223,984 $ 45,913 $ 178,071
Primary Fund $25,640,829 $ 223,136 $ -- $ 223,136
</Table>
61
<Page>
NOTE 4--CAPITAL STOCK
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
Sale of capital shares:
Class A 89,236 $ 418,681 131,308 $ 613,711
Class B 26,791 120,316 56,328 257,907
Class T 273,889 1,297,928 512,529 2,445,948
---------- ----------- ---------- ------------
Total sale of capital shares 389,916 1,836,925 700,165 3,317,566
Investment income dividends reinvested:
Class A 5,768 26,476 5,047 23,860
Class B 2,442 10,941 551 2,476
Class T 134,700 630,394 116,052 564,573
---------- ----------- ---------- ------------
Total investment income dividends reinvested 142,910 667,811 121,650 590,909
Distributions from net realized gains reinvested:
Class A 23,843 109,438 40,172 184,391
Class B 14,290 64,018 23,950 107,537
Class T 498,285 2,331,973 643,142 3,016,336
---------- ----------- ---------- ------------
Total distributions from net realized gains reinvested 536,418 2,505,429 707,264 3,308,264
---------- ----------- ---------- ------------
Subtotals 1,069,244 5,010,165 1,529,079 7,216,739
Redemptions of capital shares outstanding:
Class A (369,580) (1,827,118) (300,531) (1,411,490)
Class B (185,646) (840,982) (238,225) (1,096,043)
Class T (1,134,131) (5,412,695) (2,632,772) (12,572,932)
---------- ----------- ---------- ------------
Total redemptions of capital shares outstanding (1,689,357) (8,080,795) (3,171,528) (15,080,465)
---------- ----------- ---------- ------------
Net increase (decrease) in capital shares outstanding (620,113) $(3,070,630) (1,642,449) $ (7,863,726)
=========== ============
Shares outstanding at beginning of year 21,749,856 23,392,305
---------- ----------
Shares outstanding at end of year 21,129,743 21,749,856
========== ==========
</Table>
62
<Page>
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
Sale of capital shares:
Class A 36,262 $ 814,145 94,208 $ 2,211,338
Class B 8,762 185,348 20,747 473,962
Class T 28,173 645,307 78,317 1,931,543
--------- ------------ --------- ------------
Total sale of capital shares 73,197 1,644,800 193,272 4,616,843
Investment income dividends reinvested:
Class A 5,779 130,739 11,618 272,562
Class B 2,463 54,568 6,991 157,764
Class T 48,418 1,139,941 100,845 2,457,786
--------- ------------ --------- ------------
Total investment income dividends reinvested 56,660 1,325,248 119,454 2,888,112
Distributions from net realized gains reinvested:
Class A 25,569 544,630 22,573 525,950
Class B 12,464 256,511 17,532 393,765
Class T 203,558 4,531,198 205,960 4,990,419
--------- ------------ --------- ------------
Total distributions from net realized gains reinvested 241,591 5,332,339 246,065 5,910,134
--------- ------------ --------- ------------
Subtotals 371,448 8,302,387 558,791 13,415,089
Redemptions of capital shares outstanding:
Class A (128,101) (2,880,482) (79,425) (1,880,736)
Class B (64,740) (1,451,663) (110,524) (2,510,171)
Class T (326,445) (7,651,651) (519,789) (12,840,554)
--------- ------------ --------- ------------
Total redemptions of capital shares outstanding (519,286) (11,983,796) (709,738) (17,231,461)
--------- ------------ --------- ------------
Net increase (decrease) in capital shares outstanding (147,838) $ (3,681,409) (150,947) $ (3,816,372)
============ ============
Shares outstanding at beginning of year 4,335,956 4,486,903
--------- ---------
Shares outstanding at end of year 4,188,118 4,335,956
========= =========
</Table>
63
<Page>
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Sale of capital shares:
Class A 10,625 $ 188,806 34,793 $ 631,966
Class B 5,821 104,100 6,874 126,462
Class T 13,479 251,894 38,196 723,206
---------- ----------- --------- -----------
Total sale of capital shares 29,925 544,800 79,863 1,481,634
Investment income dividends reinvested:
Class A 1,892 34,683 4,954 89,416
Class B 663 12,400 2,356 43,045
Class T 11,626 220,589 25,563 481,420
---------- ----------- --------- -----------
Total investment income dividends reinvested 14,181 267,672 32,873 613,881
Distributions from net realized gains reinvested:
Class A 3,528 62,795 14,724 263,271
Class B 1,582 28,506 8,756 158,139
Class T 21,538 398,665 69,557 1,294,446
---------- ----------- --------- -----------
Total distributions from net realized gains reinvested 26,648 489,966 93,037 1,715,856
---------- ----------- --------- -----------
Subtotals 70,754 1,302,438 205,773 3,811,371
Redemptions of capital shares outstanding:
Class A (60,356) (1,120,406) (63,459) (1,164,640)
Class B (36,314) (683,988) (54,363) (997,206)
Class T (49,513) (927,224) (99,713) (1,896,290)
---------- ----------- --------- -----------
Total redemptions of capital shares outstanding (146,183) (2,731,618) (217,535) (4,058,136)
---------- ----------- --------- -----------
Net increase (decrease) in capital shares outstanding (75,429) $(1,429,180) (11,762) $ (246,765)
=========== ===========
Shares outstanding at beginning of year 1,591,810 1,603,572
--------- ---------
Shares outstanding at end of year 1,516,381 1,591,810
========= =========
</Table>
64
<Page>
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ------------
Sale of capital shares:
Class A 16,265 $ 175,517 20,423 $ 210,976
Class B 4,277 46,097 5,449 56,127
Class T 69,343 738,760 39,756 406,160
--------- ---------- --------- ------------
Total sale of capital shares 89,885 960,374 65,628 673,263
Investment income dividends reinvested:
Class A 1,753 18,658 4,049 41,840
Class B 785 8,336 2,208 22,780
Class T 48,719 511,664 104,808 1,068,902
--------- ---------- --------- ------------
Total investment income dividends reinvested 51,257 538,658 111,065 1,133,522
--------- ---------- --------- ------------
Subtotals 141,142 1,499,032 176,693 1,806,785
Redemptions of capital shares outstanding:
Class A (17,707) (185,435) (16,698) (172,759)
Class B (12,236) (128,333) (18,696) (193,013)
Class T (21,170) (222,770) (82,708) (844,694)
--------- ---------- --------- ------------
Total redemptions of capital shares outstanding (51,113) (536,538) (118,102) (1,210,466)
--------- ---------- --------- ------------
Net increase (decrease) in capital shares outstanding 90,029 $ 962,494 58,591 $ 596,319
========== ============
Shares outstanding at beginning of year 2,797,088 2,738,497
--------- ---------
Shares outstanding at end of year 2,887,117 2,797,088
========= =========
</Table>
65
<Page>
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
Sale of capital shares:
Class A 3,337 $ 35,194 5,772 $ 60,503
Class T 5,741 59,577 10,235 106,598
--------- --------- --------- ---------
Total sale of capital shares 9,078 94,771 16,007 167,101
Investment income dividends reinvested:
Class A 407 4,255 1,159 12,119
Class B 118 1,230 723 7,574
Class T 21,963 228,464 45,142 468,090
--------- --------- --------- ---------
Total investment income dividends reinvested 22,488 233,949 47,024 487,783
Distributions from net realized gains reinvested:
Class A 24 254 -- --
Class B 7 79 8 87
Class T 1,175 12,265 274 2,858
--------- --------- --------- ---------
Total distributions from net realized gains
reinvested 1,206 12,598 282 2,945
--------- --------- --------- ---------
Subtotals 32,772 341,318 63,313 657,829
Redemptions of capital shares outstanding:
Class A (2,130) (22,322) (11,881) (124,226)
Class B (4,439) (46,766) (27,312) (286,270)
Class T (12,805) (133,476) (40,292) (418,147)
--------- --------- --------- ---------
Total redemptions of capital shares outstanding (19,374) (202,564) (79,485) (828,643)
--------- --------- --------- ---------
Net increase (decrease) in capital shares outstanding 13,398 $ 138,754 (16,172) $(170,814)
========= =========
Shares outstanding at beginning of year 1,289,211 1,305,383
--------- ---------
Shares outstanding at end of year 1,302,609 1,289,211
========= =========
</Table>
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ------------
Sale of capital shares: 1,922,885 $ 1,922,885 11,828,447 $ 11,824,661
Investment income dividends reinvested 558,338 558,339 1,196,240 1,191,177
Redemptions of capital shares outstanding (3,491,230) (3,491,230) (12,592,282) (12,575,472)
---------- ----------- ----------- ------------
Net increase (decrease) in capital shares outstanding (1,010,007) $(1,010,006) 432,405 $ 440,366
=========== ============
Shares outstanding at beginning of year 26,917,582 26,485,177
---------- -----------
Shares outstanding at end of year 25,907,575 26,917,582
========== ===========
</Table>
66
<Page>
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
Sale of capital shares: 151,830,288 $ 151,830,288 256,039,416 $ 256,039,416
Investment income dividends reinvested 2,119,714 2,119,714 4,690,221 4,690,221
Redemptions of capital shares outstanding (146,030,324) (146,030,324) (247,914,067) (247,914,067)
------------ ------------- ------------ -------------
Net increase (decrease) in capital shares outstanding 7,919,678 $ 7,919,678 12,815,570 $ 12,815,570
============= =============
Shares outstanding at beginning of year 101,585,070 88,769,500
------------ ------------
Shares outstanding at end of year 109,504,748 101,585,070
============ ============
</Table>
NOTE 6--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006. On December 22, 2006, the SEC
delayed the implementation of FIN 48 for regulated investment companies for an
additional six months making it effective June 29, 2007. The Funds adopted the
provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, as of August 31, 2007. As a result of the implementation of
Interpretation 48, there was no impact to the Funds. The Funds file income tax
returns in the U.S. federal jurisdiction and are no longer subject to U.S.
federal or state income tax examinations by tax authorities for years before
2003.
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 Fund's financial statements and intends for the Fund to adopt the
FAS 157 and FAS 159 provisions during 2008.
67
<Page>
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<Page>
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<Page>
SM&R INVESTMENTS, INC. 2450 South Shore Boulevard, League City, TX 77573
DIRECTORS
Florentino F. Gonzalez
Lea McLeod Matthews
Michael W. McCroskey
Ann McLeod Moody
Edwin K. Nolan
Robert V. Shattuck, Jr.
Donald P. Stevens
Steven H. Stubbs
Jamie G. Williams
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Teresa E. Axelson, Vice President, Secretary, and Chief Compliance Officer
INVESTMENT ADVISER AND MANAGER
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, LLP
One Moody Plaza
Galveston, TX 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BKD, LLP
2800 Post Oak Blvd., Suite 3200
Houston, TX 77056
Form 9429 02/08
Item 2 Code of Ethics.
Not applicable to this semi-annual report.
Item 3 Audit Committee Financial Expert.
Not applicable to this semi-annual report.
Item 4 Principal Accountant Fees and Services.
Not applicable to this semi-annual report.
Item 5 Audit Committee of Listed Registrants.
Not applicable
Item 6 Schedule of Investments.
The Schedule of Investments is filed under Item 1 of this form.
Item 7 Disclosure of Proxy Voting Policies and Procedures for Closed-end
Management Investment Companies.
Not applicable
Item 8 Portfolio Managers of Closed-end Management Investment Companies.
Not applicable
Item 9 Purchases of Equity Securities by Closed-end Management Investment
Company and Affiliated Purchasers.
Not applicable
Item 10 Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the registrants board of directors during this
period.
Item 11 Controls and Procedures.
(a) As of May 7, 2008, an evaluation was performed under the
supervision and with the participation of the officers of
Securities Management and Research, Inc. (the Company), including
the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), of the effectiveness of the Company's disclosure controls
and procedures. Based on that evaluation, the officers, including
the CEO and CFO, conclude that, as of May 7, 2008, the companys
disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940, as amended) were
reasonably designed so as to ensure that material information
relating to the Company is made known to the CEO and CFO.
(b) During the second fiscal quarter of the period covered by this
report, there have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation
and until the filing of this report, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Item 12 Exhibits.
(a) (1) Code of Ethics - not applicable to this semi-annual report.
(2) Certifications pursuant to Rule 30a-2(a) under the
Investment Act of 1940 are filed and attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are filed and attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SM&R Investments, Inc.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 7, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registant and in the capacities and on the
dates indicated.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 7, 2008
By: \S\ Brenda T. Koelemay
-------------------------------------
Principal Financial Officer
Date: May 7, 2008