UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-6477
SM&R Investments, Inc.
P.O. Box 58969
Houston, TX 77258-8969
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
(800) 231-4639
Fiscal year end: August 31
Reporting period: February 28, 2009
Item 1 Report to Shareholders
<Page>
SEMI-ANNUAL REPORT
[SM&R LOGO]
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 28, 2009
<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, 2008, and held for six months ending
February 28, 2009.
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 (09/01/08) RATIOS (02/28/09) (1) PERIOD (2) (02/28/09) (1) PERIOD (2)
- -------------------- ---------- ---------- -------------- ---------- -------------- ----------
Growth Fund
Class A $1,000.00 1.36% $592.02 $5.41 $1,018.14 $6.85
Class B 1,000.00 1.86% 588.97 7.40 1,015.63 9.38
Class T 1,000.00 1.21% 593.01 4.82 1,018.89 6.11
Equity Income Fund
Class A 1,000.00 1.26% 588.88 5.00 1,018.64 6.35
Class B 1,000.00 1.76% 587.67 6.99 1,016.13 8.88
Class T 1,000.00 1.18% 589.79 4.68 1,019.05 5.95
</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 (09/01/08) RATIOS (02/28/09) (1) PERIOD (2) (02/28/09) (1) PERIOD (2)
- -------------------- ---------- ---------- -------------- ---------- -------------- ----------
Balanced Fund
Class A $1,000.00 1.30% $ 673.02 $5.43 $1,018.46 $6.54
Class B 1,000.00 1.80% 670.23 7.51 1,015.94 9.07
Class T 1,000.00 1.24% 672.67 5.17 1,018.74 6.25
Government Bond Fund
Class A 1,000.00 0.73% 1,040.66 3.75 1,021.26 3.71
Class B 1,000.00 1.23% 1,038.30 6.26 1,018.79 6.20
Class T 1,000.00 0.73% 1,041.00 3.74 1,021.26 3.71
Tax Free Fund
Class A 1,000.00 0.75% 1,018.08 3.80 1,021.15 3.81
Class B 1,000.00 1.25% 1,024.60 6.32 1,018.69 6.30
Class T 1,000.00 0.75% 1,019.17 3.81 1,021.17 3.81
Primary Fund 1,000.00 0.80% 1,016.38 4.05 1,020.92 4.06
Money Market Fund 1,000.00 0.42% 1,004.58 2.09 1,022.84 2.11
</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, 2008 to February 28,
2009 after actual expenses and will differ from the hypothetical ending
account value which is based on each class of each of the funds' actual
expense ratios and a hypothetical annual return of 5% before expenses.
(2) Expenses are equal to the annualized expense ratios, shown in the table
above, multiplied by the average account value over the period, then
multiplied by 181/365 (to reflect the six month period).
2
<Page>
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
On December 10, 2008, the Board of Directors of SM&R Investments. (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 audited
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 data is compiled by Morningstar by pulling the net annual expense
ratio from the fund's audited annual report. Annual report expense ratios
reflect the actual fees charged during a particular fiscal year.
The Board compared the total audited expense ratios of the Funds to funds
advised by other advisors that were deemed comparable by the Morningstar
database for the period ending September 30, 2008. The SM&R Growth Fund (Classes
A, B & T), SM&R Equity Income Fund (Classes A & T), SM&R Balanced Fund (Classes
A & T), SM&R Government Bond Fund (Classes A, B & T) and SM&R Tax Free Fund
(Classes A, B & T), all had total audited expense ratios that were the same as
or lower than the Morningstar Fund Analysis average total audited expense
ratios. The total audited expense ratios for the SM&R Equity Income Fund (Class
B), SM&R Balanced Fund (Class B) and the SM&R Primary Fund were slightly higher
than the Morningstar average total audited expense ratios.
The Board took into account that the audited expense ratios include voluntary
fee waivers and/or expense limitations by the Manager through December 31, 2009,
so that total expenses are limited to a specified percentage of average daily
net assets of each Fund.
The audited expense ratio expresses the percentage of assets deducted each
fiscal year for fund expenses, including 12b-1 fees, management fees,
administrative fees, operating costs, and all other asset-based costs incurred
by the fund. Portfolio transaction fees, or brokerage costs, as well as initial
or deferred sales charges are not included in the expense ratio. The expense
ratio, which is deducted from the fund's average net assets, is accrued on a
daily basis. If the fund's assets are small, its expense ratio can be quite high
because the fund must meet its expenses from a restricted asset
3
<Page>
base. Conversely, as the net assets of the fund grow, the expense percentage
should ideally diminish as expenses are spread across the wider base. Funds may
also opt to waive all or a portion of the expenses that make up their overall
expense ratio.
The Board reviewed the Funds' average annual total returns and compared these
returns to comparable performance measures supplied by Morningstar. On the basis
of this evaluation of investments results, the Board concluded that the Funds'
performance was satisfactory.
COST, BENEFITS, PROFITS AND ECONOMIES OF SCALE
The Board reviewed detailed information regarding the revenues received by the
Manager under the Contracts and other benefits that the Manager may have
realized from its relationship with the Funds. The Board also received
information on the direct costs incurred by the Manager as well as profits
realized. After careful consideration of this information, the Board concluded
that the Manager's profits were reasonable in light of the services provided to
the Funds.
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 28, 2009 (Unaudited)
SM&R GROWTH FUND
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--1.38%
Newell Rubbermaid Inc. 23,200 $ 131,080
Stanley Works (The) 20,000 535,200
-----------
666,280
HOTELS, RESTAURANTS & LEISURE--0.23%
Starwood Hotels & Resorts
Worldwide, Inc. 9,650 111,844
MEDIA--0.91%
Walt Disney Co. (The) 26,150 438,535
MULTILINE RETAIL--0.57%
J.C. Penney Co., Inc. 10,700 164,031
Target Corp. 4,000 113,240
-----------
277,271
SPECIALTY RETAIL--2.51%
Bed Bath & Beyond Inc.* 8,000 170,400
Best Buy Co., Inc. 17,000 489,940
Home Depot, Inc. (The) 13,000 271,570
Limited Brands, Inc. 9,000 69,210
Lowe's Companies, Inc. 13,400 212,256
-----------
1,213,376
-----------
TOTAL CONSUMER DISCRETIONARY--5.60% 2,707,306
-----------
CONSUMER STAPLES--
BEVERAGES--3.92%
Coca-Cola Co. (The) 24,000 980,400
PepsiCo, Inc. 19,000 914,660
-----------
1,895,060
FOOD & STAPLES RETAILING--2.39%
CVS Caremark Corp. 20,000 514,800
SUPERVALU, INC. 9,350 145,954
Wal-Mart Stores, Inc. 10,000 492,400
-----------
1,153,154
HOUSEHOLD PRODUCTS--2.59%
Procter & Gamble Co. (The) 26,000 1,252,420
TOBACCO--0.62%
Philip Morris International Inc. 8,875 297,046
-----------
TOTAL CONSUMER STAPLES--9.52% 4,597,68
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--3.46%
Baker Hughes Inc. 14,000 410,340
Oceaneering International, Inc.* 7,400 235,098
Schlumberger Ltd. 17,000 647,020
Transocean Inc.* 3,000 179,310
Weatherford International Ltd.* 18,800 200,596
-----------
1,672,364
OIL, GAS & CONSUMABLE FUELS--11.66%
Anadarko Petroleum Corp. 10,600 370,470
BP PLC ADR 11,700 448,812
Chevron Corp. 16,422 996,980
Exxon Mobil Corp. 45,000 3,055,500
Noble Corp. 13,000 319,670
Royal Dutch Shell PLC, ADR 10,000 439,700
-----------
5,631,132
-----------
TOTAL ENERGY--15.12% 7,303,496
-----------
FINANCIALS--
COMMERCIAL BANKS--2.35%
Bank of America Corp. 19,297 76,223
PNC Financial Services Group, Inc. 18,000 492,120
U.S. Bancorp 20,000 286,200
Wells Fargo & Co. 23,481 284,120
-----------
1,138,663
DIVERSIFIED FINANCIAL SERVICES--3.68%
American Express Co. 5,000 60,300
Charles Schwab Corp. (The) 29,400 373,674
Citigroup Inc. 38,550 57,825
Discover Financial Services 7,500 42,975
Goldman Sachs Group, Inc. (The) 4,000 364,320
JPMorgan Chase & Co. 14,768 337,449
Morgan Stanley 15,000 293,100
Principal Financial Group, Inc. 9,000 71,910
State Street Corp. 7,000 176,890
-----------
1,778,443
INSURANCE--2.02%
Allstate Corp. (The) 6,300 106,029
Aspen Insurance Holdings Ltd. 10,350 225,527
Brown & Brown, Inc. 12,400 209,188
Hartford Financial Services
Group, Inc. (The) 8,400 51,240
Prudential Financial, Inc. 8,500 139,485
RenaissanceRe Holdings Ltd. 5,400 243,162
-----------
974,631
-----------
TOTAL FINANCIALS--8.05% 3,891,737
-----------
</Table>
5
<Page>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
HEALTH CARE--
BIOTECHNOLOGY--8.44%
Amgen Inc.* 6,000 $ 293,580
Celgene Corp.* 18,400 823,032
Facet Biotech Corp.* 2,920 19,009
Genetech, Inc.* 8,900 761,395
Genzyme Corp.* 12,000 731,160
Gilead Sciences, Inc.* 24,000 1,075,200
Given Imaging Ltd.* 36,900 289,296
PDL BioPharma Inc. 14,600 85,702
-----------
4,078,374
HEALTH EQUIPMENT & SUPPLIES--1.21%
Covidien Ltd. 4,650 147,266
Hologic, Inc.* 18,000 203,760
Varian Medical Systems, Inc.* 7,600 231,876
-----------
582,902
HEALTH CARE PROVIDERS & SERVICES--0.89%
DaVita, Inc.* 5,025 235,773
UnitedHealth Group Inc. 10,000 196,500
-----------
432,273
PHARMACEUTICALS--7.15%
Abbott Laboratories 13,900 658,026
Endo Pharmaceuticals Holdings Inc.* 11,450 217,321
Eli Lilly & Co. 41,200 1,210,456
Merck & Co. Inc. 38,000 919,600
Wyeth 11,000 449,020
-----------
3,454,423
-----------
TOTAL HEALTH CARE--17.69% 8,547,97
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--5.25%
Boeing Co. (The) 10,000 314,400
Goodrich Corp. 20,000 662,800
Honeywell International Inc. 14,500 389,035
Northrop Grumman Corp. 4,000 149,440
Rockwell Collins, Inc. 13,000 405,600
United Technologies Corp. 15,000 612,450
-----------
2,533,725
AIR FREIGHT & LOGISTICS--1.39%
FedEx Corp. 4,700 203,087
United Parcel Service, Inc. (Class B) 11,400 469,452
-----------
672,539
CONSTRUCTION & ENGINEERING--0.22%
Cemex SAB de C.V. ADR* 20,000 107,800
ELECTRICAL EQUIPMENT--0.09%
Tyco Electronics Ltd. 4,650 44,082
INDUSTRIAL CONGLOMERATES--2.62%
3M Co. 10,000 454,600
General Electric Co. 84,225 716,755
Tyco International Ltd. 4,650 93,232
-----------
1,264,587
MACHINERY--2.71%
Barnes Group Inc. 9,600 89,472
Caterpillar Inc. 7,500 184,575
Danaher Corp. 20,400 1,035,504
-----------
1,309,551
-----------
TOTAL INDUSTRIALS--12.28% 5,932,284
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--5.77%
Arris Group Inc.* 23,000 140,760
Cisco Systems, Inc.* 84,500 1,231,165
Harris Corp. 13,100 488,368
Motorola, Inc. 30,900 108,768
Nokia ADR 34,100 319,176
QUALCOMM Inc. 15,000 501,450
-----------
2,789,687
COMPUTERS & PERIPHERALS--5.08%
Apple Inc.* 6,475 578,282
EMC Corp.* 30,800 323,400
Hewlett-Packard Co. 20,500 595,115
International Business Machines Corp. 10,400 957,112
-----------
2,453,909
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.76%
Agilent Technologies, Inc.* 9,300 128,991
Thermo Fisher Scientific, Inc.* 6,625 240,223
-----------
369,214
INTERNET SOFTWARE & SERVICES--0.71%
Akamai Technologies, Inc.* 9,100 164,619
Research In Motion Ltd.* 4,500 179,730
-----------
344,349
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.59%
Analog Devices, Inc. 15,600 290,784
Intel Corp. 50,000 637,000
KLA-Tencor Corp. 11,600 200,100
Linear Technology Corp. 15,200 331,360
Marvell Technology Group Ltd.* 14,500 108,895
Maxim Integrated Products, Inc. 13,600 164,560
-----------
1,732,699
</Table>
6
<Page>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
SOFTWARE--5.00%
Amdocs Ltd.* 6,675 $ 111,806
Intuit Inc.* 24,800 565,192
Microsoft Corp. 44,400 717,060
Oracle Corp.* 65,700 1,020,978
-----------
2,415,036
-----------
TOTAL INFORMATION TECHNOLOGY--20.91% 10,104,894
-----------
MATERIALS--
CHEMICALS--1.64%
Airgas, Inc. 4,750 146,252
Dow Chemical Co. (The) 12,000 85,920
PPG Industries, Inc. 18,000 559,080
-----------
791,252
CONTAINERS & PACKAGING--0.57%
Sealed Air Corp. 25,000 279,000
-----------
TOTAL MATERIALS--2.21% 1,070,252
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--3.03%
AT&T Inc. 27,000 641,790
FairPoint Communications, Inc. 618 1,217
Verizon Communications Inc. 28,800 821,664
-----------
1,464,671
WIRELESS TELECOMMUNICATION SERVICES--0.60%
American Tower Corp.* 5,350 155,792
Rogers Communications, Inc. 5,600 131,376
-----------
287,168
-----------
TOTAL TELECOMMUNICATION SERVICES--3.63% 1,751,839
-----------
UTILITIES--
ELECTRIC UTILITIES--2.68%
Allegheny Energy, Inc. 6,950 164,298
Ameren Corp. 9,000 214,020
Dominion Resources, Inc. / VA 10,000 301,800
Exelon Corp. 5,000 236,100
FPL Group, Inc. 4,000 181,320
Wisconsin Energy Corp. 5,000 199,100
-----------
1,296,638
GAS UTILITIES--1.07%
El Paso Corp. 45,800 309,150
Sempra Energy 5,000 207,850
-----------
517,000
-----------
TOTAL UTILITIES--3.75% 1,813,63
-----------
TOTAL COMMON STOCK--98.76%
(Cost $73,814,537) 47,721,098
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 0.00% (a) 123,950 123,950
-----------
TOTAL MONEY MARKET FUND--0.26%
(Cost $123,950) 123,950
-----------
COMMERCIAL PAPER FACE
AMOUNT
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--0.52%
Volvo Treasury, 2.30%, 03/02/09 $250,000 249,968
-----------
TOTAL FINANCIALS--0.52% 249,96
-----------
TOTAL COMMERCIAL PAPER--0.52%
(Cost $249,968) 249,968
-----------
TOTAL INVESTMENTS--99.54%
(Cost $74,188,455) 48,095,016
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.46% 222,772
-----------
NET ASSETS--100.00% $48,317,788
===========
</Table>
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2009. 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.
7
<Page>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 5.63%
Consumer Staples 9.56%
Energy 15.19%
Financials 8.61%
Health Care 17.77%
Industrials 12.33%
Information Technology 21.01%
Materials 2.23%
Miscellaneous 0.26%
Telecommunication Services 3.64%
Utilities 3.77%
</Table>
8
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $74,064,505) $ 47,971,066
Investment in affiliated money market fund (Cost $123,950) 123,950
------------
Total investments (Cost $74,188,455) 48,095,016
Prepaid expenses 45,668
Receivable for:
Capital stock sold 6,129
Dividends 216,766
Expense reimbursement 957
Other assets 93,407
------------
TOTAL ASSETS 48,457,943
------------
LIABILITIES
Capital stock reacquired 22,827
Payable to investment adviser for fund expenses 59,242
Accrued:
Investment advisory fees 30,945
Administrative service fees 10,315
Distribution fees 3,198
Other liabilities 13,628
------------
TOTAL LIABILITIES 140,155
------------
NET ASSETS $ 48,317,788
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 77,162,103
Undistributed net investment income 224,261
Accumulated net realized loss on investments (2,975,137)
Net unrealized depreciation of investments (26,093,439)
------------
Net Assets $ 48,317,788
============
NET ASSETS:
Class A $ 2,132,107
Class B $ 658,718
Class T $ 45,526,963
------------
TOTAL NET ASSETS $ 48,317,788
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 965,558
Class B:
Authorized 25,000,000
Outstanding 306,236
Class T:
Authorized 95,000,000
Outstanding 20,153,680
Class A:
Net asset value and redemption price per share $ 2.21
Offering price per share: (Net assets value of $2.21 / 95%) $ 2.32
Class B:
Net asset value and offering price per share $ 2.15
Class T:
Net asset value and redemption price per share $ 2.26
Offering price per share: (Net assets value of $2.26 / 94.25%) $ 2.40
</Table>
See notes to financial statements.
9
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
SM&R GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $2,771) $ 859,523
Interest 11,863
Interest from affiliated money market fund 345
------------
TOTAL INVESTMENT INCOME 871,731
------------
EXPENSES
Investment advisory fees 231,983
Administrative service fees 77,328
Professional fees 7,573
Custody and transaction fees 7,596
Directors' fees and expenses 4,901
Compliance expenses 7,370
Qualification fees
Class A 190
Class B 182
Class T 695
Shareholder reporting expenses
Class A 803
Class B 290
Class T 16,912
Distribution fees
Class A 3,451
Class B 3,667
Insurance expenses 15,372
------------
TOTAL EXPENSES 378,313
LESS EXPENSES REIMBURSED (2,161)
------------
NET EXPENSES 376,152
------------
INVESTMENT INCOME--NET 495,579
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (2,975,054)
Change in unrealized depreciation of investments (31,591,041)
------------
NET LOSS ON INVESTMENTS (34,566,095)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(34,070,516)
============
</Table>
See notes to financial statements.
10
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- -------------
2009 2008
---------------- -------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 495,579 $ 1,173,442
Net realized gain(loss) on investments (2,975,054) 4,179,674
Change in unrealized depreciation of investments (31,591,041) (18,447,678)
------------ ------------
Net decrease in net assets resulting from operations (34,070,516) (13,094,562)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (17,529) (45,299)
Class B (4,581) (11,209)
Class T (397,074) (1,087,464)
Capital gains
Class A (189,346) (109,438)
Class B (68,709) (63,999)
Class T (3,923,457) (2,390,940)
------------ ------------
Total distributions to shareholders (4,600,696) (3,708,349)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 84,509 (1,254,542)
Class B (146,127) (1,064,443)
Class T 2,425,249 (3,573,275)
------------ ------------
Total capital share transactions--net 2,363,631 (5,892,260)
------------ ------------
TOTAL DECREASE IN NET ASSETS (36,307,581) (22,695,171)
NET ASSETS
Beginning of period 84,625,369 107,320,540
------------ ------------
End of period $ 48,317,788 $ 84,625,369
============ ============
Undistributed Net Investment Income $ 224,261 $ 147,866
============ ============
</Table>
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 A SHARES
------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------ ------ ------ ------
Net asset value, beginning of period $ 4.06 $ 4.83 $ 4.31 $ 4.09 $ 3.79 $ 3.45
Income (loss) from investment operations
Investment income--net 0.02 0.04 0.02 0.01 0.04 0.02
Net realized and unrealized gain (loss) on investments (1.64) (0.64) 0.67 0.23 0.30 0.34
------ ------- ------ ------ ------ ------
Total from investment operations (1.62) (0.60) 0.69 0.24 0.34 0.36
Less distributions
Investment income--net (0.02) (0.05) (0.02) (0.02) (0.04) (0.02)
Capital gains (0.21) (0.12) (0.15) -- -- --
------ ------- ------ ------ ------ ------
Total distributions (0.23) (0.17) (0.17) (0.02) (0.04) (0.02)
------ ------- ------ ------ ------ ------
Net asset value, end of period $ 2.21 $ 4.06 $ 4.83 $ 4.31 $ 4.09 $ 3.79
====== ======= ====== ====== ====== ======
Total return (1) 40.80)%** (12.73)% 16.16% 6.00% 9.05% 10.41%
====== ======= ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,132 $ 3,786 $5,698 $5,620 $6,154 $6,017
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 1.48%* 1.63% 1.47% 1.66% 1.69% 1.54%
Ratio of net investment income to average net assets 1.47%* 1.03% 0.34% 0.52% 1.03% 0.44%
Portfolio turnover rate 3.23% 11.15% 23.79% 56.05% 24.18% 4.93%
</Table>
<Table>
<Caption>
CLASS B SHARES
--------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -----------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------ ------ ------ ------
Net asset value, beginning of period $ 3.97 $ 4.73 $ 4.22 $ 4.00 $ 3.72 $ 3.39
Income (loss) from investment operations
Investment income (loss)--net (0.02) (0.05) (0.04) -- 0.02 0.01
Net realized and unrealized gain (loss) on investments (1.58) (0.57) 0.70 0.23 0.29 0.33
------- ------- ------ ------ ------ ------
Total from investment operations (1.60) (0.62) 0.66 0.23 0.31 0.34
Less distributions
Investment income--net (0.01) (0.02) -- (0.01) (0.03) (0.01)
Capital gains (0.21) (0.12) (0.15) -- -- --
------- ------- ------ ------ ------ ------
Total distributions (0.22) (0.14) (0.15) (0.01) (0.03) (0.01)
------- ------- ------ ------ ------ ------
Net asset value, end of period $ 2.15 $ 3.97 $ 4.73 $ 4.22 $ 4.00 $ 3.72
======= ======= ====== ====== ====== ======
Total return (1) (41.10)%** (13.37)% 15.89% 5.71% 8.27% 9.93%
======= ======= ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 659 $ 1,423 $2,863 $3,218 $3,456 $3,365
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 2.01%* 2.24% 2.03% 2.24% 2.20% 2.09%
Ratio of net investment income (loss) to average net assets 0.93%* 0.56% (0.17)% 0.02% 0.52% (0.06)%
Portfolio turnover rate 3.23% 11.15% 23.79% 56.05% 24.18% 4.93%
</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 1.36% for Class
A and 1.86% for Class B until December 31, 2009.
See notes to financial statements.
12
<Page>
<Table>
<Caption>
CLASS T SHARES
-------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------- ------- -------- --------
Net asset value, beginning of period $ 4.14 $ 4.95 $ 4.40 $ 4.17 $ 3.87 $ 3.52
Income (loss) from investment operations
Investment income--net 0.03 0.06 0.03 0.03 0.05 0.03
Net realized and unrealized gain (loss) on investments (1.68) (0.69) 0.70 0.23 0.30 0.35
------- ------- ------- ------- -------- --------
Total from investment operations (1.65) (0.63) 0.73 0.26 0.35 0.38
Less distributions
Investment income--net (0.02) (0.06) (0.03) (0.03) (0.05) (0.03)
Capital gains (0.21) (0.12) (0.15) -- -- --
------- ------- ------- ------- -------- --------
Total distributions (0.23) (0.18) (0.18) (0.03) (0.05) (0.03)
------- ------- ------- ------- -------- --------
Net asset value, end of period $ 2.26 $ 4.14 $ 4.95 $ 4.40 $ 4.17 $ 3.87
======= ======= ======= ======= ======== ========
Total return (1) (40.70)%** (13.11)% 16.73% 6.28% 9.01% 10.67%
======= ======= ======= ======= ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $45,527 $79,417 $98,760 $93,937 $101,643 $104,756
Ratio of expenses to average net assets 1.21%* 1.15% 1.12% 1.18% 1.19% 1.12%
Ratio of net investment income to average net assets 1.63%* 1.27% 0.58% 0.70% 1.20% 0.68%
Portfolio turnover rate 3.23%* 11.15% 23.79% 56.05% 24.18% 4.93%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
13
<Page>
SCHEDULE OF INVESTMENTS February 28, 2009 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.63%
McDonald's Corp. 10,000 $ 522,500
Starwood Hotels & Resorts
Worldwide, Inc. 18,000 208,620
-----------
731,120
HOUSEHOLD DURABLES--1.60%
Newell Rubbermaid Inc. 20,000 113,000
Stanley Works (The) 16,000 428,160
Tupperware Brands Corp. 12,000 170,160
-----------
711,320
LEISURE EQUIPMENT & PRODUCTS--0.09%
Eastman Kodak Co. 12,000 38,280
MEDIA--0.46%
CBS Corp. (Class B) 17,900 76,433
Walt Disney Co. (The) 7,525 126,194
-----------
202,627
MULTILINE RETAIL--0.80%
J.C. Penney Co., Inc 16,800 257,544
Target Corp. 3,500 99,085
-----------
356,629
SPECIALTY RETAIL--1.36%
Limited Brands, Inc. 40,000 307,600
TJX Companies, Inc. (The) 13,300 296,191
-----------
603,791
-----------
TOTAL CONSUMER DISCRETIONARY--5.94% 2,643,76
-----------
CONSUMER STAPLES--
BEVERAGES--2.73%
Coca-Cola Co. (The) 15,000 612,750
PepsiCo, Inc. 12,500 601,750
-----------
1,214,500
FOOD PRODUCTS--4.42%
ConAgra Foods, Inc. 34,000 512,720
H.J. Heinz Co. 14,000 457,380
Kraft Foods Inc. (Class A) 4,844 110,346
McCormick & Co., Inc. (b) 17,000 532,950
Sensient Technologies Corp. 17,500 353,500
-----------
1,966,896
FOOD & STAPLES RETAILING--2.34%
SUPERVALU, INC. 13,000 202,930
Wal-Mart Stores, Inc. 17,000 837,080
-----------
1,040,010
HOUSEHOLD PRODUCTS--3.55%
Kimberly-Clark Corp. 11,000 518,210
Procter & Gamble Co. (The) 22,000 1,059,740
-----------
1,577,950
PERSONAL PRODUCTS--2.21%
Alberto-Culver Co. 10,575 234,130
Avon Products, Inc. 13,000 228,670
Colgate-Palmolive Co. 8,675 522,061
-----------
984,861
TOBACCO--0.63%
Philip Morris International Inc. 8,375 280,311
-----------
TOTAL CONSUMER STAPLES--15.88% 7,064,52
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.99%
Boardwalk Pipeline Partners, LP 15,000 316,500
Schlumberger Ltd. 9,500 361,570
Weatherford International Ltd.* 19,500 208,065
-----------
886,135
OIL, GAS & CONSUMABLE FUELS--13.42%
Anadarko Petroleum Corp. 12,000 419,400
BP PLC ADR 15,000 575,400
Chevron Corp. 13,101 795,362
Enterprise Products Partners L.P. 12,800 276,224
Exxon Mobil Corp. 37,000 2,512,300
Natural Resource Partners L.P. 10,500 217,665
Plains All American Pipeline, L.P. 8,000 308,320
Royal Dutch Shell PLC, ADR 14,000 615,580
Spectra Energy Corp. 19,300 250,900
-----------
5,971,151
-----------
TOTAL ENERGY--15.41% 6,857,286
-----------
FINANCIALS--
COMMERCIAL BANKS--3.82%
Bank of America Corp. 47,000 185,650
Comerica Inc. 18,000 270,180
Fifth Third Bancorp 24,000 50,640
KeyCorp 17,100 119,871
PNC Financial Services Group, Inc. 13,219 361,408
Regions Financial Corp. 17,782 60,814
TrustCo Bank Corp NY 5,000 30,250
U.S. Bancorp 23,000 329,130
Wells Fargo & Co. 24,000 290,400
-----------
1,698,343
</Table>
14
<Page>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
DIVERSIFIED FINANCIAL SERVICES--4.74%
Allied Capital Corp. 18,000 $ 19,260
Charles Schwab Corp. (The) 29,500 374,945
Citigroup Inc. 68,400 102,600
JPMorgan Chase & Co. 30,000 685,500
Morgan Stanley 13,250 258,905
New York Community Bancorp, Inc. 16,000 157,600
Principal Financial Group, Inc. 17,050 136,230
State Street Corp. 6,400 161,728
Weingarten Realty Investors 19,000 214,510
-----------
2,111,278
INSURANCE--4.31%
Allstate Corp. (The) 8,000 134,640
Aspen Insurance Holdings Ltd. 20,825 453,777
Hartford Financial Services Group, Inc. (The) 5,950 36,295
Prudential Financial, Inc. 12,225 200,612
RenaissanceRe Holdings Ltd. 9,000 405,270
Travelers Companies, Inc. (The) 19,000 686,850
-----------
1,917,444
REAL ESTATE INVESTMENT TRUSTS--3.66%
AvalonBay Communities, Inc. 3,301 140,028
Boston Properties Inc. 3,700 137,233
BRE Properties, Inc. 8,600 162,712
Duke Realty Corp. 12,000 82,800
HCP, Inc. 7,000 127,890
Health Care REIT, Inc. 4,500 138,465
Hospitality Properties Trust 11,400 129,960
Liberty Property Trust 11,300 206,451
Mack-Cali Realty Corp. 12,000 204,960
National Retail Properties Inc. 9,000 129,330
ProLogis 6,000 34,740
Simon Property Group, Inc, 4,000 132,400
-----------
1,626,969
-----------
TOTAL FINANCIALS--16.53% 7,354,03
-----------
HEALTH CARE--
BIOTECHNOLOGY--1.10%
Genzyme Corp.* 4,000 243,720
Gilead Sciences, Inc.* 5,500 246,400
-----------
490,120
HEALTH CARE PROVIDERS & SERVICES--0.42%
DaVita, Inc.* 4,000 187,680
HEALTH EQUIPMENT & SUPPLIES--0.27%
Covidien Ltd. 3,750 118,763
PHARMACEUTICALS--11.05%
Abbott Laboratories 12,000 568,080
Eli Lilly & Co. 20,350 597,883
Johnson & Johnson 29,000 1,450,000
Merck & Co. Inc. 23,000 556,600
Pfizer Inc. 71,000 874,010
Wyeth 21,325 870,487
-----------
4,917,060
-----------
TOTAL HEALTH CARE--12.84% 5,713,62
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.99%
Boeing Co. (The) 6,500 204,360
Northrop Grumman Corp. 4,000 149,440
United Technologies Corp. 13,000 530,790
-----------
884,590
AIR FREIGHT & LOGISTICS--0.71%
United Parcel Services, Inc. (Class B) 7,700 317,086
COMMERCIAL SERVICES & SUPPLIES--0.47%
Deluxe Corp. 8,000 61,760
Sovran Self Storage, Inc. 7,000 147,770
-----------
209,530
ELECTRICAL EQUIPMENT--0.08%
Tyco Electronics Ltd. 3,750 35,550
INDUSTRIAL CONGLOMERATES--2.87%
3M Co. 10,200 463,692
General Electric Co. 86,500 736,115
Tyco International Ltd. 3,750 75,188
-----------
1,274,995
MACHINERY--0.22%
Barnes Group Inc. 10,500 97,860
ROAD & RAIL--0.46%
Burlington Northern Santa Fe Corp. 3,500 205,695
TRANSPORTATION--0.52%
Seaspan Corp. 25,000 231,250
-----------
TOTAL INDUSTRIALS--7.32% 3,256,55
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--1.82%
Harris Corp. 12,750 475,320
Motorola, Inc. 25,000 88,000
Nokia ADR 8,000 74,880
QUALCOMM Inc. 5,075 169,657
-----------
807,857
</Table>
15
<Page>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
COMPUTERS & PERIPHERALS--1.86%
Diebold, Inc. 8,250 $ 182,490
International Business Machines Corp. 7,000 644,210
-----------
826,700
INTERNET SOFTWARE & SERVICES--0.04%
StarTek, Inc.* 6,000 18,900
OFFICE ELECTRONICS--0.34%
Pitney Bowes Inc. 7,925 152,873
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.73%
Intel Corp. 43,100 549,094
Linear Technology Corp. 10,000 218,000
-----------
767,094
SOFTWARE--1.56%
Microsoft Corp. 43,000 694,450
-----------
TOTAL INFORMATION TECHNOLOGY--7.35% 3,267,874
-----------
MATERIALS--
CHEMICALS--1.20%
Dow Chemical Co. (The) 17,000 121,720
E. I. du Pont de Nemours and Co. 10,000 187,600
PPG Industries, Inc. 7,200 223,632
-----------
532,952
METALS & MINING--0.21%
Alcoa Inc. 15,000 93,450
PAPER & FOREST PRODUCTS--0.41%
Potlatch Corp. 8,000 182,160
-----------
TOTAL MATERIALS--1.82% 808,56
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--6.75%
AT&T Inc. 49,950 1,187,311
FairPoint Communications, Inc. 55,197 108,738
Frontier Communications Corp. 50,000 360,000
Verizon Communications Inc. 37,000 1,055,610
Windstream Corp. 39,000 290,940
-----------
3,002,599
WIRELESS TELECOMMUNICATION SERVICES--0.29%
Rogers Communications, Inc. 5,425 127,271
-----------
TOTAL TELECOMMUNICATION SERVICES--7.04% 3,129,870
-----------
UTILITIES--
ELECTRIC UTILITIES--7.28%
Allegheny Energy, Inc. 6,800 160,752
Ameren Corp. 10,900 259,202
Consolidated Edison, Inc. 13,000 470,730
DTE Energy Co. 16,000 428,320
Duke Energy Corp. 34,000 457,980
FPL Group Inc. 4,550 206,251
Integrys Energy Group, Inc. 7,500 180,375
PPL Corp. 3,950 110,166
Pinnacle West Capital Corp. 13,000 341,380
Progress Energy, Inc. 9,000 318,780
Southern Co. 10,000 303,100
-----------
3,237,036
GAS UTILITIES--1.29%
Nicor Inc. 7,000 219,660
NiSource Inc. 27,000 236,250
Sempra Energy 2,875 119,514
-----------
575,424
-----------
TOTAL UTILITIES--8.57% 3,812,460
-----------
TOTAL COMMON STOCK--98.70%
(Cost $70,677,779) 43,908,560
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 0.00% (a) 98,055 98,055
-----------
TOTAL MONEY MARKET FUND--0.22%
(Cost $98,055) 98,055
-----------
COMMERCIAL PAPER FACE
AMOUNT
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--0.74%
Volvo Treasury, 2.30%, 03/02/09 $330,000 329,958
-----------
TOTAL FINANCIALS--0.74% 329,958
-----------
TOTAL COMMERCIAL PAPER--0.74%
(Cost $329,958) 329,958
-----------
TOTAL INVESTMENTS--99.66%
(Cost $71,105,792) 44,336,573
CASH AND OTHER ASSETS, LESS LIABILITIES--0.34% 153,075
-----------
NET ASSETS--100.00% $44,489,648
===========
</Table>
16
<Page>
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2009. 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.
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 5.96%
Consumer Staples 15.93%
Energy 15.47%
Financials 17.33%
Health Care 12.89%
Industrials 7.35%
Information Technology 7.37%
Materials 1.82%
Miscellaneous 0.22%
Telecommunication Services 7.06%
Utilities 8.60%
</Table>
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $71,007,737) $ 44,238,518
Investment in affiliated money market fund (Cost $98,055) 98,055
------------
Total investments (Cost $71,105,792) 44,336,573
Prepaid expenses 42,871
Receivable for:
Capital stock sold 3,798
Dividends 259,403
Expense reimbursement 1,497
Other assets 62,734
------------
TOTAL ASSETS 44,706,876
------------
LIABILITIES
Capital stock reacquired 117,941
Payable to investment adviser for fund expenses 46,230
Accrued:
Investment advisory fees 28,586
Administrative service fees 9,529
Distribution fees 6,387
Other liabilities 9,545
------------
TOTAL LIABILITIES 218,218
------------
NET ASSETS $ 44,488,658
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 72,110,857
Undistributed net investment income 395,288
Accumulated net realized loss on investments (1,248,268)
Net unrealized depreciation of investments (26,769,219)
------------
Net Assets $ 44,488,658
============
NET ASSETS:
Class A $ 3,692,746
Class B $ 1,551,047
Class T $ 39,244,865
------------
TOTAL NET ASSETS: $ 44,488,658
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 361,541
Class B:
Authorized 25,000,000
Outstanding 158,200
Class T:
Authorized 75,000,000
Outstanding 3,665,232
Class A:
Net asset value and redemption price per share $ 10.21
Offering price per share: (Net assets value of $10.21 / 95%) $ 10.75
Class B:
Net asset value and offering price per share $ 9.80
Class T:
Net asset value and redemption price per share $ 10.71
Offering price per share: (Net assets value of $10.71 / 94.25%) $ 11.36
</Table>
See notes to financial statements.
18
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $3,719) $ 1,427,979
Interest 6,328
Interest from affiliated money market fund 689
------------
TOTAL INVESTMENT INCOME 1,434,996
------------
EXPENSES
Investment advisory fees 224,109
Administrative service fees 74,703
Professional fees 7,038
Custody and transaction fees 5,239
Directors' fees and expenses 4,903
Compliance expenses 7,011
Qualification fees
Class A 272
Class B 257
Class T 657
Shareholder reporting expenses
Class A 1,001
Class B 410
Class T 10,169
Distribution fees
Class A 6,355
Class B 7,869
Insurance expenses 14,281
------------
TOTAL EXPENSES 364,274
LESS EXPENSES REIMBURSED (6,515)
------------
NET EXPENSES 357,759
------------
INVESTMENT INCOME--NET 1,077,237
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (1,235,170)
Change in unrealized depreciation of investments (32,001,010)
------------
NET LOSS ON INVESTMENTS (33,236,180)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(32,158,943)
============
</Table>
See notes to financial statements.
19
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2009 2008
---------------- ------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,077,237 $ 2,289,554
Net realized gain (loss) on investments (1,235,170) 5,110,151
Change in unrealized depreciation of investments (32,001,010) (17,227,147)
------------ ------------
Net decrease in net assets resulting from operations (32,158,943) (9,827,442)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (93,556) (217,885)
Class B (37,090) (87,891)
Class T (965,076) (2,091,434)
Capital gains
Class A (389,186) (544,666)
Class B (169,693) (256,895)
Class T (3,947,970) (4,643,731)
------------ ------------
Total distributions to shareholders (5,602,571) (7,842,502)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (230,773) (1,735,565)
Class B 32,039 (1,732,818)
Class T 2,118,764 (3,462,948)
------------ ------------
Total capital share transactions--net 1,920,030 (6,931,331)
------------ ------------
TOTAL DECREASE IN NET ASSETS (35,841,484) (24,601,275)
NET ASSETS
Beginning of period 80,330,142 104,931,417
------------ ------------
End of period $ 44,488,658 $ 80,330,142
============ ============
Undistributed Net Investment Income $ 395,288 $ 413,773
============ ============
</Table>
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 A SHARES
------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------- ------ ------ ------
Net asset value, beginning of period $ 19.26 $ 23.40 $ 23.12 $23.22 $22.11 $20.03
Income (loss) from investment operations
Investment income--net 0.24 0.48 0.64 0.45 0.35 0.26
Net realized and unrealized gain (loss) on investments (7.88) (2.75) 1.71 1.70 1.68 2.10
------- ------- ------- ------ ------ ------
Total from investment operations (7.64) (2.27) 2.35 2.15 2.03 2.36
Less distributions
Investment income--net (0.26) (0.53) (0.68) (0.40) (0.39) (0.28)
Capital gains (1.15) (1.34) (1.39) (1.85) (0.53) --
------- ------- ------- ------ ------ ------
Total distributions (1.41) (1.87) (2.07) (2.25) (0.92) (0.28)
------- ------- ------- ------ ------ ------
Net asset value, end of period $ 10.21 $ 19.26 $ 23.40 $23.12 $23.22 $22.11
======= ======= ======= ====== ====== ======
Total return (1) (41.11)%** (10.34)% 10.31% 9.89% 9.25% 11.79%
======= ======= ======= ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 3,693 $ 7,150 $10,524 $9,269 $9,088 $8,063
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 1.45%* 1.49% 1.43% 1.54% 1.50% 1.43%
Ratio of net investment income to average net assets 3.56%* 2.47% 2.57% 2.00% 1.53% 1.08%
Portfolio turnover rate 3.67% 11.88% 11.40% 47.59% 18.45% 6.74%
</Table>
<Table>
<Caption>
CLASS B SHARES
-------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------ ------ ------ ------
Net asset value, beginning of period $ 18.58 $ 22.63 $22.33 $22.49 $21.46 $19.44
Income (loss) from investment operations
Investment income--net 0.23 0.15 0.40 0.29 0.23 0.13
Net realized and unrealized gain (loss) on investments (7.61) (2.42) 1.84 1.69 1.61 2.07
------- ------- ------ ------ ------ ------
Total from investment operations (7.38) (2.27) 2.24 1.98 1.84 2.20
Less distributions
Investment income--net (0.25) (0.44) (0.55) (0.29) (0.28) (0.18)
Capital gains (1.15) (1.34) (1.39) (1.85) (0.53) --
------- ------- ------ ------ ------ ------
Total distributions (1.40) (1.78) (1.94) (2.14) (0.81) (0.18)
------- ------- ------ ------ ------ ------
Net asset value, end of period $ 9.80 $ 18.58 $22.63 $22.33 $22.49 $21.46
======= ======= ====== ====== ====== ======
Total return (1) (41.23)%** (10.72)% 10.20% 9.40% 8.64% 11.36%
======= ======= ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 1,551 $ 2,863 $5,373 $6,759 $7,744 $7,375
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 1.97%* 2.09% 1.95% 2.06% 2.05% 1.95%
Ratio of net investment income to average net assets 3.07%* 1.98% 2.09% 1.45% 1.04% 0.58%
Portfolio turnover rate 3.67% 11.88% 11.40% 47.59% 18.45% 6.74%
</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, 2009.
See notes to financial statements.
21
<Page>
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 20.10 $ 24.40 $ 23.97 $ 23.97 $ 22.77 $ 20.56
Income (loss) from investment operations
Investment income--net 0.27 0.50 0.69 0.50 0.40 0.28
Net realized and unrealized gain (loss) on investments (8.23) (2.95) 1.81 1.76 1.72 2.21
------- ------- ------- ------- ------- -------
Total from investment operations (7.96) (2.45) 2.50 2.26 2.12 2.49
Less distributions
Investment income--net (0.28) (0.51) (0.68) (0.41) (0.39) (0.28)
Capital gains (1.15) (1.34) (1.39) (1.85) (0.53) --
------- ------- ------- ------- ------- -------
Total distributions (1.43) (1.85) (2.07) (2.26) (0.92) (0.28)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.71 $ 20.10 $ 24.40 $ 23.97 $ 23.97 $ 22.77
======= ======= ======= ======= ======= =======
Total return (1) (41.02)%** (10.35)% 10.60% 10.04% 9.35% 12.14%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $39,245 $70,316 $89,034 $90,698 $95,744 $97,802
Ratio of expenses to average net assets 1.18%* 1.14% 1.12% 1.15% 1.14% 1.10%
Ratio of net investment income to average net assets 3.66%* 2.58% 2.72% 2.09% 1.66% 1.24%
Portfolio turnover rate 3.67%* 11.88% 11.40% 47.59% 18.45% 6.74%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
22
<Page>
SCHEDULE OF INVESTMENTS February 28, 2009 (Unaudited)
SM&R BALANCED FUND
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.09%
Host Hotels & Resorts Inc.* 2,265 $ 8,380
McDonald's Corp. 2,500 130,625
Starwood Hotels & Resorts
Worldwide, Inc. 3,000 34,770
Wyndham Worldwide Corp. 1,020 3,764
-----------
177,539
HOUSEHOLD DURABLES--0.69%
Newell Rubbermaid Inc. 3,800 21,470
Stanley Works (The) 3,400 90,984
-----------
112,454
LEISURE EQUIPMENT & PRODUCTS--0.05%
Eastman Kodak Co. 2,450 7,815
MEDIA--0.85%
CBS Corp. (Class B) 2,000 8,540
Viacom Inc. (Class B)* 2,000 30,780
Walt Disney Co. (The) 6,000 100,620
-----------
139,940
MULTILINE RETAIL--1.10%
J.C. Penney Co., Inc. 4,025 61,703
Target Corp. 4,150 117,487
-----------
179,190
SPECIALTY RETAIL--1.89%
Best Buy Co., Inc. 3,000 86,460
Limited Brands, Inc. 7,600 58,444
Lowe's Companies, Inc. 5,800 91,872
TJX Companies, Inc. (The) 3,200 71,264
-----------
308,040
-----------
TOTAL CONSUMER DISCRETIONARY--5.67% 924,978
-----------
CONSUMER STAPLES--
BEVERAGES--1.85%
Coca-Cola Co. (The) 3,500 142,975
International Flavors & Fragrances Inc. 900 23,679
PepsiCo, Inc. 2,800 134,792
-----------
301,446
FOOD PRODUCTS--1.36%
H.J. Heinz Co. 2,600 84,942
McCormick & Co., Inc. (c) 2,000 62,700
Sensient Technologies Corp. 3,700 74,740
-----------
222,382
FOOD & STAPLES RETAILING--2.01%
CVS Caremark Corp. 3,000 77,220
SUPERVALU, INC. 3,475 54,245
Wal-Mart Stores, Inc. 4,000 196,960
-----------
328,425
HOUSEHOLD PRODUCTS--2.02%
Kimberly-Clark Corp. 2,200 103,642
Procter & Gamble Co. (The) 4,700 226,399
-----------
330,041
PERSONAL PRODUCTS--1.12%
Alberto-Culver Co. 1,800 39,852
Avon Products, Inc. 3,050 53,649
Colgate-Palmolive Co. 1,475 88,765
-----------
182,266
TOBACCO--0.42%
Philip Morris International Inc. 2,050 68,614
-----------
TOTAL CONSUMER STAPLES--8.78% 1,433,17
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.47%
Oceaneering International, Inc.* 1,500 47,655
Schlumberger Ltd. 2,200 83,732
Transocean Ltd.* 900 53,793
Weatherford International Ltd.* 5,200 55,484
-----------
240,664
OIL, GAS & CONSUMABLE FUELS--7.49%
Anadarko Petroleum Corp. 4,000 139,800
BP PLC ADR 3,500 134,260
Chevron Corp. 3,051 185,226
Exxon Mobil Corp. 9,000 611,100
Royal Dutch Shell PLC 3,000 131,910
Spectra Energy Corp. 1,500 19,500
-----------
1,221,796
-----------
TOTAL ENERGY--8.96% 1,462,460
-----------
FINANCIALS--
COMMERCIAL BANKS--1.53%
Bank of America Corp. 10,000 39,500
PNC Financial Services Group, Inc. 3,000 82,020
U.S. Bancorp 5,000 71,550
Wells Fargo & Co. 4,716 57,064
-----------
250,134
DIVERSIFIED FINANCIAL SERVICES--3.02%
Allied Capital Corp. 3,400 3,638
Charles Schwab Corp. (The) 5,600 71,176
</Table>
23
<Page>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
Citigroup Inc. 14,500 $ 21,750
Discover Financial Services 3,000 17,190
Goldman Sachs Group, Inc. (The) 700 63,756
JPMorgan Chase & Co. 6,500 148,525
Morgan Stanley 5,000 97,700
Principal Financial Group, Inc. 3,850 30,762
State Street Corp. 1,500 37,905
-----------
492,402
INSURANCE--2.50%
Allstate Corp. (The) 2,300 38,709
Aspen Insurance Holdings Ltd. 4,125 89,884
Hartford Financial Services
Group, Inc. (The) 1,375 8,387
Prudential Financial, Inc. 3,000 49,230
RenaissanceRe Holdings Ltd. 1,700 76,551
Travelers Companies, Inc. (The) 4,000 144,600
-----------
407,361
-----------
TOTAL FINANCIALS--7.05% 1,149,897
-----------
HEALTH CARE--
BIOTECHNOLOGY--2.14%
Amgen Inc.* 1,300 63,609
Genentech, Inc.* 1,925 164,684
Genzyme Corp.* 875 53,314
Gilead Sciences, Inc.* 1,500 67,200
-----------
348,807
HEALTH CARE PROVIDERS & SERVICES--1.00%
DaVita, Inc.* 925 43,401
Patterson Companies Inc.* 1,500 27,105
UnitedHealth Group Inc. 2,050 40,283
WellPoint Inc.* 1,550 52,576
-----------
163,365
HEALTH EQUIPMENT & SUPPLIES--1.14%
Beckman Coulter, Inc. 1,400 62,776
Covidien Ltd. 900 28,503
Hologic, Inc.* 1,750 19,810
Varian Medical Systems, Inc.* 1,300 39,663
Zimmer Holdings, Inc.* 1,000 35,020
-----------
185,772
PHARMACEUTICALS--6.17%
Abbott Laboratories 2,500 118,350
Eli Lilly & Co. 3,850 113,113
Endo Pharmaceuticals Holdings Inc.* 1,750 33,215
Johnson & Johnson 5,000 250,000
Merck & Co. Inc. 5,300 128,260
Pfizer Inc. 15,000 184,650
Wyeth 4,400 179,608
-----------
1,007,196
-----------
TOTAL HEALTH CARE--10.45% 1,705,140
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--2.33%
Boeing Co. (The) 2,075 65,238
General Dynamics Corp. 1,300 56,966
Goodrich Corp. 1,700 56,338
L-3 Communications Holdings, Inc. 900 60,885
Northrop Grumman Corp. 1,200 44,832
Rockwell Collins, Inc. 1,225 38,220
United Technologies Corp. 1,400 57,162
-----------
379,641
AIR FREIGHT & LOGISTICS--0.68%
FedEx Corp. 875 37,809
United Parcel Services, Inc. (Class B) 1,775 73,094
-----------
110,903
ELECTRICAL EQUIPMENT--0.05%
Tyco Electronics Ltd. 900 8,532
INDUSTRIAL CONGLOMERATES--1.68%
3M Co. 1,925 87,510
General Electric Co. 19,750 168,072
Tyco International Ltd. 900 18,045
-----------
273,627
MACHINERY--1.06%
Barnes Group Inc. 2,000 18,640
Caterpillar Inc. 1,100 27,071
Danaher Corp. 1,000 50,760
Illinois Tool Works Inc. 1,800 50,040
Ingersoll-Rand Co. Ltd (Class A) 1,900 26,942
-----------
173,453
ROAD & RAIL--0.34%
Burlington Northern Santa Fe Corp. 950 55,831
TRANSPORTATION--0.13%
Seaspan Corp. 2,250 20,813
-----------
TOTAL INDUSTRIALS--6.27% 1,022,800
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--2.80%
Arris Group Inc.* 6,500 39,780
Cisco Systems, Inc.* 10,225 148,978
Harris Corp. 2,300 85,744
</Table>
24
<Page>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
Motorola, Inc. 6,200 $ 21,824
Nokia ADR 6,500 60,840
QUALCOMM Inc. 3,000 100,290
-----------
457,456
COMPUTERS & PERIPHERALS--3.38%
Apple Inc.* 1,500 133,965
EMC Corp.* 6,000 63,000
Hewlett-Packard Co. 4,500 130,635
International Business Machines Corp. 2,425 223,173
-----------
550,773
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.51%
Agilent Technologies, Inc.* 2,000 27,740
Thermo Fisher Scientific, Inc.* 1,525 55,297
-----------
83,037
INTERNET SOFTWARE & SERVICES--0.47%
Akamai Technologies, Inc.* 1,900 34,371
Research In Motion Ltd.* 1,050 41,937
-----------
76,308
IT SERVICES--0.20%
Global Payments Inc. 1,075 32,981
OFFICE ELECTRONICS--0.20%
Pitney Bowes Inc. 1,725 33,275
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.43%
Intel Corp. 11,000 140,140
Linear Technology Corp. 2,000 43,600
Texas Instruments Inc. 3,400 48,790
-----------
232,530
SOFTWARE--2.75%
Amdocs Ltd.* 1,550 25,963
Electronic Arts Inc.* 1,500 24,465
Microsoft Corp. 17,000 274,550
Oracle Corp.* 8,000 124,320
-----------
449,298
-----------
TOTAL INFORMATION TECHNOLOGY--11.74% 1,915,658
-----------
MATERIALS--
CHEMICALS--0.64%
Airgas, Inc. 1,100 33,869
Dow Chemical Co. (The) 1,600 11,456
PPG Industries, Inc. 900 27,954
E. I. du Pont de Nemours and Co. 1,700 31,892
-----------
105,171
METALS & MINING--0.17%
Nucor Corp. 700 23,555
United States Steel Corp. 200 3,934
-----------
27,489
PAPER & FOREST PRODUCTS--0.06%
MeadWestvaco Corp. 1,000 9,340
-----------
TOTAL MATERIALS--0.87% 142,000
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--2.93%
AT&T Inc. 11,325 269,195
FairPoint Communications, Inc. 102 201
Verizon Communications Inc. 5,450 155,489
Windstream Corp. 7,100 52,966
-----------
477,851
WIRELESS TELECOMMUNICATION SERVICES--0.41%
American Tower Corp.* 1,250 36,400
Rogers Communications, Inc. 1,300 30,498
-----------
66,898
-----------
TOTAL TELECOMMUNICATION SERVICES--3.34% 544,749
-----------
UTILITIES--
ELECTRIC UTILITIES--2.77%
Allegheny Energy, Inc. 1,600 37,824
Ameren Corp. 3,000 71,340
CenterPoint Energy, Inc. 2,000 20,640
Constellation Energy Group 3,000 59,280
Duke Energy Corp. 2,000 26,940
Exelon Corp. 1,400 66,108
FPL Group, Inc. 1,100 49,863
NRG Energy, Inc.* 1,250 23,625
PPL Corp. 925 25,798
Southern Co. 2,300 69,713
-----------
451,131
GAS UTILITIES--0.17%
Sempra Energy 675 28,060
-----------
TOTAL UTILITIES--2.94% 479,191
-----------
TOTAL COMMON STOCK--66.07%
(Cost $16,525,315) 10,780,047
-----------
</Table>
25
<Page>
<Table>
<Caption>
FACE
CORPORATE BONDS AMOUNT VALUE
CONSUMER STAPLES--
PERSONAL PRODUCTS--3.13%
Avon Products, Inc.,
7.15%, 11/15/09 (b) $500,000 $ 511,243
-----------
TOTAL CONSUMER STAPLES--3.13% 511,243
-----------
FINANCIALS--
COMMERCIAL BANKS--4.31%
Royal Bank of Scotland GRP PLC,
yankee bond, 6.40%, 04/01/09 (b) 500,000 497,771
Washington Mutual, Inc.,
4.20%, 01/15/10 (b) 250,000 206,250
-----------
704,021
DIVERSIFIED FINANCIAL SERVICES--10.76%
Ameriprise Financial, Inc.,
5.65%, 11/15/15 500,000 424,100
General Electric Capital Corp.,
3.75%, 12/15/09 (b) 350,000 350,304
Goldman Sachs Group (The),
5.30%, 02/14/12 500,000 483,497
Weingarten Realty Investors,
7.35%, 07/20/09 (b) 500,000 496,747
-----------
1,754,648
INSURANCE--3.07%
Mony Group Inc. (The),
8.35%, 03/15/10 500,000 500,518
-----------
TOTAL FINANCIALS--18.14% 2,959,187
-----------
INDUSTRIALS--
ELECTRICAL EQUIPMENT--3.09%
Emerson Electric Co., 5.25%, 10/15/18 500,000 504,102
ROAD & RAIL--2.50%
Vulcan Materials, 6.40%, 11/30/17 500,000 408,287
TRANSPORTATION--1.82%
Hertz Corp., 7.40%, 03/01/11 455,000 295,750
-----------
TOTAL INDUSTRIALS--7.41% 1,208,139
-----------
TOTAL CORPORATE BONDS--28.68%
(Cost $5,004,513) 4,678,569
-----------
U S GOVERNMENT AGENCY SECURITIES--
U S GOVERNMENT AGENCY SECURITIES--0.15%
Federal Home Loan Mortgage Corp.,
Pool #284839, 8.50%, 01/01/17 3,060 3,291
Federal National Mortgage
Association, Pool #048974, 8.00%, 06/01/17 19,649 20,884
-----------
24,175
-----------
TOTAL US GOVERNMENT AGENCY SECURITIES--0.15%
(Cost $22,536) 24,175
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 0.00% (a) 39,678 39,678
-----------
TOTAL MONEY MARKET FUND--0.24%
(Cost $39,678) 39,678
-----------
COMMERCIAL PAPER FACE
AMOUNT
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--3.92%
Volvo Treasury, 5.30%, 03/02/09 $640,000 639,918
-----------
TOTAL FINANCIALS--3.92% 639,918
-----------
TOTAL COMMERCIAL PAPER--3.92%
(Cost $639,918) 639,918
-----------
TOTAL INVESTMENTS--99.06%
(Cost $22,231,960) 16,162,387
CASH AND OTHER ASSETS, LESS LIABILITIES--0.94% 153,324
-----------
NET ASSETS--100.00% $16,315,711
===========
</Table>
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2009. 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
See notes to financial statements.
26
<Page>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 5.72%
Consumer Staples 12.03%
Energy 9.05%
Financials 29.38%
Health Care 10.55%
Industrials 13.80%
Information Technology 11.85%
Materials 0.88%
Miscellaneous 0.25%
Telecommunication Services 3.37%
U S Government 0.15%
Utilities 2.97%
</Table>
27
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R BALANCED FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $22,192,282) $16,122,709
Investment in affiliated money market fund (Cost $39,678) 39,678
-----------
Total investments (Cost $22,231,960) 16,162,387
Prepaid expenses 30,975
Receivable for:
Investment securities sold 89
Capital stock sold 932
Dividends 51,954
Interest 105,003
Expense reimbursement 3,755
Other assets 15,158
-----------
TOTAL ASSETS 16,370,253
-----------
LIABILITIES
Capital stock reacquired 11,243
Payable to investment adviser for fund expenses 21,175
Accrued:
Investment advisory fees 10,080
Administrative service fees 3,360
Distribution fees 3,216
Other liabilities 5,468
-----------
TOTAL LIABILITIES 54,542
-----------
NET ASSETS $16,315,711
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $23,161,301
Undistributed net investment income 92,566
Accumulated net realized loss on investments (868,583)
Net unrealized depreciation of investments (6,069,573)
-----------
Net Assets $16,315,711
===========
NET ASSETS:
Class A $ 2,149,686
Class B $ 814,994
Class T $13,351,031
-----------
TOTAL NET ASSETS $16,315,711
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 211,305
Class B:
Authorized 25,000,000
Outstanding 79,268
Class T:
Authorized 25,000,000
Outstanding 1,257,767
Class A:
Net asset value and redemption price per share $ 10.17
Offering price per share: (Net assets value of $10.17 / 95%) $ 10.71
Class B:
Net asset value and offering price per share $ 10.28
Class T:
Net asset value and redemption price per share $ 10.61
Offering price per share: (Net assets value of $10.61 / 94.25%) $ 11.26
</Table>
See notes to financial statements.
28
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
SM&R BALANCED FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $446) $ 231,405
Interest 175,585
Interest from affiliated money market fund 323
-----------
TOTAL INVESTMENT INCOME 407,313
-----------
EXPENSES
Investment advisory fees 72,870
Administrative service fees 24,290
Professional fees 3,546
Custody and transaction fees 8,810
Directors' fees and expenses 4,903
Compliance expenses 2,163
Qualification fees
Class A 205
Class B 152
Class T 492
Shareholder reporting expenses
Class A 406
Class B 154
Class T 2,542
Distribution fees
Class A 3,261
Class B 3,530
Insurance expenses 4,450
-----------
TOTAL EXPENSES 131,774
LESS EXPENSES REIMBURSED (8,669)
-----------
NET EXPENSES 123,105
-----------
INVESTMENT INCOME--NET 284,208
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (868,580)
Change in unrealized appreciation of investments (7,467,175)
-----------
NET LOSS ON INVESTMENTS (8,335,755)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(8,051,547)
===========
</Table>
See notes to financial statements.
29
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- -----------
2009 2008
---------------- -----------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 284,208 $ 507,741
Net realized gain (loss) on investments (868,580) 1,242,751
Change in unrealized depreciation of investments (7,467,175) (3,968,875)
------------ -----------
Net decrease in net assets resulting from operations (8,051,547) (2,218,383)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (40,131) (67,234)
Class B (12,087) (21,861)
Class T (235,336) (426,224)
Capital gains
Class A (143,495) (62,795)
Class B (49,091) (28,506)
Class T (828,203) (403,880)
------------ -----------
Total distributions to shareholders (1,308,343) (1,010,500)
------------ -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 240,090 (815,659)
Class B 38,235 (770,842)
Class T 720,923 (706,435)
------------ -----------
Total capital share transactions--net 999,248 (2,292,936)
------------ -----------
TOTAL DECREASE IN NET ASSETS (8,360,642) (5,521,819)
NET ASSETS
Beginning of period 24,676,353 30,198,172
------------ -----------
End of period $ 16,315,711 $24,676,353
============ ===========
Undistributed Net Investment Income $ 92,566 $ 95,912
============ ===========
</Table>
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 A SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------
2009 2008 2007 2006 2005 2004
------- ------ ------ ------ ------ ------
Net asset value, beginning of period $ 16.28 $18.37 $17.91 $18.19 $17.60 $16.65
Income (loss) from investment operations
Investment income--net 0.20 0.29 0.36 0.32 0.35 0.28
Net realized and unrealized gain (loss) on investments (5.41) (1.72) 1.57 0.50 0.65 1.18
------- ------ ------ ------ ------ ------
Total from investment operations (5.21) (1.43) 1.93 0.82 1.00 1.46
Less distributions
Investment income--net (0.20) (0.33) (0.37) (0.31) (0.35) (0.30)
Capital gains (0.70) (0.33) (1.10) (0.79) (0.06) (0.21)
------- ------ ------ ------ ------ ------
Total distributions (0.90) (0.66) (1.47) (1.10) (0.41) (0.51)
------- ------ ------ ------ ------ ------
Net asset value, end of period $ 10.17 $16.28 $18.37 $17.91 $18.19 $17.60
======= ====== ====== ====== ====== ======
Total return (1) (32.70)%** (8.01)% 11.09% 4.65% 5.73% 8.83%
======= ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 2,150 $3,174 $4,376 $4,430 $5,030 $4,409
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 1.56%* 1.67% 1.54% 1.71% 1.73% 1.64%
Ratio of net investment income to average net assets 2.92%* 1.88% 1.93% 1.90% 1.85% 1.51%
Portfolio turnover rate 6.92% 19.79% 8.35% 21.82% 23.18% 11.15%
</Table>
<Table>
<Caption>
CLASS B SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------
2009 2008 2007 2006 2005 2004
------- ------ ------ ------ ------ ------
Net asset value, beginning of period $ 16.47 $18.56 $18.08 $18.37 $17.78 $16.83
Income (loss) from investment operations
Investment income--net 0.18 0.09 0.21 0.24 0.25 0.20
Net realized and unrealized gain (loss) on investments (5.50) (1.63) 1.67 0.51 0.66 1.19
------- ------ ------ ------ ------ ------
Total from investment operations (5.32) (1.54) 1.88 0.75 0.91 1.39
Less distributions
Investment income--net (0.17) (0.22) (0.30) (0.25) (0.26) (0.23)
Capital gains (0.70) (0.33) (1.10) (0.79) (0.06) (0.21)
------- ------ ------ ------ ------ ------
Total distributions (0.87) (0.55) (1.40) (1.04) (0.32) (0.44)
------- ------ ------ ------ ------ ------
Net asset value, end of period $ 10.28 $16.47 $18.56 $18.08 $18.37 $17.78
======= ====== ====== ====== ====== ======
Total return (1) (32.98)%** (8.48)% 10.70% 4.20% 5.15% 8.33%
======= ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 815 $1,235 $2,171 $2,772 $3,095 $2,952
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 2.08%* 2.31% 2.07% 2.24% 2.23% 2.13%
Ratio of net investment income to average net assets 2.41%* 1.38% 1.43% 1.40% 1.36% 1.00%
Portfolio turnover rate 6.92% 19.79% 8.35% 21.82% 23.18% 11.15%
</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, 2009.
See notes to financial statements.
31
<Page>
<Table>
<Caption>
CLASS T SHARES
----------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------
2009 2008 2007 2006 2005 2004
------- ------- ------- ------- ------- -------
Net asset value, beginning of period $ 16.94 $ 19.13 $ 18.60 $ 18.85 $ 18.21 $ 17.18
Income (loss) from investment operations
Investment income--net 0.19 0.35 0.39 0.36 0.36 0.29
Net realized and unrealized gain (loss) on investments (5.62) (1.86) 1.65 0.51 0.68 1.24
------- ------- ------- ------- ------- -------
Total from investment operations (5.43) (1.51) 2.04 0.87 1.04 1.53
Less distributions
Investment income--net (0.20) (0.35) (0.41) (0.33) (0.34) (0.29)
Capital gains (0.70) (0.33) (1.10) (0.79) (0.06) (0.21)
------- ------- ------- ------- ------- -------
Total distributions (0.90) (0.68) (1.51) (1.12) (0.40) (0.50)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.61 $ 16.94 $ 19.13 $ 18.60 $ 18.85 $ 18.21
======= ======= ======= ======= ======= =======
Total return (1) (32.73)%** (8.13)% 11.28% 4.79% 5.77% 8.95%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $13,351 $20,267 $23,651 $22,373 $22,798 $22,785
Ratio of expenses with reimbursement to average net assets 1.25%* 1.24% 1.20% 1.25% 1.24% 1.23%
Ratio of expenses without reimbursement to average net assets 1.30%* 1.24% 1.20% 1.29% 1.24% 1.23%
Ratio of net investment income to average net assets 2.98%* 1.93% 2.02% 1.95% 1.92% 1.58%
Portfolio turnover rate 6.92% 19.79% 8.35% 21.82% 23.18% 11.15%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
32
<Page>
SCHEDULE OF INVESTMENTS February 28, 2009 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
CORPORATE BONDS DATE RATE(%) AMOUNT VALUE
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--1.57%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 507,456
-----------
TOTAL FINANCIALS--1.57% 507,456
-----------
MATERIALS--
METALS & MINING--3.04%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 986,333
-----------
TOTAL MATERIALS--3.04% 986,333
-----------
TOTAL CORPORATE BONDS--4.61%
(Cost $1,506,277) 1,493,789
-----------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--27.41%
Federal Home Loan Bank (b) 07/17/09 5.375 1,250,000 1,272,314
Federal Home Loan Mortgage Corp. 11/15/13 4.875 1,000,000 1,098,991
Federal National Mortgage Assoc. (b) 02/15/10 3.875 1,100,000 1,128,023
Federal National Mortgage Assoc. 12/15/10 4.750 1,900,000 2,006,875
Federal National Mortgage Assoc. 02/01/11 6.250 1,850,000 1,953,598
Federal National Mortgage Assoc. 03/15/11 5.500 1,300,000 1,402,296
Private Export Funding Corp. (b) 01/15/10 7.200 15,000 15,787
-----------
8,877,884
U S GOVERNMENT SECURITIES--45.23%
U S Treasury Bond 05/15/16 7.250 800,000 1,016,062
U S Treasury Bond 05/15/17 8.750 2,375,000 3,306,074
U S Treasury Note 08/31/11 4.625 1,500,000 1,626,563
U S Treasury Note 10/31/11 4.625 2,500,000 2,717,970
U S Treasury Note 11/15/12 4.000 2,000,000 2,173,438
U S Treasury Note 05/15/14 4.750 1,319,000 1,500,981
U S Treasury Note 02/15/15 4.000 600,000 657,375
U S Treasury Note 05/15/15 4.125 1,500,000 1,648,125
-----------
14,646,588
-----------
TOTAL U S GOVERNMENT AGENCY AND U S GOVERNMENT
SECURITIES--72.64%
(Cost $21,981,189) 23,524,472
-----------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--8.34%
Federal Home Loan Bank 03/02/09 0.180 1,000,000 999,990
Federal Home Loan Bank 03/10/09 0.250 1,264,000 1,263,912
Federal Home Loan Bank 03/27/09 0.310 436,000 435,899
-----------
2,699,801
-----------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM
OBLIGATIONS--8.34%
(Cost $2,699,801) 2,699,801
-----------
</Table>
33
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT VALUE
FINANCIALS--
DIVERSIFIED FINANCIALS--5.00%
UBS Finance 03/06/09 0.380 $1,620,000 $ 1,619,897
-----------
TOTAL FINANCIALS--5.00% 1,619,897
-----------
UTILITIES--
ELECTRIC UTLITIES--3.24%
Midamerican Energy Co. 04/01/09 0.750 1,050,000 1,049,300
-----------
TOTAL UTILITIES--3.24% 1,049,300
-----------
INFORMATION TECHNOLOGY--
ELECTRONIC EQUIPMENT & INSTRUMENTS--4.99%
Sharp Electronics Corp. 03/19/09 0.450 1,615,000 1,614,616
-----------
TOTAL INFORMATION TECHNOLOGY--4.99% 1,614,616
-----------
TOTAL COMMERCIAL PAPER--13.23%
(Cost $4,283,813) 4,283,813
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 0.00% (a) 73,289 73,289
-----------
TOTAL MONEY MARKET FUND--0.23%
(Cost $73,289) 73,289
-----------
TOTAL INVESTMENTS--99.05%
(Cost $30,544,369) 32,075,164
CASH AND OTHER ASSETS, LESS LIABILITIES--0.95% 308,924
-----------
NET ASSETS--100.00% $32,384,088
===========
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2009. A complete listing of the fund's holdings are included in these
financial statements. This fund and the SM&R Government Bond Fund are
affiliated by having the same investment adviser.
(b) Long Term obligations that will mature in less than one year.
See notes to financial statements.
34
<Page>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
[CHART]
<Table>
Financials 6.63%
Information Technology 5.03%
Materials 3.08%
Miscellaneous 0.23%
U S Government 81.76%
Utilities 3.27%
</Table>
35
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $30,471,080) $ 32,001,875
Investment in affiliated money market fund (Cost $73,289) 73,289
------------
Total investments (Cost $30,544,369) 32,075,164
Cash and cash equivalents
Prepaid expenses 33,853
Receivable for:
Capital stock sold 295
Interest 313,105
Expense reimbursement 6,523
Other assets 2,900
------------
TOTAL ASSETS 32,431,840
------------
LIABILITIES
Capital stock reacquired 5,072
Distribution payable 311
Payable to investment adviser for fund expenses 20,721
Accrued:
Investment advisory fees 12,457
Administrative service fees 6,229
Distribution fees 1,742
Other liabilities 1,220
------------
TOTAL LIABILITIES 47,752
------------
NET ASSETS $ 32,384,088
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 31,303,130
Accumulated net investment loss (98)
Accumulated net realized loss on investments (449,739)
Net unrealized appreciation of investments 1,530,795
------------
Net Assets $ 32,384,088
============
NET ASSETS:
Class A $ 1,191,691
Class B $ 473,957
Class T $ 30,718,440
------------
TOTAL NET ASSETS $ 32,384,088
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,001,150
Outstanding 109,029
Class B:
Authorized 100,000,000
Outstanding 43,461
Class T:
Authorized 23,000,000
Outstanding 2,848,082
Class A:
Net asset value and redemption price per share $ 10.93
Offering price per share: (Net assets value of $10.93 / 95.25%) $ 11.48
Class B:
Net asset value and offering price per share $ 10.91
Class T:
Net asset value and redemption price per share $ 10.79
Offering price per share: (Net assets value of $10.79 / 95.5%) $ 11.30
</Table>
See notes to financial statements.
36
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $ 561,444
Interest from affiliated money market fund 959
----------
TOTAL INVESTMENT INCOME 562,403
----------
EXPENSES
Investment advisory fees 79,748
Administrative service fees 39,874
Professional fees 5,330
Custody and transaction fees 3,037
Directors' fees and expenses 4,903
Compliance expenses 2,801
Qualification fees
Class A 419
Class B 332
Class T 1,171
Shareholder reporting expenses
Class A 57
Class B 25
Class T 1,461
Distribution fees
Class A 1,461
Class B 1,935
Insurance expenses 5,676
----------
TOTAL EXPENSES 148,230
LESS EXPENSES REIMBURSED (30,356)
----------
NET EXPENSES 117,874
----------
INVESTMENT INCOME--NET 444,529
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Change in unrealized appreciation of investments 809,822
----------
NET GAIN ON INVESTMENTS 809,822
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,254,351
==========
</Table>
See notes to financial statements.
37
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- -----------
2009 2008
---------------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 444,529 $ 1,027,313
Net realized gain on investments -- 10,251
Change in unrealized appreciation of investments 809,822 643,633
----------- -----------
Net increase in net assets resulting from operations 1,254,351 1,681,197
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (16,267) (36,605)
Class B (5,912) (15,524)
Class T (420,391) (977,349)
----------- -----------
Total distributions to shareholders (442,570) (1,029,478)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 25,159 51,113
Class B (68,555) (70,134)
Class T 766,815 1,474,226
----------- -----------
Total capital share transactions--net 723,419 1,455,205
----------- -----------
TOTAL INCREASE IN NET ASSETS 1,535,200 2,106,924
NET ASSETS
Beginning of period 30,848,888 28,741,964
----------- -----------
End of period $32,384,088 $30,848,888
=========== ===========
Accumulated Net Investment Loss $ (98) $ (2,057)
=========== ===========
</Table>
See notes to financial statements.
38
<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 YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $10.65 $10.40 $10.30 $10.50 $10.56 $10.75
Income (loss) from investment operations
Investment income--net 0.15 0.36 0.42 0.36 0.25 0.23
Net realized and unrealized gain (loss)
on investments 0.28 0.25 0.10 (0.20) (0.06) 0.11
------ ------ ------ ------ ------ ------
Total from investment operations 0.43 0.61 0.52 0.16 0.19 0.34
Less distributions
Investment income--net (0.15) (0.36) (0.42) (0.36) (0.25) (0.23)
Capital gains -- -- -- -- (0.00)*** (0.30)
------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.36) (0.42) (0.36) (0.25) (0.53)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.93 $10.65 $10.40 $10.30 $10.50 $10.56
====== ====== ====== ====== ====== ======
Total return (1) 4.07%** 5.93% 5.15% 1.57% 1.93% 3.14%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,192 $1,137 $1,067 $ 976 $1,036 $ 983
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 1.22%* 1.76% 1.76% 2.19% 2.32% 2.04%
Ratio of net investment income to average net assets 2.79%* 3.41% 4.06% 3.46% 2.43% 2.13%
Portfolio turnover rate 0.00% 26.83% 50.01% 78.38% 51.35% 50.62%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $10.63 $10.39 $10.29 $10.49 $10.55 $10.74
Income (loss) from investment operations
Investment income--net 0.13 0.31 0.37 0.31 0.20 0.17
Net realized and unrealized gain (loss)
on investments 0.28 0.24 0.10 (0.20) (0.06) 0.11
------ ------ ------ ------ ------ ------
Total from investment operations 0.41 0.55 0.47 0.11 0.14 0.28
Less distributions
Investment income--net (0.13) (0.31) (0.37) (0.31) (0.20) (0.17)
Capital gains -- -- -- -- (0.00)*** (0.30)
------ ------ ------ ------ ------ ------
Total distributions (0.13) (0.31) (0.37) (0.31) (0.20) (0.47)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.91 $10.63 $10.39 $10.29 $10.49 $10.55
====== ====== ====== ====== ====== ======
Total return (1) 3.83%** 0.05% 4.66% 1.10% 1.44% 2.65%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 474 $ 529 $ 588 $ 696 $1,009 $1,131
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 1.78%* 2.65% 2.25% 2.55% 2.34% 2.06%
Ratio of net investment income to average net assets 2.30%* 2.93% 3.56% 2.94% 1.92% 1.65%
Portfolio turnover rate 0.00% 26.83% 50.01% 78.38% 51.35% 50.62%
</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, 2009.
See notes to financial statements.
39
<Page>
<Table>
<Caption>
CLASS T SHARES
----------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -------------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 10.51 $ 10.27 $ 10.17 $ 10.36 $ 10.43 $ 10.62
Income (loss) from investment operations
Investment income--net 0.15 0.36 0.41 0.35 0.25 0.22
Net realized and unrealized gain (loss)
on investments 0.28 0.24 0.10 (0.19) (0.07) 0.11
------- ------- ------- ------- ------- -------
Total from investment operations 0.43 0.60 0.51 0.16 0.18 0.33
Less distributions
Investment income--net (0.15) (0.36) (0.41) (0.35) (0.25) (0.22)
Capital gains -- -- -- -- (0.00)*** (0.30)
------- ------- ------- ------- ------- -------
Total distributions (0.15) (0.36) (0.41) (0.35) (0.25) (0.52)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.79 $ 10.51 $ 10.27 $ 10.17 $ 10.36 $ 10.43
======= ======= ======= ======= ======= =======
Total return (1) 4.10%** 0.06% 5.16% 1.65% 1.84% 3.15%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $30,718 $29,183 $27,087 $26,194 $26,841 $27,750
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% 0.93% 0.99% 0.96% 0.95%
Ratio of net investment income to average
net assets 2.79%* 3.41% 4.06% 3.47% 2.43% 2.12%
Portfolio turnover rate 0.00% 26.83% 50.01% 78.38% 51.35% 50.62%
</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, 2009.
See notes to financial statements.
40
<Page>
SCHEDULE OF INVESTMENTS February 28, 2009 (Unaudited)
SM&R TAX FREE FUND
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
ALABAMA--1.32%
Baa1/A Alabama Drinking Water Financing Authority,
Revolving Fund Loan - Revenue Bonds, Series A 08/15/16 4.000 $180,000 $ 181,742
CALIFORNIA--0.15%
A1/A California State - General Obligation Bonds Unlimited 06/01/11 5.250 20,000 20,151
FLORIDA--6.07%
A3/NR Miami - Dade County, Florida Expressway Authority
Toll System - Revenue Bonds, Prerefunded to 07/01/2010 (b) 07/01/29 6.375 400,000 431,792
A2/A Miami - Dade County, Florida Solid Waste System - Revenue Bonds 10/01/18 4.750 400,000 404,256
----------
836,048
HAWAII--2.02%
Aa2/AA Honolulu, Hawaii City & County - General Obligation Bonds Unlimited 07/01/13 5.000 250,000 278,845
ILLINOIS--2.78%
A1/NR Rockford, Illinois - General Obligation Bonds Unlimited 12/15/18 4.500 180,000 180,855
Aa3/AA- State of Illinois - General Obligation Bonds Unlimited 03/01/19 5.000 200,000 202,482
----------
383,337
INDIANA--4.35%
WR/AA+ Aurora, Indiana Building Corp. - Revenue Bonds 07/15/13 4.500 405,000 442,045
Baa1/AA- South Bend, Indiana Building Corp. - Revenue Bonds 02/01/13 4.500 150,000 157,662
----------
599,707
LOUISIANA--3.17%
WR/AA- Monroe, Louisiana Sales and Use Tax - Revenue Bonds 07/01/16 4.000 200,000 193,856
Baa1/AA- New Orleans, Louisiana Sewer Service - Revenue Bonds 06/01/18 5.000 300,000 243,402
----------
437,258
MISSISSIPPI--3.90%
N/A/A Greenville Mississippi Public School District - General
Obligation Bonds Unlimited 12/15/11 3.250 205,000 212,144
Aa3/AAA Mississippi Development Bank Special Obligation
Clinton Recreational Facilities & Municipal Building - Revenue Bonds 11/01/10 4.500 310,000 325,081
----------
537,225
NEW YORK--7.70%
Aa3/AA New York City, New York - General Obligation Bonds Unlimited,
Series J 08/01/18 5.000 200,000 201,928
Aa1/AAA New York City, New York - Transitional Financial Authority
Revenue Bonds, Unrefunded, Series C 05/01/19 5.000 250,000 254,490
Aa3/AA New York State Tollway Authority Highway & Bridge - Revenue
Bonds, Series B 04/01/10 3.850 200,000 205,824
Aa2/AAA Triborough Bridge & Tunnel Authority, New York - Revenue Bonds,
General Purpose, Prerefunded, Series B to 01/01/2022 (b) 01/01/27 5.200 350,000 399,035
----------
1,061,277
NORTH CAROLINA--1.59%
Aaa/AAA North Carolina State - General Obligation Bonds Unlimited 03/01/15 4.000 200,000 218,480
OHIO--2.41%
Aa2/AA Ohio State Department of Administrative Services - Certificate
Participation 09/01/15 5.250 300,000 331,368
</Table>
41
<Page>
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
TEXAS--30.02%
WR/AA Aransas County, Texas Correctional Facility Improvements - General
Obligation Bonds Limited 02/15/13 3.875 $250,000 $ 260,107
A1/A Austin, Texas Community College District - Revenue Bonds (f) 02/01/10 4.000 100,000 102,144
Aaa/AAA Austin, Texas Independent School District - General Obligation
Bonds Unlimited, Series A 08/01/12 3.750 150,000 160,258
Aa3/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/13 4.125 200,000 209,308
Aa3/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/14 4.250 65,000 67,696
Aa3/AA El Paso, Texas Public Improvement - General Obligation
Bonds Limited 08/15/17 4.000 270,000 277,663
Aa2/AA+ Flower Mound, Texas Refunding and Improvement - General
Obligation Bonds Limited, Unrefunded 03/01/17 5.500 10,000 10,030
Aa2/NR Galveston County, Texas Public Improvements - General
Obligation Bonds Unlimited (f) 02/01/10 4.300 25,000 25,605
Aa2/NR Galveston County, Texas Public Improvements - General
Obligation Bonds Limited 02/01/11 4.375 125,000 130,794
A1/AA- Jefferson County, Texas - Public Improvement Certificates of
Obligation, Series B 08/01/16 4.125 255,000 261,500
Aa3/AA League City, Texas Public Improvements - General Obligation
Bonds Limited 02/15/13 4.750 100,000 106,835
Aa2/AA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 284,177
Aa3/AA+ Lubbock, Texas Municipal Drainage Utility - General Obligation
Bonds Limited 02/15/14 4.000 250,000 260,605
Aaa/AAA Mission, Texas Consolidated Independent School District - General
Obligation Bonds Unlimited 02/15/18 4.500 200,000 200,218
Aa3/AA Montgomery County, Texas Public Improvements - General
Obligation Bonds Limited 03/01/12 4.000 250,000 263,880
Aa3/AAA Rockwell, Texas Waterworks & Sewer - General Obligation
Bonds Limited 08/01/11 3.700 115,000 120,719
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited, Prerefunded
to 08/01/2009 (b) 08/01/11 4.400 100,000 101,664
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited, Unrefunded 08/01/11 4.400 150,000 151,722
A2/AA- San Antonio, Texas River Authority Sewer Refunding and
Improvement - Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 104,066
Aaa/NR Tarrant County Health Facilities Development Corp. - Health System
Revenue Bonds, (Harris Methodist Health System), Series 1994 (c) 09/01/14 6.000 200,000 229,276
Aa1/AA+ Texas A&M University Revenue and Financing System - Revenue
Refunding Bonds, Series A 05/15/17 5.000 250,000 268,548
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 50,060
Aaa/AAA University of Texas Permanent University Fund - Revenue Bonds,
Prerefunded, Series A To 01/01/2013 (b) 07/01/13 6.250 55,000 62,132
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 64,095
Aa3/AA- Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 257,165
NR/AAA Wylie, Texas Independent School District - General Obligation
Bonds Unlimited 08/15/12 4.375 100,000 106,330
----------
4,136,597
</Table>
42
<Page>
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
UTAH--0.04%
Aa2/AA Utah State Housing Financial Agency - Single Family
Revenue Bonds (d) 07/01/21 6.000 $ 5,000 $ 5,066
WASHINGTON--5.02%
Aa2/AA- Seattle, Washington Municipal Light & Power - Revenue Bonds,
Series B 06/01/24 5.000 100,000 100,037
Aa1/AA+ State of Washington - General Obligation Bonds Unlimited,
Series B 05/01/18 5.500 300,000 333,318
Aa2/NR Tumwater, Washington Office Building - Revenue Bonds 07/01/15 5.250 240,000 258,480
-----------
691,835
-----------
TOTAL MUNICIPAL BONDS--70.54%
(Cost $9,338,766) 9,718,936
-----------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--15.24%
Federal Home Loan Bank 03/26/09 0.260 2,100,000 2,099,606
-----------
2,099,606
-----------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--15.24%
(Cost $2,099,606) 2,099,606
-----------
COMMERCIAL PAPER
FINANCIALS--
DIVERSIFIED FINANCIALS--7.91%
UBS Finance 03/02/09 0.500 400,000 399,989
American Honda Finance Corp. 03/06/09 0.350 690,000 689,960
-----------
1,089,949
-----------
TOTAL FINANCIALS--7.91% 1,089,949
-----------
INFORMATION TECHNOLOGY--
ELECTRONIC EQUIPMENT & INSTRUMENTS--4.97%
Sharp Electronics Corp. 03/09/09 0.035 685,000 684,940
-----------
TOTAL INFORMATION TECHNOLOGY--4.97% 684,940
-----------
TOTAL COMMERCIAL PAPER--12.88%
(Cost $1,774,888) 1,774,889
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 0.00% (e) 80,472 80,472
-----------
TOTAL MONEY MARKET FUND--0.59%
(Cost $80,472) 80,472
-----------
TOTAL INVESTMENTS--99.25%
(Cost $13,293,732) 13,673,903
CASH AND OTHER ASSETS, LESS LIABILITIES--0.75% 103,435
-----------
TOTAL NET ASSETS--100.00% $13,777,338
===========
</Table>
43
<Page>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investor's Service, Inc. ("Moody's") and
Standard & Poor's Corp. ("S&P"). Ratings are unaudited.
(b) Collateral for these prerefunded bonds are U.S. Government or U.S. Treasury
or state or local government securities.
(c) Issuer has defeased these bonds. Collateral for such defeasance is U.S.
Government obligations.
(d) Security subject to the alternative minimum tax.
(e) The rate quoted is the annualized seven-day yield of the fund at February
28, 2009. 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.
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
[CHART]
<Table>
Development 5.40%
Education 13.96%
General Obligation 26.75%
Housing 0.04%
Medical 1.66%
Miscellaneous 19.74%
Pollution 2.97%
Transportation 7.55%
U.S. Government 15.35%
Utilities 6.58%
</Table>
44
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $13,213,260) $ 13,593,431
Investment in affiliated money market fund (Cost $80,472) 80,472
------------
Total investments (Cost $13,293,732) 13,673,903
Prepaid expenses 28,199
Receivable for:
Capital stock sold 225
Interest 89,201
Expense reimbursement 3,600
Other assets 3,142
------------
TOTAL ASSETS 13,798,270
------------
LIABILITIES
Distribution payable 471
Payable to investment adviser for fund expenses 11,951
Accrued:
Investment advisory fees 5,309
Administrative service fees 2,655
Distribution fees 243
Other liabilities 303
------------
TOTAL LIABILITIES 20,932
------------
NET ASSETS $ 13,777,338
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 13,396,083
Accumulated net investment loss (14)
Accumulated net realized gain on investments 1,098
Net unrealized appreciation of investments 380,171
------------
Net Assets $ 13,777,338
============
NET ASSETS:
Class A $ 330,562
Class B $ 22,302
Class T $ 13,424,474
------------
TOTAL NET ASSETS $ 13,777,338
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,101
Outstanding 31,368
Class B:
Authorized 100,000,000
Outstanding 2,104
Class T:
Authorized 21,000,000
Outstanding 1,282,686
Class A:
Net asset value and redemption price per share $ 10.54
Offering price per share: (Net assets value of $10.54 / 95.25%) $ 11.07
Class B:
Net asset value and offering price per share $ 10.60
Class T:
Net asset value and redemption price per share $ 10.47
Offering price per share: (Net assets value of $10.47 / 95.5%) $ 10.96
</Table>
See notes to financial statements.
45
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $224,923
Interest from affiliated money market fund 787
--------
TOTAL INVESTMENT INCOME 225,710
--------
EXPENSES
Investment advisory fees 33,907
Administrative service fees 16,954
Professional fees 3,194
Custody and transaction fees 2,582
Directors' fees and expenses 4,906
Compliance expenses 1,240
Qualification fees
Class T 661
Shareholder reporting expenses
Class A 21
Class B 5
Class T 938
Distribution fees
Class A 375
Class B 174
Insurance expenses 2,499
--------
TOTAL EXPENSES 67,456
--------
LESS EXPENSES REIMBURSED (16,462)
--------
NET EXPENSES 50,994
--------
INVESTMENT INCOME--NET 174,716
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,131
Change in unrealized appreciation of investments 62,631
--------
NET GAIN ON INVESTMENTS 63,762
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $238,478
========
</Table>
See notes to financial statements.
46
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- -----------
2009 2008
---------------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 174,716 $ 446,929
Net realized gain on investments 1,131 18,077
Change in unrealized appreciation of investments 62,631 126,189
----------- -----------
Net increase in net assets resulting from operations 238,478 591,195
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (3,840) (9,444)
Class B (512) (3,853)
Class T (169,561) (434,491)
Capital gains
Class A (120) (254)
Class B (10) (147)
Class T (5,357) (12,370)
----------- -----------
Total distributions to shareholders (179,400) (460,559)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 33,322 16,349
Class B (78,334) (67,580)
Class T (38,662) 423,676
----------- -----------
Total capital share transactions--net (83,674) 372,445
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (24,596) 503,081
NET ASSETS
Beginning of period 13,801,934 13,298,853
----------- -----------
End of period $13,777,338 $13,801,934
=========== ===========
Accumulated Net Investment Loss $ (14) $ (817)
=========== ===========
</Table>
See notes to financial statements.
47
<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 YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------------------------------------
2009 2008 2007 2006 2005 2004
------------ -------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.49 $ 10.38 $ 10.50 $ 10.70 $ 10.81 $ 10.71
Income (loss) from investment operations
Investment income--net 0.13 0.35 0.40 0.41 0.40 0.42
Net realized and unrealized gain (loss)
on investments 0.05 0.12 (0.12) (0.20) (0.11) 0.12
-------- -------- -------- -------- -------- --------
Total from investment operations 0.18 0.47 0.28 0.21 0.29 0.54
Less distributions
Investment income--net (0.13) (0.35) (0.40) (0.41) (0.40) (0.42)
Capital gains -- (0.01) -- (0.00)*** (0.00)*** (0.02)
-------- -------- -------- -------- -------- --------
Total distributions (0.13) (0.36) (0.40) (0.41) (0.40) (0.44)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.54 $ 10.49 $ 10.38 $ 10.50 $ 10.70 $ 10.81
======== ======== ======== ======== ======== ========
Total return (1) 1.81%** 4.56% 2.74% 2.05% 2.72% 5.12%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $330,562 $295,893 $277,034 $331,989 $519,889 $542,502
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 1.18%* 2.93% 2.63% 3.14% 2.73% 1.26%
Ratio of net investment income to average
net assets 2.57%* 3.30% 3.78% 3.80% 3.68% 3.84%
Portfolio turnover rate 0.00% 0.00% 0.00% 2.05% 7.50% 1.15%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------------------------------------
2009 2008 2007 2006 2005 2004
------------ -------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.50 $ 10.40 $ 10.50 $ 10.70 $ 10.81 $ 10.71
Income (loss) from investment operations
Investment income--net 0.15 0.30 0.35 0.35 0.34 0.36
Net realized and unrealized gain (loss)
on investments 0.10 0.11 (0.10) (0.20) (0.11) 0.12
------- -------- -------- -------- -------- --------
Total from investment operations 0.25 0.41 0.25 0.15 0.23 0.48
Less distributions
Investment income--net (0.15) (0.30) (0.35) (0.35) (0.34) (0.36)
Capital gains -- (0.01) -- (0.00)*** (0.00)*** (0.02)
------- -------- -------- -------- -------- --------
Total distributions (0.15) (0.31) (0.35) (0.35) (0.34) (0.38)
------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.60 $ 10.50 $ 10.40 $ 10.50 $ 10.70 $ 10.81
======= ======== ======== ======== ======== ========
Total return (1) 2.46%** 3.95% 2.47% 1.43% 2.20% 4.59%
======= ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $22,302 $102,960 $168,933 $449,767 $538,594 $536,101
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 1.42%* 4.36% 2.69% 2.77% 2.85% 1.78%
Ratio of net investment income to average
net assets 2.24%* 2.86% 3.28% 3.29% 3.18% 3.34%
Portfolio turnover rate 0.00% 0.00% 0.00% 2.05% 7.50% 1.15%
</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, 2009.
See notes to financial statements.
48
<Page>
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ---------------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 10.41 $ 10.31 $ 10.41 $ 10.61 $ 10.72 $ 10.61
Income (loss) from investment operations
Investment income--net 0.13 0.34 0.39 0.39 0.39 0.41
Net realized and unrealized gain (loss)
on investments 0.06 0.11 (0.10) (0.20) (0.11) 0.13
------- ------- ------- ------- ------- -------
Total from investment operations 0.19 0.45 0.29 0.19 0.28 0.54
Less distributions
Investment income--net (0.13) (0.34) (0.39) (0.39) (0.39) (0.41)
Capital gains -- (0.01) -- (0.00)*** (0.00)*** (0.02)
------- ------- ------- ------- ------- -------
Total distributions (0.13) (0.35) (0.39) (0.39) (0.39) (0.43)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.47 $ 10.41 $ 10.31 $ 10.41 $ 10.61 $ 10.72
======= ======= ======= ======= ======= =======
Total return (1) 1.92%** 4.47% 2.87% 1.91% 2.72% 5.20%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $13,424 $13,403 $12,853 $12,819 $13,001 $13,154
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 0.99%* 1.07% 1.05% 1.18% 1.05% 1.04%
Ratio of net investment income to average
net assets 2.58%* 3.30% 3.77% 3.79% 3.68% 3.83%
Portfolio turnover rate 0.00% 0.00% 0.00% 2.05% 7.50% 1.15%
</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, 2009.
See notes to financial statements.
49
<Page>
SCHEDULE OF INVESTMENTS February 28, 2009 (Unaudited)
SM&R PRIMARY FUND
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
INDUSTRIALS--
BUILDING PRODUCTS--0.01%
Armstrong World Industries, Inc. 110 $ 1,406
-----------
TOTAL INDUSTRIALS--0.01% 1,406
-----------
TOTAL COMMON STOCK--0.01%
(Cost $0) 1,406
-----------
</Table>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES DATE RATE(%) AMOUNT
U S GOVERNMENT SECURITIES--4.67%
U S Treasury Bond 02/15/29 5.250 $1,000,000 1,169,375
-----------
TOTAL U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES--4.67%
(Cost $898,419) 1,169,375
-----------
COMMERCIAL PAPER
CONSUMER DISCRETIONARY--
AUTO COMPONENTS--4.04%
Johnson Controlls, Inc. 03/24/09 3.500 1,014,000 1,011,633
AUTOMOBILES--11.53%
Harley-Davidson, Inc. 03/17/09 1.750 944,000 943,219
Nissan Motor 03/03/09 3.300 1,089,000 1,088,700
Volkswagen Group of America, Inc. 03/09/09 3.000 856,000 855,357
-----------
2,887,276
-----------
TOTAL CONSUMER DISCRETIONARY--15.57% 3,898,909
-----------
CONSUMER STAPLES--
FOOD PRODUCTS--4.04%
Kraft Foods Inc. 03/04/09 0.370 1,011,000 1,010,958
HOUSEHOLD PRODUCTS--4.34%
Clorox Company (The) 03/06/09 1.200 1,088,000 1,087,782
TEXTILES, APPAREL & LUXURY GOODS--4.02%
VF Corp. 04/20/09 1.500 1,009,000 1,006,855
-----------
TOTAL CONSUMER STAPLES--12.40% 3,105,595
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICE--4.80%
Eaton Corp. 03/13/09 0.750 1,202,000 1,201,674
OIL, GAS & CONSUMABLE FUELS--17.87%
Devon Energy Corp. 03/20/09 0.800 1,227,000 1,226,455
Marathon Oil Corp. 03/05/09 2.500 1,008,000 1,007,649
Pacific Gas and Electric Co. 03/30/09 1.600 1,179,000 1,177,428
Sempra Energy 03/02/09 1.250 1,062,000 1,061,926
-----------
4,473,458
-----------
TOTAL ENERGY--22.67% 5,675,132
-----------
</Table>
50
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT VALUE
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--4.60%
Volvo Treasury 03/19/09 2.500 $1,154,000 $ 1,152,476
INSURANCE--9.13%
Aetna Inc. 03/25/09 0.750 1,200,000 1,199,375
Allstate Corp. 03/16/09 2.200 1,086,000 1,084,937
-----------
2,284,312
-----------
TOTAL FINANCIALS--13.73% 3,436,788
-----------
INDUSTRIALS--
AIR FREIGHT & LOGISTICS--4.66%
Netjets Inc. 03/23/09 0.320 1,168,000 1,167,761
CONSTRUCTION & ENGINEERING--3.95%
Harsco Corp. 03/10/09 1.250 989,000 988,656
INDUSTIRIAL CONGOLOMERATES--4.89%
Ingersoll-Rand Co. Ltd. 03/27/09 2.250 1,226,000 1,223,931
-----------
TOTAL INDUSTRIALS--13.50% 3,380,348
-----------
MATERIALS--
CHEMICALS--4.14%
Sherwin-Williams Co. (The) 03/12/09 0.900 1,038,000 1,037,689
CONTAINERS & PACKAGING--4.91%
Bemis Co., Inc. 03/11/09 0.450 1,229,000 1,228,831
-----------
TOTAL MATERIALS--9.05% 2,266,520
-----------
TELECOMMUNICATIONS SERVICES--
DIVERSIFIED TELECOMMUNICATIONS SERVICES--4.03%
BT Group PLC 03/18/09 1.250 1,009,000 1,008,369
-----------
TOTAL TELECOMMUNICATIONS SERVICES--4.03% 1,008,369
-----------
UTILITIES--
ELECTRIC UTILITIES--4.41%
Idaho Power Co. 03/26/09 1.450 1,105,000 1,103,843
-----------
TOTAL UTILITIES--4.41% 1,103,843
-----------
TOTAL COMMERCIAL PAPER--95.36%
(Cost $23,875,504) 23,875,504
-----------
TOTAL INVESTMENTS--100.04%
(Cost $24,773,923) 25,046,285
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.04)% (10,210)
-----------
TOTAL NET ASSETS--100.00% $25,036,075
===========
</Table>
See notes to financial statements.
51
<Page>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 15.57%
Consumer Staples 12.40%
Energy 22.66%
Financials 13.72%
Industrials 13.50%
Materials 9.05%
Telecommunications Services 4.02%
U S Government 4.67%
Utilities 4.41%
</Table>
52
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $24,773,923) $ 25,046,285
Cash and cash equivalents 110
Prepaid expenses 6,671
Receivable for:
Capital stock sold 2,287
Interest 1,885
Expense reimbursement 2,615
Other assets 2,853
--------------
TOTAL ASSETS 25,062,706
--------------
LIABILITIES
Distribution payable 2
Payable to investment adviser for fund expenses 12,197
Accrued:
Investment advisory fees 9,618
Administrative service fees 4,809
Other liabilities 5
--------------
TOTAL LIABILITIES 26,631
--------------
NET ASSETS $ 25,036,075
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 25,005,878
Accumulated net realized loss on investments (242,165)
Net unrealized appreciation of investments 272,362
--------------
Net Assets $ 25,036,075
==============
SHARES OUTSTANDING ($.01 par value per share) 25,033,468
==============
NET ASSET VALUE $ 1.00
==============
SHARES AUTHORIZED 1,176,000,000
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $504,220
--------
TOTAL INVESTMENT INCOME 504,220
--------
EXPENSES
Investment advisory fees 61,984
Administrative service fees 30,992
Professional fees 3,379
Custody and transaction fees 5,430
Directors' fees and expenses 4,903
Compliance expenses 2,221
Qualification fees 180
Insurance expenses 4,758
Other expenses 33
--------
TOTAL EXPENSES 113,880
LESS EXPENSES REIMBURSED (14,656)
--------
NET EXPENSES 99,224
--------
INV ESTMENT INCOME--NET 404,996
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Change in unrealized appreciation of investments 63,525
--------
NET GAIN ON INVESTMENTS 63,525
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $468,521
========
</Table>
See notes to financial statements.
53
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- -----------
2009 2008
---------------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 404,996 $ 846,050
Net realized gain on investments -- 418
Change in unrealized appreciation of investments 63,525 49,487
----------- -----------
Net increase in net assets resulting from operations 468,521 895,955
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (404,996) (846,050)
CAPITAL SHARE TRANSACTIONS--NET 350,326 (2,233,333)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 413,851 (2,183,428)
NET ASSETS
Beginning of period 24,622,224 26,805,652
----------- -----------
End of period $25,036,075 $24,622,224
=========== ===========
FINANCIAL HIGHLIGHTS
</Table>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 0.99 $ 1.00 $ 0.99 $ 0.99
Income (loss) from investment operations
Investment income--net 0.02 0.03 0.04 0.04 0.02 0.01
Net realized and unrealized gain (loss)
on investments 0.00*** 0.00*** 0.01 (0.01) 0.01 --
------- ------- ------- ------- ------- -------
Total from investment operations 0.02 0.03 0.05 0.03 0.03 0.01
Less distributions
Investment income--net (0.02) (0.03) (0.04) (0.04) (0.02) (0.01)
------- ------- ------- ------- ------- -------
Total distributions (0.02) (0.03) (0.04) (0.04) (0.02) (0.01)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 0.99 $ 1.00 $ 0.99
======= ======= ======= ======= ======= =======
Total return 1.64%** 0.03% 5.67% 2.73% 2.99% 0.83%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $25,036 $24,622 $26,806 $26,243 $25,245 $26,197
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 0.92%* 0.93% 0.97% 0.92% 0.91% 0.91%
Ratio of net investment income to average
net assets 3.27%* 3.28% 4.52% 3.70% 1.94% 0.83%
Portfolio turnover rate 0.00% 0.00% 22.30% 25.75% 0.00% 70.47%
</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, 2009.
See notes to financial statements.
54
<Page>
SCHEDULE OF INVESTMENTS February 28, 2009 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT VALUE
FINANCIALS--
COMMERCIAL BANKS--1.42%
JP Morgan Chase & Co. 03/12/09 0.250 $1,440,000 $ 1,439,900
DIVERSIFIED FINANCIAL SERVICES--12.47%
American Honda Finance Corp. 03/11/09 0.300 4,000,000 3,999,700
FPL Fuels Inc. 03/02/09 0.200 3,482,000 3,482,000
UBS Finance Delaware LLC 03/05/09 0.300 5,150,000 5,149,871
-----------
12,631,571
-----------
TOTAL FINANCIALS--13.89% 14,071,471
-----------
HEALTH CARE--
PHARMACEUTICALS--4.00%
Merck & Co. Inc. 03/06/09 0.100 4,050,000 4,049,955
-----------
TOTAL HEALTHCARE--4.00% 4,049,955
-----------
INDUSTRIALS--
BUILDING PRODUCTS--4.61%
Lowe's Companies 03/23/09 0.250 4,678,000 4,677,318
-----------
TOTAL INDUSTRIALS--4.61% 4,677,318
-----------
INFORMATION TECHNOLOGY--
ELECTRONIC EQUIPMENT & INSTRUMENTS--6.00%
Intel Corp. 03/13/09 0.200 2,035,000 2,034,876
Sharp Electronics Corp. 03/19/09 0.450 4,043,000 4,042,141
-----------
6,077,017
-----------
TOTAL INFORMATION TECHNOLOGY--6.00% 6,077,017
-----------
UTILITIES--
ELECTRIC UTILITIES--4.64%
Midamerican Energy Holdings Co. 04/01/09 0.750 4,704,000 4,701,060
-----------
TOTAL UTILITIES--4.64% 4,701,060
-----------
TOTAL COMMERCIAL PAPER--33.14%
(Cost $33,576,821) 33,576,821
-----------
</Table>
55
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS DATE RATE(%) AMOUNT VALUE
U S GOVERNMENT AGENCY SECURITIES--66.85%
Federal Home Loan Bank 03/02/09 0.450 $ 3,259,000 $ 3,259,000
Federal Home Loan Bank 03/03/09 0.050 10,000,000 9,999,986
Federal Home Loan Bank 03/04/09 0.100 7,260,000 7,259,960
Federal Home Loan Bank 03/09/09 0.260 5,000,000 4,999,747
Federal Home Loan Bank 03/10/09 0.250 4,098,000 4,097,772
Federal Home Loan Bank 03/16/09 0.250 3,481,000 3,480,661
Federal Home Loan Bank 03/16/09 0.220 3,712,000 3,711,682
Federal Home Loan Bank 03/20/09 0.200 8,474,000 8,473,152
Federal Home Loan Bank 03/27/09 0.250 5,691,000 5,690,012
Federal Home Loan Bank 03/31/09 0.280 4,399,000 4,398,008
Federal Home Loan Bank 04/02/09 0.320 6,943,000 6,941,087
Federal Home Loan Mortgage Corp. 03/18/09 0.300 5,415,000 5,414,278
------------
67,725,345
------------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--66.85%
(Cost $67,725,345) 67,725,345
------------
TOTAL INVESTMENTS--99.99%
(Cost $101,302,166) 101,302,166
CASH AND OTHER ASSETS, LESS LIABILITIES--0.01% 13,330
------------
TOTAL NET ASSETS--100.00% $101,315,496
============
</Table>
See notes to financial statements.
56
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2009 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $ 101,302,166
Cash and cash equivalents 314
Prepaid expenses 30,697
Receivable for:
Capital stock sold 39,740
Expense reimbursement 29,393
Other Assets 1,187
--------------
TOTAL ASSETS 101,403,497
--------------
LIABILITIES
Capital stock reacquired 3,825
Payable to investment adviser for fund expenses 30,184
Accrued:
Investment advisory fees 19,283
Administrative service fees 19,216
Other liabilities 15,493
--------------
TOTAL LIABILITIES 88,001
--------------
NET ASSETS $ 101,315,496
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 101,315,496
--------------
NET ASSETS $ 101,315,496
==============
SHARES OUTSTANDING ($.01 par value per share) 101,315,496
==============
NET ASSET VALUE $ 1.00
==============
SHARES AUTHORIZED 3,000,000,000
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2009 (Unaudited)
INVESTMENT INCOME
<Table>
Interest $621,910
--------
TOTAL INVESTMENT INCOME 621,910
--------
EXPENSES
Investment advisory fees 116,691
Administrative service fees 116,619
Professional fees 12,156
Custody and transaction fees 8,961
Directors' fees and expenses 4,956
Compliance expenses 8,574
Qualification fees 2,569
Shareholder reporting expenses 1,851
Insurance expenses 16,233
Other expenses 271
--------
TOTAL EXPENSES 288,881
LESS EXPENSES REIMBURSED (92,270)
--------
NET EXPENSES 196,611
--------
INVESTMENT INCOME--NET $425,299
========
</Table>
See notes to financial statements.
57
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
2009 2008
---------------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 425,299 $ 2,906,439
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (425,299) (2,906,439)
CAPITAL SHARE TRANSACTIONS--NET 5,275,551 (5,545,125)
------------ ------------
TOTAL INCREASE IN NET ASSETS 5,275,551 (5,545,125)
NET ASSETS
Beginning of period 96,039,945 101,585,070
------------ ------------
End of period $101,315,496 $ 96,039,945
============ ============
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ------------------------------------------------
2009 2008 2007 2006 2005 2004
------------ ------- -------- ------- ------- -------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Investment income--net 0.00*** 0.03 0.05 0.04 0.02 0.01
-------- ------- -------- ------- ------- -------
Total from investment operations 0.00 0.03 0.05 0.04 0.02 0.01
Less distributions
Investment income--net (0.00)*** (0.03) (0.05) (0.04) (0.02) (0.01)
-------- ------- -------- ------- ------- -------
Total distributions (0.00) (0.03) (0.05) (0.04) (0.02) (0.01)
-------- ------- -------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======== ======= ======= =======
Total return 0.46%** 2.79% 4.84% 4.04% 2.03% 0.58%
======== ======= ======== ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $101,315 $96,040 $101,585 $88,769 $76,890 $95,202
Ratio of expenses with reimbursement to
average net assets 0.42%* 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of expenses without reimbursement to
average net assets 0.62%* 0.60% 0.63% 0.73% 0.59% 0.60%
Ratio of net investment income to average
net assets 0.91%* 2.82% 4.74% 4.01% 1.98% 0.58%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
See notes to financial statements.
58
<Page>
NOTES TO FINANCIAL STATEMENTS February 28, 2009 (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.
59
<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, 2008 LOSS CARRYFORWARDS EXPIRATION DATES
- ------------------------------- ------------------ ----------------
Government Bond Fund $169,454 2014
$282,342 2015
Primary Fund $104,548 2010
$137,592 2015
$ 25 2016
</Table>
Capital loss carryovers are available to offset future realized capital gains
and thereby reduce further taxable gain distributions.
As of August 31, 2006, the Government Bond Fund had $257,242 of post-October
losses which were deferred until September 1, 2006 for tax purposes. The fund
generated net capital losses during the year ended August 31, 2007, which
deferred the post-October losses to September 1, 2007. For the year ended August
31, 2008, the fund did not have gains sufficient to utilize the post-October
losses, therfore the post-October losses were deferred to September 1, 2008. 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.
60
<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
<Table>
<Caption>
Investment
Growth, Equity Income and Balanced Funds
</Table>
<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%
FIXED INCOME FUNDS:
Government Bond and Tax Free Funds
NET ASSETS
Not exceeding $100,000,000 0.50%
Exceeding $100,000,000 but not exceeding $300,000,000 0.45%
Exceeding $300,000,000 0.40%
Primary Fund
All average daily net assets 0.50%
Money Market Fund
All average daily net assets 0.25%
</Table>
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>
61
<Page>
SM&R has contractually agreed to reimburse the Growth Fund, Equity Income Fund,
Balanced Fund, Government Bond Fund, Tax Free Fund and Primary Fund for regular
operating expenses in excess of 1.25% per year of the average daily net assets,
and the Money Market Fund in excess of 0.50%. Regular operating expenses include
the advisory fee and administrative service fee, but do not include the
distribution and shareholder servicing fee.
Effective June 1, 2002, and until December 31, 2009, 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, 2009
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 six months ended February 28, 2009, each series paid or accrued the
following, as compensation under the Plans:
<Table>
Growth Fund $ 7,118
Equity Income Fund $14,224
Balanced Fund $ 6,791
Government Bond Fund $ 3,396
Tax Free Fund $ 549
</Table>
62
<Page>
SALES CHARGES:
During the six months ended February 28, 2009, 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 $15,890 $446
Equity Income Fund $17,854 $471
Balanced Fund $ 6,186 $ 11
Government Bond Fund $ 1,207 $ 3
Tax Free Fund $ 57 $ --
</Table>
For the six months ended February 28, 2009, SM&R received $18,583 for contingent
deferred sales charges imposed on the redemptions of Class B shares of capital
stock of the series.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of February 28, 2009, 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 270,496 1.26% 1,218,896 5.69% 1,777,868 8.30%
Equity Income Fund 30,508 0.73% -- 0.00% -- 0.00%
Balanced Fund 198,141 12.80% 116,016 7.49% 356,593 23.03%
Government Bond Fund 758,102 25.27% 223,144 7.44% 1,033,659 34.45%
Tax Free Fund 192,272 14.61% -- 0.00% 960,673 72.99%
Primary Fund 19,294 0.08% 21,678,501 86.60% 1,573,108 6.28%
Money Market Fund 4,082,396 4.03% 55,842,260 55.12% 30,409,878 30.02%
</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 six
months ended February 28, 2009 were:
<Table>
Purchases $29,387,273
Sales $29,118,439
</Table>
63
<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 $2,018,568 $4,032,850
Equity Income Fund $2,213,822 $4,394,192
Balanced Fund $1,628,082 $1,315,948
Government Bond Fund $ -- $1,000,000
Tax Free Fund $ -- $ 330,000
Primary Fund $ -- $ --
</Table>
Gross unrealized appreciation and depreciation as of February 28, 2009, based on
the cost for federal income tax purposes is as follows:
<Table>
<Caption>
NET APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
Growth Fund $74,188,455 $3,233,591 $29,327,030 $(26,093,439)
Equity Income Fund $71,105,792 $3,113,533 $29,882,752 $(26,769,219)
Balanced Fund $22,231,960 $ 514,613 $ 6,584,186 $ (6,069,573)
Government Bond Fund $30,544,369 $1,544,171 $ 13,376 $ 1,530,795
Tax Free Fund $13,293,732 $ 441,554 $ 61,383 $ 380,171
Primary Fund $24,773,923 $ 272,362 $ -- $ 272,362
</Table>
64
<Page>
NOTE 4--CAPITAL STOCK
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
Sale of capital shares:
Class A 51,533 $ 151,572 167,187 $ 744,997
Class B 13,758 36,797 43,675 188,782
Class T 260,167 749,007 482,860 2,183,945
---------- ----------- ---------- ------------
Total sale of capital shares 325,458 937,376 693,722 3,117,724
Investment income dividends reinvested:
Class A 6,741 17,528 10,304 45,299
Class B 1,733 4,401 2,442 10,941
Class T 144,779 385,112 235,374 1,056,247
---------- ----------- ---------- ------------
Total investment income dividends reinvested 153,253 407,041 248,120 1,112,487
Distributions from net realized gains reinvested:
Class A 72,821 189,336 23,843 109,438
Class B 27,051 68,710 14,290 64,018
Class T 1,434,100 3,814,731 498,285 2,331,973
---------- ----------- ---------- ------------
Total distributions from net realized gains reinvested 1,533,972 4,072,777 536,418 2,505,429
---------- ----------- ---------- ------------
Subtotals 2,012,683 5,417,194 1,478,260 6,735,640
Redemptions of capital shares outstanding:
Class A (98,315) (273,927) (448,293) (2,154,276)
Class B (94,723) (256,035) (307,091) (1,328,184)
Class T (853,464) (2,523,601) (2,013,439) (9,145,440)
---------- ----------- ---------- ------------
Total redemptions of capital shares outstanding (1,046,502) (3,053,563) (2,768,823) (12,627,900)
---------- ----------- ---------- ------------
Net increase (decrease) in capital shares outstanding 966,181 $ 2,363,631 (1,290,563) $ (5,892,260)
=========== ============
Shares outstanding at beginning of year 20,459,293 21,749,856
---------- ----------
Shares outstanding at end of year 21,425,474 20,459,293
========== ==========
</Table>
65
<Page>
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ------------
Sale of capital shares:
Class A 13,016 $ 175,659 60,059 $ 1,279,667
Class B 5,253 66,858 11,534 237,746
Class T 38,832 537,048 58,107 1,260,789
--------- ----------- --------- ------------
Total sale of capital shares 57,101 779,565 129,700 2,778,202
Investment income dividends reinvested:
Class A 6,238 93,300 9,937 212,112
Class B 2,533 36,323 4,156 86,525
Class T 60,962 940,380 92,196 2,035,148
--------- ----------- --------- ------------
Total investment income dividends reinvested 69,733 1,070,003 106,289 2,333,785
Distributions from net realized gains reinvested:
Class A 31,117 388,961 25,569 544,629
Class B 14,121 169,594 12,464 256,511
Class T 295,208 3,867,212 203,558 4,531,198
--------- ----------- --------- ------------
Total distributions from net realized gains reinvested 340,446 4,425,767 241,591 5,332,338
--------- ----------- --------- ------------
Subtotals 467,280 6,275,335 477,580 10,444,325
Redemptions of capital shares outstanding:
Class A (60,174) (888,693) (173,998) (3,771,973)
Class B (17,833) (240,736) (111,490) (2,313,600)
Class T (228,687) (3,225,876) (503,661) (11,290,083)
--------- ----------- --------- ------------
Total redemptions of capital shares outstanding (306,694) (4,355,305) (789,149) (17,375,656)
--------- ----------- --------- ------------
Net increase (decrease) in capital shares outstanding 160,586 $ 1,920,030 (311,569) $ (6,931,331)
=========== ============
Shares outstanding at beginning of year 4,024,387 4,335,956
--------- ---------
Shares outstanding at end of year 4,184,973 4,024,387
========= =========
</Table>
66
<Page>
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- -----------
Sale of capital shares:
Class A 24,824 $ 358,373 24,456 $ 417,341
Class B 7,914 92,261 10,263 177,320
Class T 16,421 218,387 32,315 573,205
--------- ---------- --------- -----------
Total sale of capital shares 49,159 669,021 67,034 1,167,866
Investment income dividends reinvested:
Class A 3,143 40,131 3,851 67,234
Class B 890 11,741 1,198 21,404
Class T 17,042 228,408 22,719 412,465
--------- ---------- --------- -----------
Total investment income dividends reinvested 21,075 280,280 27,768 501,103
Distributions from net realized gains reinvested:
Class A 12,620 143,495 3,528 62,795
Class B 4,265 49,091 1,582 28,506
Class T 69,073 819,206 21,538 398,665
--------- ---------- --------- -----------
Total distributions from net realized gains reinvested 85,958 1,011,792 26,648 489,966
--------- ---------- --------- -----------
Subtotals 156,192 1,961,093 121,450 2,158,935
Redemptions of capital shares outstanding:
Class A (24,246) (301,909) (75,157) (1,363,029)
Class B (8,795) (114,858) (54,996) (998,072)
Class T (41,252) (545,078) (116,666) (2,090,770)
--------- ---------- --------- -----------
Total redemptions of capital shares outstanding (74,293) (961,845) (246,819) (4,451,871)
--------- ---------- --------- -----------
Net increase (decrease) in capital shares outstanding 81,899 $ 999,248 (125,369) $(2,292,936)
========== ===========
Shares outstanding at beginning of year 1,466,441 1,591,810
--------- ---------
Shares outstanding at end of year 1,548,340 1,466,441
========= =========
</Table>
67
<Page>
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- -----------
Sale of capital shares:
Class A 2,340 $ 25,646 25,047 $ 270,361
Class B 1,234 13,544 5,359 57,779
Class T 56,188 602,860 111,915 1,192,693
--------- ---------- --------- -----------
Total sale of capital shares 59,762 642,050 142,321 1,520,833
Investment income dividends reinvested:
Class A 1,494 16,267 3,426 36,607
Class B 535 5,811 1,414 15,061
Class T 38,933 418,339 92,197 971,747
--------- ---------- --------- -----------
Total investment income dividends reinvested 40,962 440,417 97,037 1,023,415
--------- ---------- --------- -----------
Subtotals 100,724 1,082,467 239,358 2,544,248
Redemptions of capital shares outstanding:
Class A (1,543) (16,754) (24,276) (255,855)
Class B (8,082) (87,910) (13,602) (142,974)
Class T (23,574) (254,384) (65,521) (690,214)
--------- ---------- --------- -----------
Total redemptions of capital shares outstanding (33,199) (359,048) (103,399) (1,089,043)
--------- ---------- --------- -----------
Net increase in capital shares outstanding 67,525 $ 723,419 135,959 $ 1,455,205
========== ===========
Shares outstanding at beginning of year 2,933,047 2,797,088
--------- ---------
Shares outstanding at end of year 3,000,572 2,933,047
========= =========
</Table>
68
<Page>
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
Sale of capital shares:
Class A 2,992 $ 31,689 3,742 $ 39,441
Class B 14 135 -- --
Class T 2,480 25,787 17,637 183,840
--------- --------- --------- ---------
Total sale of capital shares 5,486 57,611 21,379 223,281
Investment income dividends reinvested:
Class A 319 3,323 773 8,096
Class B 34 357 168 1,762
Class T 16,139 166,923 41,084 427,134
--------- --------- --------- ---------
Total investment income dividends reinvested 16,492 170,603 42,025 436,992
Distributions from net realized gains reinvested:
Class A 12 120 24 254
Class B 1 10 7 79
Class T 515 5,314 1,175 12,265
--------- --------- --------- ---------
Total distributions from net realized gains reinvested 528 5,444 1,206 12,598
--------- --------- --------- ---------
Subtotals 22,506 233,658 64,610 672,871
Redemptions of capital shares outstanding:
Class A (173) (1,810) (2,998) (31,442)
Class B (7,752) (78,836) (6,612) (69,421)
Class T (23,480) (236,686) (19,154) (199,563)
--------- --------- --------- ---------
Total redemptions of capital shares outstanding (31,405) (317,332) (28,764) (300,426)
--------- --------- --------- ---------
Net increase (decrease) in capital shares outstanding (8,899) $ (83,674) 35,846 $ 372,445
========= =========
Shares outstanding at beginning of year 1,325,057 1,289,211
--------- ---------
Shares outstanding at end of year 1,316,158 1,325,057
========= =========
</Table>
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- --------- ---------- -----------
Sale of capital shares: 216,236 $ 216,432 2,590,368 $ 2,590,370
Investment income dividends reinvested 404,039 404,991 846,450 846,450
Redemptions of capital shares outstanding (271,054) (271,097) (5,670,153) (5,670,153)
---------- --------- ---------- -----------
Net increase (decrease) in capital shares outstanding 349,221 $ 350,326 (2,233,335) $(2,233,333)
========= ===========
Shares outstanding at beginning of year 24,684,247 26,917,582
---------- ----------
Shares outstanding at end of year 25,033,468 24,684,247
========== ==========
</Table>
69
<Page>
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
Sale of capital shares: 152,941,418 $ 152,941,418 255,152,735 $ 255,152,735
Investment income dividends reinvested 424,563 424,563 2,904,505 2,904,505
Redemptions of capital shares outstanding (148,090,430) (148,090,430) (263,602,365) (263,602,365)
------------ ------------- ------------ -------------
Net increase (decrease) in capital shares outstanding 5,275,551 $ 5,275,551 (5,545,125) $ (5,545,125)
============= =============
Shares outstanding at beginning of year 96,039,945 101,585,070
------------ ------------
Shares outstanding at end of year 101,315,496 96,039,945
============ ============
</Table>
NOTE 5--FAS 157 DISCLOSURE
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 157 requires funds to classify their assets based on
valuation method, using three levels. Level 1 securities are valued based on
quoted prices in active markets that are unadjusted. Level 2 securities are
valued based on external market ("significant observable") inputs, such as
quoted prices for similar assets in active markets, quoted prices for identical
or similar assets in non-active markets, or inputs derived from or corroborated
by observable market data by correlation or other means. They reflect
assumptions market participants would use in pricing based on market data
obtained from independent sources. Level 3 securities are valued based on
internal ("significant unobservable") inputs that are based on the funds own
assumptions that market participants would use based on the best information
available. The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in those
securities.
The following tables present the valuation levels of the funds' securities as of
February 28, 2009:
SM&R Growth Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $47,845,048
Level 2 - Significant Observable Inputs 249,968
Level 3 - Significant Unobservable Inputs --
-----------
Total $48,095,016
</Table>
SM&R Equity Income Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $44,006,615
Level 2 - Significant Observable Inputs 329,958
Level 3 - Significant Unobservable Inputs --
-----------
Total $44,336,573
</Table>
70
<Page>
SM&R Balanced Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $10,819,725
Level 2 - Significant Observable Inputs 5,342,662
Level 3 - Significant Unobservable Inputs --
-----------
Total $16,162,387
</Table>
SM&R Government Bond Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $ 73,289
Level 2 - Significant Observable Inputs 32,001,875
Level 3 - Significant Unobservable Inputs --
-----------
Total $32,075,164
</Table>
SM&R Tax Free Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $ 80,472
Level 2 - Significant Observable Inputs 13,593,431
Level 3 - Significant Unobservable Inputs --
-----------
Total $13,673,903
</Table>
SM&R Primary Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $ 1,406
Level 2 - Significant Observable Inputs 25,044,879
Level 3 - Significant Unobservable Inputs --
-----------
Total $25,046,285
</Table>
SM&R Money Market Fund:
<Table>
<Caption>
INVESTMENTS IN
VALUATION INPUTS SECURITIES
- ----------------------------------------- --------------
Level 1 - Quoted Prices $ 314
Level 2 - Significant Observable Inputs 101,302,166
Level 3 - Significant Unobservable Inputs --
------------
Total $101,302,480
</Table>
Money market securities are valued using amortized cost, in accordance with
rules under the Investment Company Act of 1940. Generally, amortized cost
approximates the current fair value of a security, but since the value is not
obtained from a quoted price in an active market, such securities are reflected
as Level 2.
71
<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
Item 2 Code of Ethics.
Not applicable to this semi-annual report.
Item 3 Audit Committee Financial Expert.
Not applicable to this semi-annual report.
Item 4 Principal Accountant Fees and Services.
Not applicable to this semi-annual report.
Item 5 Audit Committee of Listed Registrants.
Not applicable
Item 6 Schedule of Investments.
The Schedule of Investments is filed under Item 1 of this form.
Item 7 Disclosure of Proxy Voting Policies and Procedures for Closed-end
Management Investment Companies.
Not applicable
Item 8 Portfolio Managers of Closed-end Management Investment Companies.
Not applicable
Item 9 Purchases of Equity Securities by Closed-end Management Investment
Company and Affiliated Purchasers.
Not applicable
Item 10 Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the registrants board of directors during this
period.
Item 11 Controls and Procedures.
(a) As of May 1, 2009, 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 1, 2009, the companys
disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940, as amended) were
reasonably designed so as to ensure that material information
relating to the Company is made known to the CEO and CFO.
(b) During the second fiscal quarter of the period covered by this
report, there have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation
and until the filing of this report, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Item 12 Exhibits.
(a) (1) Code of Ethics - not applicable to this semi-annual report.
(2) Certifications pursuant to Rule 30a-2(a) under the
Investment Act of 1940 are filed and attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are filed and attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SM&R Investments, Inc.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 1, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registant and in the capacities and on the
dates indicated.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 1, 2009
By: \S\ Brenda T. Koelemay
-------------------------------------
Principal Financial Officer
Date: May 1, 2009