UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-6477
SM&R Investments, Inc.
P.O. Box 58969
Houston, TX 77258-8969
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
(800) 231-4639
Fiscal year end: August 31
Reporting period: August 31, 2009
Item 1 Report to Shareholders
<Page>
ANNUAL REPORT
- --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
ANNUAL REPORT
AUGUST 31, 2009
<Page>
SM&R INVESTMENTS, INC. 2450 South Shore Boulevard, League City, TX 77573
- -------------------------------------------------------------------------------
The report contained herein is included for the general information of our
shareholders. This report is not authorized for distribution to prospective
investors unless it is preceded or accompanied by a current prospectus. ALL
INVESTORS ARE ADVISED TO CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES OF THE INVESTMENT COMPANIES CAREFULLY BEFORE INVESTING. THE
PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANIES.
YOU SHOULD READ IT CAREFULLY BEFORE INVESTING.
The investment adviser is responsible for exercising the voting rights
associated with the securities purchased and held by the Funds. A description
of the policies and procedures the investment adviser uses in fulfilling this
responsibility is included in the Funds' Statement of Additional Information
and is available without charge, upon request, by calling 1-800-231-4639. The
policies and procedures are also available on the Securities and Exchange
Commission's website at http://www.sec.gov. Information on how the Funds voted
proxies relating to portfolio securities during the most recent 12 month period
ended June 30 is available without charge, upon request, by calling
1-800-231-4639 and is also available on the SEC's website at
http://www.sec.gov.
The Funds file their complete schedule of holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q is
available on the SEC's website, beginning with the November 30, 2004 report, at
http://www.sec.gov. You may review and make copies at the SEC's Public
Reference Room in Washington, D.C. You may also obtain copies after paying a
duplicating fee by writing the SEC's Public Reference Section, Washington, D.C.
20549-0102 or by electronic request to publicinfo@sec.gov. A copy of the
quarterly holdings report is available, without charge, upon request, by
calling 1-800-231-4639.
<Page>
AN EXAMPLE OF ONGOING EXPENSES (UNAUDITED)
Each shareholder of the Company may incur two types of expenses: (1)
transactional (e.g., sales charges, contingent deferred sales charges on
redemptions and redemption fees) and (2) ongoing (e.g., asset-based charges
such as investment advisory fees and distribution and/or 12b-1 fees). The
example, included below, is intended to help a shareholder better understand
the ongoing expenses of investing in this Company and to compare these expenses
with other mutual funds. The example is based on an investment of $1,000
invested at the beginning of the period, March 1, 2009, and held for six months
ending August 31, 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 VALUE ANNUALIZED ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING
FUNDS (03/01/09) EXPENSE RATIOS (08/31/09) (1) PERIOD (2) (08/31/09) (1) PERIOD (2)
- ----- ---------------- ----------------- -------------------- ---------------- -------------------- ----------------
Growth Fund
Class A $1,000.00 1.36% $1,375.62 $ 8.14 $1,018.36 $6.91
Class B 1,000.00 1.86% 1,375.03 11.13 1,015.84 9.45
Class T 1,000.00 1.25% 1,376.72 7.47 1,018.93 6.34
Equity Income Fund
Class A 1,000.00 1.26% 1,380.40 7.59 1,018.82 6.44
Class B 1,000.00 1.76% 1,376.50 10.54 1,016.34 8.95
Class T 1,000.00 1.24% 1,377.88 7.47 1,018.92 6.36
Balanced Fund
Class A 1,000.00 1.30% 1,305.28 7.54 1,018.67 6.60
Class B 1,000.00 1.80% 1,301.55 10.44 1,016.13 9.16
Class T 1,000.00 1.25% 1,304.68 7.21 1,018.94 6.33
Government Bond Fund
Class A 1,000.00 0.73% 1,008.11 3.73 1,021.61 3.75
Class B 1,000.00 1.23% 1,005.99 6.23 1,019.10 6.27
Class T 1,000.00 0.73% 1,008.11 3.73 1,021.61 3.75
Tax Free Fund
Class A 1,000.00 0.75% 1,016.91 3.83 1,021.51 3.84
Class B 1,000.00 1.25% 1,014.52 6.37 1,018.99 6.38
Class T 1,000.00 0.75% 1,016.17 3.84 1,021.52 3.85
Primary Fund 1,000.00 0.79% 1,001.54 4.01 1,021.33 4.05
Money Market Fund 1,000.00 0.18% 1,000.00 0.87 1,024.47 0.88
</Table>
(1) The actual ending account value is based on actual total return of each
class of each of the funds for the period March 1, 2009 to August 31, 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 184/365 (to reflect the six month period).
1
<Page>
SM&R GROWTH FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION
Comments from Anne M. LeMire, CPA, CFA, Portfolio Manager, SM&R Growth Fund
The SM&R Growth Fund seeks to achieve long-term capital appreciation in the
equity market. The Fund is guided by a strategy of investing primarily in
stocks of well established companies with records of consistent earnings and
cash flow growth. For the twelve months ended August 31, 2009, the Fund's total
return to Class T investors was -18.36%, before sales charges (but after other
expenses) at net asset value compared with the Lipper Large Cap Core Index,
which returned -17.07% over the same time period. Year-to-date through August
31, 2009, the Fund's return was 14.39%, compared to 13.00% for the S&P 500,
8.20% for the Dow Jones Industrial Average, 27.40% for the Nasdaq and 17.38%
for the Lipper Large Cap Core Index.
The Fund's performance during the year benefited from sector allocation
choices, primarily an overweight in Health Care and Information Technology and
a small underweight in Telecommunication Services. Stock selection in the
Industrials and Energy sectors added to performance while selection in the
Health Care sector detracted from performance. Individual holdings producing
the strongest performance for the year include Arris Group [+40%], Bed, Bath &
Beyond [+19%], JP Morgan Chase [+15%], and Wyeth [+13%]. Underperforming stocks
that weighed negatively on Fund performance include Citigroup [-73%], Hartford
Financial Services [-62%], and Baker-Hughes [-56%].
Over the past twelve months the U.S. economy has probably been spoken of, in
more quarters, by more people of various backgrounds and experiences, than
perhaps at any time since the Great Depression. This was clearly not your dad's
recession; it leaned more toward your granddad's depression.
One year ago, in the midst of a real estate depression and on the heels of oil
prices that had soared past $140 per barrel, as unbelievable as it now sounds,
there were many strong voices, Fed Governors among them, still concerned about
inflation. Things would soon change.
By early September, Lehman Brothers was very publicly in trouble and looking at
options, from asset sales to pre-packaged bankruptcy to a government bailout.
The week of September 15, 2008 was one that the financial world will not soon
forget, as Lehman Brothers filed for bankruptcy protection, and the U.S.
Government essentially became the owner of insurance giant AIG, with all this
on the heels of the government takeover of Fannie Mae and Freddie Mac the
previous week. Credit markets around the world were seizing, and there were
legitimate worries about the fundamental functioning of the world's financial
systems.
In obvious response, equity and corporate debt markets were pummeled, interest
rate spreads over Treasuries gapped up, and the owners of equities around the
world experienced dramatic losses in issues of all kinds. Many have compared
the ferocity of declines in the corporate credit markets to that of the Great
Depression.
In response to growing fears regarding financial companies and the credit
markets worldwide, the U.S. Treasury Department unveiled a money market
guarantee program in late September of 2008, which would soon be followed by
the much discussed Troubled Asset Recovery Plan, or T.A.R.P., originally aimed
at removing "toxic" assets from the balance sheets of our largest financial
institutions.
To amplify all of this, a presidential election campaign was underway, and
these and other economic issues were bantered about constantly in our 24 hour
news cycle world. The National Bureau of Economic Research announced in
November that the country had been in recession since December of 2007, and job
losses were already in the headlines.
As 2009 got underway, a new administration was not only focused on transition,
but delivering solutions to get the economy back from the brink. Unfortunately,
the worst was yet to come, as payroll numbers worsened dramatically over the
first several months of the year, taking consumer confidence and spending down
with them.
The Obama administration responded with a $787 billion stimulus program, but
consumers had already begun down a path toward debt reduction, as evidenced by
a dramatically rising savings rate, so the economy's long faithful supporters,
the U.S. consumer, chose to conserve rather than consume, leading to the third
and fourth straight quarter of contracting U.S. Gross Domestic Product.
However, the summer months brought with them some better news on the economic
front, as job losses slowed and many economic reports, from housing to consumer
confidence to durable goods orders, began to show slight improvements, leading
many to believe the recession was either ending or soon would begin winding
down.
At SM&R, we are anticipating a mild recovery into the end of 2009 and look for
a more self-sustaining economic development--indicating the government can
begin withdrawing their easy money policies--as we move through 2010.
THE OPINIONS OF PORTFOLIO MANAGERS ARE NOT GUARANTEES OF PERFORMANCE OR
INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. ANY SUCH
OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND SM&R DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH OPINIONS.
BECAUSE INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, THE OPINIONS
EXPRESSED SHOULD NOT BE RELIED UPON AS AN INDICATION OF ANY FUND'S TRADING
INTENT.
2
<Page>
SM&R GROWTH FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION, CONTINUED
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R GROWTH FUND,
CLASS T, AT OFFERING PRICE, AND LIPPER LARGE-CAP CORE INDEX AND THE S&P 500
SM&R Growth Lipper Large-Cap
Fund S&P 500 Core Index
9/1/1999 9,270 10,000 10,000
8/31/2000 11,894 16,264 12,097
8/31/2001 7,654 12,298 8,937
8/31/2002 5,799 10,085 7,451
8/31/2003 6,396 11,302 8,183
8/31/2004 7,078 12,596 8,837
8/31/2005 7,716 14,178 9,850
8/31/2006 8,201 15,437 10,697
8/31/2007 9,573 17,774 12,264
8/31/2008 8,318 15,794 11,039
8/31/2009 6,791 9,233 9,155
SM&R Growth Fund performance figures reflect reinvestment of all dividends and
capital gains distributions and changes in net asset value. Returns for Class A
and B will vary due to differences in expenses and sales charge structure.
Average annual returns are based on the maximum sales charge and reinvestment
of all dividends and capital gains. The average annual returns for Class A
shares reflect the current maximum sales charge of 5.00% . Class B shares
reflect the applicable contingent deferred sales charge (CDSC), which is 5% in
the first year declining to 1% in the fifth year, and is eliminated
thereafter.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST
RECENT MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
<Table>
<Caption>
- -----------------------------------------------
AVERAGE ANNUAL RETURNS
- -----------------------------------------------
Includes maximum sales charge through 8/31/09.
Inception date of these classes is 01/01/99.
ONE FIVE TEN
YEAR YEAR YEAR
- -----------------------------------------------
Class A -22.57% -1.94% -4.04%
Class B -23.08% -1.64% -3.95%
- -----------------------------------------------
</Table>
<Table>
<Caption>
AVERAGE ANNUAL RETURNS
- -----------------------------------------------
Includes maximum sales charge of 5.75% through
8/31/09 for Class T shares.
- -----------------------------------------------
10 YEAR -3.80%
5 YEAR -2.01%
1 YEAR -23.01%
- -----------------------------------------------
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares.
<Table>
<Caption>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
6.01% Consumer Discretionary
7.62% Consumer Staples
12.96% Energy
9.39% Exchange Traded Funds
10.03% Financials
13.04% Health Care
12.27% Industrials
20.50% Information Technology
2.47% Materials
0.87% Miscellaneous
2.45% Telecommunication Services
2.39% Utilities
</Table>
3
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R GROWTH FUND
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--1.59%
Newell Rubbermaid Inc. 20,880 $ 290,650
Stanley Works (The) 18,000 736,740
----------
1,027,390
HOTELS, RESTAURANTS & LEISURE--0.40%
Starwood Hotels & Resorts Worldwide, Inc. 8,685 258,639
MEDIA--0.95%
Walt Disney Co. (The) 23,535 612,851
MULTILINE RETAIL--0.71%
J.C. Penney Co., Inc. 9,630 289,285
Target Corp. 3,600 169,200
----------
458,485
SPECIALTY RETAIL--2.35%
Bed Bath & Beyond Inc. * 7,200 262,656
Best Buy Co., Inc. 15,300 555,084
Home Depot, Inc. (The) 11,700 319,293
Limited Brands, Inc. 8,100 120,852
Lowe's Companies, Inc. 12,060 259,290
----------
1,517,175
----------
TOTAL CONSUMER DISCRETIONARY--6.00% 3,874,540
----------
CONSUMER STAPLES--
BEVERAGES--3.13%
Coca-Cola Co. (The) 21,600 1,053,432
PepsiCo, Inc. 17,100 969,057
----------
2,022,489
FOOD & STAPLES RETAILING--1.94%
CVS Caremark Corp. 18,000 675,360
SUPERVALU, INC. 8,415 120,755
Wal-Mart Stores, Inc. 9,000 457,830
----------
1,253,945
HOUSEHOLD PRODUCTS--1.96%
Procter & Gamble Co. (The) 23,400 1,266,174
TOBACCO--0.57%
Philip Morris International Inc. 7,988 365,131
----------
TOTAL CONSUMER STAPLES--7.60% 4,907,739
----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--4.01%
Baker Hughes Inc. 12,600 434,070
Noble Corp. 11,700 409,851
Oceaneering International, Inc. * 6,660 347,452
Schlumberger Ltd. 15,300 859,860
Transocean Ltd. * 2,700 204,768
Weatherford International Ltd. * 16,920 337,554
----------
2,593,555
OIL, GAS & CONSUMABLE FUELS--8.92%
Anadarko Petroleum Corp. 9,540 504,380
BP PLC ADR 10,530 541,769
Chevron Corp. 14,782 1,033,853
El Paso Corp. 41,220 380,461
Exxon Mobil Corp. 40,500 2,800,575
Royal Dutch Shell PLC, ADR 9,000 499,230
----------
5,760,268
----------
TOTAL ENERGY--12.93% 8,353,823
----------
</Table>
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
EXCHANGE TRADED FUNDS--9.37%
Powershares QQQ 100,000 $ 4,000,000
SPDR Trust Series 1 20,000 2,051,000
----------
6,051,000
----------
TOTAL EXCHANGE TRADED FUNDS--9.37% 6,051,000
----------
FINANCIALS--
CAPITAL MARKETS--2.78%
Charles Schwab Corp. (The) 26,460 477,868
Goldman Sachs Group, Inc. (The) 3,600 595,656
Morgan Stanley 13,500 390,960
State Street Corp. 6,300 330,624
----------
1,795,108
COMMERCIAL BANKS--2.60%
PNC Financial Services Group, Inc. 16,200 689,958
U.S. Bancorp 18,000 407,160
Wells Fargo & Co. 21,131 581,525
----------
1,678,643
CONSUMER FINANCE--0.38%
American Express Co. 4,500 152,190
Discover Financial Services 6,750 92,812
----------
245,002
DIVERSIFIED FINANCIAL SERVICES--1.64%
Bank of America Corp. 17,367 305,486
Citigroup Inc. 34,700 173,500
JPMorgan Chase & Co. 13,298 577,931
----------
1,056,917
INSURANCE--2.61%
Allstate Corp. (The) 5,670 166,641
Aspen Insurance Holdings Ltd. 9,315 236,601
Brown & Brown, Inc. 11,160 221,749
Hartford Financial Services Group,
Inc. (The) 7,560 179,323
Principal Financial Group, Inc. 8,100 230,040
Prudential Financial, Inc. 7,650 386,937
RenaissanceRe Holdings Ltd. 4,860 264,627
----------
1,685,918
----------
TOTAL FINANCIALS--10.01% 6,461,588
----------
HEALTH CARE--
BIOTECHNOLOGY--4.50%
Amgen Inc. * 5,400 322,596
Celgene Corp. * 16,560 863,935
Facet Biotech Corp. * 2,628 26,385
Genzyme Corp. * 10,800 601,668
Gilead Sciences, Inc. * 21,600 973,296
PDL BioPharma Inc. 13,140 118,917
----------
2,906,797
HEALTH CARE EQUIPMENT & SUPPLIES--1.73%
Covidien Ltd. 4,185 165,600
Given Imaging Ltd. 33,300 393,273
Hologic, Inc. * 16,200 266,490
Varian Medical Systems, Inc. * 6,840 294,599
----------
1,119,962
</Table>
4
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
COMMON STOCKS
<Table>
<Caption>
SHARES VALUE
HEALTH CARE PROVIDERS & SERVICES--0.75%
DaVita, Inc. * 4,523 $ 233,884
UnitedHealth Group Inc. 9,000 252,000
---------
485,884
LIFE SCIENCES TOOLS & SERVICES--0.42%
Thermo Fisher Scientific, Inc. * 5,965 269,678
PHARMACEUTICALS--5.61%
Abbott Laboratories 12,510 565,827
Endo Pharmaceuticals Holdings Inc. * 10,305 232,584
Eli Lilly & Co. 37,080 1,240,697
Merck & Co. Inc. 34,200 1,109,106
Wyeth 9,900 473,715
---------
3,621,929
---------
TOTAL HEALTH CARE--13.01% 8,404,250
---------
INDUSTRIALS--
AEROSPACE & DEFENSE--5.32%
Boeing Co. (The) 9,000 447,030
Goodrich Corp. 18,000 992,880
Honeywell International Inc. 13,050 479,718
Northrop Grumman Corp. 3,600 175,716
Rockwell Collins, Inc. 11,700 538,668
United Technologies Corp. 13,500 801,360
---------
3,435,372
AIR FREIGHT & LOGISTICS--1.30%
FedEx Corp. 4,230 290,643
United Parcel Service, Inc. (Class B) 10,260 548,500
---------
839,143
CONSTRUCTION & ENGINEERING--0.39%
Cemex SAB de C.V. ADR * 18,720 248,602
INDUSTRIAL CONGLOMERATES--2.84%
3M Co. 9,000 648,900
General Electric Co. 75,825 1,053,967
Tyco International Ltd. 4,185 132,623
---------
1,835,490
MACHINERY--2.40%
Barnes Group Inc. 8,640 126,922
Caterpillar Inc. 6,750 305,843
Danaher Corp. 18,400 1,117,064
---------
1,549,829
---------
TOTAL INDUSTRIALS--12.25% 7,908,436
---------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--6.06%
Arris Group Inc. * 20,700 274,482
Cisco Systems, Inc. * 76,050 1,642,680
Harris Corp. 11,790 409,467
Motorola, Inc. 27,810 199,676
Nokia ADR 30,690 429,967
QUALCOMM Inc. 13,500 626,670
Research In Motion Ltd. * 4,500 328,770
---------
3,911,712
COMPUTERS & PERIPHERALS--5.36%
Apple Inc. * 6,475 $ 1,089,160
EMC Corp. * 27,720 440,748
Hewlett-Packard Co. 18,450 828,220
International Business Machines Corp. 9,360 1,104,948
---------
3,463,076
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.33%
Agilent Technologies, Inc. * 8,370 214,942
INFORMATION TECHNOLOGY SERVICES--0.23%
Amdocs Ltd. * 6,008 146,115
INTERNET SOFTWARE & SERVICES--0.22%
Akamai Technologies, Inc. * 8,190 144,472
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.76%
Analog Devices, Inc. 14,040 396,630
Intel Corp. 45,000 914,400
KLA-Tencor Corp. 10,440 325,728
Linear Technology Corp. 13,680 363,478
Marvell Technology Group Ltd. * 13,050 199,012
Maxim Integrated Products, Inc. 12,240 229,867
---------
2,429,115
SOFTWARE--4.49%
Intuit Inc. * 22,320 619,826
Microsoft Corp. 39,960 985,014
Oracle Corp. 59,130 1,293,173
---------
2,898,013
---------
TOTAL INFORMATION TECHNOLOGY--20.45% 13,207,445
---------
MATERIALS--
CHEMICALS--2.16%
Monsanto Co. 3,488 292,573
PPG Industries, Inc. 16,200 897,480
Praxair, Inc. 2,700 206,874
-----------
1,396,927
CONTAINERS & PACKAGING--0.31%
Sealed Air Corp. 10,395 196,569
-----------
TOTAL MATERIALS--2.47% 1,593,496
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--2.23%
AT&T Inc. 24,300 633,015
Verizon Communications Inc. 25,920 804,557
-----------
1,437,572
WIRELESS TELECOMMUNICATION SERVICES--0.21%
Rogers Communications, Inc. 5,040 138,751
-----------
TOTAL TELECOMMUNICATION SERVICES--2.44% 1,576,323
-----------
UTILITIES--
ELECTRIC UTILITIES--1.57%
Allegheny Energy, Inc. 6,255 165,195
Ameren Corp. 8,100 218,457
Exelon Corp. 4,500 225,090
FPL Group, Inc. 3,600 202,248
Wisconsin Energy Corp. 4,500 204,615
-----------
1,015,605
</Table>
5
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
MULTI-UTILITIES--0.81%
Dominion Resources, Inc. / VA 9,000 $ 297,720
Sempra Energy 4,500 225,765
-----------
523,485
-----------
TOTAL UTILITIES--2.38% 1,539,090
-----------
TOTAL COMMON STOCK--98.91%
(Cost $70,175,224) 63,877,730
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 0.00% (a) 557,609 557,609
-----------
TOTAL MONEY MARKET FUND--0.86%
(Cost $557,609) 557,609
-----------
TOTAL INVESTMENTS--99.77%
(Cost $70,732,833) 64,435,339
CASH AND OTHER ASSETS, LESS LIABILITIES--0.23% 145,818
-----------
NET ASSETS--100.00% $64,581,157
===========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at
August 31, 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.
6
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $70,175,224) $63,877,730
Investment in affiliated money market fund (Cost $557,609) 557,609
-----------
Total investments (Cost $70,732,833) 64,435,339
Prepaid expenses 43,894
Receivable for:
Capital stock sold 5,534
Dividends 152,855
Expense reimbursement 7,715
Other assets 93,408
-----------
TOTAL ASSETS 64,738,745
-----------
LIABILITIES
Capital stock reacquired 12,744
Payable to investment adviser for fund expenses 53,245
Accrued:
Investment advisory fees 40,805
Administrative service fees 13,602
Distribution fees 3,147
Other liabilities 34,045
-----------
TOTAL LIABILITIES 157,588
-----------
NET ASSETS $64,581,157
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 75,911,404
Undistributed net investment income 130,022
Accumulated net realized loss on investments (5,162,775)
Net unrealized depreciation of investments (6,297,494)
-----------
NET ASSETS $64,581,157
===========
NET ASSETS:
Class A 2,715,730
- -------------------------------------------------------------------------------------------------
Class B 785,784
- -------------------------------------------------------------------------------------------------
Class T 61,079,643
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $64,581,157
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 899,420
- -------------------------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 266,753
- -------------------------------------------------------------------------------------------------
Class T:
Authorized 95,000,000
Outstanding 19,783,519
- -------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 3.02
Offering price per share:
(Net assets value of $3.02 / 95%) $ 3.18
- -------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 2.95
- -------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 3.09
Offering price per share:
(Net assets value of $3.09 / 94.25%) $ 3.28
- -------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
7
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $10,176) $ 1,534,106
Interest 14,255
Interest from affiliated money market fund 352
-------------
TOTAL INVESTMENT INCOME 1,548,713
-------------
EXPENSES
Investment advisory fees 451,297
Administrative service fees 150,432
Professional fees 20,879
Custody and transaction fees 15,347
Directors' fees and expenses 9,973
Compliance expenses 12,874
Qualification fees
Class A 4,838
Class B 4,662
Class T 16,127
Shareholder reporting expenses
Class A 1,813
Class B 588
Class T 38,474
Distribution fees
Class A 6,639
Class B 6,402
Insurance expenses 32,128
Other Expenses 410
-------------
TOTAL EXPENSES 772,883
LESS EXPENSES REIMBURSED (18,892)
-------------
NET EXPENSES 753,991
-------------
INVESTMENT INCOME--NET 794,722
-------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (5,162,692)
Change in unrealized depreciation of investments (11,795,096)
-------------
NET LOSS ON INVESTMENTS (16,957,788)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(16,163,066)
=============
</Table>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------
2009 2008
------------- -------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 794,722 $ 1,173,442
Net realized gain(loss) on investments (5,162,692) 4,179,674
Change in unrealized depreciation of investments (11,795,096) (18,447,678)
------------- -------------
Net decrease in net assets resulting from operations (16,163,066) (13,094,562)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (34,520) (45,299)
Class B (6,097) (11,209)
Class T (771,949) (1,087,464)
Capital gains
Class A (189,345) (109,438)
Class B (68,710) (63,999)
Class T (3,923,457) (2,390,940)
------------- -------------
Total distributions to shareholders (4,994,078) (3,708,349)
------------- -------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (96,381) (1,254,542)
Class B (241,787) (1,064,443)
Class T 1,451,100 (3,573,275)
------------- -------------
Total capital share transactions--net 1,112,932 (5,892,260)
------------- -------------
TOTAL DECREASE IN NET ASSETS (20,044,212) (22,695,171)
NET ASSETS
Beginning of year 84,625,369 107,320,540
------------- -------------
End of year $ 64,581,157 $ 84,625,369
============= =============
Undistributed Net Investment Income $ 130,022 $ 147,866
============= =============
</Table>
See notes to financial statements.
8
<Page>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ------------ ---------- ------
Net asset value, beginning of year $ 4.06 $ 4.83 $ 4.31 $ 4.09 $ 3.79
Income (loss) from investment operations
Investment income--net 0.04 0.04 0.02 0.01 0.04
Net realized and unrealized gain (loss) on investments (0.83) (0.64) 0.67 0.23 0.30
---------- ---------- ------------- --------- ------
Total from investment operations (0.79) (0.60) 0.69 0.24 0.34
Less distributions
Investment income--net (0.04) (0.05) (0.02) (0.02) (0.04)
Capital gains (0.21) (0.12) (0.15) -- --
---------- ---------- ------------- --------- ------
Total distributions (0.25) (0.17) (0.17) (0.02) (0.04)
---------- ---------- ------------- --------- ------
Net asset value, end of year $ 3.02 $ 4.06 $ 4.83 $ 4.31 $ 4.09
========== ========== ============= ========= ======
Total return (1) (18.56)% (12.73)% 16.16% 6.00% 9.05%
========== ========== ============= ========= ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 2,716 $ 3,786 $5,698 $5,620 $6,154
Ratio of expenses with reimbursement to average net assets (2) 1.36% 1.36% 1.36% 1.36% 1.36%
Ratio of expenses without reimbursement to average net assets 1.67% 1.63% 1.47% 1.66% 1.69%
Ratio of net investment income to average net assets 1.22% 1.03% 0.34% 0.52% 1.03%
Portfolio turnover rate 11.84% 11.15% 23.79% 56.05% 24.18%
CLASS B SHARES
-----------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ------------- --------- ------
Net asset value, beginning of year $ 3.97 $ 4.73 $ 4.22 $ 4.00 $ 3.72
Income (loss) from investment operations
Investment income (loss)--net (0.04) (0.05) (0.04) -- 0.02
Net realized and unrealized gain (loss) on investments (0.75) (0.57) 0.70 0.23 0.29
---------- ---------- ------------- --------- ------
Total from investment operations (0.79) (0.62) 0.66 0.23 0.31
Less distributions
Investment income--net (0.02) (0.02) -- (0.01) (0.03)
Capital gains (0.21) (0.12) (0.15) -- --
---------- ---------- ------------- --------- ------
Total distributions (0.23) (0.14) (0.15) (0.01) (0.03)
---------- ---------- ------------- --------- ------
Net asset value, end of year $ 2.95 $ 3.97 $ 4.73 $ 4.22 $ 4.00
========== ========== ============= ========= ======
Total return (1) (19.01)% (13.37)% 15.89% 5.71% 8.27%
========== ========== ============= ========= ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 786 $ 1,423 $2,863 $3,218 $3,456
Ratio of expenses with reimbursement to average net assets (2) 1.86% 1.86% 1.86% 1.86% 1.86%
Ratio of expenses without reimbursement to average net assets 2.54% 2.24% 2.03% 2.24% 2.20%
Ratio of net investment income (loss) to average net assets 0.72% 0.56% (0.17)% 0.02% 0.52%
Portfolio turnover rate 11.84% 11.15% 23.79% 56.05% 24.18%
</Table>
(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.
9
<Page>
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ----------- ---------- ---------
Net asset value, beginning of year $ 4.14 $ 4.95 $ 4.40 $ 4.17 $ 3.87
Income (loss) from investment operations
Investment income--net 0.04 0.06 0.03 0.03 0.05
Net realized and unrealized gain (loss) on investments (0.84) (0.69) 0.70 0.23 0.30
---------- ---------- ----------- ---------- ---------
Total from investment operations (0.80) (0.63) 0.73 0.26 0.35
Less distributions
Investment income--net (0.04) (0.06) (0.03) (0.03) (0.05)
Capital gains (0.21) (0.12) (0.15) -- --
---------- ---------- ----------- ---------- ---------
Total distributions (0.25) (0.18) (0.18) (0.03) (0.05)
---------- ---------- ----------- ---------- ---------
Net asset value, end of year $ 3.09 $ 4.14 $ 4.95 $ 4.40 $ 4.17
========== ========== =========== ========== =========
Total return (1) (18.36)% (13.11)% 16.73% 6.28% 9.01%
========== ========== =========== ========== =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $61,080 $79,417 $98,760 $93,937 $101,643
Ratio of expenses with reimbursement to average net assets 1.25% 1.15% 1.12% 1.18% 1.19%
Ratio of expenses without reimbursement to average net assets 1.26% 1.15% 1.12% 1.18% 1.19%
Ratio of net investment income to average net assets 1.34% 1.27% 0.58% 0.70% 1.20%
Portfolio turnover rate 11.84% 11.15% 23.79% 56.05% 24.18%
</Table>
(1) Does not include the effect of sales charge
See notes to financial statements.
10
<Page>
SM&R EQUITY INCOME FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION
Comments from John S. Maidlow, CFA, Portfolio Manager, SM&R Equity Income Fund
The SM&R Equity Income Fund's primary investment objective remains providing
current income for shareholders with a secondary objective of long-term capital
appreciation. The Fund's strategy is to invest principally in the stocks of
well-established companies with records of consistent and increasing dividend
payments. For the fiscal year ended August 31, 2009, the Fund's total return
was -18.74%, before sales charges (but after other expenses), to Class T
investors at net asset value. Over that same time period, the total return of
the Fund's benchmark, the Lipper Equity Income Fund Index, was -16.44%. For
comparison, the broad equity market, as measured by the S&P 500 Index, returned
- -18.25% for the same twelve months. The Fund continues to meet its goal of
maintaining a dividend yield greater than that of the market, as represented by
the Standard & Poor's 500 Index. The dividend yield at August 31 for the fund
was 3.3% (before expenses), approximately 32% greater than the 2.5% of the S&P
500. The Fund remained true to its Investment Strategy of investing at least
80% of its assets in common stocks, with stocks representing fully 98.8% of the
portfolio as of August 31st.
The Fund's performance for the year benefited from overweight positions
relative to the market in Consumer Staples and Telecommunication Services and
an underweighting in Industrials. Performance was significantly hampered by the
Fund's overweighting in Financials and underweighting in Information
Technology. However, stock selection in Financials provided a positive boost to
performance. Stock selection in the Energy sector also enhanced performance.
Selection in the Materials and Telecommunication Services sectors restrained
performance. Standout performers for the year include The Travelers Cos.
[+17%], JP Morgan Chase [+15%], Wyeth [+13%], and RenaissanceRe [+9%].
Underperforming holdings included Citigroup [-73%], ProLogis [-72%], Allied
Capital [-71%] and Seaspan Corp. [-68%]. At fiscal year-end, approximately 67%
of the Fund's holdings had a dividend yield greater than or equal to that of
the S&P 500.
The markets took investors on a wild rollercoaster ride over the past year.
Following the September bankruptcy of Lehman Brothers, the Federal government's
takeover of mortgage guarantors Fannie Mae and Freddie Mac, the injection of
hundreds of billions of dollars into banks and insurance companies, and the
lending of tens of billions to Chrysler and General Motors, investors became
extremely risk-averse. Yields on 30-day Treasury bills turned negative for a
brief period of time as investors sought the safety of short-term government
obligations. The equity markets sank to levels not seen since 1996, with the
S&P 500 finally bottoming out in March. Then, believing that the economy had
reached its nadir and that economic conditions were likely to begin to improve
later this year, the Index rallied almost 50% through the end of August.
As the markets correctly forecast, the current recession appears to be easing
after months of sharp contraction. Recent indicators of economic activity are
pointing to an increasing probability that economic conditions are improving.
Although unemployment continues to rise, the number of monthly initial jobless
claims reported by the Commerce Department has been falling since January.
Housing starts have increased since hitting a low of 479,000 units in April,
and an index of pending home sales rose for the sixth month in a row in July.
However, there is reason to remain cautious on the economic outlook at this
time. Structural changes in the economy, such as advances in technology, could
lead to a recovery with less than normal job growth. Since the onset of the
recession, many companies have learned that they can remain profitable, or even
increase profits, with fewer workers.
Consensus earnings forecasts for the S&P 500 for 2009 are for earnings to
decline 21% from last year. Earnings are projected to rise 27% next year as
analysts and forecasters expect economic fundamentals to be improving
throughout the year. The trailing twelve-month P/E ratio for the S&P 500 is a
relatively high 17.3x, while the P/E for the next twelve months is 16.2x based
on forecasted earnings. This compares to an historical long-term average P/E of
about 15.5x. Given the current weak economic environment and the high level of
uncertainty for corporate sales and profits over the next twelve months,
equities appear to be relatively fully valued. Thus, we would not expect
price/earnings multiples to expand significantly from these levels until there
is greater clarity as to when economic conditions and corporate profits have
bottomed and are set to improve. Based upon this outlook, we plan to continue
our conservative strategy of emphasizing equities with above-average expected
total returns for long-term appreciation potential while maintaining the Fund's
above-market dividend yield.
2009 marked the second consecutive year of negative returns for both the Fund
and the equity markets. Clearly, neither we at SM&R nor investors in the Fund
are satisfied with less than positive returns. Although these past two years
have been difficult, we believe the Fund's strategy will provide an attractive
total return over the long-term for conservative investors. Its
well-diversified portfolio of companies expected to generate consistent
earnings growth while continuing to provide an above-average dividend yield
should make the Fund a core holding for many investors.
THE OPINIONS OF PORTFOLIO MANAGERS ARE NOT GUARANTEES OF PERFORMANCE OR
INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. ANY SUCH
OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND SM&R DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH OPINIONS.
BECAUSE INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, THE OPINIONS
EXPRESSED SHOULD NOT BE RELIED UPON AS AN INDICATION OF ANY FUND'S TRADING
INTENT.
11
<Page>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R EQUITY
INCOME FUND, CLASS T, AT OFFERING PRICE, AND LIPPER EQUITY INCOME FUND INDEX
AND THE S&P 500
SM&R
Equity
Income Lipper Equity Income
Fund S&P 500 Fund Index
9/1/1999 9,426 10,000 10,000
8/31/2000 9,864 16,264 10,450
8/31/2001 8,886 12,298 10,211
8/31/2002 7,550 10,085 8,835
8/31/2003 8,066 11,302 9,602
8/31/2004 9,045 12,596 11,008
8/31/2005 9,891 14,178 12,578
8/31/2006 10,884 15,437 13,914
8/31/2007 12,038 17,774 15,904
8/31/2008 10,792 15,794 13,803
8/31/2009 8,770 9,233 11,534
SM&R Equity Income Fund performance figures reflect reinvestment of all
dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 5.00% . Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year declining to 1% in the fifth year, and is eliminated
thereafter.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST
RECENT MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge through 8/31/09.
Inception date of these classes is 01/01/99.
- ----------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- ----------------------------------------------
Class A -22.76% -1.71% -1.42%
Class B -23.16% -1.31% -1.39%
- ----------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge of 5.75% through
8/31/09 for Class T shares.
- ----------------------------------------------
10 YEAR -1.30%
5 YEAR -1.79%
1 YEAR -23.42%
- ----------------------------------------------
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares.
<Table>
<Caption>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
8.22% Consumer Discretionary
13.15% Consumer Staples
13.03% Energy
23.03% Financials
11.25% Health Care
8.32% Industrials
7.61% Information Technology
2.80% Materials
0.88% Miscellaneous
5.28% Telecommunication Services
6.43% Utilities
</Table>
12
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
COMMON STOCKS
<Table>
<Caption>
SHARES VALUE
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.88%
McDonald's Corp. 10,000 $ 562,400
Starwood Hotels & Resorts Worldwide, Inc. 18,000 536,040
---------
1,098,440
HOUSEHOLD DURABLES--2.36%
Newell Rubbermaid Inc. 20,000 278,400
Stanley Works (The) 16,000 654,880
Tupperware Brands Corp. 12,000 443,880
---------
1,377,160
MEDIA--0.81%
CBS Corp. (Class B) 17,900 185,265
Walt Disney Co. (The) 11,100 289,044
---------
474,309
MULTILINE RETAIL--1.15%
J.C. Penney Co., Inc 16,800 504,672
Target Corp. 3,500 164,500
---------
669,172
SPECIALTY RETAIL--1.99%
Foot Locker, Inc. 15,400 164,164
Limited Brands, Inc. 35,000 522,200
TJX Companies, Inc. (The) 13,300 478,135
---------
1,164,499
---------
TOTAL CONSUMER DISCRETIONARY--8.19% 4,783,580
---------
CONSUMER STAPLES--
BEVERAGES--2.37%
Coca-Cola Co. (The) 14,500 707,165
PepsiCo, Inc. 12,000 680,040
---------
1,387,205
FOOD PRODUCTS--3.14%
ConAgra Foods, Inc. 31,000 636,430
H.J. Heinz Co. 14,000 539,000
Kraft Foods Inc. (Class A) 4,844 137,327
McCormick & Co., Inc. (b) 16,000 521,120
---------
1,833,877
FOOD & STAPLES RETAILING--1.71%
SUPERVALU, INC. 13,000 186,550
Wal-Mart Stores, Inc. 16,000 813,920
---------
1,000,470
HOUSEHOLD PRODUCTS--4.04%
Colgate-Palmolive Co. 8,675 630,673
Kimberly-Clark Corp. 11,000 665,060
Procter & Gamble Co. (The) 19,650 1,063,262
---------
2,358,995
PERSONAL PRODUCTS--1.19%
Alberto-Culver Co. 10,575 279,074
Avon Products, Inc. 13,000 414,310
---------
693,384
TOBACCO--0.66%
Philip Morris International Inc. 8,375 $ 382,821
---------
TOTAL CONSUMER STAPLES--13.11% 7,656,752
---------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.56%
Schlumberger Ltd. 9,500 533,900
Weatherford International Ltd. * 19,000 379,050
---------
912,950
OIL, GAS & CONSUMABLE FUELS--11.42%
Anadarko Petroleum Corp. 12,000 634,440
Boardwalk Pipeline Partners, LP 14,500 339,445
BP PLC ADR 15,000 771,750
Chevron Corp. 13,101 916,284
Enterprise Products Partners L.P. 12,800 345,600
Exxon Mobil Corp. 31,000 2,143,650
Plains All American Pipeline, L.P. 8,000 379,520
Royal Dutch Shell PLC, ADR 14,000 776,580
Spectra Energy Corp. 19,300 363,226
---------
6,670,495
---------
TOTAL ENERGY--12.98% 7,583,445
---------
FINANCIALS--
CAPITAL MARKETS--2.24%
Allied Capital Corp. 18,000 54,000
Charles Schwab Corp. (The) 29,500 532,770
Morgan Stanley 13,250 383,720
State Street Corp. 6,400 335,872
---------
1,306,362
COMMERCIAL BANKS--4.18%
Comerica Inc. 18,000 480,060
KeyCorp 17,100 113,886
PNC Financial Services Group, Inc. 13,219 562,997
Regions Financial Corp. 17,782 104,203
U.S. Bancorp 23,000 520,260
Wells Fargo & Co. 24,000 660,480
---------
2,441,886
DIVERSIFIED FINANCIAL SERVICES--4.23%
Bank of America Corp. 47,000 826,730
Citigroup Inc. 68,400 342,000
JPMorgan Chase & Co. 30,000 1,303,800
---------
2,472,530
INSURANCE--6.72%
Allstate Corp. (The) 8,000 235,120
Arthur J. Gallagher & Co. 11,900 282,863
Aspen Insurance Holdings Ltd. 20,825 528,955
Hartford Financial Services Group,
Inc. (The) 5,950 141,134
Marsh & McLennan Companies, Inc. 12,350 290,719
Principal Financial Group, Inc. 17,050 484,220
Prudential Financial, Inc. 12,225 618,340
RenaissanceRe Holdings Ltd. 8,000 435,600
Travelers Companies, Inc. (The) 18,000 907,560
---------
3,924,511
</Table>
13
<Page>
COMMON STOCKS
<Table>
<Caption>
SHARES VALUE
REAL ESTATE INVESTMENT TRUSTS--5.25%
AvalonBay Communities, Inc. 3,301 $ 212,683
Boston Properties Inc. 3,700 224,146
BRE Properties, Inc. 8,600 243,122
Duke Realty Corp. 12,000 138,240
HCP, Inc. 7,000 199,360
Health Care REIT, Inc. 4,500 192,195
Hospitality Properties Trust 11,400 207,708
Liberty Property Trust 11,300 370,301
Mack-Cali Realty Corp. 12,000 384,360
National Retail Properties Inc. 9,000 184,680
ProLogis 6,000 66,720
Simon Property Group, Inc, 4,130 262,751
Weingarten Realty Investors 19,000 377,340
----------
3,063,606
THRIFTS & MORTGAGE FINANCE--0.35%
New York Community Bancorp, Inc. 16,000 170,240
TrustCo Bank Corp NY 5,000 31,100
----------
201,340
----------
TOTAL FINANCIALS--22.97% 13,410,235
----------
HEALTH CARE--
BIOTECHNOLOGY--0.77%
Genzyme Corp. * 4,000 222,840
Gilead Sciences, Inc. * 5,000 225,300
----------
448,140
HEALTH CARE PROVIDERS & SERVICES--0.36%
DaVita, Inc. * 4,000 206,840
HEALTH EQUIPMENT & SUPPLIES--0.25%
Covidien PLC 3,750 148,387
PHARMACEUTICALS--9.84%
Abbott Laboratories 12,000 542,760
Eli Lilly & Co. 20,350 680,911
Johnson & Johnson 26,000 1,571,440
Merck & Co. Inc. 23,000 745,890
Pfizer Inc. 71,000 1,185,700
Wyeth 21,325 1,020,401
----------
5,747,102
----------
TOTAL HEALTH CARE--11.22% 6,550,469
----------
INDUSTRIALS--
AEROSPACE & DEFENSE--2.21%
Boeing Co. (The) 6,500 322,855
Northrop Grumman Corp. 4,000 195,240
United Technologies Corp. 13,000 771,680
----------
1,289,775
AIR FREIGHT & LOGISTICS--0.71%
United Parcel Services, Inc. (Class B) 7,700 411,642
COMMERCIAL SERVICES & SUPPLIES--0.81%
Pitney Bowes Inc. 11,925 266,524
Sovran Self Storage, Inc. 7,000 205,730
----------
472,254
INDUSTRIAL CONGLOMERATES--3.52%
3M Co. 10,200 735,420
General Electric Co. 86,500 1,202,350
Tyco International Ltd. 3,750 118,837
----------
2,056,607
MACHINERY--0.26%
Barnes Group Inc. 10,500 $ 154,245
MARINE--0.29%
Seaspan Corp. 25,000 169,250
ROAD & RAIL--0.50%
Burlington Northern Santa Fe Corp. 3,500 290,570
----------
TOTAL INDUSTRIALS--8.30% 4,844,343
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--1.35%
Harris Corp. 12,750 442,808
Nokia ADR 8,000 112,080
QUALCOMM Inc. 5,075 235,582
----------
790,470
COMPUTERS & PERIPHERALS--2.04%
Diebold, Inc. 8,250 248,902
International Business Machines Corp. 8,000 944,400
----------
1,193,302
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.37%
Tyco Electronics Ltd. 9,450 215,649
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--2.00%
Intel Corp. 43,100 875,792
Linear Technology Corp. 11,000 292,270
----------
1,168,062
SOFTWARE--1.82%
Microsoft Corp. 43,000 1,059,950
----------
TOTAL INFORMATION TECHNOLOGY--7.58% 4,427,433
----------
MATERIALS--
CHEMICALS--2.08%
E. I. du Pont de Nemours and Co. 6,100 194,773
PPG Industries, Inc. 7,200 398,880
Praxair, Inc. 2,700 206,874
Sensient Technologies Corp. 16,000 417,120
----------
1,217,647
METALS & MINING--0.31%
Alcoa Inc. 15,000 180,750
PAPER & FOREST PRODUCTS--0.40%
Potlatch Corp. 8,000 232,800
----------
TOTAL MATERIALS--2.79% 1,631,197
----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--5.01%
AT&T Inc. 48,000 1,250,400
Frontier Communications Corp. 40,000 284,400
Verizon Communications Inc. 34,000 1,055,360
Windstream Corp. 39,000 334,230
----------
2,924,390
WIRELESS TELECOMMUNICATION SERVICES--0.25%
Rogers Communications, Inc. 5,425 149,350
----------
TOTAL TELECOMMUNICATION SERVICES--5.26% 3,073,740
----------
</Table>
14
<Page>
COMMON STOCKS
<Table>
<Caption>
SHARES VALUE
UTILITIES--
ELECTRIC UTILITIES--4.64%
Allegheny Energy, Inc. 5,000 $ 132,050
Ameren Corp. 10,900 293,973
Consolidated Edison, Inc. 11,000 442,090
Duke Energy Corp. 33,000 511,170
FPL Group Inc. 4,550 255,619
PPL Corp. 3,950 116,130
Pinnacle West Capital Corp. 10,000 329,100
Progress Energy, Inc. 8,000 316,240
Southern Co. 10,000 312,000
-----------
2,708,372
GAS UTILITIES--1.05%
Nicor Inc. 7,000 253,540
NiSource Inc. 27,000 356,670
-----------
610,210
MULTI-UTILITIES--0.72%
DTE Energy Co. 8,000 278,240
Sempra Energy 2,875 144,239
-----------
422,479
-----------
TOTAL UTILITIES--6.41% 3,741,061
-----------
TOTAL COMMON STOCK--98.81%
(Cost $66,287,011) 57,702,255
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 0.00% (a) 512,017 512,017
-----------
TOTAL MONEY MARKET FUND--0.88%
(Cost $512,017) 512,017
-----------
TOTAL INVESTMENTS--99.69%
(Cost $66,799,028) 58,214,272
CASH AND OTHER ASSETS, LESS LIABILITIES--0.31% 181,021
-----------
NET ASSETS--100.00% $58,395,293
===========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at
August 31, 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.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $66,287,011) $57,702,255
Investment in affiliated money market fund (Cost $512,017) 512,017
-----------
Total investments (Cost $66,799,028) 58,214,272
Prepaid expenses 38,027
Receivable for:
Capital stock sold 5,539
Dividends 209,475
Expense reimbursement 4,613
Other assets 62,734
-----------
TOTAL ASSETS 58,534,660
-----------
LIABILITIES
Capital stock reacquired 13,342
Payable to investment adviser for fund expenses 42,138
Accrued:
Investment advisory fees 36,727
Administrative service fees 12,242
Distribution fees 6,348
Other liabilities 28,570
-----------
TOTAL LIABILITIES 139,367
-----------
NET ASSETS $58,395,293
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 70,473,507
Undistributed net investment income 269,583
Accumulated net realized loss on investments (3,763,041)
Net unrealized depreciation of investments (8,584,756)
-----------
NET ASSETS $58,395,293
===========
NET ASSETS:
Class A 5,113,147
- -------------------------------------------------------------------------------------------------
Class B 1,769,936
- -------------------------------------------------------------------------------------------------
Class T 51,512,210
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $58,395,293
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 369,204
- -------------------------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 132,883
- -------------------------------------------------------------------------------------------------
Class T:
Authorized 75,000,000
Outstanding 3,546,478
- -------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 13.85
Offering price per share:
(Net assets value of $13.85 / 95%) $ 14.58
- -------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 13.32
- -------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 14.52
Offering price per share:
(Net assets value of $14.52 / 94.25%) $ 15.41
- -------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
16
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $8,775) $ 2,430,252
Interest 6,430
Interest from affiliated money market fund 694
------------
TOTAL INVESTMENT INCOME 2,437,376
------------
EXPENSES
Investment advisory fees 420,622
Administrative service fees 140,207
Professional fees 19,566
Custody and transaction fees 14,151
Directors' fees and expenses 9,968
Compliance expenses 11,977
Qualification fees
Class A 5,867
Class B 5,587
Class T 13,335
Shareholder reporting expenses
Class A 2,177
Class B 878
Class T 22,562
Distribution fees
Class A 11,902
Class B 14,228
Insurance expenses 29,730
Other Expenses 87
------------
TOTAL EXPENSES 722,844
LESS EXPENSES REIMBURSED (24,305)
------------
NET EXPENSES 698,539
------------
INVESTMENT INCOME--NET 1,738,837
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (3,750,821)
Change in unrealized depreciation of investments (13,816,547)
------------
NET LOSS ON INVESTMENTS (17,567,368)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(15,828,531)
============
</Table>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------
2009 2008
------------ -----------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,738,837 $ 2,289,554
Net realized gain (loss) on investments (3,750,821) 5,110,151
Change in unrealized depreciation of investments (13,816,547) (17,227,147)
------------ -----------
Net decrease in net assets resulting from operations (15,828,531) (9,827,442)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (165,164) (217,885)
Class B (57,621) (87,891)
Class T (1,660,242) (2,091,434)
Capital gains
Class A (389,113) (544,666)
Class B (169,665) (256,895)
Class T (3,947,193) (4,643,731)
------------ -----------
Total distributions to shareholders (6,388,998) (7,842,502)
------------ -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A (127,502) (1,735,565)
Class B (258,754) (1,732,818)
Class T 668,936 (3,462,948)
------------ -----------
Total capital share transactions--net 282,680 (6,931,331)
------------ -----------
TOTAL DECREASE IN NET ASSETS (21,934,849) (24,601,275)
NET ASSETS
Beginning of year 80,330,142 104,931,417
------------ -----------
End of year $ 58,395,293 $ 80,330,142
============ ============
Undistributed Net Investment Income $ 269,583 $ 413,773
============ ============
</Table>
See notes to financial statements.
17
<Page>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------
2009 2008 2007 2006 2005
-------- ---------- ---------- --------- ---------
Net asset value, beginning of year $ 19.26 $ 23.40 $ 23.12 $23.22 $22.11
Income (loss) from investment operations
Investment income--net 0.40 0.48 0.64 0.45 0.35
Net realized and unrealized gain (loss) on investments (4.20) (2.75) 1.71 1.70 1.68
-------- -------- ------- ------- --------
Total from investment operations (3.80) (2.27) 2.35 2.15 2.03
Less distributions
Investment income--net (0.46) (0.53) (0.68) (0.40) (0.39)
Capital gains (1.15) (1.34) (1.39) (1.85) (0.53)
-------- -------- ------- ------- --------
Total distributions (1.61) (1.87) (2.07) (2.25) (0.92)
-------- -------- ------- ------- --------
Net asset value, end of year $ 13.85 $ 19.26 $ 23.40 $23.12 $23.22
======== ======== ======= ======= ========
Total return (1) (18.71)% (10.34)% 10.31% 9.89% 9.25%
======== ======== ======= ======= ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 5,113 $ 7,150 $10,524 $9,269 $9,088
Ratio of expenses with reimbursement to average net assets (2) 1.26% 1.26% 1.26% 1.26% 1.26%
Ratio of expenses without reimbursement to average net assets 1.59% 1.49% 1.43% 1.54% 1.50%
Ratio of net investment income to average net assets 3.09% 2.47% 2.57% 2.00% 1.53%
Portfolio turnover rate 6.07% 11.88% 11.40% 47.59% 18.45%
CLASS B SHARES
--------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------
2009 2008 2007 2006 2005
Net asset value, beginning of year $ 18.58 $ 22.63 $22.33 $22.49 $21.46
Income (loss) from investment operations
Investment income--net 0.22 0.15 0.40 0.29 0.23
Net realized and unrealized gain (loss) on investments (3.94) (2.42) 1.84 1.69 1.61
-------- -------- ------- ------- --------
Total from investment operations (3.72) (2.27) 2.24 1.98 1.84
Less distributions
Investment income--net (0.39) (0.44) (0.55) (0.29) (0.28)
Capital gains (1.15) (1.34) (1.39) (1.85) (0.53)
-------- -------- ------- ------- --------
Total distributions (1.54) (1.78) (1.94) (2.14) (0.81)
-------- -------- ------- ------- --------
Net asset value, end of year $ 13.32 $ 18.58 $22.63 $22.33 $22.49
======== ======== ======= ======= ========
Total return (1) (19.11)% (10.72)% 10.20% 9.40% 8.64%
======== ======== ======= ======= ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 1,770 $ 2,863 $5,373 $6,759 $7,744
Ratio of expenses with reimbursement to average net assets (2) 1.76% 1.76% 1.76% 1.76% 1.76%
Ratio of expenses without reimbursement to average net assets 2.26% 2.09% 1.95% 2.06% 2.05%
Ratio of net investment income to average net assets 2.62% 1.98% 2.09% 1.45% 1.04%
Portfolio turnover rate 6.07% 11.88% 11.40% 47.59% 18.45%
</Table>
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.26% for Class
A and 1.76% for Class B until December 31, 2009.
See notes to financial statements.
18
<Page>
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------
2009 2008 2007 2006 2005
------- ------- ------- ------- -------
Net asset value, beginning of year $ 20.10 $ 24.40 $ 23.97 $ 23.97 $ 22.77
Income (loss) from investment operations
Investment income--net 0.43 0.50 0.69 0.50 0.40
Net realized and unrealized gain (loss) on investments (4.39) (2.95) 1.81 1.76 1.72
------- ------- ------- ------- -------
Total from investment operations (3.96) (2.45) 2.50 2.26 2.12
Less distributions
Investment income--net (0.47) (0.51) (0.68) (0.41) (0.39)
Capital gains (1.15) (1.34) (1.39) (1.85) (0.53)
------- ------- ------- ------- -------
Total distributions (1.62) (1.85) (2.07) (2.26) (0.92)
------- ------- ------- ------- -------
Net asset value, end of year $ 14.52 $ 20.10 $ 24.40 $ 23.97 $ 23.97
======= ======= ======= ======= =======
Total return (1) (18.74)% (10.35)% 10.60% 10.04% 9.35%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $51,512 $70,316 $89,034 $90,698 $95,744
Ratio of expenses with reimbursement to average net assets 1.24% 1.14% 1.12% 1.15% 1.14%
Ratio of net investment income to average net assets 3.13% 2.58% 2.72% 2.09% 1.66%
Portfolio turnover rate 6.07% 11.88% 11.40% 47.59% 18.45%
</Table>
(1) Does not include the effect of sales charge
See notes to financial statements.
19
<Page>
SM&R BALANCED FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION
Comments from Anne M. LeMire, CPA, CFA, and John S. Maidlow, CFA, Co-Portfolio
Managers, SM&R Balanced Fund
The SM&R Balanced Fund's investment objectives are to conserve principal,
produce current income and achieve long-term capital appreciation. The Fund
seeks to accomplish these objectives with a balance of both growth and income
through its well-diversified portfolio of stocks of primarily large-cap
companies, U.S. Government agency and corporate fixed income securities, and
money market instruments. As of the fiscal year end on August 31, 2009, the
Fund's allocation was approximately 73% equities, 20% bonds and 7% cash
equivalents(1). For the twelve months ended August 31st, the Fund's total
return was -12.24%, before sales charges (but after other expenses), to Class T
investors at net asset value. Over that same time period, the total return of
the Fund's benchmark, the Lipper Balanced Fund Index, was -8.32%. The equity
portion of the Fund produced a total return (capital appreciation and dividend
income) of -18.1% while the bond portion returned 11.1% for the year. In
comparison, the broad equity market, as measured by the S&P 500 Index, returned
- -18.3% for the same twelve months, and the Barclay's Capital Intermediate
Government/Credit Index returned 6.8%.
The Fund's overweight position relative to the market in the Health Care and
Telecommunication Services sectors boosted performance while its overweight in
Financials negatively impacted performance. Underweights in Consumer Staples
and Energy enhanced performance while its slight underweight in utilities
proved a modest drag on performance. The Fund's holdings in the Energy and
Health Care sectors during the year provided a significant improvement to
performance. Conversely, stock selection in the Financials and Utilities
sectors restrained performance. Standout performers for the year include Arris
Group [+40%], The Travelers Cos. [+17%], JP Morgan Chase [+15%] and Wyeth
[+13%]. The poorest performing holdings were Citigroup [-73%], Allied Capital
[-71%], Seaspan Corp. [-68%] and United States Steel [-67%].
The markets took investors on a wild rollercoaster ride over the past year.
Following the September bankruptcy of Lehman Brothers, the Federal government's
takeover of mortgage guarantors Fannie Mae and Freddie Mac, the injection of
hundreds of billions of dollars into banks and insurance companies, and the
lending of tens of billions to Chrysler and General Motors, investors became
extremely risk-averse. Yields on 30-day Treasury bills turned negative for a
brief period of time as investors sought the safety of short-term government
obligations. The equity markets sank to levels not seen since 1996, with the
S&P 500 finally bottoming out in March. Then, believing that the economy had
reached its nadir and that economic conditions were likely to begin to improve
later this year, the Index rallied almost 50% through the end of August.
As the markets correctly forecast, the current recession appears to be easing
after months of sharp contraction. Recent indicators of economic activity are
pointing to an increasing probability that economic conditions are improving.
Although unemployment continues to rise, the number of monthly initial jobless
claims reported by the Commerce Department has been falling since January.
Housing starts have increased since hitting a low of 479,000 units in April and
an index of pending home sales rose for the sixth month in a row in July.
However, there is reason to remain cautious on the economic outlook at this
time. Structural changes in the economy, such as advances in technology, could
lead to a recovery with less than normal job growth. Since the onset of the
recession, many companies have learned that they can remain profitable, or even
increase profits, with fewer workers.
Consensus earnings forecasts for the S&P 500 for 2009 are for earnings to
decline 21% from last year. Earnings are projected to rise 27% next year as
analysts and forecasters expect economic fundamentals to be improving
throughout the year. The trailing twelve-month P/E ratio for the S&P 500 is a
relatively high 17.3x, while the P/E for the next twelve months is 16.2x based
on forecasted earnings. This compares to an historical long-term average P/E of
about 15.5x. Given the current weak economic environment and the high level of
uncertainty for corporate sales and profits over the next twelve months,
equities appear to be relatively fully valued. Thus, we would not expect
price/earnings multiples to expand significantly from these levels until there
is greater clarity as to when economic conditions and corporate profits have
bottomed and are set to improve. Based upon this outlook, we plan to continue
our strategy of emphasizing equities with above-average expected total returns
for long-term appreciation potential.
The Federal Reserve has finally begun to withdraw some of the extraordinary
stimulus it injected into the financial system over the past two years by
reducing its emergency liquidity actions. However, it does not appear that the
Fed will begin raising interest rate targets soon, as the market expects the
Fed to keep the Fed Funds rate in the current 0% - 0.25% range for the
remainder of the year. If the economy stabilizes as expected later this year,
the Fed will probably turn its attention to the possibly of rising inflation
caused by the unprecedented recent fiscal and monetary stimulus. When that
occurs, the Fed will likely begin gradually increasing target rates in order to
remove excess liquidity from the financial system and reduce the threat of
inflation. In the meantime, we continue to focus on quality in our fixed income
holdings, which carry an average "A-" rating with a conservative 2.9 average
year duration.
2009 marked the second consecutive year of negative returns for both the Fund
and the equity markets. Clearly, neither we at SM&R nor investors in the Fund
are satisfied with less than positive returns. Although these past two years
have been difficult, we believe the Fund's strategy will provide an attractive
total return over the long-term for conservative investors. Our investment
strategy is to adhere to our conservative stock selection discipline of
purchasing attractively valued equities for long-term appreciation potential
while maintaining a high-quality, well-diversified fixed income allocation.
Thus, we believe the Fund will provide an attractive total return over the
long-term for conservative investors seeking both capital appreciation and
current income. This strategy should make the Fund a core holding for many
investors.
(1) Bonds and Cash Equivalents are both considered fixed income investments.
THE OPINIONS OF PORTFOLIO MANAGERS ARE NOT GUARANTEES OF PERFORMANCE OR
INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. ANY SUCH
OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND SM&R DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH OPINIONS.
BECAUSE INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, THE OPINIONS
EXPRESSED SHOULD NOT BE RELIED UPON AS AN INDICATION OF ANY FUND'S TRADING
INTENT.
20
<Page>
SM&R BALANCED FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION, CONTINUED
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R BALANCED
FUND, CLASS T, AT OFFERING PRICE, AND LIPPER BALANCED FUND INDEX AND THE S&P 500
SM&R
Balanced Lipper Balanced
Fund S&P 500 Fund Index
9/1/1999 9,426 10,000 10,000
8/31/2000 11,320 16,264 11,204
8/31/2001 9,975 12,298 10,332
8/31/2002 9,370 10,085 9,431
8/31/2003 10,021 11,302 10,379
8/31/2004 10,918 12,596 11,323
8/31/2005 11,548 14,178 12,597
8/31/2006 12,102 15,437 13,467
8/31/2007 13,467 17,774 15,038
8/31/2008 12,372 15,794 14,199
8/31/2009 10,858 9,233 13,018
SM&R Balanced Fund performance figures reflect reinvestment of all dividends
and capital gains distributions and changes in net asset value. Returns for
Class A and B will vary due to differences in expenses and sales charge
structure. Average annual returns are based on the maximum sales charge and
reinvestment of all dividends and capital gains. The average annual returns for
Class A shares reflect the current maximum sales charge of 5.00%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year declining to 1% in the fifth year, and is eliminated
thereafter.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST
RECENT MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge through 8/31/09.
Inception date of these classes is 01/01/99.
ONE FIVE TEN
YEAR YEAR YEAR
Class A -16.56% -1.16% 0.79%
Class B -17.14% -0.84% 0.76%
- ----------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge of 5.75% through
8/31/09 for Class T shares.
- ----------------------------------------------
10 YEAR 0.83%
5 YEAR -1.29%
1 YEAR -17.27%
- ----------------------------------------------
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares.
<Table>
<Caption>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
9.24% Consumer Discretionary
10.47% Consumer Staples
8.84% Energy
20.86% Financials
9.90% Health Care
10.14% Industrials
13.54% Information Technology
4.48% Materials
6.70% Miscellaneous
2.93% Telecommunication Services
0.11% U S Government
2.79% Utilities
</Table>
21
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R BALANCED FUND
<Table>
COMMON STOCKS
SHARES VALUE
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.19%
McDonald's Corp. 2,500 $ 140,600
Starwood Hotels & Resorts Worldwide, Inc. 3,000 89,340
Wyndham Worldwide Corp. 1,020 15,453
---------
245,393
HOUSEHOLD DURABLES--0.93%
Newell Rubbermaid Inc. 3,800 52,896
Stanley Works (The) 3,400 139,162
---------
192,058
MEDIA--1.10%
CBS Corp. (Class B) 2,000 20,700
Viacom Inc. (Class B) * 2,000 50,080
Walt Disney Co. (The) 6,000 156,240
---------
227,020
MULTILINE RETAIL--1.53%
J.C. Penney Co., Inc. 4,025 120,911
Target Corp. 4,150 195,050
---------
315,961
SPECIALTY RETAIL--2.39%
Best Buy Co., Inc. 3,000 108,840
Foot Locker, Inc. 3,000 31,980
Limited Brands, Inc. 7,600 113,392
Lowe's Companies, Inc. 5,800 124,700
TJX Companies, Inc. (The) 3,200 115,040
---------
493,952
---------
TOTAL CONSUMER DISCRETIONARY--7.14% 1,474,384
---------
CONSUMER STAPLES--
BEVERAGES--1.60%
Coca-Cola Co. (The) 3,500 170,695
PepsiCo, Inc. 2,800 158,676
---------
329,371
FOOD PRODUCTS--1.05%
ConAgra Foods, Inc. 2,050 42,087
H.J. Heinz Co. 2,825 108,763
McCormick & Co., Inc. (c) 2,000 65,140
---------
215,990
FOOD & STAPLES RETAILING--1.77%
CVS Caremark Corp. 3,000 112,560
SUPERVALU, INC. 3,475 49,866
Wal-Mart Stores, Inc. 4,000 203,480
---------
365,906
HOUSEHOLD PRODUCTS--2.39%
Colgate-Palmolive Co. 1,475 107,233
Kimberly-Clark Corp. 2,200 133,012
Procter & Gamble Co. (The) 4,700 254,317
---------
494,562
PERSONAL PRODUCTS--0.70%
Alberto-Culver Co. 1,800 47,502
Avon Products, Inc. 3,050 97,203
---------
144,705
TOBACCO--0.45%
Philip Morris International Inc. 2,050 93,705
---------
TOTAL CONSUMER STAPLES--7.96% 1,644,239
---------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.81%
Oceaneering International, Inc. * 1,500 $ 78,255
Schlumberger Ltd. 2,200 123,640
Transocean Ltd. * 900 68,256
Weatherford International Ltd. * 5,200 103,740
---------
373,891
OIL, GAS & CONSUMABLE FUELS--6.98%
Anadarko Petroleum Corp. 4,000 211,480
BP PLC ADR 3,500 180,075
Chevron Corp. 3,051 213,387
Exxon Mobil Corp. 9,000 622,350
Royal Dutch Shell PLC 3,000 166,410
Spectra Energy Corp. 2,525 47,520
---------
1,441,222
---------
TOTAL ENERGY--8.79% 1,815,113
---------
FINANCIALS--
CAPITAL MARKETS--2.18%
Allied Capital Corp. 3,400 10,200
Charles Schwab Corp. (The) 5,600 101,136
Goldman Sachs Group, Inc. (The) 700 115,822
Morgan Stanley 5,000 144,800
State Street Corp. 1,500 78,720
---------
450,678
COMMERCIAL BANKS--1.80%
PNC Financial Services Group, Inc. 3,000 127,770
U.S. Bancorp 5,000 113,100
Wells Fargo & Co. 4,716 129,784
---------
370,654
CONSUMER FINANCE--0.20%
Discover Financial Services 3,000 41,250
DIVERSIFIED FINANCIAL SERVICES--2.57%
Bank of America Corp. 10,000 175,900
Citigroup Inc. 14,500 72,500
JPMorgan Chase & Co. 6,500 282,490
---------
530,890
INSURANCE--3.68%
Allstate Corp. (The) 2,300 67,597
Aspen Insurance Holdings Ltd. 4,125 104,775
Hartford Financial Services Group,
Inc. (The) 1,375 32,615
Principal Financial Group, Inc. 3,850 109,340
Prudential Financial, Inc. 3,000 151,740
RenaissanceRe Holdings Ltd. 1,700 92,565
Travelers Companies, Inc. (The) 4,000 201,680
---------
760,312
REAL ESTATE INVESTMENT TRUSTS--0.11%
Host Hotels & Resorts Inc. 2,265 22,582
---------
TOTAL FINANCIALS--10.54% 2,176,366
---------
HEALTH CARE--
BIOTECHNOLOGY--1.71%
Amgen Inc. * 1,300 77,662
Celgene Corp. * 2,575 134,338
Genzyme Corp. * 1,300 72,423
Gilead Sciences, Inc. * 1,500 67,590
---------
352,013
</Table>
22
<Page>
COMMON STOCKS
<Table>
SHARES VALUE
HEALTH CARE PROVIDERS & SERVICES--1.10%
DaVita, Inc. * 925 $ 47,832
Patterson Companies Inc. * 1,500 40,845
UnitedHealth Group Inc. 2,050 57,400
WellPoint Inc. * 1,550 81,917
---------
227,994
HEALTH EQUIPMENT & SUPPLIES--0.81%
Covidien PLC 900 35,613
Hologic, Inc. * 1,750 28,788
Varian Medical Systems, Inc. * 1,300 55,991
Zimmer Holdings, Inc. * 1,000 47,350
---------
167,742
LIFE SCIENCES TOOLS & SERVICES--0.33%
Thermo Fisher Scientific, Inc. * 1,525 68,945
PHARMACEUTICALS--5.89%
Abbott Laboratories 2,500 113,075
Eli Lilly & Co. 3,850 128,821
Endo Pharmaceuticals Holdings Inc. * 1,750 39,497
Johnson & Johnson 5,000 302,200
Merck & Co. Inc. 5,300 171,879
Pfizer Inc. 15,000 250,500
Wyeth 4,400 210,540
---------
1,216,512
---------
TOTAL HEALTH CARE--9.84% 2,033,206
---------
INDUSTRIALS--
AEROSPACE & DEFENSE--2.61%
Boeing Co. (The) 2,075 103,065
General Dynamics Corp. 1,300 76,947
Goodrich Corp. 1,700 93,772
L-3 Communications Holdings, Inc. 900 66,960
Northrop Grumman Corp. 1,200 58,572
Rockwell Collins, Inc. 1,225 56,399
United Technologies Corp. 1,400 83,104
---------
538,819
AIR FREIGHT & LOGISTICS--0.75%
FedEx Corp. 875 60,121
United Parcel Services, Inc. (Class B) 1,775 94,892
---------
155,013
COMMERCIAL SERVICES & SUPPLIES--0.19%
Pitney Bowes Inc. 1,725 38,554
INDUSTRIAL CONGLOMERATES--2.14%
3M Co. 1,925 138,792
General Electric Co. 19,750 274,525
Tyco International Ltd. 900 28,521
---------
441,838
MACHINERY--1.33%
Barnes Group Inc. 2,000 29,380
Caterpillar Inc. 1,100 49,841
Danaher Corp. 1,000 60,710
Illinois Tool Works Inc. 1,800 75,276
Ingersoll-Rand Co. Ltd (Class A) 1,900 58,691
---------
273,898
MARINE--0.07%
Seaspan Corp. 2,250 15,232
ROAD & RAIL--0.38%
Burlington Northern Santa Fe Corp. 950 $ 78,869
---------
TOTAL INDUSTRIALS--7.47% 1,542,223
---------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--3.58%
Arris Group Inc. * 6,500 86,190
Cisco Systems, Inc. * 10,225 220,860
Harris Corp. 2,300 79,879
Motorola, Inc. 6,200 44,516
Nokia ADR 6,500 91,065
QUALCOMM Inc. 3,000 139,260
Research In Motion Ltd. * 1,050 76,713
---------
738,483
COMPUTERS & PERIPHERALS--4.05%
Apple Inc. * 1,500 252,315
EMC Corp. * 6,000 95,400
Hewlett-Packard Co. 4,500 202,005
International Business Machines Corp. 2,425 286,271
---------
835,991
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.51%
Agilent Technologies, Inc. * 2,000 51,360
Tyco Electronics Ltd. 2,400 54,768
---------
106,128
INFORMATION TECHNOLOGY SERVICES--0.40%
Amdocs Ltd. * 1,550 37,696
Global Payments Inc. 1,075 45,623
---------
83,319
INTERNET SOFTWARE & SERVICES--0.16%
Akamai Technologies, Inc. * 1,900 33,516
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.75%
Intel Corp. 11,000 223,520
Linear Technology Corp. 2,000 53,140
Texas Instruments Inc. 3,400 83,606
---------
360,266
SOFTWARE--3.01%
Electronic Arts Inc. * 1,500 27,330
Microsoft Corp. 17,000 419,050
Oracle Corp. 8,000 174,960
---------
621,340
---------
TOTAL INFORMATION TECHNOLOGY--13.46% 2,779,043
---------
MATERIALS--
CHEMICALS--1.71%
E. I. du Pont de Nemours and Co. 1,550 49,492
International Flavors & Fragrances Inc. 900 32,058
Monsanto Co. 875 73,395
PPG Industries, Inc. 900 49,860
Praxair, Inc. 675 51,719
Sensient Technologies Corp. 3,700 96,459
---------
352,983
METALS & MINING--0.19%
Nucor Corp. 700 31,178
United States Steel Corp. 200 8,756
---------
39,934
</Table>
23
<Page>
COMMON STOCKS
<Table>
<Caption>
SHARES VALUE
PAPER & FOREST PRODUCTS--0.11%
MeadWestvaco Corp. 1,000 $ 21,950
----------
TOTAL MATERIALS--2.01% 414,867
----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--2.54%
AT&T Inc. 11,325 295,016
Verizon Communications Inc. 5,450 169,168
Windstream Corp. 7,100 60,847
----------
525,031
WIRELESS TELECOMMUNICATION SERVICES--0.37%
American Tower Corp. (Class A) * 1,250 39,562
Rogers Communications, Inc. 1,300 35,789
----------
75,351
----------
TOTAL TELECOMMUNICATION SERVICES--2.91% 600,382
----------
UTILITIES--
ELECTRIC UTILITIES--2.15%
Allegheny Energy, Inc. 1,600 42,256
Ameren Corp. 3,000 80,910
CenterPoint Energy, Inc. 2,000 24,800
Duke Energy Corp. 2,000 30,980
Exelon Corp. 1,400 70,028
FPL Group, Inc. 1,100 61,798
NRG Energy, Inc. * 1,250 33,563
PPL Corp. 925 27,195
Southern Co. 2,300 71,760
----------
443,290
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS--0.46%
Constellation Energy Group Inc. 3,000 94,950
MULTI-UTILITIES--0.16%
Sempra Energy 675 33,865
----------
TOTAL UTILITIES--2.77% 572,105
----------
TOTAL COMMON STOCK--72.89%
(Cost $16,522,377) 15,051,928
----------
</Table>
<Table>
<Caption>
FACE
AMOUNT
U S GOVERNMENT AGENCY SECURITIES--
U S GOVERNMENT AGENCY SECURITIES--0.11%
Federal Home Loan Mortgage Corp.,
Pool #284839, 8.50%, 01/01/17 $ 2,642 2,861
Federal National Mortgage Association,
Pool #048974, 8.00%, 06/01/17 18,773 20,352
----------
23,213
----------
TOTAL US GOVERNMENT AGENCY SECURITIES--0.11%
(Cost $21,255) 23,213
----------
CORPORATE BONDS
CONSUMER DISCRETIONARY--
DIVERSIFIED CONSUMER SERVICES--2.05%
Hertz Corp., 7.40%, 03/01/11 455,000 423,150
----------
TOTAL CONSUMER DISCRETIONARY--2.05% 423,150
----------
</Table>
CORPORATE BONDS
<Table>
<Caption>
FACE
AMOUNT VALUE
CONSUMER STAPLES--
PERSONAL PRODUCTS--2.45%
Avon Products, Inc., 7.15%, 11/15/09 (b) $ 500,000 $ 505,792
-----------
TOTAL CONSUMER STAPLES--2.45% 505,792
-----------
FINANCIALS--
CAPITAL MARKETS--4.92%
Ameriprise Financial, Inc., 5.65%, 11/15/15 500,000 490,077
Goldman Sachs Group (The), 5.30%, 02/14/12 500,000 526,750
-----------
1,016,827
DIVERSIFIED FINANCIAL SERVICES --1.71%
General Electric Capital Corp., 3.75%, 12/15/09 (b) 350,000 352,674
INSURANCE--2.49%
Mony Group Inc. (The), 8.35%, 03/15/10 (b) 500,000 514,176
THRIFTS & MORTGAGE FINANCE--1.08%
Washington Mutual, Inc., 4.20%, 01/15/10 (b) 250,000 222,500
-----------
TOTAL FINANCIALS--10.20% 2,106,177
-----------
INDUSTRIALS--
ELECTRICAL EQUIPMENT--2.61%
Emerson Electric Co., 5.25%, 10/15/18 500,000 539,795
-----------
TOTAL INDUSTRIALS--2.61% 539,795
-----------
MATERIALS--
CONSTRUCTION MATERIALS--2.45%
Vulcan Materials, 6.40%, 11/30/17 500,000 504,953
-----------
TOTAL MATERIALS--2.45% 504,953
-----------
TOTAL CORPORATE BONDS--19.76%
(Cost $4,006,905) 4,079,867
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 0.00% (a) 1,376,232 1,376,232
-----------
TOTAL MONEY MARKET FUND--6.67%
(Cost $1,376,232) 1,376,232
-----------
TOTAL INVESTMENTS--99.43%
(Cost $21,926,769) 20,531,240
CASH AND OTHER ASSETS, LESS LIABILITIES--0.57% 118,467
-----------
NET ASSETS--100.00% $20,649,707
===========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at August 31,
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.
24
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R BALANCED FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $20,550,537) $19,155,008
Investment in affiliated money market fund (Cost $1,376,232) 1,376,232
-----------
Total investments (Cost $21,926,769) 20,531,240
Prepaid expenses 19,083
Receivable for:
Investment securities sold 90
Capital stock sold 2,506
Dividends 43,960
Interest 77,103
Expense reimbursement 8,358
Other assets 15,158
-----------
TOTAL ASSETS 20,697,498
-----------
LIABILITIES
Payable to investment adviser for fund expenses 17,038
Accrued:
Investment advisory fees 13,020
Administrative service fees 4,340
Distribution fees 3,413
Other liabilities 9,980
-----------
TOTAL LIABILITIES 47,791
-----------
NET ASSETS $20,649,707
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 22,856,565
Undistributed net investment income 66,803
Accumulated net realized loss on investments (878,132)
Net unrealized depreciation of investments (1,395,529)
-----------
NET ASSETS $20,649,707
===========
NET ASSETS:
Class A 2,768,293
- -------------------------------------------------------------------------------------------------
Class B 909,401
- -------------------------------------------------------------------------------------------------
Class T 16,972,013
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $20,649,707
===========
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 211,218
- -------------------------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 68,615
- -------------------------------------------------------------------------------------------------
Class T:
Authorized 25,000,000
Outstanding 1,241,946
- -------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 13.11
Offering price per share:
(Net assets value of $13.11 / 95%) $ 13.80
- -------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 13.25
- -------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 13.67
Offering price per share:
(Net assets value of $13.67 / 94.25%) $ 14.50
- -------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
25
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R BALANCED FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $2,271) $ 405,145
Interest 318,253
Interest from affiliated money market fund 331
-----------
TOTAL INVESTMENT INCOME 723,729
-----------
EXPENSES
Investment advisory fees 143,621
Administrative service fees 47,873
Professional fees 8,854
Custody and transaction fees 11,396
Directors' fees and expenses 9,973
Compliance expenses 4,098
Qualification fees
Class A 5,406
Class B 4,071
Class T 12,143
Shareholder reporting expenses
Class A 887
Class B 328
Class T 5,512
Distribution fees
Class A 6,401
Class B 6,825
Insurance expenses 9,335
Other Expenses 82
-----------
TOTAL EXPENSES 276,805
LESS EXPENSES REIMBURSED (32,733)
-----------
NET EXPENSES 244,072
-----------
INVESTMENT INCOME--NET 479,657
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (878,129)
Change in unrealized depreciation of investments (2,793,131)
-----------
NET LOSS ON INVESTMENTS (3,671,260)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,191,603)
===========
</Table>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R BALANCED FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
-----------------------------
2009 2008
-------------- --------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 479,657 $ 507,741
Net realized gain (loss) on investments (878,129) 1,242,751
Change in unrealized depreciation of investments (2,793,131) (3,968,875)
----------- -----------
Net decrease in net assets resulting from operations (3,191,603) (2,218,383)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (69,576) (67,234)
Class B (20,312) (21,861)
Class T (418,878) (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 (1,529,555) (1,010,500)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 241,152 (815,659)
Class B (85,747) (770,842)
Class T 539,107 (706,435)
----------- -----------
Total capital share transactions--net 694,512 (2,292,936)
----------- -----------
TOTAL DECREASE IN NET ASSETS (4,026,646) (5,521,819)
NET ASSETS
Beginning of year 24,676,353 30,198,172
----------- -----------
End of year $20,649,707 $24,676,353
=========== ===========
Undistributed Net Investment Income $ 66,803 $ 95,912
=========== ===========
</Table>
See notes to financial statements.
26
<Page>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------
2009 2008 2007 2006 2005
-------- --------- ------- ------ ------
Net asset value, beginning of year $ 16.28 $18.37 $17.91 $18.19 $17.60
Income (loss) from investment operations
Investment income--net 0.32 0.29 0.36 0.32 0.35
Net realized and unrealized gain (loss) on
investments (2.45) (1.72) 1.57 0.50 0.65
------- ------ ------ ------ ------
Total from investment operations (2.13) (1.43) 1.93 0.82 1.00
Less distributions
Investment income--net (0.34) (0.33) (0.37) (0.31) (0.35)
Capital gains (0.70) (0.33) (1.10) (0.79) (0.06)
------- ------ ------ ------ ------
Total distributions (1.04) (0.66) (1.47) (1.10) (0.41)
------- ------ ------ ------ ------
Net asset value, end of year $ 13.11 $16.28 $18.37 $17.91 $18.19
======= ====== ====== ====== ======
Total return (1) (12.15)% (8.01)% 11.09% 4.65% 5.73%
======= ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 2,768 $3,174 $4,376 $4,430 $5,030
Ratio of expenses with reimbursement to average
net assets (2) 1.30% 1.30% 1.30% 1.30% 1.30%
Ratio of expenses without reimbursement to average net
assets 1.74% 1.67% 1.54% 1.71% 1.73%
Ratio of net investment income to average net assets 2.49% 1.88% 1.93% 1.90% 1.85%
Portfolio turnover rate 10.71% 19.79% 8.35% 21.82% 23.18%
CLASS B SHARES
-----------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------
2009 2008 2007 2006 2005
-------- --------- ------- ------ ------
Net asset value, beginning of year $ 16.47 $18.56 $18.08 $18.37 $17.78
Income (loss) from investment operations
Investment income--net 0.21 0.09 0.21 0.24 0.25
Net realized and unrealized gain (loss) on
investments (2.45) (1.63) 1.67 0.51 0.66
------- ------ ------ ------ ------
Total from investment operations (2.24) (1.54) 1.88 0.75 0.91
Less distributions
Investment income--net (0.28) (0.22) (0.30) (0.25) (0.26)
Capital gains (0.70) (0.33) (1.10) (0.79) (0.06)
------- ------ ------ ------ ------
Total distributions (0.98) (0.55) (1.40) (1.04) (0.32)
------- ------ ------ ------ ------
Net asset value, end of year $ 13.25 $16.47 $18.56 $18.08 $18.37
======= ====== ====== ====== ======
Total return (1) (12.77)% (8.48)% 10.70% 4.20% 5.15%
======= ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 909 $1,235 $2,171 $2,772 $3,095
Ratio of expenses with reimbursement to average net
assets (2) 1.80% 1.80% 1.80% 1.80% 1.80%
Ratio of expenses without reimbursement to average net
assets 2.48% 2.31% 2.07% 2.24% 2.23%
Ratio of net investment income to average net assets 2.00% 1.38% 1.43% 1.40% 1.36%
Portfolio turnover rate 10.71% 19.79% 8.35% 21.82% 23.18%
</Table>
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.30% for Class
A and 1.80% for Class B until December 31, 2009.
See notes to financial statements.
27
<Page>
FINANCIAL HIGHLIGHTS, CONTINUED
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R BALANCED FUND
<Table>
CLASS T SHARES
-------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ----------- ---------- ----------
Net asset value, beginning of year $ 16.94 $ 19.13 $ 18.60 $ 18.85 $ 18.21
Income (loss) from investment operations
Investment income--net 0.33 0.35 0.39 0.36 0.36
Net realized and unrealized gain (loss) on investments (2.55) (1.86) 1.65 0.51 0.68
---------- ---------- ----------- ---------- ----------
Total from investment operations (2.22) (1.51) 2.04 0.87 1.04
Less distributions
Investment income--net (0.35) (0.35) (0.41) (0.33) (0.34)
Capital gains (0.70) (0.33) (1.10) (0.79) (0.06)
---------- ---------- ----------- ---------- ----------
Total distributions (1.05) (0.68) (1.51) (1.12) (0.40)
---------- ---------- ----------- ---------- ----------
Net asset value, end of year $ 13.67 $ 16.94 $ 19.13 $ 18.60 $ 18.85
========== ========== =========== ========== ==========
Total return (1) (12.24)% (8.13)% 11.28% 4.79% 5.77%
========== ========== =========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $16,972 $20,267 $23,651 $22,373 $22,798
Ratio of expenses with reimbursement to average net assets 1.25% 1.24% 1.20% 1.25% 1.24%
Ratio of expenses without reimbursement to average net assets 1.35% 1.24% 1.20% 1.29% 1.24%
Ratio of net investment income to average net assets 2.54% 1.93% 2.02% 1.95% 1.92%
Portfolio turnover rate 10.71% 19.79% 8.35% 21.82% 23.18%
</Table>
(1) Does not include the effect of sales charge
See notes to financial statements.
28
<Page>
SM&R GOVERNMENT BOND FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION
Comments from Anne M. LeMire, CPA, CFA, Portfolio Manager, SM&R Government Bond
Fund
The SM&R Government Bond Fund is focused on providing competitive levels of
current income to the conservative investor through investments in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
as well as securities of corporate issuers deemed to be of higher credit
quality and financial strength.
Over the past fiscal year ending August 31, 2009, the Fund has provided a total
return of 4.94% to Class T investors at net asset value. The year-to-date total
return for the eight months ended August 31, 2009 was -0.52%, before sales
charges (but after other expenses) to Class T investors at net asset value. The
Fund has a market-weighted average coupon of 4.01% and a modified duration of
2.26 years.
Over the past twelve months the U.S. economy has probably been spoken of, in
more quarters, by more people of various backgrounds and experiences, than
perhaps at any time since the Great Depression. This was clearly not your dad's
recession; it leaned more toward your granddad's depression.
One year ago, in the midst of a real estate depression and on the heels of oil
prices that had soared past $140 per barrel, as unbelievable as it now sounds,
there were many strong voices, Fed Governors among them, still concerned about
inflation. Things would soon change.
By early September, Lehman Brothers was very publicly in trouble and looking at
options, from asset sales to pre-packaged bankruptcy to a government bailout.
The week of September 15, 2008 was one that the financial world will not soon
forget, as Lehman Brothers filed for bankruptcy protection, and the U.S.
Government essentially became the owner of insurance giant AIG, with all this
on the heels of the government takeover of Fannie Mae and Freddie Mac the
previous week. Credit markets around the world were seizing, and there were
legitimate worries about the fundamental functioning of the world's financial
systems.
In obvious response, equity and corporate debt markets were pummeled, interest
rate spreads over Treasuries gapped up and the owners of equities around the
world experienced dramatic losses in issues of all kinds. Many have compared
the ferocity of declines in the corporate credit markets to that of the Great
Depression.
In response to growing fears regarding financial companies and the credit
markets worldwide, the U.S. Treasury Department unveiled a money market
guarantee program in late September of 2008, which would soon be followed by
the much discussed Troubled Asset Recovery Plan, or T.A.R.P., originally aimed
at removing "toxic" assets from the balance sheets of our largest financial
institutions.
To amplify all of this, a presidential election campaign was underway, and
these and other economic issues were bantered about constantly in our 24 hour
news cycle world. The National Bureau of Economic Research announced in
November that the country had been in recession since December of 2007, and job
losses were already in the headlines.
As 2009 got underway, a new administration was not only focused on transition,
but delivering solutions to get the economy back from the brink. Unfortunately,
the worst was yet to come, as payroll numbers worsened dramatically over the
first several months of the year, taking consumer confidence and spending down
with them.
The Obama administration responded with a $787 billion stimulus program, but
consumers had already begun down a path toward debt reduction, as evidenced by
a dramatically rising savings rate, so the economy's long faithful supporters,
the U.S. consumer, chose to conserve rather than consume, leading to the third
and fourth straight quarter of contracting U.S. Gross Domestic Product.
However, the summer months brought with them some better news on the economic
front, as job losses slowed and many economic reports, from housing to consumer
confidence to durable goods orders, began to show slight improvements, leading
many to believe the recession was either ending or soon would begin winding
down.
At SM&R, we are anticipating a mild recovery into the end of 2009 and look for
a more self-sustaining economic development--indicating the government can
begin withdrawing their easy money policies--as we move through 2010.
THE OPINIONS OF PORTFOLIO MANAGERS ARE NOT GUARANTEES OF PERFORMANCE OR
INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. ANY SUCH
OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND SM&R DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH OPINIONS.
BECAUSE INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, THE OPINIONS
EXPRESSED SHOULD NOT BE RELIED UPON AS AN INDICATION OF ANY FUND'S TRADING
INTENT.
29
<Page>
SM&R GOVERNMENT BOND FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION, CONTINUED
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R GOVERNMENT
BOND FUND, CLASS T, AT OFFERING PRICE, AND THE LIPPER GENERAL U.S. GOVERNMENT
FUND INDEX
SM&R Government Lipper General US
Bond Fund Government Fund Index
9/1/1999 9,548 10,000
8/31/2000 10,079 10,711
8/31/2001 11,279 11,916
8/31/2002 11,964 12,899
8/31/2003 12,259 13,112
8/31/2004 12,645 13,779
8/31/2005 12,877 14,285
8/31/2006 13,089 14,457
8/31/2007 13,765 15,100
8/31/2008 14,576 15,889
8/31/2009 15,296 17,026
SM&R Government Bond Fund performance figures reflect reinvestment of all
dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 4.75%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
3% in the first year declining to 1% in the third year, and is eliminated
thereafter.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST
RECENT MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
<Table>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge through 8/31/09.
Inception date of these classes is 01/01/99.
- ----------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- ----------------------------------------------
Class A -0.07% 2.87% 4.21%
Class B 1.31% 3.38% 4.21%
- ----------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge of 4.5% through
8/31/09 for Class T shares.
- ----------------------------------------------
10 YEAR 4.34%
5 YEAR 2.93%
1 YEAR 0.18%
- ----------------------------------------------
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares.
<Table>
<Caption>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
4.85% Financials
4.15% Industrials
3.10% Materials
0.29% Miscellaneous
82.68% U S Government
4.93% Utilities
</Table>
30
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R GOVERNMENT BOND FUND
CORPORATE BONDS
<Table>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--1.56%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 501,184
----------
TOTAL FINANCIALS--1.56% 501,184
----------
MATERIALS--
METALS & MINING--3.07%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 990,477
----------
TOTAL MATERIALS--3.07% 990,477
----------
TOTAL CORPORATE BONDS--4.63%
(Cost $1,505,021) 1,491,661
----------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--23.55%
Federal Home Loan Mortgage Corp. 11/15/13 4.875 1,000,000 1,098,942
Federal National Mortgage Assoc. 12/15/10 4.750 1,900,000 2,002,361
Federal National Mortgage Assoc. 02/01/11 6.250 1,850,000 1,961,228
Federal National Mortgage Assoc. 03/15/11 5.500 1,300,000 1,393,687
Federal National Mortgage Assoc. (b) 02/15/10 3.875 1,100,000 1,117,654
Private Export Funding Corp. (b) 01/15/10 7.200 15,000 15,381
----------
7,589,253
U S GOVERNMENT SECURITIES--44.84%
U S Treasury Bond 05/15/16 7.250 800,000 1,009,750
U S Treasury Bond 05/15/17 8.750 2,375,000 3,265,995
U S Treasury Note 08/31/11 4.625 1,500,000 1,607,812
U S Treasury Note 10/31/11 4.625 2,500,000 2,688,867
U S Treasury Note 11/15/12 4.000 2,000,000 2,153,282
U S Treasury Note 05/15/14 4.750 1,319,000 1,465,636
U S Treasury Note 02/15/15 4.000 600,000 643,547
U S Treasury Note 05/15/15 4.125 1,500,000 1,617,774
----------
14,452,663
----------
TOTAL U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES--68.39%
(Cost $20,645,653) 22,041,916
----------
COMMERCIAL PAPER
FINANCIALS--
CAPITAL MARKETS--3.26%
General Re Corp. 09/09/09 0.190 1,050,000 1,049,956
----------
TOTAL FINANCIALS--3.26% 1,049,956
----------
INDUSTRIALS--
ELECTRICAL EQUIPMENT--4.11%
Sharp Electronics Corp. 09/03/09 0.250 1,325,000 1,324,982
----------
TOTAL INDUSTRIALS--4.11% 1,324,982
----------
UTILITIES--
ELECTRIC UTILITIES--4.88%
General Electric Co. 09/21/09 0.210 1,575,000 1,574,816
----------
TOTAL UTILITIES--4.88% 1,574,816
----------
TOTAL COMMERCIAL PAPER--12.25%
(Cost $3,949,754) 3,949,754
----------
</Table>
See notes to financial statements.
31
<Page>
<Table>
US GOVERNMENT AGENCY SHORT-TERM INTEREST/
OBLIGATIONS MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
US GOVERNMENT AGENCY SECURITIES--13.58%
Federal Home Loan Bank 09/01/09 0.150 $1,096,000 $1,096,000
Federal Home Loan Bank 09/16/09 0.145 2,082,000 2,081,874
Federal Home Loan Bank 09/23/09 0.140 1,200,000 1,199,897
-----------
4,377,771
-----------
TOTAL US GOVERNMENT AGENCY SHORT TERM OBLIGATIONS--13.58%
(Cost $4,377,771) 4,377,771
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 0.00% (a) 92,741 92,741
-----------
TOTAL MONEY MARKET FUND--0.29%
(Cost $92,741) 92,741
-----------
TOTAL INVESTMENTS--99.14%
(Cost $30,570,940) 31,953,843
CASH AND OTHER ASSETS, LESS LIABILITIES--0.86% 276,938
-----------
NET ASSETS--100.00% $32,230,781
===========
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at August 31,
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.
32
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $30,478,199) $ 31,861,102
Investment in affiliated money market fund (Cost $92,741) 92,741
------------
Total investments (Cost $30,570,940) 31,953,843
Prepaid expenses 33,025
Receivable for:
Capital stock sold 4,626
Interest 278,475
Expense reimbursement 12,447
Other assets 2,958
------------
TOTAL ASSETS 32,285,374
------------
LIABILITIES
Distribution payable 289
Payable to investment adviser for fund expenses 22,202
Accrued:
Investment advisory fees 13,633
Administrative service fees 6,816
Distribution fees 1,407
Other liabilities 10,246
------------
TOTAL LIABILITIES 54,593
------------
NET ASSETS $ 32,230,781
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 31,297,747
Accumulated net investment loss (130)
Accumulated net realized loss on investments (449,739)
Net unrealized appreciation of investments 1,382,903
------------
NET ASSETS $ 32,230,781
============
NET ASSETS:
Class A 1,252,096
- --------------------------------------------------------------------------------------------------
Class B 306,100
- --------------------------------------------------------------------------------------------------
Class T 30,672,585
- --------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 32,230,781
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,001,150
Outstanding 115,069
- --------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 28,180
- --------------------------------------------------------------------------------------------------
Class T:
Authorized 23,000,000
Outstanding 2,856,858
- --------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.88
Offering price per share:
(Net assets value of $10.88 / 95.25%) $ 11.42
- --------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.86
- --------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.74
Offering price per share:
(Net assets value of $10.74 / 95.5%) $ 11.25
- --------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
33
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $1,092,818
Interest from affiliated money market fund 960
----------
TOTAL INVESTMENT INCOME 1,093,778
----------
EXPENSES
Investment advisory fees 161,767
Administrative service fees 80,884
Professional fees 12,812
Custody and transaction fees 6,451
Directors' fees and expenses 9,973
Compliance expenses 7,029
Qualification fees
Class A 4,150
Class B 3,302
Class T 10,230
Shareholder reporting expenses
Class A 126
Class B 47
Class T 3,210
Distribution fees
Class A 3,014
Class B 3,323
Insurance expenses 12,144
Other expenses 102
----------
TOTAL EXPENSES 318,564
LESS EXPENSES REIMBURSED (80,010)
----------
NET EXPENSES 238,554
----------
INVESTMENT INCOME--NET 855,224
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Change in unrealized appreciation of investments 661,930
----------
NET GAIN ON INVESTMENTS 661,930
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,517,154
==========
</Table>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
--------------------------
2009 2008
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 855,224 $ 1,027,313
Net realized gain on investments -- 10,251
Change in unrealized appreciation of investments 661,930 643,633
----------- -----------
Net increase in net assets resulting from operations 1,517,154 1,681,197
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (31,839) (36,605)
Class B (9,665) (15,524)
Class T (811,793) (977,349)
----------- -----------
Total distributions to shareholders (853,297) (1,029,478)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 91,127 51,113
Class B (235,145) (70,134)
Class T 862,054 1,474,226
----------- -----------
Total capital share transactions--net 718,036 1,455,205
----------- -----------
TOTAL INCREASE IN NET ASSETS 1,381,893 2,106,924
NET ASSETS
Beginning of year 30,848,888 28,741,964
----------- -----------
End of year $32,230,781 $30,848,888
=========== ===========
Accumulated Net Investment Loss $ (130) $ (2,057)
=========== ===========
</Table>
See notes to financial statements.
34
<Page>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
CLASS A SHARES
----------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------
2009 2008 2007 2006 2005
------ ------ ------ ------ ------
Net asset value, beginning of year $10.65 $10.40 $10.30 $10.50 $10.56
Income (loss) from investment operations
Investment income--net 0.29 0.36 0.42 0.36 0.25
Net realized and unrealized gain (loss) on investments 0.23 0.25 0.10 (0.20) (0.06)
------ ------ ------ ------ ------
Total from investment operations 0.52 0.61 0.52 0.16 0.19
Less distributions
Investment income--net (0.29) (0.36) (0.42) (0.36) (0.25)
Capital gains -- -- -- -- (0.00)***
------ ------ ------ ------ ------
Total distributions (0.29) (0.36) (0.42) (0.36) (0.25)
------ ------ ------ ------ ------
Net asset value, end of year $10.88 $10.65 $10.40 $10.30 $10.50
====== ====== ====== ====== ======
Total return (1) 4.91% 5.93% 5.15% 1.57% 1.93%
====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $1,252 $1,137 $1,067 $ 976 $1,036
Ratio of expenses with reimbursement to average net assets (2) 0.73% 0.73% 0.73% 0.73% 0.73%
Ratio of expenses without reimbursement to average net assets 1.51% 1.76% 1.76% 2.19% 2.32%
Ratio of net investment income to average net assets 2.64% 3.41% 4.06% 3.46% 2.43%
Portfolio turnover rate 0.00% 26.83% 50.01% 78.38% 51.35%
CLASS B SHARES
----------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------
2009 2008 2007 2006 2005
------ ------ ------ ------ ------
Net asset value, beginning of year $10.63 $10.39 $10.29 $10.49 $10.55
Income (loss) from investment operations
Investment income--net 0.24 0.31 0.37 0.31 0.20
Net realized and unrealized gain (loss) on investments 0.23 0.24 0.10 (0.20) (0.06)
------ ------ ------ ------ ------
Total from investment operations 0.47 0.55 0.47 0.11 0.14
Less distributions
Investment income--net (0.24) (0.31) (0.37) (0.31) (0.20)
Capital gains -- -- -- -- (0.00)***
------ ------ ------ ------ ------
Total distributions (0.24) (0.31) (0.37) (0.31) (0.20)
------ ------ ------ ------ ------
Net asset value, end of year $10.86 $10.63 $10.39 $10.29 $10.49
====== ====== ====== ====== ======
Total return (1) 4.45% 5.31% 4.66% 1.10% 1.44%
====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 306 $ 529 $ 588 $ 696 $1,009
Ratio of expenses with reimbursement to average net assets (2) 1.23% 1.23% 1.23% 1.23% 1.23%
Ratio of expenses without reimbursement to average net assets 2.42% 2.65% 2.25% 2.55% 2.34%
Ratio of net investment income to average net assets 2.19% 2.93% 3.56% 2.94% 1.92%
Portfolio turnover rate 0.00% 26.83% 50.01% 78.38% 51.35%
</Table>
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
A and 1.23% for Class B until December 31, 2009.
See notes to financial statements.
35
<Page>
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ------------- ---------- ------------
Net asset value, beginning of year $ 10.51 $ 10.27 $ 10.17 $ 10.36 $ 10.43
Income (loss) from investment operations
Investment income--net 0.29 0.36 0.41 0.35 0.25
Net realized and unrealized gain (loss) on investments 0.23 0.24 0.10 (0.19) (0.07)
------- ------- ------- ------- -------
Total from investment operations 0.52 0.60 0.51 0.16 0.18
Less distributions
Investment income--net (0.29) (0.36) (0.41) (0.35) (0.25)
Capital gains -- -- -- -- (0.00)***
------- ------- ------- ------- -------
Total distributions (0.29) (0.36) (0.41) (0.35) (0.25)
------- ------- ------- ------- -------
Net asset value, end of year $ 10.74 $ 10.51 $ 10.27 $ 10.17 $ 10.36
======= ======= ======= ======= =======
Total return (1) 4.94% 5.89% 5.16% 1.65% 1.84%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $30,673 $29,183 $27,087 $26,194 $26,841
Ratio of expenses with reimbursement to average net assets (2) 0.73% 0.73% 0.73% 0.73% 0.73%
Ratio of expenses without reimbursement to average net assets 0.95% 0.93% 0.93% 0.99% 0.96%
Ratio of net investment income to average net assets 2.65% 3.41% 4.06% 3.47% 2.43%
Portfolio turnover rate 0.00% 26.83% 50.01% 78.38% 51.35%
</Table>
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
T until December 31, 2009.
See notes to financial statements.
36
<Page>
SM&R TAX-FREE FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION
Comments from Anne M. LeMire, CPA, CFA, Portfolio Manager, SM&R Tax Free Fund
The SM&R Tax Free Fund is a well-diversified fixed income portfolio designed to
produce monthly tax-free dividends to investors seeking current income, while
minimizing federal tax liability. The Fund focuses primarily on issuers of very
high quality rating. Our overall average credit rating is maintained at AA
because we do not believe that the market adequately compensates for the risk
profile of lower rated issuers.
Over the past fiscal year ending August 31, 2009, the Fund has provided a total
return of 3.57%, before sales charges (but after other expenses), to Class T
investors at net asset value. The year-to-date total return for the eight
months ended August 31st, 2009 was 2.68%. The Fund has a modified duration of
3.08 years and a market-weighted average coupon of 3.09%.
Last year we indicated that we changed our internal analysis of municipal
bonds, focusing on the value and creditworthiness of the issuer and not as much
upon the backing of the monoline insurers. This perspective will continue as we
feel that the support of the insurers is not as meaningful as it once was given
the current economic environment.
The Fund's duration has remained short and most maturities are within ten
years. According to the Federal Reserve, economic activity is likely to remain
weak and inflation will remain subdued for some time. This is despite the fact
that there has been a pick-up in economic activity since the last Federal
Reserve meeting in August and that there as been an increase in housing sector
activity. Consequently, the prospect for higher interest rates near term
appears unlikely.
In the municipal bond market there has been a trend toward lower yields. The
yield on AAA rated municipal bonds with a maturity of ten years has sunk to the
lowest levels in the past ten years. The increasing supply of taxable Build
America Bonds ("BABs") has been a factor, as municipal issuers realize
significant savings by issuing BABs instead of traditional tax-exempt municipal
bonds.
Another factor keeping yields down is refunding, which is likely to increase.
The level of refunding remains high in 2009, although not as high as 2008. Many
municipal issuers are seeing low rates as an opportunity for significant cost
savings by refunding into lower-yielding issues. Municipalities, under
financial pressure from lower tax revenue and lower property valuations, are
finding some relief in refinancing their debt.
We believe that despite lower yields, the municipal bond market continues to
provide good investment value on a relative basis. With extremely low rates of
return in money market funds, historically low yields on U.S. Treasuries, and
narrower corporate spreads, and the likelihood for higher Federal tax rates,
municipal bonds remain attractive from both a yield and credit risk
perspective. Therefore, we will continue to seek out investment value in high
quality municipal issuers with strong income and revenue streams.
THE OPINIONS OF PORTFOLIO MANAGERS ARE NOT GUARANTEES OF PERFORMANCE OR
INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. ANY SUCH
OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND SM&R DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH OPINIONS.
BECAUSE INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, THE OPINIONS
EXPRESSED SHOULD NOT BE RELIED UPON AS AN INDICATION OF ANY FUND'S TRADING
INTENT.
37
<Page>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R TAX FREE
FUND, CLASS T, AT OFFERING PRICE, AND THE LIPPER GENERAL MUNICIPAL DEBT INDEX
Lipper General
SM&R Tax Free Fund Municipal Debt Index
9/1/1999 9,549 10,000
8/31/2000 10,136 10,537
8/31/2001 11,108 11,595
8/31/2002 11,691 12,139
8/31/2003 11,968 12,451
8/31/2004 12,591 13,302
8/31/2005 12,932 14,052
8/31/2006 13,180 14,514
8/31/2007 13,558 14,718
8/31/2008 14,164 15,004
8/31/2009 14,669 15,512
SM&R Tax Free Fund performance figures reflect reinvestment of all dividends
and capital gains distributions and changes in net asset value. Returns for
Class A and B will vary due to differences in expenses and sales charge
structure. Average annual returns are based on the maximum sales charge and
reinvestment of all dividends and capital gains. The average annual returns for
Class A shares reflect the current maximum sales charge of 4.75%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
3% in the first year declining to 1% in the third year, and is eliminated
thereafter.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST
RECENT MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge through 8/31/09.
Inception date of these classes is 01/01/99.
ONE FIVE TEN
YEAR YEAR YEAR
- ----------------------------------------------
Class A -1.36% 2.12% 3.81%
Class B 0.87% 2.80% 3.91%
- ----------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------
Includes maximum sales charge of 4.5% through
8/31/09 for Class T shares.
- ----------------------------------------------
10 YEAR 3.91%
5 YEAR 2.15%
1 YEAR -1.09%
- ----------------------------------------------
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares.
<Table>
<Caption>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
4.15% Development
11.81% Education
26.19% General Obligation
30.36% U.S. Government
0.04% Housing
1.60% Medical
8.93% Miscellaneous
2.89% Pollution
7.43% Transportation
6.60% Utilities
</Table>
38
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R TAX-FREE FUND
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING (A) DATE RATE(%) AMOUNT VALUE
ALABAMA--1.31%
WR/NR Alabama Drinking Water Financing Authority, Revolving
Fund Loan - Revenue Bonds, Series A 08/15/16 4.000 $ 180,000 $ 185,092
CALIFORNIA--0.14%
Baa1/A California State - General Obligation Bonds Unlimited 06/01/11 5.250 20,000 20,174
FLORIDA--5.84%
A3/NR Miami - Dade County, Florida Expressway Authority Toll
System - Revenue Bonds, Prerefunded to 07/01/2010 (b) 07/01/29 6.375 400,000 423,708
A2/A Miami - Dade County, Florida Solid Waste System - Revenue Bonds 10/01/18 4.750 400,000 403,892
---------
827,600
HAWAII--1.98%
Aa2/AA Honolulu, Hawaii City & County - General Obligation Bonds Unlimited 07/01/13 5.000 250,000 280,585
ILLINOIS--2.70%
A1/NR Rockford, Illinois - General Obligation Bonds Unlimited 12/15/18 4.500 180,000 180,418
A1/AA- State of Illinois - General Obligation Bonds Unlimited 03/01/19 5.000 200,000 202,538
---------
382,956
INDIANA--4.26%
WR/AA+ Aurora, Indiana Building Corp. - Revenue Bonds 07/15/13 4.500 405,000 444,329
Baa1/A South Bend, Indiana Building Corp. - Revenue Bonds 02/01/13 4.500 150,000 160,053
---------
604,382
LOUISIANA--3.28%
WR/A Monroe, Louisiana Sales and Use Tax - Revenue Bonds 07/01/16 4.000 200,000 199,696
Baa1/A New Orleans, Louisiana Sewer Service - Revenue Bonds 06/01/18 5.000 300,000 265,155
---------
464,851
MISSISSIPPI--3.79%
NR/NR Greenville Mississippi Public School District - General Obligation
Bonds Unlimited 12/15/11 3.250 205,000 213,581
Aa3/AAA Mississippi Development Bank Special Obligation Clinton
Recreational Facilities & Municipal Building - Revenue Bonds 11/01/10 4.500 310,000 323,153
---------
536,734
NEW YORK--5.82%
Aa3/AA New York City, New York - General Obligation Bonds Unlimited, Series J 08/01/18 5.000 200,000 201,236
Aa3/AA New York State Tollway Authority Highway & Bridge - Revenue
Bonds, Series B (b)(f) 04/01/10 3.850 200,000 203,790
Aa2/AAA Triborough Bridge & Tunnel Authority, New York - Revenue Bonds,
General Purpose, Prerefunded, Series B to 01/01/2022 (b) 01/01/27 5.200 350,000 420,063
---------
825,089
NORTH CAROLINA--1.56%
Aaa/AAA North Carolina State - General Obligation Bonds Unlimited 03/01/15 4.000 200,000 220,516
OHIO--2.38%
Aa2/AA Ohio State Department of Administrative Services - Certificate Participation 09/01/15 5.250 300,000 337,389
TEXAS--27.47%
WR/AA Aransas County, Texas Correctional Facility Improvements - General
Obligation Bonds Limited 02/15/13 3.875 250,000 263,695
A1/A Austin, Texas Community College District - Revenue Bonds (b)(f) 02/01/10 4.000 100,000 101,214
Aaa/AAA Austin, Texas Independent School District - General Obligation
Bonds Unlimited, Series A 08/01/12 3.750 150,000 160,876
Aa3/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/13 4.125 200,000 210,654
Aa3/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/14 4.250 65,000 68,009
Aa3/AA El Paso, Texas Public Improvement - General Obligation Bonds Limited 08/15/17 4.000 270,000 278,824
Aa2/AA+ Flower Mound, Texas Refunding and Improvement - General Obligation
Bonds Limited, Unrefunded 03/01/17 5.500 10,000 10,035
Aa2/NR Galveston County, Texas Public Improvements - General Obligation
Bonds Unlimited (b)(f) 02/01/10 4.300 25,000 25,335
Aa2/NR Galveston County, Texas Public Improvements - General Obligation
Bonds Limited 02/01/11 4.375 125,000 130,574
</Table>
39
<Page>
<Table>
<Caption>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING (a) DATE RATE(%) AMOUNT VALUE
A1/AA- Jefferson County, Texas - Public Improvement Certificates of
Obligation, Series B 08/01/16 4.125 $ 255,000 $ 263,803
Aa3/AA League City, Texas Public Improvements - General Obligation Bonds
Limited 02/15/13 4.750 100,000 107,132
Aa2/AA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 283,957
Aa3/AA+ Lubbock, Texas Municipal Drainage Utility - General Obligation
Bonds Limited 02/15/14 4.000 250,000 261,155
Aaa/AAA Mission, Texas Consolidated Independent School District - General
Obligation Bonds Unlimited 02/15/18 4.500 200,000 200,242
Aa3/AA Montgomery County, Texas Public Improvements - General Obligation
Bonds Limited 03/01/12 4.000 250,000 265,705
Aa3/AAA Rockwall, Texas Waterworks & Sewer - General Obligation Bonds
Limited 08/01/11 3.700 115,000 120,722
A2/A+ San Antonio, Texas River Authority Sewer Refunding and
Improvement - Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 104,894
Aaa/NR Tarrant County Health Facilities Development Corp. - Health
System Revenue Bonds, (Harris Methodist Health System),
Series 1994 (c) 09/01/14 6.000 200,000 228,440
Aa1/AA+ Texas A&M University Revenue and Financing System - Revenue
Refunding Bonds, Series A 05/15/17 5.000 250,000 269,660
Aaa/AAA University of Texas Permanent University Fund - Revenue Bonds,
Prerefunded, Series A To 07/01/2011 (b) 07/01/13 6.250 45,000 49,436
Aaa/AAA University of Texas Permanent University Fund - Revenue Bonds,
Prerefunded, Series A To 01/01/2013 (b) 07/01/13 6.250 55,000 61,533
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 63,774
Aa3/AA Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 257,065
NR /AAA Wylie, Texas Independent School District - General Obligation
Bonds Unlimited 08/15/12 4.375 100,000 106,044
---------
3,892,778
UTAH--0.03%
Aa2/AA Utah State Housing Financial Agency - Single Family Revenue
Bonds (d) 07/01/21 6.000 5,000 5,055
WASHINGTON--4.95%
Aa2/AA- Seattle, Washington Municipal Light & Power - Revenue Bonds,
Series B 06/01/24 5.000 100,000 99,579
Aa1/AA+ State of Washington - General Obligation Bonds Unlimited, Series
B 05/01/18 5.500 300,000 341,013
Aa2/NR Tumwater, Washington Office Building - Revenue Bonds 07/01/15 5.250 240,000 260,964
---------
701,556
---------
TOTAL MUNICIPAL BONDS--65.51%
(Cost $8,825,034) 9,284,757
---------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--30.16%
Federal Home Loan Bank 09/01/09 0.160 1,000,000 1,000,000
Federal Home Loan Bank 09/18/09 0.143 725,000 724,951
Federal Home Loan Bank 09/23/09 0.140 950,000 949,919
Federal Home Loan Mortgage Corp. 09/14/09 0.170 1,600,000 1,599,902
---------
4,274,772
---------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--30.16%
(Cost $4,274,772) 4,274,772
---------
COMMERCIAL PAPER
FINANCIALS--
COMMERCIAL BANKS--3.35%
ING America Insurance Holdings 09/04/09 0.700 475,000 474,972
---------
TOTAL FINANCIALS--3.35% 474,972
---------
TOTAL COMMERCIAL PAPER--3.35%
(Cost $474,972) 474,972
---------
</Table>
40
<Page>
MONEY MARKET FUND
<Table>
<Caption>
SHARES VALUE
SM&R Money Market Fund, 0.00% (e) 47,364 $ 47,364
-----------
TOTAL MONEY MARKET FUND--0.34%
(Cost $47,364) 47,364
-----------
TOTAL INVESTMENTS--99.36%
(Cost $13,622,142) 14,081,865
CASH AND OTHER ASSETS, LESS LIABILITIES--0.64% 91,127
-----------
TOTAL NET ASSETS--100.00% $14,172,992
===========
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investor's Service, Inc. ("Moody's") and
Standard & Poor's Corp. ("S&P"). Ratings are unaudited.
(b) Collateral for these prerefunded bonds are U.S. Government or U.S. Treasury
or state or local government securities.
(c) Issuer has defeased these bonds. Collateral for such defeasance is U.S.
Government obligations.
(d) Security subject to the alternative minimum tax.
(e) The rate quoted is the annualized seven-day yield of the fund at August 31,
2009. A complete listing of the fund's holdings are included in these
financial statements. This fund and the SM&R Tax Free Fund are affiliated
by having the same investment adviser.
(f) Long Term obligations that will mature in less than one year.
See notes to financial statements.
41
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $13,574,778) $ 14,034,501
Investment in affiliated money market fund (Cost $47,364) 47,364
------------
Total investments (Cost $13,622,142) 14,081,865
Prepaid expenses 17,019
Receivable for:
Capital stock sold 200
Interest 87,720
Expense reimbursement 12,871
Other assets 3,142
------------
TOTAL ASSETS 14,202,817
------------
LIABILITIES
Distribution payable 328
Payable to investment adviser for fund expenses 14,343
Accrued:
Investment advisory fees 6,032
Administrative service fees 3,016
Distribution fees 343
Other liabilities 5,763
------------
TOTAL LIABILITIES 29,825
------------
NET ASSETS $ 14,172,992
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 13,714,730
Accumulated net investment loss (59)
Accumulated net realized loss on investments (1,402)
Net unrealized appreciation of investments 459,723
------------
NET ASSETS $ 14,172,992
============
NET ASSETS:
Class A 569,642
- --------------------------------------------------------------------------------------------------
Class B 21,561
- --------------------------------------------------------------------------------------------------
Class T 13,581,789
- --------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 14,172,992
============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,101
Outstanding 53,760
- --------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 2,022
- --------------------------------------------------------------------------------------------------
Class T:
Authorized 21,000,000
Outstanding 1,290,652
- --------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.60
Offering price per share:
(Net assets value of $10.60 / 95.25%) $ 11.13
- --------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.66
- --------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.52
Offering price per share:
(Net assets value of $10.52 / 95.5%) $ 11.02
- --------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
42
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $434,885
Interest from affiliated money market fund 789
---------
TOTAL INVESTMENT INCOME 435,674
---------
EXPENSES
Investment advisory fees 69,230
Administrative service fees 34,615
Professional fees 7,426
Custody and transaction fees 5,182
Directors' fees and expenses 9,973
Compliance expenses 3,021
Qualification fees
Class A 550
Class T 21,979
Shareholder reporting expenses
Class A 44
Class B 7
Class T 1,945
Distribution fees
Class A 881
Class B 258
Insurance expenses 5,340
Other expenses 35
---------
TOTAL EXPENSES 160,486
LESS EXPENSES REIMBURSED (56,447)
---------
NET EXPENSES 104,039
---------
INVESTMENT INCOME--NET 331,635
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss on investments (1,369)
Change in unrealized appreciation of investments 142,183
---------
NET GAIN ON INVESTMENTS 140,814
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $472,449
=========
</Table>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R TAX FREE FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
-----------------------------
2009 2008
-------------- --------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 331,635 $ 446,929
Net realized gain(loss) on investments (1,369) 18,077
Change in unrealized appreciation of investments 142,183 126,189
-------------- --------------
Net increase in net assets resulting from operations 472,449 591,195
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (8,263) (9,444)
Class B (704) (3,853)
Class T (321,910) (434,491)
Capital gains
Class A (120) (254)
Class B (10) (147)
Class T (5,357) (12,370)
-------------- --------------
Total distributions to shareholders (336,364) (460,559)
-------------- --------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 269,521 16,349
Class B (79,193) (67,580)
Class T 44,645 423,676
-------------- --------------
Total capital share transactions--net 234,973 372,445
-------------- --------------
TOTAL INCREASE IN NET ASSETS 371,058 503,081
NET ASSETS
Beginning of year 13,801,934 13,298,853
-------------- --------------
End of year $14,172,992 $13,801,934
============== ==============
Accumulated Net Investment Loss $ (59) $ (817)
============== ==============
</Table>
See notes to financial statements.
43
<Page>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2009 2008 2007 2006 2005
-------- --------- -------- -------- --------
Net asset value, beginning of year $ 10.49 $ 10.38 $ 10.50 $ 10.70 $ 10.81
Income (loss) from investment operations
Investment income--net 0.25 0.35 0.40 0.41 0.40
Net realized and unrealized gain (loss) on
investments 0.11 0.12 (0.12) (0.20) (0.11)
-------- --------- -------- -------- --------
Total from investment operations 0.36 0.47 0.28 0.21 0.29
Less distributions
Investment income--net (0.25) (0.35) (0.40) (0.41) (0.40)
Capital gains (0.00)*** (0.01) -- (0.00)*** (0.00)***
-------- --------- -------- -------- --------
Total distributions (0.25) (0.36) (0.40) (0.41) (0.40)
-------- --------- -------- -------- --------
Net asset value, end of year $ 10.60 $ 10.49 $ 10.38 $ 10.50 $ 10.70
======== ========= ======== ======== ========
Total return (1) 3.53% 4.56% 2.74% 2.05% 2.72%
======== ========= ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $569,642 $295,893 $277,034 $331,989 $519,889
Ratio of expenses with reimbursement to average net
assets (2) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses without reimbursement to average net
assets 1.40% 2.93% 2.63% 3.14% 2.73%
Ratio of net investment income to average net assets 2.34% 3.30% 3.78% 3.80% 3.68%
Portfolio turnover rate 0.00% 0.00% 0.00% 2.05% 7.50%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2009 2008 2007 2006 2005
------- -------- -------- -------- --------
Net asset value, beginning of year $ 10.50 $ 10.40 $ 10.50 $ 10.70 $ 10.81
Income (loss) from investment operations
Investment income--net 0.24 0.30 0.35 0.35 0.34
Net realized and unrealized gain (loss) on
investments 0.16 0.11 (0.10) (0.20) (0.11)
------- -------- -------- -------- --------
Total from investment operations 0.40 0.41 0.25 0.15 0.23
Less distributions
Investment income--net (0.24) (0.30) (0.35) (0.35) (0.34)
Capital gains (0.00)*** (0.01) -- (0.00)*** (0.00)***
------- -------- -------- -------- --------
Total distributions (0.24) (0.31) (0.35) (0.35) (0.34)
------- -------- -------- -------- --------
Net asset value, end of year $ 10.66 $ 10.50 $ 10.40 $ 10.50 $ 10.70
======= ======== ======== ======== ========
Total return (1) 3.95% 3.95% 2.47% 1.43% 2.20%
======= ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $21,561 $102,960 $168,933 $449,767 $538,594
Ratio of expenses with reimbursement to average net
assets (2) 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of expenses without reimbursement to average net
assets 1.60% 4.36% 2.69% 2.77% 2.85%
Ratio of net investment income to average net assets 2.07% 2.86% 3.28% 3.29% 3.18%
Portfolio turnover rate 0.00% 0.00% 0.00% 2.05% 7.50%
</Table>
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
A and 1.25% for Class B until December 31, 2009.
See notes to financial statements.
44
<Page>
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R TAX FREE FUND
<Table>
CLASS T SHARES
-------------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
2009 2008 2007 2006 2005
------------ ---------- ------------- ------------ ----------
Net asset value, beginning of year $ 10.41 $ 10.31 $ 10.41 $ 10.61 $ 10.72
Income (loss) from investment operations
Investment income--net 0.25 0.34 0.39 0.39 0.39
Net realized and unrealized gain (loss) on investments 0.11 0.11 (0.10) (0.20) (0.11)
------- ------- ------- ------- -------
Total from investment operations 0.36 0.45 0.29 0.19 0.28
Less distributions
Investment income--net (0.25) (0.34) (0.39) (0.39) (0.39)
Capital gains (0.00)*** (0.01) -- (0.00)*** (0.00)***
------- ------- ------- ------- -------
Total distributions (0.25) (0.35) (0.39) (0.39) (0.39)
------- ------- ------- ------- -------
Net asset value, end of year $ 10.52 $ 10.41 $ 10.31 $ 10.41 $ 10.61
======= ======= ======= ======= =======
Total return (1) 3.57% 4.47% 2.87% 1.91% 2.72%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $13,582 $13,403 $12,853 $12,819 $13,001
Ratio of expenses with reimbursement to average
net assets (2) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses without reimbursement to average net
assets 1.16% 1.07% 1.05% 1.18% 1.05%
Ratio of net investment income to average net assets 2.40% 3.30% 3.77% 3.79% 3.68%
Portfolio turnover rate 0.00% 0.00% 0.00% 2.05% 7.50%
</Table>
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
T until December 31, 2009.
See notes to financial statements.
45
<Page>
SM&R PRIMARY FUND
- -------------------------------------------------------------------------------
MANAGER DISCUSSION
Comments from Anne M. LeMire, CPA, CFA, Portfolio Manager, SM&R Primary Fund
The SM&R Primary Fund is focused on providing competitive levels of current
income to the conservative investor through investments in short-term
government and corporate securities.
Over the past fiscal year ending August 31, 2009, the Fund has provided a total
return of 1.80%, before sales charges (but after other expenses) at net asset
value. The year-to-date total return for the eight months ended August 31, 2009
was -0.55%.
Over the past twelve months, the U.S. economy has probably been spoken of, in
more quarters, by more people of various backgrounds and experiences, than
perhaps at any time since the Great Depression. This was clearly not your dad's
recession; it leaned more toward your granddad's depression.
One year ago, in the midst of a real estate depression and on the heels of oil
prices that had soared past $140 per barrel, as unbelievable as it now sounds,
there were many strong voices, Fed Governors among them, still concerned about
inflation. Things would soon change.
By early September, Lehman Brothers was very publicly in trouble and looking at
options, from asset sales to pre-packaged bankruptcy to a government bailout.
The week of September 15, 2008 was one that the financial world will not soon
forget, as Lehman Brothers filed for bankruptcy protection, and the U.S.
Government essentially became the owner of insurance giant AIG, with all this
on the heels of the government takeover of Fannie Mae and Freddie Mac the
previous week. Credit markets around the world were seizing, and there were
legitimate worries about the fundamental functioning of the world's financial
systems.
In obvious response, equity and corporate debt markets were pummeled, interest
rate spreads over Treasuries gapped up and the owners of equities around the
world experienced dramatic losses in issues of all kinds. Many have compared
the ferocity of declines in the corporate credit markets to that of the Great
Depression.
In response to growing fears regarding financial companies and the credit
markets worldwide, the U.S. Treasury Department unveiled a money market
guarantee program in late September of 2008, which would soon be followed by
the much discussed Troubled Asset Recovery Plan, or T.A.R.P., originally aimed
at removing "toxic" assets from the balance sheets of our largest financial
institutions.
To amplify all of this, a presidential election campaign was underway, and
these and other economic issues were bantered about constantly in our 24 hour
news cycle world. The National Bureau of Economic Research announced in
November that the country had been in recession since December of 2007, and job
losses were already in the headlines.
As 2009 got underway, a new administration was not only focused on transition,
but delivering solutions to get the economy back from the brink. Unfortunately,
the worst was yet to come, as payroll numbers worsened dramatically over the
first several months of the year, taking consumer confidence and spending down
with them.
The Obama administration responded with a $787 billion stimulus program, but
consumers had already begun down a path toward debt reduction, as evidenced by
a dramatically rising savings rate, so the economy's long faithful supporters,
the U.S. consumer, chose to conserve rather than consume, leading to the third
and fourth straight quarter of contracting U.S. Gross Domestic Product.
However, the summer months brought with them some better news on the economic
front, as job losses slowed and many economic reports, from housing to consumer
confidence to durable goods orders, began to show slight improvements, leading
many to believe the recession was either ending or soon would begin winding
down.
At SM&R, we are anticipating a mild recovery into the end of 2009 and look for
a more self-sustaining economic development--indicating the government can
begin withdrawing their easy money policies--as we move through 2010.
THE OPINIONS OF PORTFOLIO MANAGERS ARE NOT GUARANTEES OF PERFORMANCE OR
INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. ANY SUCH
OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND SM&R DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH OPINIONS.
BECAUSE INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, THE OPINIONS
EXPRESSED SHOULD NOT BE RELIED UPON AS AN INDICATION OF ANY FUND'S TRADING
INTENT.
46
<Page>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R PRIMARY
FUND, AT OFFERING PRICE, AND THE LIPPER SHORT INVESTMENT GRADE FUND INDEX
SM&R Primary Lipper Short Investment
Fund Grade Fund Index
9/1/1999 10,000 10,000
8/31/2000 10,468 10,559
8/31/2001 11,124 11,561
8/31/2002 11,271 11,988
8/31/2003 11,424 12,359
8/31/2004 11,519 12,674
8/31/2005 11,863 12,899
8/31/2006 12,187 13,295
8/31/2007 12,878 13,883
8/31/2008 13,303 14,107
8/31/2009 13,542 14,546
SM&R Primary Fund performance figures reflect reinvestment of all dividends and
capital gains distributions and changes in net asset value. The Primary Fund
does not have a sales charge. Average annual returns include reinvestment of
all dividends and capital gains.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
<Table>
<Caption>
- --------------------------------------
AVERAGE ANNUAL RETURNS
Inception date of this fund is 3/16/92
- --------------------------------------
10 YEAR 3.08%
5 YEAR 3.29%
1 YEAR 1.80%
- --------------------------------------
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares.
<Table>
<Caption>
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
13.50% Consumer Discretionary
12.40% Consumer Staples
8.62% Energy
22.58% Financials
4.16% Industrials
0.00% Materials
4.43% Telecommunications Services
29.76% Utilities
4.55% U S Government
</Table>
47
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R PRIMARY FUND
COMMON STOCKS
<Table>
<Caption>
SHARES VALUE
INDUSTRIALS--
BUILDING PRODUCTS--0.01%
Armstrong World Industries, Inc. * 110 $ 3,675
---------
TOTAL INDUSTRIALS--0.01% 3,675
---------
TOTAL COMMON STOCK--0.01%
(Cost $0) 3,675
---------
INTEREST/
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES MATURITY STATED FACE
DATE RATE(%) AMOUNT
U S GOVERNMENT SECURITIES--4.56%
U S Treasury Bond 02/15/29 5.250 $1,000,000 1,145,156
---------
TOTAL U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES--4.56%
(Cost $899,778) 1,145,156
---------
COMMERCIAL PAPER
CONSUMER DISCRETIONARY--
AUTOMOBILES--4.67%
Harley-Davidson Funding Corp. 09/09/09 0.600 1,173,000 1,172,844
MEDIA--4.78%
Time Warner Cable Inc. 09/10/09 0.450 1,203,000 1,202,865
TEXTILES, APPAREL & LUXURY GOODS--4.07%
VF Corp. 09/11/09 0.400 1,023,000 1,022,886
---------
TOTAL CONSUMER DISCRETIONARY--13.52% 3,398,595
---------
CONSUMER STAPLES--
FOOD PRODUCTS--3.94%
Kraft Foods Inc. 09/17/09 0.280 991,000 990,877
FOOD & STAPLES RETAILING--3.86%
H.J. Heinz Finance Co. 09/21/09 0.370 972,000 971,800
HOUSEHOLD PRODUCTS--4.61%
Clorox Company (The) 09/02/09 0.300 1,158,000 1,157,990
---------
TOTAL CONSUMER STAPLES--12.41% 3,120,667
---------
ENERGY--
OIL, GAS & CONSUMABLE FUELS--8.63%
FMC Technologies, Inc. 09/16/09 0.550 1,173,000 1,172,731
XTO Energy, Inc. 09/25/09 0.400 998,000 997,734
---------
2,170,465
---------
TOTAL ENERGY--8.63% 2,170,465
---------
FINANCIALS--
CAPITAL MARKETS--9.59%
AEGON N.V. 09/01/09 0.950 1,206,000 1,206,000
CIGNA Corp. 09/01/09 0.850 1,206,000 1,206,000
---------
2,412,000
CONSUMER FINANCE--4.01%
GATX Corp. 09/18/09 0.750 1,009,000 1,008,643
INSURANCE--9.00%
Aetna Inc. 09/22/09 0.380 1,181,000 1,180,738
Torchmark Corp. 10/01/09 0.600 1,081,000 1,080,459
---------
2,261,197
---------
TOTAL FINANCIALS--22.60% 5,681,840
---------
</Table>
48
<Page>
<Table>
<Caption>
INTEREST/
COMMERCIAL PAPER MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
INDUSTRIALS--
CONSTRUCTION & ENGINEERING--4.15%
Eaton Corp. 09/28/09 0.400 $1,043,000 $ 1,042,687
-----------
TOTAL INDUSTRIALS--4.15% 1,042,687
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--4.44%
Verizon Global Funding Corp. 09/23/09 0.220 1,115,000 1,114,850
-----------
TOTAL TELECOMMUNICATION SERVICES--4.44% 1,114,850
-----------
UTILITIES--
ELECTRIC UTILITIES--12.32%
Baltimore Gas & Electric Co. 09/24/09 0.550 1,011,000 1,010,645
Duke Energy Corp. 10/19/09 0.280 1,059,000 1,058,605
IDACORP, Inc. 09/04/09 0.480 1,028,000 1,027,959
-----------
3,097,209
GAS UTILITIES--4.73%
Laclede Group Inc. 09/15/09 0.200 1,190,000 1,189,907
MULTI-UTILITIES--8.48%
Sempra Energy Global 09/14/09 0.230 1,109,000 1,108,908
Xcel Energy, Inc. 09/08/09 0.400 1,023,000 1,022,920
-----------
2,131,828
WATER UTILITIES--4.26%
American Water Capital Corp. 09/03/09 0.450 1,070,000 1,069,973
-----------
TOTAL UTILITIES--29.79% 7,488,917
-----------
TOTAL COMMERCIAL PAPER--95.54%
(Cost $24,018,021) 24,018,021
-----------
TOTAL INVESTMENTS--100.11%
(Cost $24,917,799) 25,166,852
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.11)% (27,248)
-----------
TOTAL NET ASSETS--100.00% $25,139,604
===========
</Table>
*--Non-income producing securities.
See notes to financial statements.
49
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $24,917,799) $ 25,166,852
Cash and cash equivalents 964
Prepaid expenses 13,309
Receivable for:
Capital stock sold 1,687
Interest 2,425
Expense reimbursement 6,657
Other assets 2,853
-------------
TOTAL ASSETS 25,194,747
-------------
LIABILITIES
Capital stock reacquired 15,000
Distribution payable 6
Payable to investment adviser for fund expenses 15,786
Accrued:
Investment advisory fees 10,665
Administrative service fees 5,333
Other liabilities 8,353
-------------
TOTAL LIABILITIES 55,143
-------------
NET ASSETS $ 25,139,604
=============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 25,132,716
Accumulated net realized loss on investments (242,165)
Net unrealized appreciation of investments 249,053
-------------
NET ASSETS $ 25,139,604
=============
SHARES OUTSTANDING ($.01 par value per share) 25,160,305
=============
NET ASSET VALUE $ 1.00
=============
SHARES AUTHORIZED 1,176,000,000
=============
</Table>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R PRIMARY FUND
<Table>
INVESTMENT INCOME
Interest $643,387
--------
TOTAL INVESTMENT INCOME 643,387
--------
EXPENSES
Investment advisory fees 125,579
Administrative service fees 62,789
Professional fees 9,951
Custody and transaction fees 10,981
Directors' fees and expenses 9,973
Compliance expenses 5,472
Qualification fees 1,469
Shareholder reporting expenses 909
Insurance expenses 10,105
Other expenses 41
--------
TOTAL EXPENSES 237,269
LESS EXPENSES REIMBURSED (37,811)
--------
NET EXPENSES 199,458
--------
INVESTMENT INCOME--NET 443,929
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Change in unrealized appreciation of investments 40,216
--------
NET GAIN ON INVESTMENTS 40,216
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $484,145
========
</Table>
See notes to financial statements.
50
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R PRIMARY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
-------------------------
2009 2008
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 443,929 $ 846,050
Net realized gain on investments -- 418
Change in unrealized appreciation of investments 40,216 49,487
----------- -----------
Net increase in net assets resulting from operations 484,145 895,955
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (443,929 (846,050)
CAPITAL SHARE TRANSACTIONS--NET 477,164 (2,233,333)
----------- -----------
TOTAL INCREASE(DECREASE) IN NET ASSETS 517,380 (2,183,428)
NET ASSETS
Beginning of year 24,622,224 26,805,652
----------- -----------
End of year $25,139,604 $24,622,224
=========== ===========
</Table>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R PRIMARY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ------------- ---------- ----------
Net asset value, beginning of year $ 1.00 $ 1.00 $ 0.99 $ 1.00 $ 0.99
Income (loss) from investment operations
Investment income--net 0.02 0.03 0.04 0.04 0.02
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
Less distributions
Investment income--net (0.02) (0.03) (0.04) (0.04) (0.02)
---------- ---------- ------------- ---------- ----------
Total distributions (0.02) (0.03) (0.04) (0.04) (0.02)
---------- ---------- ------------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 0.99 $ 1.00
========== ========== ============= ========== ==========
Total return 1.80% 3.30% 5.67% 2.73% 2.99%
========== ========== ============= ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $25,140 $24,622 $26,806 $26,243 $25,245
Ratio of expenses with reimbursement to average net
assets (1) 0.79% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses without reimbursement to average net
assets 0.95% 0.93% 0.97% 0.92% 0.91%
Ratio of net investment income to average net assets 1.77% 3.28% 4.52% 3.70% 1.94%
Portfolio turnover rate 0.00% 0.00% 22.30% 25.75% 0.00%
</Table>
*** 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.
51
<Page>
SCHEDULE OF INVESTMENTS August 31, 2009
- -------------------------------------------------------------------------------
SM&R MONEY MARKET FUND
<Table>
INTEREST/
COMMERCIAL PAPER MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
FINANCIALS--
CAPITAL MARKETS--3.07%
General Re Corp. 09/09/09 0.190 $1,246,000 $ 1,245,947
CONSUMER FINANCE--8.87%
American Honda Finance Corp. 09/29/09 0.200 1,744,000 1,743,729
UBS Finance Delaware LLC 09/25/09 0.260 1,855,000 1,854,678
-----------
3,598,407
DIVERSIFIED FINANCIAL SERVICES--4.93%
JP Morgan Chase & Co. 09/17/09 0.150 2,000,000 1,999,867
-----------
TOTAL FINANCIALS--16.87% 6,844,221
-----------
HEALTH CARE--
HEALTH CARE EQUIPMENT & SUPPLIES--4.88%
Becton, Dickinson & Co. 09/02/09 0.170 1,978,000 1,977,991
-----------
TOTAL HEALTH CARE--4.88% 1,977,991
-----------
INDUSTRIALS--
INDUSTRIAL COMGLOMERATES--2.46%
General Electric Co. 09/21/09 0.240 1,000,000 999,867
-----------
TOTAL INDUSTRIALS--2.46% 999,867
-----------
MATERIALS--2.48%
CHEMICALS--
Praxair, Inc. 09/01/09 0.180 1,004,000 1,004,000
-----------
TOTAL MATERIALS--2.48% 1,004,000
-----------
UTILITIES--9.43%
ELECTRIC UTILITIES--
Florida Power & Light Co. 09/14/09 0.150 1,969,000 1,968,893
NSTAR 09/10/09 0.140 1,858,000 1,857,935
-----------
TOTAL UTILITIES--9.43% 3,826,828
-----------
TOTAL COMMERCIAL PAPER--36.12%
(Cost $14,652,907) 14,652,907
-----------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--64.18%
Federal Home Loan Bank 09/04/09 0.170 1,011,000 1,010,986
Federal Home Loan Bank 09/08/09 0.080 7,924,000 7,923,877
Federal Home Loan Bank 09/11/09 0.140 3,097,000 3,096,879
Federal Home Loan Bank 09/15/09 0.060 4,700,000 4,699,890
Federal Home Loan Bank 09/16/09 0.140 3,000,000 2,999,825
Federal Home Loan Bank 09/23/09 0.138 2,270,000 2,269,809
Federal Home Loan Bank 09/30/09 0.160 1,972,000 1,971,746
Federal National Mortgage Association 10/01/09 0.160 2,059,000 2,058,725
-----------
26,031,737
-----------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--64.18%
(Cost $26,031,737) 26,031,737
-----------
TOTAL INVESTMENTS--100.30%
(Cost $40,684,644) 40,684,644
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.30)% (123,655)
-----------
TOTAL NET ASSETS--100.00% $40,560,989
===========
</Table>
See notes to financial statements.
52
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2009
- -------------------------------------------------------------------------------
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $ 40,684,644
Cash and cash equivalents 152
Prepaid expenses 23,947
Receivable for:
Capital stock sold 23,325
Expense reimbursement 16,924
Other assets 1,179
-------------
TOTAL ASSETS 40,750,171
-------------
LIABILITIES
Capital stock reacquired 124,100
Distribution payable
Payable to investment adviser for fund expenses 25,014
Accrued:
Investment advisory fees 7,911
Administrative service fees 7,911
Other liabilities 24,246
-------------
TOTAL LIABILITIES 189,182
-------------
NET ASSETS $ 40,560,989
=============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 40,560,989
-------------
NET ASSETS $ 40,560,989
=============
SHARES OUTSTANDING ($.01 par value per share) 40,560,989
=============
NET ASSET VALUE $ 1.00
=============
SHARES AUTHORIZED 3,800,000,000
=============
</Table>
STATEMENT OF OPERATIONS Year Ended August 31, 2009
- -------------------------------------------------------------------------------
SM&R MONEY MARKET FUND
<Table>
INVESTMENT INCOME
Interest $ 691,083
---------
TOTAL INVESTMENT INCOME 691,083
---------
EXPENSES
Investment advisory fees 214,765
Administrative service fees 213,695
Professional fees 30,163
Custody and transaction fees 16,899
Directors' fees and expenses 9,969
Compliance expenses 16,974
Qualification fees 1,853
Shareholder reporting expenses 4,267
Insurance expenses 33,049
Other expenses 237
---------
TOTAL EXPENSES 541,871
LESS EXPENSES REIMBURSED (276,898)
---------
NET EXPENSES 264,973
---------
INVESTMENT INCOME--NET $ 426,110
=========
</Table>
See notes to financial statements.
53
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SM&R MONEY MARKET FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
--------------------------
2009 2008
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 426,110 $ 2,906,439
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (426,110) (2,906,439)
CAPITAL SHARE TRANSACTIONS--NET (55,478,956) (5,545,125)
------------ ------------
TOTAL DECREASE IN NET ASSETS (55,478,956) (5,545,125)
NET ASSETS
Beginning of year 96,039,945 101,585,070
------------ ------------
End of year $ 40,560,989 $ 96,039,945
============ ============
</Table>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the Years
indicated.
SM&R MONEY MARKET FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ----------- ---------- --------
Net asset value, beginning of Year $ 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
---------- ---------- ----------- ---------- --------
Total from investment operations 0.00*** 0.03 0.05 0.04 0.02
Less distributions
Investment income--net (0.00)*** (0.03) (0.05) (0.04) (0.02)
---------- ---------- ----------- ---------- --------
Total distributions (0.00)*** (0.03) (0.05) (0.04) (0.02)
---------- ---------- ----------- ---------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== =========== ========== ========
Total return 0.46% 2.79% 4.84% 4.04% 2.03%
========== ========== =========== ========== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of Year (000's omitted) $40,561 $96,040 $101,585 $88,769 $76,890
Ratio of expenses with reimbursement to
average net assets 0.31%(a) 0.50% 0.50% 0.50% 0.50%
Ratio of expenses without reimbursement to
average net assets 0.64% 0.60% 0.63% 0.73% 0.59%
Ratio of net investment income to average net
assets 0.50% 2.82% 4.74% 4.01% 1.98%
</Table>
*** Amount less than $0.01
(a) SM&R has voluntarily agreed to waive or reduce expenses in excess of the
contractual limit.
See notes to financial statements.
54
<Page>
NOTES TO FINANCIAL STATEMENTS August 31, 2009
- -------------------------------------------------------------------------------
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.
FEDERAL INCOME TAXES:
For federal income tax purposes, each series is treated as a separate entity.
The Company intends to comply with requirements of the Internal Revenue Code
relating to regulated investment companies and intends to distribute
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is recorded in the accompanying financial
statements.
<Table>
<Caption>
TAX YEAR ENDING EXPIRATION
AUGUST 31, 2009 LOSS CARRYFORWARDS DATES
- --------------- ------------------ ----------
Growth Fund $5,196,609 2017
Equity Income Fund $3,537,981 2017
Balanced Fund $ 845,956 2017
Government Bond Fund $ 169,454 2014
$ 282,342 2015
$ 449,739 2017
Tax Free Fund $ 1,313 2017
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, 2009, the Growth Fund had $5,196,609 in post-October losses
which were deferred until September 1, 2009. As of August 31, 2009, the Equity
Income Fund had $3,547,388 in post-October losses which were deferred until
September 1, 2009. As of August 31, 2009, the Balanced Fund had $845,956 in
post-October losses which were deferred until September 1, 2009. As of August
31, 2009, the Tax Free
55
<Page>
Fund had $1,313 in post-October losses which were deferred until September 1,
2009. 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.
SUBSEQUENT EVENTS:
Subsequent events have been evaluated through October 30, 2009, which is the
date the financial statements were issued.
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:
<Table>
EQUITY FUNDS
Growth, Equity Income and Balanced Funds
INVESTMENT
NET ASSETS ADVISORY FEE
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
FIXED INCOME FUNDS
Government Bond and Tax Free Funds
NET ASSETS
Not exceeding $100,000,000 0.50%
Exceeding $100,000,000 but not exceeding $300,000,000 0.45%
Exceeding $300,000,000 0.40%
Primary Fund
All average daily net assets 0.50%
Money Market Fund
All average daily net assets 0.25%
</Table>
56
<Page>
ADMINISTRATIVE SERVICE FEES:
Administrative service fees paid to SM&R by the each of the series are computed
as a percentage of average daily net assets as follows:
<Table>
<Caption>
ADMINISTRATIVE
NET ASSETS SERVICE FEES
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</Table>
SM&R has contractually agreed to reimburse the Growth Fund, Equity Income Fund,
Balanced Fund, Government Bond Fund, Tax Free Fund and Primary Fund for regular
operating expenses in excess of 1.25% per year of the average daily net assets,
and the Money Market Fund in excess of 0.50%. Regular operating expenses
include the advisory fee and administrative service fee, but do not include the
distribution and shareholder servicing fee.
As a result of the current low yield environment for short-term money market
securities, SM&R is waiving all or a portion of its fees due from the Primary
Fund and Money Market Fund to prevent such funds' net yields from decreasing
below zero. This fee waiver, which is voluntary, may be discontinued by SM&R at
any time.
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>
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:
<Table>
<Caption>
DISTRIBUTION SERVICE TOTAL 12b-1
FEE FEE FEE
GROWTH, EQUITY INCOME, BALANCED,
GOVERNMENT BOND AND TAX FREE FUNDS
Class A Shares 0.25% -- 0.25%
Class B Shares 0.50% 0.25% 0.75%
</Table>
For the year ended August 31, 2009, each series paid or accrued the following,
as compensation under the Plans:
<Table>
Growth Fund $13,041
Equity Income Fund $26,130
Balanced Fund $13,226
Government Bond Fund $ 6,337
Tax Free Fund $ 1,139
</Table>
57
<Page>
SALES CHARGES:
During the year ended August 31, 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 $30,853 $ 830
Equity Income Fund $33,635 $1,050
Balanced Fund $ 9,550 $ 19
Government Bond Fund $ 3,916 $ 3
Tax Free Fund $ 6,349 $ 0
</Table>
For the year ended August 31, 2009, SM&R received $6,348 for contingent
deferred sales charges imposed on the redemptions of Class B shares of capital
stock of the series.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of August 31, 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 272,368 1.30% 3,071,862 14.66% -- 0.00%
Equity Income Fund 31,006 0.77% -- 0.00% -- 0.00%
Balanced Fund 200,644 13.18% 106,380 6.99% 361,096 23.73%
Government Bond Fund 767,808 25.59% 220,274 7.34% 1,046,893 34.90%
Tax Free Fund 194,452 14.44% -- 0.00% 971,564 72.16%
</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 seven
funds included in the Company and is therefore considered to be affiliated. The
transactions in investments in the affiliated money market fund for the year
ended August 31, 2009 were:
<Table>
Purchases $69,015,703
Sales $66,576,349
</Table>
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
Aggregate purchases and sales of investments in securities, other than
commercial paper, were as follows:
<Table>
<Caption>
PURCHASES SALES
Growth Fund $7,154,606 $10,551,571
Equity Income Fund $3,433,408 $ 7,426,185
Balanced Fund $1,980,755 $ 2,654,733
Government Bond Fund $ -- $ 2,250,000
Tax Free Fund $ -- $ 830,000
</Table>
Gross unrealized appreciation and depreciation as of August 31, 2009, based on
the cost for federal income tax purposes is as follows:
<Table>
<Caption>
NET APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
Growth Fund $70,732,833 $8,927,720 $15,225,214 $(6,297,494)
Equity Income Fund $66,799,028 $7,399,333 $15,984,089 $(8,584,756)
Balanced Fund $21,926,769 $1,912,911 $ 3,308,440 $(1,395,529)
Government Bond Fund $30,570,940 $1,396,263 $ 13,360 $ 1,382,903
Tax Free Fund $13,622,142 $ 493,577 $ 33,854 $ 459,723
Primary Fund $24,917,799 $ 249,053 $ -- $ 249,053
</Table>
58
<Page>
NOTE 4--CAPITAL STOCK
<Table>
<Caption>
SM&R GROWTH FUND YEAR ENDED AUGUST 31,
--------------------------------------------------------
2009 2008
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
Sale of capital shares:
Class A 101,985 $ 284,330 167,187 $ 744,997
Class B 23,031 61,246 43,675 188,782
Class T 649,544 1,792,156 482,860 2,183,945
---------- ----------- ---------- ------------
Total sale of capital shares 774,560 2,137,732 693,722 3,117,724
Investment income dividends reinvested:
Class A 13,105 34,519 10,304 45,299
Class B 2,284 5,839 2,442 10,941
Class T 278,135 749,173 235,374 1,056,247
---------- ----------- ---------- ------------
Total investment income dividends reinvested 293,524 789,531 248,120 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 2,602,056 7,000,040 1,478,260 6,735,640
Redemptions of capital shares outstanding:
Class A (221,269) (604,566) (448,293) (2,154,276)
Class B (144,030) (377,582) (307,091) (1,328,184)
Class T (1,746,358) (4,904,960) (2,013,439) (9,145,440)
---------- ----------- ---------- ------------
Total redemptions of capital shares outstanding (2,111,657) (5,887,108) (2,768,823) (12,627,900)
---------- ----------- ---------- ------------
Net increase (decrease) in capital shares outstanding 490,399 $ 1,112,932 (1,290,563) $ (5,892,260)
=========== ============
Shares outstanding at beginning of year 20,459,293 21,749,856
---------- ----------
Shares outstanding at end of year 20,949,692 20,459,293
========== ==========
</Table>
59
<Page>
NOTE 4--CAPITAL STOCK CONTINUED
<Table>
<Caption>
SM&R EQUITY INCOME FUND YEAR ENDED AUGUST 31,
----------------------------------------------------------
2009 2008
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- ----------- ----------
Sale of capital shares:
Class A 45,949 $ 574,696 60,059 $ 1,279,667
Class B 8,030 98,841 11,534 237,746
Class T 73,030 961,661 58,107 1,260,789
--------- ---------- ----------- -----------
Total sale of capital shares 127,009 1,635,198 129,700 2,778,202
Investment income dividends reinvested:
Class A 12,499 164,346 9,937 212,112
Class B 4,370 56,110 4,156 86,525
Class T 118,130 1,620,394 92,196 2,035,148
--------- ---------- ----------- -----------
Total investment income dividends reinvested 134,999 1,840,850 106,289 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 295,207 3,867,212 203,558 4,531,198
--------- ---------- ----------- -----------
Total distributions from net realized gains reinvested 340,445 4,425,767 241,591 5,332,338
--------- ---------- ----------- -----------
Subtotals 602,453 7,901,815 477,580 10,444,325
Redemptions of capital shares outstanding:
Class A (91,705) (1,255,505) (173,998) (3,771,973)
Class B (47,764) (583,299) (111,490) (2,313,600)
Class T (438,806) (5,780,331) (503,661) (11,290,083)
--------- ---------- ----------- -----------
Total redemptions of capital shares outstanding (578,275) (7,619,135) (789,149) (17,375,656)
--------- ---------- ----------- -----------
Net increase (decrease) in capital shares outstanding 24,178 $ 282,680 (311,569) $(6,931,331)
========== ===========
Shares outstanding at beginning of year 4,024,387 4,335,956
--------- -----------
Shares outstanding at end of year 4,048,565 4,024,387
========= ===========
</Table>
60
<Page>
NOTE 4--CAPITAL STOCK CONTINUED
<Table>
<Caption>
SM&R BALANCED FUND YEAR ENDED AUGUST 31,
----------------------------------------------------------------
2009 2008
------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ --------------
Sale of capital shares:
Class A 45,574 $ 593,104 24,456 $ 417,341
Class B 9,725 114,089 10,263 177,320
Class T 31,291 398,497 32,315 573,205
--------- --------- --------- -----------
Total sale of capital shares 86,590 1,105,690 67,034 1,167,866
Investment income dividends reinvested:
Class A 5,753 69,576 3,851 67,234
Class B 1,589 19,598 1,198 21,404
Class T 32,288 406,853 22,719 412,465
--------- ---------- --------- -----------
Total investment income dividends reinvested 39,630 496,027 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 212,178 2,613,509 121,450 2,158,935
Redemptions of capital shares outstanding:
Class A (47,693) (565,023) (75,157) (1,363,029)
Class B (21,958) (268,525) (54,996) (998,072)
Class T (87,189) (1,085,449) (116,666) (2,090,770)
--------- ---------- --------- -----------
Total redemptions of capital shares outstanding (156,840) (1,918,997) (246,819) (4,451,871)
--------- ---------- --------- -----------
Net increase (decrease) in capital shares outstanding 55,338 $ 694,512 (125,369) $(2,292,936)
========== ===========
Shares outstanding at beginning of year 1,466,441 1,591,810
--------- ---------
Shares outstanding at end of year 1,521,779 1,466,441
========= =========
</Table>
61
<Page>
NOTE 4--CAPITAL STOCK CONTINUED
<Table>
SM&R GOVERNMENT BOND FUND YEAR ENDED AUGUST 31,
--------------------------------------------------------
2009 2008
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- -----------
Sale of capital shares:
Class A 10,070 $ 110,240 25,047 $ 270,361
Class B 1,553 17,018 5,359 57,779
Class T 81,313 873,776 111,915 1,192,693
--------- ----------- ---------- -----------
Total sale of capital shares 92,936 1,001,034 142,321 1,520,833
Investment income dividends reinvested:
Class A 2,916 31,784 3,426 36,607
Class B 876 9,531 1,414 15,061
Class T 75,124 807,995 92,197 971,747
--------- ----------- ---------- -----------
Total investment income dividends reinvested 78,916 849,310 97,037 1,023,415
--------- ----------- ---------- -----------
Subtotals 171,852 1,850,344 239,358 2,544,248
Redemptions of capital shares outstanding:
Class A (4,655) (50,897) (24,276) (255,855)
Class B (24,023) (261,694) (13,602) (142,974)
Class T (76,114) (819,717) (65,521) (690,214)
--------- ----------- ---------- ------------
Total redemptions of capital shares outstanding (104,792) (1,132,308) (103,399) (1,089,043)
--------- ----------- ---------- ------------
Net increase in capital shares outstanding 67,060 $ 718,036 135,959 $ 1,455,205
=========== ============
Shares outstanding at beginning of year 2,933,047 2,797,088
--------- ----------
Shares outstanding at end of year 3,000,107 2,933,047
========= ==========
</Table>
62
<Page>
NOTE 4--CAPITAL STOCK CONTINUED
<Table>
<Caption>
SM&R TAX FREE FUND YEAR ENDED AUGUST 31,
------------------------------------------------------------
2009 2008
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------ ------------- -------------
Sale of capital shares:
Class A 26,533 $ 280,036 3,742 $ 39,441
Class B 13 135 -- --
Class T 4,036 42,142 17,637 183,840
------------ --------- ----------- -----------
Total sale of capital shares 30,582 322,313 21,379 223,281
Investment income dividends reinvested:
Class A 694 7,290 773 8,096
Class B 52 549 168 1,762
Class T 30,453 317,124 41,084 427,134
------------ --------- ----------- -----------
Total investment income dividends reinvested 31,199 324,963 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 62,309 652,720 64,610 672,871
Redemptions of capital shares outstanding:
Class A (1,697) (17,925) (2,998) (31,442)
Class B (7,851) (79,887) (6,612) (69,421)
Class T (31,384) (319,935) (19,154) (199,563)
------------ --------- ----------- -----------
Total redemptions of capital shares outstanding (40,932) (417,747) (28,764) (300,426)
------------ --------- ----------- -----------
Net increase in capital shares outstanding 21,377 $ 234,973 35,846 $ 372,445
========= ===========
Shares outstanding at beginning of year 1,325,057 1,289,211
------------ -----------
Shares outstanding at end of year 1,346,434 1,325,057
============ ===========
SM&R PRIMARY FUND YEAR ENDED AUGUST 31,
------------------------------------------------------------
2009 2008
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------ ------------- -------------
Sale of capital shares 494,007 $ 494,201 2,590,368 $ 2,590,370
Investment income dividends reinvested 442,963 443,915 846,450 846,450
Redemptions of capital shares outstanding (460,912) (460,952) (5,670,153) (5,670,153)
------------ --------- ---------- -----------
Net increase (decrease) in capital shares outstanding 476,058 $ 477,164 (2,233,335) $(2,233,333)
========= ===========
Shares outstanding at beginning of year 24,684,247 26,917,582
------------ ----------
Shares outstanding at end of year 25,160,305 24,684,247
============ ==========
SM&R MONEY MARKET FUND YEAR ENDED AUGUST 31,
------------------------------------------------------------
2009 2008
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------ ------------- -------------
Sale of capital shares 268,304,974 $ 268,304,974 255,152,735 $ 255,152,735
Investment income dividends reinvested 425,345 425,345 2,904,505 2,904,505
Redemptions of capital shares outstanding (324,209,275) (324,209,275) (263,602,365) (263,602,365)
------------ ------------- ------------ -------------
Net decrease in capital shares outstanding (55,478,956) $ (55,478,956) (5,545,125) $ (5,545,125)
============= =============
Shares outstanding at beginning of year 96,039,945 101,585,070
------------ -----------
Shares outstanding at end of year 40,560,989 96,039,945
============ ===========
</Table>
63
<Page>
NOTE 5--DISCLOSURE ABOUT FAIR VALUE OF ASSETS
Effective September 1, 2007, the Funds adopted Statement of Financial
Accounting Standards (FAS) 157. 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 for identical securities
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 August 31, 2009:
Growth Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
-------- ------------ ----------- ------- -------
Common Stock: Consumer Discretionary $ 3,874,540 $ 3,874,540 $0 $0
Common Stock: Consumer Staples 4,907,739 4,907,739 0 0
Common Stock: Energy 8,353,823 8,353,823 0 0
Common Stock: Exchange Traded Funds 6,051,000 6,051,000 0 0
Common Stock: Financials 6,461,588 6,461,588 0 0
Common Stock: Healthcare 8,404,250 8,404,250 0 0
Common Stock: Industrials 7,908,436 7,908,436 0 0
Common Stock: Information Technology 13,207,445 13,207,445 0 0
Common Stock: Materials 1,593,496 1,593,496 0 0
Common Stock: Telecomm. Services 1,576,323 1,576,323 0 0
Common Stock: Utilities 1,539,090 1,539,090 0 0
Investments in Money Market 557,609 557,609 0 0
----------- ----------- ------- -------
Total Growth Fund $64,435,339 $64,435,339 $0 $0
</Table>
Equity Income Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
- -------- ------------ ----------- ------- -------
Common Stock: Consumer Discretionary $ 4,783,580 $ 4,783,580 $0 $0
Common Stock: Consumer Staples 7,656,752 7,656,752 0 0
Common Stock: Energy 7,583,445 7,583,445 0 0
Common Stock: Financials 13,410,235 13,410,235 0 0
Common Stock: Healthcare 6,550,469 6,550,469 0 0
Common Stock: Industrials 4,844,343 4,844,343 0 0
Common Stock: Information Technology 4,427,433 4,427,433 0 0
Common Stock: Materials 1,631,197 1,631,197 0 0
Common Stock: Telecomm. Services 3,073,740 3,073,740 0 0
Common Stock: Utilities 3,741,061 3,741,061 0 0
Investments in Money Market 512,017 512,017 0 0
------------ ----------- ------- -------
Total Equity Income Fund $58,214,272 $58,214,272 $0 $0
</Table>
64
<Page>
NOTE 5--DISCLOSURE ABOUT FAIR VALUE OF ASSETS CONTINUED
Balanced Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
-------- ------------ ----------- ----------- -------
Corporate Debt Securities $ 4,079,867 $ 0 $ 4,079,867 $0
Residential Mortgage-Backed Securities 23,213 0 23,213 0
Common Stock: Consumer Discretionary 1,474,384 1,474,384 0 0
Common Stock: Consumer Staples 1,644,239 1,644,239 0 0
Common Stock: Energy 1,815,113 1,815,113 0 0
Common Stock: Financials 2,176,366 2,176,366 0 0
Common Stock: Healthcare 2,033,206 2,033,206 0 0
Common Stock: Industrials 1,542,223 1,542,223 0 0
Common Stock: Information Technology 2,779,043 2,779,043 0 0
Common Stock: Materials 414,867 414,867 0 0
Common Stock: Telecomm. Services 600,382 600,382 0 0
Common Stock: Utilities 572,105 572,105 0 0
Investments in Money Market 1,376,232 1,376,232 0 0
------------ ----------- ----------- -------
Total Balanced Fund $20,531,240 $16,428,160 $ 4,103,080 $0
</Table>
Government Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
-------- ------------ -------- ----------- -------
U.S. Treasury & other U.S. Gov't.
corporations and agencies $22,041,916 $ 0 $22,041,916 $0
Corporate Debt Securities 990,477 0 990,477 0
Collateralized Debt Securities 501,184 0 501,184 0
Commercial Paper 8,327,525 0 8,327,525 0
Investments in Money Market 92,741 92,741 0 0
------------ -------- ----------- -------
Total Government Fund $31,953,843 $ 92,741 $31,861,102 $0
</Table>
Tax Free Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
-------- ------------ -------- ----------- -------
U.S. Treasury & other U.S. Gov't.
corporations and agencies $ 4,274,772 $ 0 $ 4,274,772 $0
States of the U.S. and Political
Subdivisions of the States 9,284,757 0 9,284,757 0
Commercial Paper 474,972 0 474,972 0
Investments in Money Market 47,364 47,364 0 0
------------ -------- ----------- -------
Total Tax Free Fund $14,081,865 $ 47,364 $14,034,501 $0
</Table>
Primary Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
-------- ------------ ------- ----------- -------
U.S. Treasury & other U.S. Gov't.
corporations and agencies $ 1,145,156 $ 0 $ 1,145,156 $0
Common Stock: Industrials 3,675 3,675 0 0
Commercial Paper 24,018,021 0 24,018,021 0
------------ ------- ----------- -------
Total Primary Fund $25,166,852 $ 3,675 $25,163,177 $0
</Table>
65
<Page>
NOTE 5--DISCLOSURE ABOUT FAIR VALUE OF ASSETS CONTINUED
Money Market Fund
<Table>
<Caption>
HOLDINGS MARKET VALUE LEVEL 1 LEVEL 2 LEVEL 3
-------- ------------ ------- ----------- -------
U.S. Gov corporations and agencies
Short Term $26,031,737 $ 0 $26,031,737 $0
Commercial Paper 14,652,907 0 14,652,907 0
Investments in Money Market 152 152 0 0
------------ ------- ----------- -------
Total Money Market Fund $40,684,796 $ 152 $40,684,644 $0
</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.
66
<Page>
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the following years ended
August 31:
<Table>
<Caption>
2009 2008
---------- ----------
GROWTH FUND
CLASS A
Distributions paid from:
Ordinary income $ 51,717 $ 45,299
Long-term capital gain 172,141 109,438
---------- ----------
$ 223,858 $ 154,737
========== ==========
CLASS B
Distributions paid from:
Ordinary income $ 12,339 $ 11,209
Long-term capital gain 62,469 63,999
---------- ----------
$ 74,808 $ 75,208
========== ==========
CLASS T
Distributions paid from:
Ordinary income $1,128,309 $1,087,464
Long-term capital gain 3,566,965 2,390,940
---------- ----------
$4,695,274 $3,478,404
========== ==========
EQUITY INCOME FUND
CLASS A
Distributions paid from:
Ordinary income $ 165,983 $ 302,669
Long-term capital gain 388,366 459,882
---------- ----------
$ 554,349 $ 762,551
========== ==========
CLASS B
Distributions paid from:
Ordinary income $ 57,978 $ 127,901
Long-term capital gain 169,339 216,885
---------- ----------
$ 227,317 $ 344,786
========== ==========
CLASS T
Distributions paid from:
Ordinary income $1,668,404 $2,814,283
Long-term capital gain 3,938,697 3,920,882
---------- ----------
$5,607,101 $6,735,165
========== ==========
BALANCED FUND
CLASS A
Distributions paid from:
Ordinary income $ 70,611 $ 79,060
Long-term capital gain 142,377 50,969
---------- ----------
$ 212,988 $ 130,029
========== ==========
CLASS B
Distributions paid from:
Ordinary income $ 20,695 $ 27,225
Long-term capital gain 48,709 23,142
---------- ----------
$ 69,404 $ 50,367
========== ==========
CLASS T
Distributions paid from:
Ordinary income $ 425,312 $ 502,221
Long-term capital gain 821,726 327,883
---------- ----------
$1,247,038 $ 830,104
========== ==========
</Table>
<Table>
<Caption>
2009 2008
--------- ----------
GOVERNMENT BOND FUND
CLASS A
Distributions paid from:
Ordinary income $ 31,854 $ 36,605
--------- ----------
$ 31,854 $ 36,605
========= ==========
CLASS B
Distributions paid from:
Ordinary income $ 9,665 $ 15,524
--------- ----------
$ 9,665 $ 15,524
========= ==========
CLASS T
Distributions paid from:
Ordinary income $ 811,799 $ 977,349
--------- ----------
$ 811,799 $ 977,349
========= ==========
TAX FREE FUND
CLASS A
Distributions paid from:
Exempted interest dividends $ 7,678 $ 7,654
Ordinary income 504 1,790
Long-term capital gain 120 254
--------- ----------
$ 8,302 $ 9,698
========= ==========
CLASS B
Distributions paid from:
Exempted interest dividends $ 733 $ 2,998
Ordinary income 52 855
Long-term capital gain 10 147
--------- ----------
$ 795 $ 4,000
========= ==========
CLASS T
Distributions paid from:
Exempted interest dividends $ 301,981 $ 352,195
Ordinary income 19,539 82,296
Long-term capital gain 5,357 12,370
--------- ----------
$ 326,877 $ 446,861
========= ==========
PRIMARY FUND
Distributions paid from:
Ordinary income $ 443,929 $ 846,050
--------- ----------
$ 443,929 $ 846,050
========= ==========
MONEY MARKET FUND
Distributions paid from:
Ordinary income $ 426,110 $2,906,439
--------- ----------
$ 426,110 $2,906,439
========= ==========
</Table>
67
<Page>
TAX COMPONENTS OF NET ASSETS
As of August 31, 2009, the components of accumulated earnings (deficit) on a
tax basis were as follows:
<Table>
GROWTH FUND
Undistributed ordinary income $ 134,159
Undistributed long-term capital gains 29,697
-------------
Tax Accumulated Earnings 163,856
Accumulated capital and other losses (5,196,609)
Unrealized appreciation (depreciation) (6,297,494)
-------------
Total Accumulated Earnings (Deficit) $(11,330,247)
=============
EQUITY INCOME FUND
Undistributed ordinary income $ 404,235
-------------
Tax Accumulated Earnings 404,235
Accumulated capital and other losses (3,897,693)
Unrealized appreciation (depreciation) (8,584,756)
-------------
Total Accumulated Earnings (Deficit) $(12,078,214)
=============
BALANCED FUND
Undistributed ordinary income $ 119,096
-------------
Tax Accumulated Earnings 119,096
Accumulated capital and other losses (930,425)
Unrealized appreciation (depreciation) (1,395,529)
-------------
Total Accumulated Earnings (Deficit) $ (2,206,858)
=============
</Table>
<Table>
GOVERNMENT BOND FUND
Accumulated capital and other losses $ (449,869)
Unrealized appreciation (depreciation) 1,382,903
-----------
Total Accumulated Earnings (Deficit) $ 933,034
===========
TAX FREE FUND
Accumulated capital and other losses $ (1,461)
Unrealized appreciation (depreciation) 459,723
-----------
Total Accumulated Earnings (Deficit) $ 458,262
===========
PRIMARY FUND
Accumulated capital and other losses $ (242,165)
Unrealized appreciation (depreciation) 249,053
-----------
Total Accumulated Earnings (Deficit) $ 6,888
===========
</Table>
68
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Shareholders
SM&R Investments, Inc.
League City, Texas
We have audited the accompanying statements of assets and liabilities of the
SM&R Growth Fund, SM&R Equity Income Fund, SM&R Balanced Fund, SM&R Government
Bond Fund, SM&R Tax Free Fund, SM&R Primary Fund and SM&R Money Market Fund
(all the funds comprising SM&R Investments, Inc., hereafter referred to as "the
Funds"), including the schedules of investments, as of August 31, 2009, and the
related statements of operations for the year then ended, changes in net assets
for the two years then ended and the financial highlights for each of the four
years then ended. These financial statements and the financial highlights are
the responsibility of the Funds' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of August 31, 2009, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures with respect to unsettled portfolio security transactions. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of August 31, 2009, and the results their operations, changes in their
net assets and their financial highlights for the periods then ended in
conformity with accounting principles generally accepted in the United States
of America.
Houston, Texas
October 16, 2009
69
<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 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.
70
<Page>
SUPPLEMENTAL INFORMATION (Unaudited) (As of 10/31/09)
Information pertaining to the Directors and Officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Directors and is available without charge, upon request
by calling (800) 231-4639.
INDEPENDENT DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND AGE WITH FUND TIME SERVED DURING PAST 5 YEARS DIRECTOR
- ----------------------- ---------------- -------------- ------------------------------------------------- -------------
Florentino F. Gonzalez Director Indefinite HR Director, Galveston Children's Center, Inc. 11*
2450 South Shore Blvd., Since 11/05
League City, TX 77573 HR Consultant, The University of Texas Medical
Age 50 Branch at Galveston
Edwin K. Nolan Director Indefinite Investor and Attorney, Law Offices, Edwin K. 11*
2450 South Shore Blvd., Since 11/97 Nolan, P.C.
League City, TX 77573
Age 66 Nominating Indefinite Director/Owner of Canyon Lake Aviation, Inc.
Committee Since 11/00
Audit Indefinite Director of Hancock Mini Mart, Inc.
Committee Since 11/03
Robert V. Shattuck Director Indefinite Attorney, Law Offices, Robert V. Shattuck, Jr. 11*
2450 South Shore Blvd., Since 11/97
League City, TX 77573
Age 67 Nominating Indefinite
Committee Since 11/00
Donald P. Stevens Director Indefinite Retired, Assistant to the President for 11*
2450 South Shore Blvd., Since 9/00 Governmental Relations of the University of Texas
League City, TX 77573 Medical Branch, Galveston, TX
Age 62 Nominating Indefinite
Committee Since 11/00 Vice President and Director, Jamail Galveston
Foundation (a family charitable foundation)
Audit Indefinite
Committee Since 11/05
Steven H. Stubbs Director Indefinite President and Director of Dancing Rabbit Press, 11*
2450 South Shore Blvd., Since 9/00 Inc. (a publishing company)
League City, TX 77573
Age 70 Audit Indefinite Director, Neshoba County Public Library
Committee Since 8/03
Chairman
</Table>
71
<Page>
INTERESTED DIRECTORS
<Table>
<Caption>
PORTFOLIOS IN NUMBER OF
POSITION(S) TERM OF OFFICE FUND COMPLEX INTERESTED
NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY DIRECTOR
AND AGE WITH FUND TIME SERVED PAST 5 YEARS DIRECTOR RELATIONSHIP
- ----------------------- ----------- -------------- -------------------------------------- ------------- -------------
Michael W. McCroskey President & Indefinite President, CEO, Director and member 11* (1)
2450 South Shore Blvd., Director Since 8/94 of Executive Committee of
League City, TX 77573 Securities Management and Research,
Age 66 Inc. (SM&R)^
Executive Vice President and
Treasurer of American National
Insurance Company
Vice President of Garden State Life
Insurance Company^
Vice President of American National
Property & Casualty Company^
Vice President of Standard Life &
Accident Insurance Company^
Vice President of Pacific Property
and Casualty Company^
Assistant Secretary of American
National General Insurance
Company^
Assistant Secretary of American
National Life Insurance
Company of Texas^
Director and President of ANREM
Corporation (real estate
management company)^
Vice President and Director of ANTAC
Corporation (real
estate management company)^
Director of Comprehensive Investment
Services, Inc.
(investment services company)^
Vice President of Farm Family Life
Insurance Company^
Vice President of Farm Family
Casualty Insurance Company^
Vice President of United Farm Family
Insurance Company^
Vice President and Director of
Eagle 99, Inc. (a real estate
investment company)^
President and Director of ANH(2)O,
Inc. (a real estate
investment company)^
Lea McLeod Matthews Director Indefinite Writer/Communications Specialist, 11* (2)
2450 South Shore Blvd., Since 8/94 Nashville, TN (10/06-present)
League City, TX 77573
Age 47 Psychology Intern, Vanderbilt
University Medical Center, Division
of Adult Psychiatry (8/05-10/06)
Communications Specialist, National
Western Life Insurance
Company (5/02-8/05)
Director of Garden State Life
Insurance Company^
Senior Communications Specialist,
Texas Guaranteed Student Loan
Corporation (1/01-5/02)
Ann McLeod Moody Director Indefinite Housewife, Personal Investments 11* (3,2)
2450 South Shore Blvd., Since 11/97
League City, TX 77573 Director of Moody Gardens, Inc. (a
Age 72 charitable organization)
</Table>
72
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE FUND COMPLEX INTERESTED
NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY DIRECTOR
AND AGE WITH FUND TIME SERVED PAST 5 YEARS DIRECTOR RELATIONSHIP
- ----------------------- ----------- -------------- -------------------------------------- ------------- -------------
Jamie G. Williams Director Indefinite Regional Grants Director, The Moody 11* (4)
2450 South Shore Blvd., Since 11/97 Foundation (a charitable
League City, TX 77573 foundation)
Age 63
President's Advisory Council, Dallas
Center for the Performing Arts
Foundation (an organization that
supports the arts in the
Dallas, TX area)
</Table>
(1) Mr. McCroskey serves as an officer and director of SM&R, the Company's
investment adviser. He also serves as an officer of SM&R's parent
company, American National Insurance Company ("American National").
(2) Ms. Matthews is the step-daughter of Robert L. Moody. Mr. Moody is the
Chairman of the Board and Chief Executive Officer of American National,
the parent of SM&R. Mr. Moody is also a trustee of The Moody Foundation,
a charitable foundation established for charitable and educational
purposes, which owns approximately 23.22% of the outstanding common
shares of American National, and he serves as Chairman of the Board,
President, and Chief Executive Officer of The Moody National Bank of
Galveston (the "Bank"), which, in its capacity as trustee and custodian,
votes approximately 46.53% of the outstanding common shares of American
National. Mr. Moody is also the President and a director of the
companies owning the controlling interests in such bank, and he is a
life income beneficiary of one of such trusts.
Ms. Matthews is the daughter of Funds' director Ann McLeod Moody.
(3) Ms. Moody is the spouse of Robert L. Moody. See footnote 2 above. Ms.
Moody is the mother of Funds' director Lea McLeod Matthews.
(4) Ms. Williams is an employee of The Moody Foundation, which owns
approximately 23.22% of American National, the parent of SM&R.
* Also a Director of American National Investment Accounts, Inc., another
investment company advised by SM&R, which has 4 portfolios.
^ Under control of American National.
OFFICERS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND AGE WITH FUND TIME SERVED DURING PAST 5 YEARS OFFICER
- ------------------------ ---------------- --------------- ------------------------------------------------- ------------
Michael W. McCroskey President & Indefinite SEE INTERESTED DIRECTOR TABLE ABOVE 11
Director[para] Since 8/94
Brenda T. Koelemay Vice Indefinite Vice President & Treasurer of SM&R 11
2450 South Shore Blvd., President & Since 7/92
League City, TX 77573 Treasurer[para]
Age 54 Indefinite Vice President, Assistant Corporate Treasurer of
Since 4/07 American National Insurance Company
Teresa E. Axelson Vice Indefinite Vice President, Secretary & Chief Compliance 11
2450 South Shore Blvd., President & Since 5/83 Officer of SM&R
League City, TX 77573 Secretary[para]
Age 61
</Table>
[para] Positions also held with American National Investment Accounts,
Inc., another investment company advised by SM&R.
73
<Page>
SM&R INVESTMENTS, INC. 2450 South Shore Boulevard, League City, TX 77573
- -------------------------------------------------------------------------------
DIRECTORS
Florentino F. Gonzalez
Lea McLeod Matthews
Michael W. McCroskey
Ann McLeod Moody
Edwin K. Nolan
Robert V. Shattuck, Jr.
Donald P. Stevens
Steven H. Stubbs
Jamie G. Williams
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Teresa E. Axelson, Vice President, Secretary and Chief Compliance Officer
INVESTMENT ADVISER AND MANAGER
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, TX 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BKD, LLP
2800 Post Oak Blvd., Suite 3200
Houston, TX 77056
Form 9202 10/09
Item 2 Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to the
registrants principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions (the Code).
(b) For purposes of this Item, the term code of ethics means
written standards that are reasonably designed to deter wrong-
dong and to promote:
(1) Honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest
between personal and professional relationships;
(2) Full, fair, accurate, timely, and understandable
disclosure in reports and documents that a registrant
files with, or submits to, the Commission and in other
public communications made by the registrant;
(3) Compliance with applicable governmental laws, rules,
and regulations;
(4) The prompt internal reporting of violations of the Code
to an appropriate person or persons identified in the
Code; and
(5) Accountability for adherence to the Code.
(c) There were no amendments to the Code during the perid covered
by the report.
(d) The registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the principal executive
officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions during the
period covered by this report.
(e) Not applicable
(f) See item 12 (a) (1) regarding the filing of the Code of Ethics for
Principal Executive and Principal Financial Officers of SM&R
Investments, Inc.
Item 3 Audit Committee Financial Expert.
(a) The Board of Directors has determined that the registrant has at
least one Audit committee financial expert serving on its Audit
Committee.
(b) The Audit Committee financial expert is Steven H. Stubbs. Mr. Stubbs
is "independent" within the meaning of that term used in Form N-CSR.
Item 4 Principal Accountant Fees and Services.
(a) Audit fees for SM&R Investments, Inc. totaled approximately $85,000
in 2009 and approximately $92,000 in 2008, including fees associated
with the annual audit and filings of the Portfolios Form N-1A and
Form N-SAR.
(b) None
(c) Fees for tax services to SM&R Investments, Inc., including tax
compliance, tax advice and tax planning, totaled approximately
$0 in 2009 and $0 in 2008.
(d) None
(e) (1) The registrants audit committee has adopted policies and
procedures that require the audit committee to pre-approve
all audit and non-audit services provided to the registrant
by the principal accountant.
(2) All of the services described in paragraphs (b) through (d)
of Item 4 were approved by the audit committee.
(f) All services performed on the engagement to audit the registrants
financial statements for the most recent fiscal year-end were
performed by the principal accountants full-time, permanent
employees.
(g) None
(h) The registrants independent auditor did not provide any non-audit
services to the registrants investment adviser or any entity
controlling, controlled by or controlled with the registrants
investment adviser that provides ongoing services to the registrant.
Item 5 Audit Committee of Listed Registrants.
Not applicable
Item 6 Schedule of Investments.
The Schedule of Investments is filed under Item 1 of this form.
Item 7 Disclosure of Proxy Voting Policies and Procedures for Closed-end
Management Investment Companies.
Not applicable
Item 8 Portfolio Managers of Closed-end Management Investment Companies.
Not applicable
Item 9 Purchases of Equity Securities by Closed-end Management Investment
Company and Affiliated Purchasers.
Not applicable
Item 10 Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the registrants board of directors during this
period.
Item 11 Controls and Procedures.
(a) As of October 16, 2009, an evaluation was performed under the
supervision and with the participation of the officers of SM&R
Investments, Inc. (the "Company"), including the Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the Company's disclosure controls and procedures.
Based on that evaluation, the officers, including the CEO and CFO,
conclude that, as of October 16, 2009, the Company's disclosure
controls and procedures were reasonably designed so as to ensure
that material information relating to the Company is made known
to the CEO and CFO.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation and until the
filing of this report, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Item 12 Exhibits.
(a) (1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and
attached hereto.
(2) Certifications pursuant to Rule 30a-2(a) under the
Investment Act of 1940 are filed and attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are filed and attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SM&R Investments, Inc.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: October 28, 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: October 28, 2009
By: \S\ Brenda T. Koelemay
-------------------------------------
Principal Financial Officer
Date: October 28, 2009