<PAGE>
ANNUAL REPORT
SM&R
SM&R MUTUAL FUNDS
EQUITY FUNDS
GROWTH FUND
EQUITY INCOME FUND
BALANCED FUND
"The financial statements and discussions contained herein are included for
the general information of our shareholders. This report is not authorized
for distribution to prospective investors unless preceded or accompanied by
an effective prospectus."
Annual Report
December 31, 1999
<PAGE>
SM&R EQUITY FUNDS 2450 South Shore Blvd, League City, Texas 77573
- --------------------------------------------------------------------------------
DIRECTORS
Ralph S. Clifford
Paul D. Cummings
Jack T. Currie
Michael W. McCroskey
Ira W. Painton
Donald P. Stevens
Steven H. Stubbs
OFFICERS
Michael W. McCroskey, President
Gordon D. Dixon, Vice President and Portfolio Manager
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
INVESTMENT ADVISOR AND MANAGER
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
INDEPENDENT AUDITORS
Tait, Weller & Baker
8 Penn Center, Suite 800
Philadelphia, Pennsylvania 19103-2108
1
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
In 1999, the U.S. economy exhibited steady growth, benign inflation, a Federal
budget surplus, as well as increases in employment and real incomes. In addition
to these upbeat indicators, many businesses experienced another year of
increased earnings and the stock market ended another year with double digit
increases. However, unlike 1998, when the Fed decreased interest rates 50 basis
points, in 1999 the Fed increased interest rates by 75 basis points to address
liquidity issues and to head off any manifestations of inflation. 1999 also saw
the resurgence of the Japanese economy (the Nikkei was up 124%) as well as most
emerging markets.
The markets were volatile again in 1999, however, we did not witness another
broad market correction such as the one that struck in October of 1998. The
S&P 500 notched a fifth consecutive double digit gain in 1999 but fell shy of a
fifth consecutive +20% gain finishing the year up 21.03%. The NASDAQ index broke
every record imaginable on its way to an 85.6% finish and the Russell 2000
notched its best return in nearly two years finishing up 19.6%. The real story
in the market, however, was the NASDAQ index. In the last three months of 1999
technology stocks set a torrid pace. From October 18 through December 31, the
NASDAQ tacked on 1380 points, going from 2689.15 to 4069.13. The market for 1999
can best be summed up as: Technology, Technology, and Technology. The reason the
Technology sector took top honors for performance can be summed up as: Earnings,
Earnings, and Earnings. No other sector could boast such high quality earnings
and solid fundamentals (Internet stocks excepted). The main reason behind the
eye-popping performance of the technology sector is the build-out of the
Internet. One could make a case that there are no technology companies that are
not involved with the Internet in some fashion. We still believe the best way to
play the Internet is to invest in those companies that are building the
infrastructure of the Internet or whose products are an integral component in
other company's Internet infrastructure products. With that said, we cast a wary
eye towards the consumer focused internet sector while at the same time we are
watching with interest any company focused on business-to-business e-commerce,
telecommunications, telecommunications semiconductors (IC's), broadband, network
storage, and other similar undercurrents.
The SM&R Growth Fund (Class T) was able to post a 24.49% return before sales
charges (but after other expenses) in 1999 vs. the S&P 500 at 21.03%. An
overweighted technology sector was the primary reason for the strong
performance. When we refer to a sector as being overweighted, we are referring
to the sector weighting relative to the S&P 500. Other sectors that contributed
to the performance were Utilities, Transportation, and Energy. The fund is well
diversified across all sectors and overweights sectors by no more than twice the
S&P 500 sector weights and underweights by no more than half the S&P 500 sector
weights.
Although the Y2K problem initially appears to have been more hype than an actual
problem, the real tests are still to come. January 30, 2000 represents the first
real data crunching test of the year for business. Going forward, the end of
each month and the end of each quarter represent potential data crunching
problems for business primarily because this time the exercise will be live and
not some sort of rigged test or experiment. The media misled the public and even
some businesses into thinking that the real problems would occur exactly at
midnight on December 31 when in actuality, the real threat would be present
throughout the year. We will continue to monitor the situation carefully but
don't expect any major developments.
We continue to seek out undervalued companies undergoing positive changes in
fundamentals and selling those issues that have hit their price targets or whose
fundamentals do not warrant inclusion in our portfolio. Within the Technology
sector we seek to identify those companies that possess a unique advantage
within their niche or are considered to be the leader within their sub-sector.
These processes have served the fund well over the last several years and should
continue to do so going forward. Areas of the market that we will be watching
closely in 2000 will be Healthcare, Financials, Capital Goods, Consumer
Cyclicals, Technology, Telecommunications, and Utilities.
2
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R GROWTH
<S> <C> <C>
FUND AT OFFERING PRICE, LIPPER GROWTH FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR 13.91%
5 YEAR 20.14%
1 YEAR 17.28%
LIPPER GROWTH FUND INDEX
1989 $10,000
1990 $9,459
1991 $12,894
1992 $13,878
1993 $15,540
1994 $15,296
1995 $20,290
1996 $23,845
1997 $30,534
1998 $38,377
1999 $57,921
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
Share Class Since Inception
A 17.27%
B 15.93%
C 23.83%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R GROWTH
<S> <C> <C>
FUND AT OFFERING PRICE, LIPPER GROWTH FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR
5 YEAR
1 YEAR
S&P 500 SM&R GROWTH FUND
1989 $10,000 $9,426
1990 $9,689 $9,146
1991 $12,634 $12,529
1992 $13,594 $12,216
1993 $14,962 $13,213
1994 $15,158 $13,871
1995 $20,848 $17,366
1996 $25,632 $20,429
1997 $34,181 $24,971
1998 $43,961 $29,552
1999 $53,205 $36,791
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
w/o Sales
Share Class Charge
A 23.45%
B 22.04%
C 26.44%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
</TABLE>
SM&R Growth Fund performance figures are historical and reflect reinvestment of
all dividends and capital gains distributions and changes in net asset value.
Returns for Class A, B and C will vary from Class T as shown above 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 maximum initial sales charge for Class A and C shares reflect the
current maximum initial sales charges of 5.00% and 1.00%, respectively. 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. A CDSC of 1.00% applies to redemption of Class C shares only within
the first thirteen months or purchase.
3
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
The SM&R Equity Income Fund's objective is to provide current income, along with
an opportunity for increased share price over time. The fund is guided by a
strategy of investing in primarily the stocks of well-established companies with
records of consistent and increasing dividend payments. In 1999, the fund
(Class T) produced a return of (1.39)%, before sales charges (but after other
expenses.) Over that same time frame, the fund's peers, as measured by the
Lipper Equity Income Fund Index, returned 4.19%. The fund has continued to
surpass the goal of maintaining a dividend yield at least 50% greater than that
of the market, as represented by the Standard & Poor's 500 stock market index.
The current dividend yield on the fund is 2.7% versus 1.2% for the S&P 500.
The fund's performance suffered from its overweighed position in financial
services relative to the S&P 500 financial sector weight. The poor performance
of financial companies is a result of interest rates rising throughout 1999. We
feel this is a short-term phenomenon and have strong convictions regarding the
outlook for financial companies going forward--particularly the financial
conglomerates, which offer a variety of services to consumers. The financial
sector is also where investors can locate strong dividend yielding stocks. As
such, the financial sector currently encompasses nearly one quarter of the
fund's holdings.
As 1999 wound down, it was clear to all market watchers that technology was the
place to be invested. The Equity Income Fund currently invests a relatively
small portion of its assets in the technology sector, as these companies
typically need to reinvest their cash and therefore do not pay a dividend to
shareholders. While we have concerns regarding what appears to be a "speculative
bubble" in technology investing, we are looking to slightly increase our
technology exposure in the fund when and if we see a pullback in the lofty
levels this sector is currently exhibiting. While we will not deviate from our
value style, nor our conservative philosophy, we believe we can afford to take
on incremental levels of risk going forward as we have a strong enough portfolio
yield to allow for some diversification into non-dividend paying stocks. We can
assure you, though, that we will not follow in the footsteps of our competitors
and raise our technology weighting to greater than the market, nor even a market
weighting, as many of our so-called equity income fund competitors have done.
Going forward, we believe the market will remain in a relatively flat trading
range over the next several quarters as the economic fundamentals which drive
the equity markets harbor neither terribly worrisome nor exuberant information.
We maintain a cautious tilt, however, as the market appears clearly overvalued
by most historical measures. We believe inflation will tick upwards for the year
2000, and at a quicker rate than forecast by the Federal Reserve. The reasoning
behind our forecast is that productivity can only offset wage inflation for so
long. Currently, wage inflation, as measured by the Employment Cost Index, is
growing at a faster rate than CPI. However, productivity is growing at the same
rate as wages. There is nothing inflationary about wages growing as fast as
productivity. We feel productivity will taper off after several quarters of
strong showings and wage inflation will reveal itself in the CPI numbers. We
also feel GDP growth will slow to around 3% and CPI will increase to around 3%
in early 2000 as productivity slows.
Under our forecast environment, technology shares will likely come down off
their recent highs, as investors will begin to doubt the growth assumptions
underlying their lofty valuations. When this occurs, these same investors will
likely seek solace in the shares of companies with stable, predictable earnings
growth combined with the safety of dividends, such as energy, financials and
consumer staples--all core sectors for the SM&R Equity Income Fund. While the
fund has not lived up to even our expectations for 1999, we would remind our
shareholders that the fund strives to maintain a strong dividend yield, holding
a portfolio of value stocks, maintaining low turnover-which leads to low taxes,
and stays true to its stated goal of conservative investments in stable,
dividend paying companies with the potential for share price appreciation over
time.
4
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R EQUITY
<S> <C>
INCOME FUND AT OFFERING PRICE, LIPPER EQUITY INCOME FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR 11.00%
5 YEAR 13.97%
1 YEAR (7.06)%
LIPPER EQUITY INCOME FUND
INDEX
1989 $10,000
1990 $9,489
1991 $12,021
1992 $13,192
1993 $15,150
1994 $15,011
1995 $19,487
1996 $22,990
1997 $29,235
1998 $32,679
1999 $34,053
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
Share Class Since Inception
A (7.84)%
B (9.60)%
C (5.25)%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R EQUITY
<S> <C>
INCOME FUND AT OFFERING PRICE, LIPPER EQUITY INCOME FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR
5 YEAR
1 YEAR
S&P 500
1989 $10,000
1990 $9,689
1991 $12,634
1992 $13,594
1993 $14,962
1994 $15,158
1995 $20,848
1996 $25,632
1997 $34,181
1998 $43,961
1999 $53,205
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
w/o Sales
Share Class Charge
A (3.01)%
B (4.86)%
C (3.32)%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R EQUITY
INCOME FUND AT OFFERING PRICE, LIPPER EQUITY INCOME FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR
5 YEAR
1 YEAR
SM&R EQUITY INCOME FUND
1989 $9,426
1990 $9,495
1991 $12,253
1992 $12,659
1993 $14,004
1994 $13,919
1995 $17,972
1996 $20,931
1997 $25,686
1998 $28,797
1999 $28,398
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
Share Class
A
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
</TABLE>
SM&R Equity Income Fund performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. Returns for Class A, B and C will vary from Class T as shown above
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 maximum initial sales charge for Class A and C shares
reflect the current maximum initial sales charges of 5.00% and 1.00%,
respectively. 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. A CDSC of 1.00% applies to redemption of Class C
shares only within the first thirteen months or purchase.
5
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
The SM&R Balanced Fund is the lowest risk fund in the SM&R Equity Funds. The
fund strives to maintain the objective of providing reasonable current income
and share price appreciation, while protecting the initial investment. The
fund's investment strategy is to use a balanced approach by investing in a
combination of the high-yielding stock of well-known companies, as well as bonds
and money market instruments. Throughout 1999, the fund's conservative blend of
about 60% stocks, 25% bonds and 15% money market instruments has served the fund
well. The equity portion of the fund produced a total return (capital
appreciation and dividend income) of approximately 21% while the bond portion of
the fund returned approximately (1.0)%. Combined, the fund (Class T) produced a
total return of 11.87% during 1999, before sales charges (but after other
expenses.) As a comparison, the fund's peers, as measured by the Lipper Balanced
Fund Index returned 8.98% over the same period.
Within the fund, we continued our fixed income strategy of structuring
maturities at the mid-term to long end of the yield curve. Within the equity
portion of the fund, we utilize the same conservative and defensive stock
selection disciplines used in the SM&R Equity Income and Growth Funds. The key
is identifying stocks of superior companies and purchasing them at discounted
valuations. During 1999, we noted particular strength from our equity holdings
in the technology and energy sectors. The fund benefited from the nearly market
weight of technology companies relative to the S&P 500. While this may appear to
contradict our philosophy of conservative stewardship, we feel the balanced
stock/bond approach allows us a little more latitude in sector allocation versus
say, the Equity Income Fund. In other words, the stability of the fixed income
portion allows us to increase the risk on the equity portion. Feel secure in
knowing, however, that the fund will not go to excesses seen by other funds this
year. We do not feel a market weight in technology projected unnecessary risk
into the fund and it provided for strong overall fund performance during a year
in which fixed income investing produced a negative return.
Balanced Fund investors were rewarded again in 1999 by their investment in the
fund, with a fifth consecutive year of double-digit returns. Although the fund
has not produced the spectacular returns witnessed by some equity funds over the
last year or two, we have achieved our goal of providing consistently positive
performance in the strong up market and believe the fund is well positioned
should equity markets turn downward. The conservative and low risk balanced
approach has enabled SM&R to provide upside potential while protecting the
downside via this uniquely positioned fund.
Going forward, we believe the market will remain in a relatively flat trading
range over the next several quarters as the economic fundamentals which drive
the equity markets harbor neither terribly worrisome nor exuberant information.
We maintain a cautious tilt however, as the market appears clearly overvalued by
most historical measures. We believe inflation will tick upwards for the year
2000, and at a quicker rate than forecast by the Federal Reserve. The reasoning
behind our forecast is that productivity can only offset wage inflation for so
long. Currently wage inflation, as measured by the Employment Cost Index, is
growing at a faster rate than CPI. However, productivity is growing at the same
rate as wages. There is nothing inflationary about wages growing as fast as
productivity. We feel productivity will taper off after several quarters of
strong showings and wage inflation will reveal itself in the CPI numbers. We
feel GDP growth will slow to around 3% and CPI will increase to around 3% in
early 2000 as productivity slows.
Under our forecast environment, technology shares will likely come down off
their recent highs, as investors will begin to doubt the growth assumptions
underlying their lofty valuations. When this occurs, these same investors will
likely seek solace in the shares of companies with stable, predictable earnings
growth combined with the safety of dividends, such as energy, healthcare, and
consumer staples--all core sectors for the SM&R Balanced Fund. This should
provide upside for the equity portion of the fund, while the fixed income
portion protects the overall portfolio value from sustained market corrections.
6
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R BALANCED
<S> <C>
FUND AT OFFERING PRICE, LIPPER BALANCED FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR 10.47%
5 YEAR 14.04%
1 YEAR 5.43%
LIPPER BALANCED FUND INDEX
1989 $10,000
1990 $10,066
1991 $12,665
1992 $13,610
1993 $15,238
1994 $14,926
1995 $18,643
1996 $21,077
1997 $25,356
1998 $29,182
1999 $31,797
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
Share Class Since Inception
A 4.64%
B 5.97%
C 7.39%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R BALANCED
<S> <C>
FUND AT OFFERING PRICE, LIPPER BALANCED FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR
5 YEAR
1 YEAR
S&P 500
1989 $10,000
1990 $9,689
1991 $12,634
1992 $13,594
1993 $14,962
1994 $15,158
1995 $20,848
1996 $25,632
1997 $34,181
1998 $43,961
1999 $53,205
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
w/o Sales
Share Class Charge
A 10.13%
B 11.52%
C 9.58%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
<CAPTION>
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R BALANCED
FUND AT OFFERING PRICE, LIPPER BALANCED FUND INDEX AND THE S&P 500
AVERAGE ANNUAL RETURN
INCLUDES MAXIMUM SALES CHARGE OF 5.75%
THROUGH 12/31/99 FOR CLASS T SHARES
10 YEAR
5 YEAR
1 YEAR
SM&R BALANCED FUND INDEX
1989 $9,426
1990 $9,556
1991 $11,900
1992 $12,256
1993 $13,028
1994 $13,223
1995 $16,170
1996 $18,089
1997 $21,248
1998 $24,191
1999 $27,060
Average Annual Return
Includes maximum sales charge through
12/31/99. Inception date of these classes is 01/01/99.
Share Class
A
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE AND INVESTMENTS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
</TABLE>
SM&R Balanced Fund performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions and changes in net asset value.
Returns for Class A, B and C will vary from Class T as shown above 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 maximum initial sales charge for Class A and C shares reflect the
current maximum initial sales charges of 5.00% and 1.00%, respectively. 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. A CDSC of 1.00% applies to redemption of Class C shares only within
the first thirteen months or purchase.
7
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE/DEFENSE--0.49%
Boeing Company 28,000 $ 1,163,750
AUTO & TRUCK MANUFACTURERS--1.30%
DaimlerChrysler AG 8,541 668,333
Ford Motor Company 24,800 1,325,250
General Motors Corporation 14,700 1,068,506
------------
3,062,089
AUTO PARTS MANUFACTURERS--0.30%
Dana Corporation 23,300 697,544
BANKS--4.32%
Bank of America
Corporation 40,000 2,007,500
Comerica, Incorporated 40,000 1,867,500
Morgan (J.P.) & Company 15,000 1,899,375
PNC Bank Corporation 30,000 1,335,000
U.S. Bancorp 60,700 1,445,419
Wells Fargo Company 40,000 1,617,500
------------
10,172,294
BEVERAGES--1.85%
Anheuser-Busch Companies,
Incorporated 37,000 2,622,375
Coca-Cola Company 30,000 1,747,500
------------
4,369,875
CHEMICALS--1.48%
B.F.Goodrich Company 22,400 616,000
Hercules, Incorporated 30,600 852,975
Praxair, Incorporated 40,000 2,012,500
------------
3,481,475
COMMUNICATIONS EQUIPMENT--5.87%
Lucent Technologies,
Incorporated 92,962 6,954,720
Nortel Networks
Corporation 68,000 6,868,000
------------
13,822,720
COMPUTER RELATED--11.09%
Apple Computer,
Incorporated* 24,200 2,488,063
Cisco Systems,
Incorporated* 75,000 8,034,375
EMC Corporation* 45,000 4,916,250
Sun Microsystems,
Incorporated* 138,200 10,701,862
------------
26,140,550
COMPUTER SOFTWARE--16.10%
BMC Software,
Incorporated* 80,000 6,395,000
Microsoft Corporation* 98,000 11,441,500
Novell, Incorporated* 166,000 6,629,625
VERITAS Software
Corporation* 92,400 13,224,750
ZipLink, Incorporated* 20,000 250,000
------------
37,940,875
COSMETICS & TOILETRIES--2.05%
Procter & Gamble Company 44,200 4,842,663
</TABLE>
<TABLE>
DIVERSIFIED--0.49%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
Minnesota Mining and
Manufacturing Company 11,900 $ 1,164,712
DRUGS--1.14%
Merck & Company,
Incorporated 40,000 2,682,500
ELECTRICAL EQUIPMENT--5.08%
General Electric Company 63,000 9,749,250
Solectron Corporation* 23,300 2,216,413
------------
11,965,663
EXPLORATION & DRILLING--0.96%
Global Marine,
Incorporated* 32,000 532,000
Kerr-McGee Corporation 13,000 806,000
Tidewater, Incorporated 17,000 612,000
Union Pacific Resources
Group, Incorporated 25,408 323,952
------------
2,273,952
FINANCIAL SERVICES--2.02%
American General
Corporation 20,000 1,517,500
Countrywide Credit
Industries, Incorporated 44,000 1,111,000
Morgan Stanley, Dean
Witter, Discover and
Company 15,000 2,141,250
------------
4,769,750
FOOD PRODUCERS--3.50%
Bergen Brunswig
Corporation (Class A) 82,500 685,781
IBP, Incorporated 58,000 1,044,000
Interstate Bakeries
Corporation 66,000 1,196,250
McCormick & Company,
Incorporated 58,000 1,725,500
Smithfield Foods,
Incorporated* 65,000 1,560,000
Universal Foods
Corporation 100,000 2,037,500
------------
8,249,031
FOOD RETAILERS--1.35%
Albertson's, Incorporated 40,000 1,290,000
Safeway, Incorporated* 53,000 1,884,812
------------
3,174,812
FURNITURE/APPLIANCE/TOOLS--0.85%
Black & Decker Corporation 38,200 1,995,950
HOMEBUILDING/SUPPLIES--0.29%
Centex Corporation 27,700 683,844
INSURANCE COMPANIES--4.16%
CIGNA Corporation 33,000 2,658,563
Citigroup, Incorporated 119,250 6,625,828
Conseco, Incorporated 28,800 514,800
------------
9,799,191
</TABLE>
8
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND, CONTINUED
<TABLE>
LEISURE TIME--0.54%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
Brunswick Corporation 57,000 $ 1,268,250
MEDIA-TV/RADIO/CABLE--1.63%
MediaOne Group,
Incorporated* 50,000 3,840,625
MEDICAL PRODUCTS & SUPPLIES--1.57%
Beckman Coulter,
Incorporated 18,000 915,750
Johnson & Johnson 30,000 2,793,750
------------
3,709,500
MEDICAL SERVICES--0.54%
Aetna, Incorporated 23,000 1,283,687
MANUFACTURING-DIVERSIFIED--0.73%
Tyco International LTD 44,000 1,710,500
NATURAL GAS--1.73%
Enron Corporation 92,000 4,082,500
OIL DOMESTIC--1.42%
Unocal Corporation 100,000 3,356,250
OIL INTERNATIONAL--4.41%
BP Amoco p.l.c. ADR 60,000 3,558,750
Chevron Corporation 44,000 3,811,500
Royal Dutch Petroleum
Company ADR 50,000 3,021,875
------------
10,392,125
RETAIL DISCOUNT--1.76%
Wal-Mart Stores,
Incorporated 60,000 4,147,500
RETAIL GENERAL--1.07%
Federated Department
Stores, Incorporated* 37,000 1,870,812
J. C. Penney Company,
Incorporated 33,200 661,925
------------
2,532,737
RETAIL SPECIALTY--0.86%
Group 1 Automotive,
Incorporated* 70,000 975,625
Loew's Companies,
Incorporated 17,500 1,045,625
------------
2,021,250
SEMICONDUCTORS--2.34%
Intel Corporation 67,000 5,514,938
SPECIALTY PRINTING/SERVICES--0.56%
Banta Corporation 58,000 1,308,625
STEEL--1.16%
Allegheny Technologies,
Incorporated 26,500 594,594
LTV Corporation 180,000 742,500
USX-U. S. Steel Group 42,000 1,386,000
------------
2,723,094
</TABLE>
<TABLE>
TELECOM - LONG DISTANCE--3.06%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
A T & T Corporation 62,100 $ 3,151,575
MCI WorldCom Incorporated* 76,500 4,059,281
------------
7,210,856
TELEPHONE--3.22%
Alltel Corporation 47,000 3,886,312
U S West, Incorporated New 51,365 3,698,280
------------
7,584,592
TRUCKING & SHIPPING--0.63%
USFreightways Corporation 31,000 1,484,125
------------
TOTAL COMMON STOCK--91.92%
(Cost $115,520,018) 216,624,394
------------
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT
CHEMICALS--1.68%
<S> <C> <C>
Nalco Chemical Company,
6.70%, 01/04/00 $3,968,000 3,965,783
FINANCIAL SERVICES--1.97%
Countrywide Home Loans
Incorporated, 5.25%,
01/07/00 4,009,000 4,005,492
Penn Power & Light Energy
Trust, 6.80%, 01/18/00 627,000 624,980
------------
4,630,472
FOOD PRODUCERS--1.06%
ConAgra Incorporated,
6.62%, 01/05/00 2,505,000 2,503,152
OIL SERVICES--1.51%
UOP, 7.50%, 01/06/00 3,570,000 3,566,274
UTILITY-MISCELLANEOUS--1.84%
Hawaiian Electric
Industries Incorporated,
7.50%, 01/12/00 2,384,000 2,378,532
Illinios Power Company,
4.35%, 01/03/00 1,945,000 1,944,530
------------
4,323,062
------------
TOTAL COMMERCIAL PAPER--8.06%
(Cost $18,988,743) 18,988,743
------------
TOTAL INVESTMENTS--99.98%
(Cost $134,508,761) 235,613,137
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.02% 47,166
------------
NET ASSETS--100.00% $235,660,303
============
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value $235,613,137
Cash 14,405
Prepaid Expenses 53,640
Receivable for:
Capital stock sold 12,429
Dividends 155,203
Expense reimbursement 3,974
Other assets 93,341
------------
TOTAL ASSETS 235,946,129
------------
LIABILITIES
Capital stock reacquired 146,342
Accrued:
Investment advisory fee 90,456
Service fee 41,936
Distribution fee 4,592
Other liabilities 2,500
------------
TOTAL LIABILITIES 285,826
------------
NET ASSETS (applicable to shares outstanding) $235,660,303
============
NET ASSETS:
Class A $ 3,775,728
- --------------------------------------------------------------------------
Class B $ 1,547,447
- --------------------------------------------------------------------------
Class C $ 133,707
- --------------------------------------------------------------------------
Class T $230,203,421
- --------------------------------------------------------------------------
TOTAL NET ASSETS $235,660,303
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
Outstanding 561,223
- --------------------------------------------------------------------------
Class B:
Authorized 200,000,000
Outstanding 232,236
- --------------------------------------------------------------------------
Class C:
Authorized 200,000,000
Outstanding 19,348
- --------------------------------------------------------------------------
Class T:
Authorized 100,000,000
Outstanding 34,014,863
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 6.73
Offering price per share: (Net Assets value of $6.73 /
95.00%) $ 7.08
- --------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 6.66
- --------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 6.91
Offering price per share: (Net Assets value of $6.91 /
99.00%) $ 6.98
- --------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 6.77
Offering price per share: (Net Assets value of $6.77 /
94.25%) $ 7.18
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
10
<PAGE>
STATEMENT OF OPERATIONS Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 2,294,099
Interest 409,683
-----------
TOTAL INVESTMENT INCOME 2,703,782
EXPENSES
Investment advisory fees 1,005,753
Service fees 464,872
Professional fees 33,321
Custodian and transactions fees 80,519
Directors' fees 22,657
Qualification fees 46,347
Shareholder reporting expenses 100,839
Insurance expenses 39,257
Distribution fees 9,664
-----------
NET EXPENSES 1,803,229
-----------
INVESTMENT INCOME--NET 900,553
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 10,640,352
Change in unrealized appreciation of investments for the
year 35,737,960
-----------
NET GAIN ON INVESTMENTS 46,378,312
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $47,278,865
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 900,553 $ 1,282,676
Net realized gain on investments 10,640,352 8,728,659
Change in unrealized appreciation 35,737,960 21,620,022
------------ ------------
Net increase in net assets resulting from operations 47,278,865 31,631,357
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (4,775) --
Class B -- --
Class C -- --
Class T (860,216) (1,255,603)
Capital gains
Class A (138,389) --
Class B (57,657) --
Class C (4,941) --
Class T (8,774,058) (13,647,821)
------------ ------------
Total distributions to shareholders (9,840,036) (14,903,424)
CAPITAL SHARE TRANSACTIONS--NET
Class A 3,388,463 --
Class B 1,388,166 --
Class C 115,090 --
Class T (9,779,453) 8,037,187
------------ ------------
Total net capital share transactions (4,887,734) 8,037,187
------------ ------------
TOTAL INCREASE 32,551,095 24,765,120
NET ASSETS
Beginning of year 203,109,208 178,344,088
------------ ------------
End of year $235,660,303 $203,109,208
============ ============
</TABLE>
See notes to financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
SM&R GROWTH FUND
<TABLE>
<CAPTION>
CLASS T SHARES
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 5.69 $ 5.24 $ 4.95 $ 4.39 $ 3.83
Investment income--net 0.03 0.04 0.06 0.05 0.08
Net realized and unrealized gain (loss) on
investments 1.35 0.85 1.03 0.73 0.88
-------- -------- -------- -------- --------
Total from Investment Operations 1.38 0.89 1.09 0.78 0.96
Less distributions from
Investment income--net (0.03) (0.04) (0.06) (0.05) (0.08)
Capital gains (0.27) (0.40) (0.74) (0.17) (0.32)
-------- -------- -------- -------- --------
Total Distributions (0.30) (0.44) (0.80) (0.22) (0.40)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 6.77 $ 5.69 $ 5.24 $ 4.95 $ 4.39
======== ======== ======== ======== ========
Total Return * 24.49 % 18.35 % 22.24 % 17.64 % 25.20 %
======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $230,203 $203,109 $178,344 $152,758 $134,821
Ratio of expenses to average net assets 0.87 % 0.85 % 0.96 % 1.15 % 0.98 %
Ratio of net investment income to average
net assets 0.44 % 0.69 % 1.03 % 1.02 % 1.67 %
Portfolio turnover rate 16.13 % 27.31 % 46.79 % 18.72 % 37.00 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 5.69 $ 5.69 $ 5.69
Investment income--net 0.01 0.00 0.00
Net realized and unrealized gain (loss) on investments 1.30 1.24 1.49
------ ------ ------
Total from Investment Operations 1.31 1.24 1.49
Less distributions from
Investment income--net -- -- --
Capital gains (0.27) (0.27) (0.27)
------ ------ ------
Total Distributions (0.27) (0.27) (0.27)
------ ------ ------
Net Asset Value, End of Year $ 6.73 $ 6.66 $ 6.91
====== ====== ======
Total Return * 23.45 % 22.04 % 26.44 %
====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $3,776 $1,547 $ 134
Ratio of expenses to average net assets 1.51 % 2.01 % 2.26 %
Ratio of net investment income to average net assets (0.19)% (0.69)% (0.94)%
Portfolio turnover rate 16.13 % 16.13 % 16.13 %
</TABLE>
* Does not include the effect of sales charge.
See notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE/DEFENSE--0.39%
Boeing Company 18,600 $ 773,063
AUTO & TRUCK MANUFACTURERS--3.75%
Ford Motor Company 100,381 5,364,110
General Motors Corporation 28,000 2,035,250
------------
7,399,360
AUTO PARTS MANUFACTURERS--0.35%
Dana Corporation 23,000 688,562
BANKS--6.67%
Bank of America
Corporation 60,000 3,011,250
Comerica, Incorporated 34,500 1,610,719
Morgan (J.P.) & Company 9,500 1,202,938
PNC Bank Corporation 33,400 1,486,300
U.S. Bancorp 121,400 2,890,837
Wells Fargo Company 73,500 2,972,156
------------
13,174,200
BEVERAGES--1.80%
Anheuser-Busch Companies,
Incorporated 50,000 3,543,750
CHEMICALS--2.60%
B.F. Goodrich Company 75,000 2,062,500
Hercules, Incorporated 32,600 908,725
Praxair, Incorporated 43,000 2,163,438
------------
5,134,663
DIVERSIFIED--0.39%
Minnesota Mining and
Manufacturing Company* 7,900 773,212
DRUGS--2.57%
Schering-Plough
Corporation 120,000 5,062,500
ELECTRIC POWER--1.83%
Constellation Energy Group 26,300 762,700
DTE Energy Company 65,000 2,039,375
UtiliCorp United,
Incorporated 42,000 816,375
------------
3,618,450
ELECTRONICS/INSTRUMENTS--0.67%
Raytheon Company
(Class B) 50,000 1,328,125
EXPLORATION & DRILLING--2.17%
Kerr-McGee Corporation 27,200 1,686,400
Tidewater, Incorporated 40,000 1,440,000
Transocean Sedco Forex
Incorporated* 11,616 391,314
Union Pacific Resources
Group, Incorporated 60,000 765,000
------------
4,282,714
FINANCIAL SERVICES--3.25%
Morgan Stanley, Dean
Witter, Discover and
Company 45,000 6,423,750
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
FOODS PRODUCERS--3.68%
Bergen Brunswing
Corporation (Class A) 112,500 $ 935,156
ConAgra, Incorporated 40,000 902,500
Interstate Bakeries
Corporation 73,000 1,323,125
McCormick & Company,
Incorporated 70,000 2,082,500
Universal Foods
Corporation 99,600 2,029,350
------------
7,272,631
FOODS RETAILERS--0.90%
Albertson's, Incorporated 55,000 1,773,750
FURNITURE/APPLIANCES--3.04%
Black & Decker Corporation 40,000 2,090,000
Whirlpool Corporation 60,000 3,903,750
------------
5,993,750
INSURANCE--5.22%
CIGNA Corporation 36,600 2,948,588
Citigroup, Incorporated 122,250 6,792,516
Conseco, Incorporated 31,100 555,912
------------
10,297,016
LEISURE TIME--0.71%
Brunswick Corporation 63,200 1,406,200
MACHINERY & EQUIPMENT--2.20%
Deere & Company 100,000 4,337,500
MEDICAL PRODUCTS & SUPPLIES--2.39%
Abbott Laboratories 130,000 4,720,625
METALS & MINING--1.07%
Phelps Dodge Corporation 31,500 2,114,438
NATURAL GAS--2.20%
Enron Corporation 98,000 4,348,750
OIL INTERNATIONAL--9.44%
BP Amoco p.l.c. ADR 47,110 2,794,212
Chevron Corporation 30,000 2,598,750
Exxon Corporation 40,000 3,222,500
Royal Dutch Petroleum
Company ADR 66,700 4,031,181
Schlumberger Limited 60,000 3,375,000
Texaco, Incorporated 48,000 2,607,000
------------
18,628,643
PAPER/FOREST PRODUCTS--0.69%
Glatfelter (P.H.) Company 94,000 1,368,875
PHOTOGRAPHY/IMAGING--0.60%
Xerox Corporation 52,000 1,179,750
PRINTING & PUBLISHING--0.70%
Deluxe Corporation 50,000 1,371,875
</TABLE>
13
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND, CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
REAL ESTATE/REITS--3.15%
CenterPoint Properties
Corporation 63,000 $ 2,260,125
Crescent Real Estate
Equities Company 65,000 1,194,375
Hospitality Properties
Trust 50,000 953,125
Liberty Trust Properties 75,000 1,818,750
------------
6,226,375
RETAIL GENERAL--0.67%
J. C. Penney Company,
Incorporated 66,400 1,323,850
RETAIL SPECIALTY--0.39%
Loew's Companies,
Incorporated 13,000 776,750
SPECIALTY PRINTING/SERVICES--0.72%
Banta Corporation 63,000 1,421,437
STEEL--1.56%
Allegheny Technologies,
Incorporated 30,000 673,125
LTV Corporation 200,000 825,000
USX-U. S. Steel Group 48,000 1,584,000
------------
3,082,125
TELECOM - CELLULAR--2.15%
GTE Corporation 60,000 4,233,750
TELECOM - LONG DISTANCE--2.96%
A T & T Corporation 41,400 2,101,050
MCI WorldCom Incorporated* 70,650 3,748,866
------------
5,849,916
TELEPHONE UTILITY--3.96%
Alltel Corporation 51,000 4,217,062
US West, Incorporated New 50,000 3,600,000
------------
7,817,062
TOBACCO--1.17%
Nabisco Group Holdings
Corporation 41,248 438,260
R.J. Reynolds Tobacco
Holdings, Incorporated 13,749 242,326
UST, Incorporated 65,000 1,637,187
------------
2,317,773
TRANSPORT, TRUCKING & SHIPPING--0.83%
USFreightways Corporation 34,000 1,627,750
------------
TOTAL COMMON STOCK--76.84%
(Cost $112,125,558) 151,692,940
------------
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
BEVERAGES--3.12%
Whitman Corporation,
6.60%, 01/03/00 $1,173,000 $ 1,172,568
Whitman Corporation,
7.00%, 01/21/00 5,000,000 4,980,495
------------
6,153,063
COMMUNICATION EQUIPMENT--1.09%
Cox Enterprises
Incorporated, 6.70%,
01/20/00 2,161,000 2,153,333
CONSTRUCTION--1.38%
Centex Corporation, 6.70%,
1/14/00 2,723,000 2,716,391
CONTAINERS--0.79%
Crown Cork & Seal Company,
Incorporated, 6.47%,
01/05/00 1,571,000 1,569,865
FINANCIAL SERVICES--9.10%
Countrywide Home Loans
Incorporated, 5.35%,
01/12/00 4,796,000 4,788,159
Kerr-McGee Credit
Corporation, 6.25%,
01/13/00 1,071,000 1,068,723
PS Colorado Credit
Corporation, 7.40%,
01/07/00 4,748,000 4,742,139
Penn Power & Light Energy
Trust, 6.20%, 01/18/00 2,775,000 2,766,682
SAFECO Credit Company
Incorporated, 6.00%,
02/11/00 4,632,000 4,600,337
------------
17,966,040
FOOD RETAILERS--1.49%
Safeway, Incorporated,
7.22%, 01/04/00 2,935,000 2,933,231
FURNITURE/APPLIANCES--0.34%
Maytag Corporation, 6.37%,
01/11/00 676,000 674,799
OIL SERVICES--3.40%
UOP, 7.50%, 01/06/00 6,719,000 6,711,988
RETAIL-SPECIALTY--0.10%
Mattel, Incorporated,
6.80%, 01/18/00 200,000 199,356
TRUCKING & SHIPPING--1.34%
Ryder System Incorporated,
6.40%, 01/10/00 2,649,000 2,644,732
</TABLE>
14
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND, CONTINUED
<TABLE>
UTILITY - MISCELLANEOUS--0.93%
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
Equitable Resources
Incorporated, 6.00%,
02/17/00 $1,844,000 $ 1,829,548
------------
TOTAL COMMERCIAL PAPER--23.08%
(Cost $45,552,346) 45,552,346
------------
TOTAL INVESTMENTS--99.92%
(Cost $157,677,904) 197,245,286
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.08% 163,450
------------
NET ASSETS--100.00% $197,408,736
============
ABBREVIATIONS
ADR--American Depository Receipt
REIT--Real Estate Investment Trust
*--Non-income producing securities
</TABLE>
See notes to financial statements.
15
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value $197,245,286
Cash 16,747
Prepaid Expenses 55,738
Receivable for:
Capital stock sold 2,079
Dividends 296,411
Expense reimbursement 4,578
Other assets 62,725
------------
TOTAL ASSETS 197,683,564
------------
LIABILITIES
Capital stock reacquired 107,904
Accrued:
Investment advisory fee 115,673
Service fee 37,939
Distribution fee 10,812
Other liabilities 2,500
------------
TOTAL LIABILITIES 274,828
------------
NET ASSETS (applicable to shares outstanding) $197,408,736
============
NET ASSETS:
Class A $ 4,802,233
- --------------------------------------------------------------------------
Class B $ 4,342,642
- --------------------------------------------------------------------------
Class C $ 275,457
- --------------------------------------------------------------------------
Class T $187,988,404
- --------------------------------------------------------------------------
TOTAL NET ASSETS $197,408,736
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
Outstanding 193,714
- --------------------------------------------------------------------------
Class B:
Authorized 200,000,000
Outstanding 178,102
- --------------------------------------------------------------------------
Class C:
Authorized 200,000,000
Outstanding 11,065
- --------------------------------------------------------------------------
Class T:
Authorized 50,000,000
Outstanding 7,429,380
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 24.79
Offering price per share: (Net Assets value of $24.79 /
95.00%) $ 26.09
- --------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 24.38
- --------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 24.90
Offering price per share: (Net Assets value of $24.90 /
99.00%) $ 25.15
- --------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 25.30
Offering price per share: (Net Assets value of $25.30 /
94.25%) $ 26.84
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
16
<PAGE>
STATEMENT OF OPERATIONS Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 5,104,491
Interest 1,309,618
------------
TOTAL INVESTMENT INCOME 6,414,109
EXPENSES
Investment advisory fees 1,468,951
Service fees 479,149
Professional fees 24,223
Custodian and transactions fees 81,957
Directors' fees 22,657
Qualification fees 47,892
Shareholder reporting expenses 57,593
Insurance expenses 44,628
Distribution fees 24,635
------------
NET EXPENSES 2,251,685
------------
INVESTMENT INCOME--NET 4,162,424
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 14,349,426
Change in unrealized depreciation of investments for the
year (21,207,921)
------------
NET GAIN (LOSS) ON INVESTMENTS (6,858,495)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,696,071)
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 4,162,424 $ 4,709,723
Net realized gain on investments 14,349,426 7,281,961
Change in unrealized appreciation (depreciation) (21,207,921) 11,740,055
------------ ------------
Net increase (decrease) in net assets resulting from
operations (2,696,071) 23,731,739
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (78,842) --
Class B (70,041) --
Class C (3,669) --
Class T (3,930,511) (4,712,876)
Capital gains
Class A (275,259) --
Class B (286,638) --
Class C (17,868) --
Class T (12,377,832) (10,909,343)
------------ ------------
Total distributions to shareholders (17,040,660) (15,622,219)
CAPITAL SHARE TRANSACTIONS--NET
Class A 5,364,444 --
Class B 4,939,043 --
Class C 313,991 --
Class T (12,451,982) 12,183,537
------------ ------------
Total net capital share transactions (1,834,504) 12,183,537
------------ ------------
TOTAL INCREASE (21,571,235) 20,293,057
NET ASSETS
Beginning of year 218,979,971 198,686,914
------------ ------------
End of year $197,408,736 $218,979,971
============ ============
</TABLE>
See notes to financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
SM&R EQUITY INCOME FUND
<TABLE>
<CAPTION>
CLASS T SHARES
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 28.02 $ 26.99 $ 25.05 $ 22.59 $ 18.90
Investment income--net 0.54 0.62 0.63 0.58 0.62
Net realized and unrealized gain (loss) on
investments (0.96) 2.50 4.96 3.10 4.82
-------- -------- -------- -------- --------
Total from Investment Operations (0.42) 3.12 5.59 3.68 5.44
Less distributions from
Investment income--net (0.54) (0.62) (0.64) (0.58) (0.63)
Capital gains (1.76) (1.47) (3.01) (0.64) (1.12)
-------- -------- -------- -------- --------
Total Distributions (2.30) (2.09) (3.65) (1.22) (1.75)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 25.30 $ 28.02 $ 26.99 $ 25.05 $ 22.59
======== ======== ======== ======== ========
Total Return * (1.39)% 12.11 % 22.72 % 16.46 % 29.12 %
======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $187,988 $218,980 $198,687 $165,786 $141,058
Ratio of expenses to average net assets 1.05 % 1.01 % 1.05 % 1.10 % 1.12 %
Ratio of net investment income to average
net assets 1.94 % 2.22 % 2.28 % 2.42 % 2.89 %
Portfolio turnover rate 9.81 % 19.29 % 39.14 % 27.07 % 44.00 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $28.02 $28.02 $28.02
Investment income--net 0.58 0.47 0.38
Net realized and unrealized gain (loss) on investments (1.47) (1.88) (1.36)
------ ------ ------
Total from Investment Operations (0.89) (1.41) (0.98)
Less distributions from
Investment income--net (0.58) (0.47) (0.38)
Capital gains (1.76) (1.76) (1.76)
------ ------ ------
Total Distributions (2.34) (2.23) (2.14)
------ ------ ------
Net Asset Value, End of Year $24.79 $24.38 $24.90
====== ====== ======
Total Return * (3.01)% (4.86)% (3.32)%
====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $4,802 $4,343 $ 275
Ratio of expenses to average net assets 1.51 % 2.01 % 2.26 %
Ratio of net investment income to average net assets 1.53 % 1.03 % 0.78 %
Portfolio turnover rate 9.81 % 9.81 % 9.81 %
</TABLE>
* Does not include the effect of sales charge.
See notes to financial statements.
18
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE/DEFENSE--0.28%
Boeing Company 2,200 $ 91,437
AUTO & TRUCK MANUFACTURERS--1.19%
Ford Motor Company 3,300 176,344
General Motors Corporation 3,000 218,062
-----------
394,406
AUTO PARTS MANUFACTURERS--0.19%
Dana Corporation 2,100 62,869
BANKS--2.59%
Bank of America Corporation 5,000 250,937
Comerica, Incorporated 3,750 175,078
PNC Bank Corporation 3,200 142,400
U.S. Bancorp 5,300 126,206
Wells Fargo Company 4,000 161,750
-----------
856,371
BEVERAGES--0.64%
Anheuser-Busch Companies,
Incorporated 3,000 212,625
CHEMICALS--1.03%
B.F.Goodrich Company 3,136 86,240
Hercules, Incorporated 2,800 78,050
Praxair, Incorporated 3,500 176,094
-----------
340,384
COMMUNICATIONS EQUIPMENT--2.41%
Lucent Technologies,
Incorporated 6,600 493,762
Nortel Networks Corporation 3,000 303,000
-----------
796,762
COMPUTER RELATED--7.03%
Cisco Systems, Incorporated* 6,000 642,750
EMC Corporation* 6,600 721,050
Sun Microsystems,
Incorporated* 12,400 960,225
-----------
2,324,025
COMPUTER SOFTWARE--6.40%
Microsoft Corporation* 6,700 782,225
Novell, Incorporated* 7,200 287,550
VERITAS Software
Corporation* 7,300 1,044,813
-----------
2,114,588
COSMETICS & TOILETRIES--1.96%
Procter & Gamble Company 5,900 646,419
DIVERSIFIED--0.27%
Minnesota Mining and
Manufacturing Company 900 88,087
DRUGS--2.41%
Warner-Lambert Company 9,700 794,794
</TABLE>
<TABLE>
ELECTRICAL EQUIPMENT--3.48%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
General Electric Company 5,400 $ 835,650
Solectron Corporation* 3,300 313,913
-----------
1,149,563
ELECTRIC POWER--0.75%
Allegheny Energy,
Incorporated 2,100 56,569
DTE Energy Company 4,000 125,500
UtiliCorp United,
Incorporated 3,450 67,059
-----------
249,128
EXPLORATION & DRILLING--0.85%
Global Marine, Incorporated* 2,800 46,550
Kerr-McGee Corporation 1,200 74,400
Tidewater, Incorporated 1,500 54,000
Union Pacific Resources
Group, Incorporated 8,393 107,011
-----------
281,961
FINANCIAL SERVICES--1.56%
American General Corporation 1,800 136,575
Countrywide Credit
Industries, Incorporated 6,000 151,500
Morgan Stanley, Dean Witter,
Discover and Company 1,600 228,400
-----------
516,475
FOOD PRODUCERS--1.94%
Bergen Brunswig Corporation
(Class A) 11,500 95,594
IBP, Incorporated 5,500 99,000
Interstate Bakeries
Corporation 9,000 163,125
Smithfield Foods,
Incorporated* 5,000 120,000
Universal Foods Corporation 8,000 163,000
-----------
640,719
FOOD RETAILERS--1.09%
Albertson's, Incorporated 3,100 99,975
Safeway, Incorporated* 7,300 259,606
-----------
359,581
HOMEBUILDING/SUPPLIES--0.16%
Centex Corporation 2,200 54,312
INSURANCE COMPANIES--2.72%
CIGNA Corporation 3,000 241,688
Citigroup, Incorporated 10,500 583,406
Conseco, Incorporated 4,200 75,075
-----------
900,169
LEISURE TIME--0.34%
Brunswick Corporation 5,000 111,250
MEDIA-TV/RADIO/CABLE--1.21%
MediaOne Group,
Incorporated* 5,200 399,425
</TABLE>
19
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND, CONTINUED
<TABLE>
MEDICAL PRODUCTS & SUPPLIES--1.67%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
Beckman Coulter,
Incorporated 1,700 $ 86,488
Johnson & Johnson 5,000 465,625
-----------
552,113
MEDICAL SERVICES--0.36%
Aetna, Incorporated 2,100 117,206
MANUFACTURING-DIVERSIFIED--0.67%
Tyco International LTD 5,700 221,587
NATURAL GAS--1.07%
Enron Corporation 8,000 355,000
OIL INTERNATIONAL--3.51%
BP Amoco p.l.c. ADR 5,292 313,882
Chevron Corporation 4,400 381,150
Royal Dutch Petroleum
Company ADR 7,700 465,369
-----------
1,160,401
RETAIL GENERAL--0.63%
Federated Department Stores,
Incorporated* 3,000 151,688
J. C. Penney Company,
Incorporated 2,800 55,825
-----------
207,513
RETAIL SPECIALTY--0.27%
Loew's Companies,
Incorporated 1,500 89,625
SEMICONDUCTORS--1.40%
Intel Corporation 5,600 460,950
SPECIALTY PRINTING/SERVICES--0.51%
Banta Corporation 5,500 124,094
Toys 'R' Us, Incorporated* 3,000 42,937
-----------
167,031
STEEL--0.73%
Allegheny Technologies,
Incorporated 2,000 44,875
LTV Corporation 16,000 66,000
USX-U. S. Steel Group 4,000 132,000
-----------
242,875
TELECOM - CELLULAR--0.85%
GTE Corporation 4,000 282,250
TELECOM - LONG DISTANCE--1.80%
A T & T Corporation 4,800 243,600
MCI WorldCom Incorporated* 6,600 350,213
-----------
593,813
TELEPHONE--2.26%
Alltel Corporation 4,400 363,825
US West, Incorporated New 5,342 384,624
-----------
748,449
</TABLE>
<TABLE>
TRUCKING & SHIPPING--0.39%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
USFreightways Corporation 2,700 $ 129,262
-----------
TOTAL COMMON STOCK--56.62%
(Cost $10,614,193) 18,713,425
-----------
<CAPTION>
FACE
BONDS AND NOTES AMOUNT
<S> <C> <C>
AUTO & TRUCK MANUFACTURERS--1.49%
DaimlerChrysler North
America, 7.20%, 09/01/09 $ 500,000 490,903
BANKS--1.35%
Morgan (J.P.) & Company,
Incorporated, 6.00%,
01/15/09 500,000 447,087
GOVERNMENT AGENCIES--10.37%
Federal Home Loan Mortgage
Corporation, 7.00%,
09/15/07 1,000,000 991,970
Federal Home Loan Mortgage
Corporation, Pool #302886,
8.00%, 05/01/17 16,023 16,179
Federal Home Loan Mortgage
Corporation, Pool #298759,
8.00%, 08/01/17 98,493 99,454
Federal Home Loan Mortgage
Corporation, Pool #284839,
8.50%, 01/01/17 29,627 30,371
Federal National Mortgage
Association, 7.55%,
04/22/02 685,000 698,425
Federal National Mortgage
Association, 7.70%,
04/10/07 1,500,000 1,473,305
Federal National Mortgage
Association, Pool #041669,
8.00%, 02/01/17 17,334 17,543
Federal National Mortgage
Association, Pool #48974,
8.00%, 06/01/17 99,766 101,010
-----------
3,428,257
REAL ESTATE/REITS--1.42%
Weingarten Realty Investors,
7.35%, 07/20/09 500,000 469,293
U S TREASURY SECURITIES--9.48%
U S Treasury Bond, 6.000%,
02/15/26 2,350,000 2,149,517
U S Treasury Note, 5.875%,
02/15/04 1,000,000 983,438
-----------
3,132,955
-----------
TOTAL BONDS AND NOTES--24.11%
(Cost $7,896,541) 7,968,495
-----------
</TABLE>
20
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND, CONTINUED
<TABLE>
AEROSPACE/DEFENSE--2.96%
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
Litton Industries
Incorporated, 5.50%,
01/06/00 $ 980,000 $ 979,251
BEVERAGES--2.25%
Whitman Corporation, 6.60%,
01/03/00 745,000 744,726
CHEMICALS--2.55%
Nalco Chemical Company,
6.70%, 01/04/00 842,000 841,530
FINANCIAL SERVICES--7.96%
Countrywide Home Loans
Incorporated, 5.25%,
01/07/00 1,508,000 1,506,680
Penn Power & Light Energy
Trust, 6.80%, 01/18/00 1,128,000 1,124,366
-----------
2,631,046
FOOD PRODUCERS--2.49%
ConAgra, Incorporated,
6.62%, 01/05/00 822,000 821,393
-----------
TOTAL COMMERCIAL PAPER--18.21%
(Cost $6,017,946) 6,017,946
-----------
TOTAL INVESTMENTS--98.94%
(Cost $24,528,680) 32,699,866
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.06% 349,733
-----------
NET ASSETS--100.00% $33,049,599
===========
ABBREVIATIONS
ADR--American Depository Receipt
REIT--Real Estate Investment Trust
*--Non-income producing securities
</TABLE>
See notes to financial statements.
21
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value $32,699,866
Cash 953
Prepaid Expenses 25,699
Receivable for:
Capital stock sold 162,773
Investment securities sold 1,643
Dividends 13,981
Interest 156,291
Expense reimbursement 2,940
Other assets 19,092
---------------
TOTAL ASSETS 33,083,238
---------------
LIABILITIES
Capital stock reacquired 2,500
Accrued:
Investment advisory fee 20,455
Service fee 6,818
Distribution fee 2,866
Other liabilities 1,000
---------------
TOTAL LIABILITIES 33,639
---------------
NET ASSETS (applicable to shares outstanding) $33,049,599
===============
NET ASSETS:
Class A $ 1,776,531
- -----------------------------------------------------------------------------
Class B $ 1,118,515
- -----------------------------------------------------------------------------
Class C $ 8,488
- -----------------------------------------------------------------------------
Class T $30,146,065
- -----------------------------------------------------------------------------
TOTAL NET ASSETS $33,049,599
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
Outstanding 87,511
- -----------------------------------------------------------------------------
Class B:
Authorized 200,000,000
Outstanding 54,193
- -----------------------------------------------------------------------------
Class C:
Authorized 200,000,000
Outstanding 419
- -----------------------------------------------------------------------------
Class T:
Authorized 50,000,000.000
Outstanding 1,458,601
- -----------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 20.30
Offering price per share: (Net Assets value of $20.30 /
95.00%) $ 21.37
- -----------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 20.64
- -----------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 20.25
Offering price per share: (Net Assets value of $20.25 /
99.00%) $ 20.45
- -----------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 20.67
Offering price per share: (Net Assets value of $20.67 /
94.25%) $ 21.93
- -----------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
22
<PAGE>
STATEMENT OF OPERATIONS Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 249,571
Interest 764,019
----------
TOTAL INVESTMENT INCOME 1,013,590
EXPENSES
Investment advisory fees 222,265
Service fees 74,100
Professional fees 12,100
Custodian and transactions fees 27,171
Directors' fees 22,661
Qualification fees 34,729
Shareholder reporting expenses 15,990
Insurance expenses 7,669
Distribution fees 6,054
----------
TOTAL EXPENSES 422,739
LESS EXPENSES REIMBURSED (45,768)
----------
NET EXPENSES 376,971
----------
INVESTMENT INCOME--NET 636,619
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,497,455
Change in unrealized appreciation of investments for the
year 1,358,236
----------
NET GAIN ON INVESTMENTS 2,855,691
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,492,310
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
-------------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 636,619 $ 682,321
Net realized gain on investments 1,497,455 482,000
Change in unrealized appreciation 1,358,236 2,417,733
----------- -----------
Net increase in net assets resulting from operations 3,492,310 3,582,054
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (33,803) --
Class B (17,701) --
Class C (82) --
Class T (597,705) (663,775)
Capital gains
Class A (65,054) --
Class B (39,133) --
Class C (200) --
Class T (1,121,320) (908,074)
----------- -----------
Total distributions to shareholders (1,874,998) (1,571,849)
CAPITAL SHARE TRANSACTIONS--NET
Class A 1,735,203 --
Class B 1,087,152 --
Class C 8,444 --
Class T (765,616) 1,518,827
----------- -----------
Total net capital share transactions 2,065,183 1,518,827
----------- -----------
TOTAL INCREASE 3,682,495 3,529,032
NET ASSETS
Beginning of year 29,367,104 25,838,072
----------- -----------
End of year $33,049,599 $29,367,104
=========== ===========
</TABLE>
See notes to financial statements.
23
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
SM&R BALANCED FUND
<TABLE>
<CAPTION>
CLASS T SHARES
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 19.63 $ 18.32 $ 17.90 $ 16.85 $ 14.32
Investment income--net 0.42 0.48 0.57 0.49 0.49
Net realized and unrealized gain (loss) on
investments 1.84 1.96 2.50 1.48 2.67
------- ------- ------- ------- -------
Total from Investment Operations 2.26 2.44 3.07 1.97 3.16
Less distributions from
Investment income--net (0.42) (0.47) (0.59) (0.49) (0.49)
Capital gains (0.80) (0.66) (2.06) (0.43) (0.14)
------- ------- ------- ------- -------
Total Distributions (1.22) (1.13) (2.65) (0.92) (0.63)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 20.67 $ 19.63 $ 18.32 $ 17.90 $ 16.85
======= ======= ======= ======= =======
Total Return * 11.87 % 13.83 % 17.46 % 11.86 % 22.29 %
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $30,146 $29,367 $25,838 $23,188 $21,757
Ratio of expenses with reimbursement to average
net assets 1.25 % 1.25 % 1.26 % 1.21 % 1.26 %
Ratio of expenses without reimbursement to
average net assets 1.41 % 1.37 % 1.36 % 1.34 % 1.46 %
Ratio of net investment income to average net
assets 2.15 % 2.55 % 3.02 % 2.83 % 2.99 %
Portfolio turnover rate 18.01 % 16.01 % 27.52 % 23.78 % 16.39 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $19.63 $19.63 $19.63
Investment income--net 0.47 0.40 0.41
Net realized and unrealized gain (loss) on investments 1.47 1.81 1.42
------ ------ ------
Total from Investment Operations 1.94 2.21 1.83
Less distributions from
Investment income--net (0.47) (0.40) (0.41)
Capital gains (0.80) (0.80) (0.80)
------ ------ ------
Total Distributions (1.27) (1.20) (1.21)
------ ------ ------
Net Asset Value, End of Year $20.30 $20.64 $20.25
====== ====== ======
Total Return * 10.13 % 11.52 % 9.58 %
====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $1,777 $1,119 $ 8
Ratio of expenses to average net assets 1.51 % 2.01 % 2.26 %
Ratio of net investment income to average net assets 1.87 % 1.36 % 1.13 %
Portfolio turnover rate 18.01 % 18.01 % 18.01 %
</TABLE>
* Does not include the effect of sales charge.
See notes to financial statements.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The SM&R Equity Funds (the "Funds") are diversified open-end management
investment companies registered under the Investment Company Act of 1940, as
amended. The Funds are comprised of the SM&R Growth Fund, Inc., SM&R Equity
Income Fund, Inc. and SM&R Balanced Fund, Inc. Operations commenced January 31,
1969 for the SM&R Growth Fund, May 1, 1970 for the SM&R Equity Income Fund and
November 20, 1987 for the SM&R Balanced Fund for performance and tracking
information.
The Funds have adopted a Multiple Class Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Each had a single class of shares,
and are offering five new classes as of January 1, 1999. The existing shares are
the Class T shares, and the newly offered classes are: the Class A shares
subject to an initial sales charge of up to 5.00% and a distribution and
shareholder servicing plan ("12b-1 Plan"); the Class B shares subject to a
contingent deferred sales charge and a 12b-1 Plan; the Class C shares subject to
an initial sales charge of 1.00%, a contingent deferred sales charge, and a
12b-1 Plan; the Class J shares (Network class) subject to a 12b-1 Plan, only;
and the Class Y shares (Institutional class) subject to no charges. The Class J
and Y shares have not commenced operations.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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.
Debt obligations that are issued or guaranteed by the U.S. Government, its
agencies, authorities, and instrumentalities are valued on the basis of prices
provided by an independent pricing service. 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 is stated
at amortized cost, which is equivalent to value.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date (date order to buy
or sell is executed). Dividend income is recognized on the ex-dividend date, and
interest income is recognized on an accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost for
financial reporting and federal income tax purposes.
FEDERAL INCOME TAXES:
For federal income tax purposes, each fund is treated as a separate entity. The
Funds intend to comply with requirements of the Internal Revenue Code relating
to regulated investment companies and intend 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.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering at net asset value plus a
sales charge. The Funds repurchase shares at net asset value. Dividends and
other distributions are recorded by the Funds on the ex-dividend date and may be
reinvested at net asset value.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
EXPENSES:
Distribution, qualification fees or other fees directly attributable to the
funds' class of shares are charged to that funds class operations. All other
operating expenses not directly attributable to a Funds' operations are prorated
among the Funds based on the relative amount of each Funds' net assets or
shareholders, and then allocated among the classes of that fund.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICE FEES:
Securities Management and Research, Inc. ("SM&R") is the investment advisor and
principal underwriter for the Funds. Investment advisory and service fees paid
to SM&R are computed as a percentage of the average daily net assets as follows:
<TABLE>
<CAPTION>
INVESTMENT SERVICE
NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
Not exceeding $100,000,000 0.750% 0.250%
Exceeding $100,000,000 but not exceeding $200,000,000 0.625% 0.200%
Exceeding $200,000,000 but not exceeding $300,000,000 0.500% 0.150%
Exceeding $300,000,000 0.400% 0.100%
</TABLE>
The investment advisory agreement for the Growth Fund provides for incentive
fees that will increase or decrease the basic investment advisory fee, based on
the performance of the fund in relation to a specified industry index for the
funds with similar objectives over a rolling 36-month period. For the year ended
December 31, 1999, the investment advisory fee was decreased by approximately
$417,135.
SM&R has agreed to reimburse the Funds for regular operating expenses, other
than taxes, interest, and expenses directly related to the purchase and sale of
investment securities, in excess of 1.25% per annum of the average daily net
assets. Regular operating expenses include the advisory fee and administrative
service fee, but does not include the distribution and shareholder servicing
fee.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Funds have adopted a 12b-1 Plan, with respect to the Funds' Class A shares,
Class B shares and Class C shares (the "Class A Plan, the "Class B Plan" and the
"Class C 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 Funds pay compensation for Class A shares at 0.25% per annum of the average
daily net assets, for Class B shares at 0.50% per annum of the average daily net
assets and for Class C shares at 0.75% per annum of the average daily net
assets.
The Class B and Class C Plans also permit a shareholder servicing fee of 0.25%
per annum of the average daily net assets to compensate SM&R, or enable SM&R to
compensate Service Providers, for providing ongoing servicing to shareholders of
the Funds. For the year ended December 31, 1999, the Growth Fund, Equity Income
Fund and Balanced Fund paid $5,072, $13,823 and $3,188, respectively as
compensation under the Plans.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
SALES CHARGES:
During the year ended December 31, 1999, SM&R, as principal underwriter,
received as sales charges on sale of shares of capital stock of the Funds and
made reallowances to dealers as follows:
<TABLE>
<CAPTION>
SALES SALES
CHARGES CHARGES
RECEIVED BY SM&R REALLOWED TO DEALERS
<S> <C> <C>
Growth $287,994 $5,106
Equity Income $451,011 $6,203
Balanced $ 72,599 $ 382
</TABLE>
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of December 31, 1999, SM&R and American National had
the following ownership in the Funds:
<TABLE>
<CAPTION>
SM&R AMERICAN NATIONAL
---------------------------- -----------------------------
PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING
<S> <C> <C> <C> <C>
Growth 282,179 0.81% 1,320,628 3.79%
Equity Income 19,129 0.24% -- --
Balanced 128,985 8.06% 226,482 14.15%
</TABLE>
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENTS
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investments in securities, other than
commercial paper and short-term bonds and notes, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Growth $32,394,449 $59,754,114
Equity Income $18,691,604 $59,717,314
Balanced $ 4,824,462 $ 8,033,701
</TABLE>
Gross unrealized appreciation and depreciation as of December 31, 1999, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
<S> <C> <C>
Growth $111,453,311 $10,348,935
Equity Income $ 51,528,644 $11,961,262
Balanced $ 9,343,394 $ 1,172,208
</TABLE>
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 4--CAPITAL STOCK
SM&R GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sale of capital shares:
Class T 2,035,769 $ 12,211,276 3,216,790 $ 17,622,633
Class A 588,609 3,552,451 -- --
Class B 231,719 1,382,526 -- --
Class C 26,871 160,112 -- --
Investment income dividends reinvested:
Class T 135,539 838,061 218,060 1,223,816
Class A 737 4,653 -- --
Class B -- -- -- --
Class C -- -- -- --
Distributions from net realized gains reinvested:
Class T 1,351,172 8,566,392 2,698,983 13,324,090
Class A 21,368 134,830 -- --
Class B 9,225 57,657 -- --
Class C 762 4,941 -- --
Redemptions of capital shares outstanding:
Class T (5,230,280) (31,395,182) (4,442,745) (24,133,352)
Class A (49,491) (303,471) -- --
Class B (8,708) (52,017) -- --
Class C (8,285) (49,963) -- --
---------- ------------ ---------- ------------
Net increase (decrease) in capital shares outstanding (894,993) $ (4,887,734) 1,691,088 $ 8,037,187
============ ============
Shares outstanding at beginning of year 35,722,663 34,031,575
---------- ----------
Shares outstanding at end of year 34,827,670 35,722,663
========== ==========
Net assets as of December 31, 1999, are comprised of the following:
Capital (par value and additional paid-in) $132,803,933
Undistributed net investment income 35,562
Accumulated net realized gain on investments 1,716,432
Net unrealized appreciation of investments 101,104,376
------------
Net Assets $235,660,303
============
</TABLE>
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sales of capital shares:
Class T 397,021 $ 11,261,285 1,059,139 $ 29,994,912
Class A 191,346 5,356,418 -- --
Class B 171,923 4,819,232 -- --
Class C 10,458 300,119 -- --
Investment income dividends reinvested:
Class T 138,309 3,781,416 161,711 4,549,911
Class A 3,176 78,839 -- --
Class B 2,803 68,163 -- --
Class C 147 3,669 -- --
Distributions from net realized gains reinvested:
Class T 486,492 11,987,183 -- --
Class A 11,388 275,259 -- --
Class B 12,064 286,638 -- --
Class C 737 17,868 404,882 10,559,672
Redemptions of capital shares outstanding:
Class T (1,406,392) (39,481,866) (1,172,234) (32,920,958)
Class A (12,196) (346,072) -- --
Class B (8,688) (234,990) -- --
Class C (277) (7,665) -- --
---------- ------------ ---------- ------------
Net increase (decrease) in capital shares outstanding (1,689) $ (1,834,504) 453,498 $ 12,183,537
============ ============
Shares outstanding at beginning of year 7,813,950 7,360,452
---------- ----------
Shares outstanding at end of year 7,812,261 7,813,950
========== ==========
Net assets as of December 31, 1999, are comprised of the following:
Capital (par value and additional paid-in) $156,308,955
Undistributed net investment income 79,361
Accumulated net realized gain on investments 1,453,038
Net unrealized appreciation of investments 39,567,382
------------
Net Assets $197,408,736
============
</TABLE>
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R BALANCED FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sales of capital shares:
Class T 82,302 $ 1,632,418 204,284 $ 3,794,519
Class A 85,863 1,702,510 -- --
Class B 51,561 1,034,545 -- --
Class C 406 8,177 -- --
Investment income dividends reinvested:
Class T 29,462 581,088 33,827 644,627
Class A 1,721 33,823 -- --
Class B 886 17,701 -- --
Class C 4 82 -- --
Distributions from net realized gains reinvested:
Class T 55,122 1,104,641 50,226 901,681
Class A 3,303 65,034
Class B 1,954 39,133
Class C 10 200
Redemptions of capital shares outstanding:
Class T (204,696) (4,083,763) (202,186) (3,822,000)
Class A (3,376) (66,164) -- --
Class B (208) (4,227) -- --
Class C (1) (15) -- --
--------- ----------- --------- -----------
Net increase in capital shares outstanding 104,313 $ 2,065,183 86,151 $ 1,518,827
=========== ===========
Shares outstanding at beginning of year 1,496,411 1,410,260
--------- ---------
Shares outstanding at end of year 1,600,724 1,496,411
========= =========
Net assets as of December 31, 1999, are comprised of the
following:
Capital (par value and additional paid in capital) $24,595,266
Accumulated net realized gain on investments 283,147
Net unrealized appreciation of investments 8,171,186
-----------
Net Assets $33,049,599
===========
</TABLE>
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SM&R Equity Funds
We have audited the accompanying statements of assets and liabilities of SM&R
Equity Funds (comprised of SM&R Growth Fund, Inc., SM&R Equity Income Fund, Inc.
and SM&R Balanced Fund, Inc.), including the schedule of investments as of
December 31, 1999, the related statements of operations for the year then ended,
the statements of changes in net assets for each of the two years then ended,
and the financial highlights for each of the three years in the period then
ended. These financial statements and 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. The financial highlights for each of the the two years in the period
ended December 31, 1996 were audited by other auditors whose report dated
February 7, 1997 issued an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required 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
December 31, 1999, by correspondence with the custodian. 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 SM&R
Equity Funds as of December 31, 1999, the results of their operations for the
year then ended, the changes in their net assets for each of the two years then
ended, and the financial highlights for each of the three years in the period
then ended, in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 28, 2000
31
<PAGE>
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions per share for the year ended December 31, 1999.
<TABLE>
<CAPTION>
RECORD INVESTMENT LONG-TERM SHORT-TERM
DATE INCOME CAPITAL GAIN CAPITAL GAIN
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
SM&R Growth Fund, Inc. Class T 6/23/99 $0.01300
12/14/99 $0.01280 $0.2666
SM&R Growth Fund, Inc. Class A 6/23/99 N/A
12/14/99 $0.00920 $0.2666
SM&R Growth Fund, Inc. Class B 6/23/99 N/A
12/14/99 N/A $0.2666
SM&R Growth Fund, Inc. Class C 6/23/99 N/A
12/14/99 N/A $0.2666
SM&R Equity Income Fund, Inc.
Class T 3/17/99 $0.11200
6/23/99 $0.01500
9/22/99 $0.14500
12/14/99 $0.12900 $1.7568
SM&R Equity Income Fund, Inc.
Class A 3/17/99 $0.02400
6/23/99 $0.07000
9/22/99 $0.08600
12/14/99 $0.04000 $1.7568
SM&R Equity Income Fund, Inc.
Class B 3/17/99 $0.01200
6/23/99 $0.04500
9/22/99 $0.06100
12/14/99 $0.03520 $1.7568
SM&R Equity Income Fund, Inc.
Class C 3/17/99 $0.00500
6/23/99 $0.04100
9/22/99 $0.04600
12/14/99 $0.29000 $1.7568
SM&R Balanced Fund, Inc. Class T 3/17/99 $0.10600
6/23/99 $0.11200
9/22/99 $0.10600
12/14/99 $0.09800 $0.5027 $0.3020
SM&R Balanced Fund, Inc. Class A 3/17/99 $0.02200
6/23/99 $0.04500
9/22/99 $0.07500
12/14/99 $0.32300 $0.5027 $0.3020
SM&R Balanced Fund, Inc. Class B 3/17/99 $0.01100
6/23/99 $0.03700
9/22/99 $0.06100
12/14/99 $0.29400 $0.5027 $0.3020
SM&R Balanced Fund, Inc. Class C 3/17/99 $0.04800
6/23/99 $0.05500
9/22/99 $0.04500
12/14/99 $0.26200 $0.5027 $0.3020
</TABLE>
32
<PAGE>
SM&R EQUITY FUNDS
SM&R Growth Fund, Inc.
SM&R Equity Income Fund, Inc.
SM&R Balanced Fund, Inc.
SM&R INVESTMENTS, INC.
SM&R Government Bond Fund
SM&R Tax Free Fund
SM&R Primary Fund
SM&R Money Market Fund
HOW TO REACH US:
SHAREHOLDER SERVICES
(800) 231-4639
SALES AND MARKETING
(800) 526-8346
TO REQUEST A PROSPECTUS
(800) 231-4639
FUND QUOTES AND INVESTOR HOTLINE
(877) 239-2049
VISIT OUR WEBSITE AT:
www.smrinvest.com
SM&R SECURITIES MANAGEMENT
AND RESEARCH, INC.
MANAGER & DISTRIBUTOR
---------------------
MEMBER NASD, SIPC
2450 South Shore Blvd. - Suite 400 - League City, TX 77573
(281) 334-2469
Form 9092 - 2/00
