<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SM&R GOVERNMENT BOND FUND
Bondholders experienced a breathtaking roller coaster ride over the past twelve
months. Investors who turned to bonds for safety and security instead
experienced volatility and uncertainty. Market volatility caused by economic
problems in Asia and Russia caused the collapse of the hedge fund, Long Term
Capital Management. As the hedge fund's losses mushroomed to over $4 billion, a
consortium of 14 banks and brokerage firms negotiated a bailout plan. The demise
of the little-known fund heightened concerns of a global liquidity crisis. This
spurred the Federal Reserve into making three separate 25 basis point (or 1/4
percentage point) reductions in the Fed Funds rate, the rate banks charge each
other for overnight borrowing. These events sparked a "flight to quality" as
investors sold corporate bonds and shifted into U.S. Treasury Bonds. The yield
on the 30-year Treasury bond subsequently declined to a three-decade low of
4.69% in October 1998.
Interest rates reversed course during 1999, however. The yield on the 30-year
Treasury bond rose by 100 basis points or 1 percentage point. Economic data
rather than stocks and emerging markets returned as the driving force behind
movements in interest rates. The market sentiment on expected Federal Reserve
interest rate action shifted from easing early in the year to tightening by late
in the second quarter. Concerns that a global recession could hurt U.S. economic
growth changed to worries that a global recovery could bring competition for the
foreign capital that has supported U.S. Treasury markets.
As the difference in the yields between corporate bonds and Treasury securities
increased, we took the opportunity to place approximately 35% of your portfolio
in investment grade corporate issues. The diversification and a shorter
weighted-average maturity of the fund enabled your fund (Class T) to achieve a
return of (1.27)% since the beginning of 1999 versus a return of (1.51)% for the
Lehman Government/Mortgage-Backed Securities Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SM&R GOVERNMENT BOND
FUND CLASS T AND LEHMAN BROTHERS GOVERNMENT/MORTGAGE-BACKED SECURITIES INDEX
<S> <C> <C>
Lehman Brothers SM&R
Government/Mortgage- Government Bond Fund
Backed Securities Index Class T
March 31, 1992 $10,000 $9,551
August 31, 1992 $10,711 $10,321
August 31, 1993 $11,833 $11,366
August 31, 1994 $11,671 $11,092
August 31, 1995 $12,945 $12,407
August 31, 1996 $13,484 $12,733
August 31, 1997 $14,799 $13,928
August 31, 1998 $16,411 $15,084
August 31, 1999 $16,547 $15,199
Average Annual Return
Includes maximum sales charge
through 08/31/99. Inception date
of these classes is 01/01/99.
Share Class Since Inception w/o Sales Charge
A (5.86%) (1.17%)
B (4.27%) (1.30%)
C (3.64%) (1.64%)
Average Annual Return
Includes maximum sales charge of 4.50%
through 08/31/99 for Class T shares.
Since inception 5.77%
5 year 5.54%
1 year (3.78%)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The SM&R Government Bond Fund's 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 4.75% and 1.00%,
respectively. Class B shares reflect the applicable contingent deferred sales
charge (CDSC), which is 3% in the first year, declines to 1% in the third year,
and is eliminated thereafter. A CDSC of 1.00% applies to redemption of Class C
shares only within the first thirteen months of purchase. Investor's share
prices and returns will fluctuate and shares, when redeemed, may be worth more
or less than their original cost.
1
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SM&R PRIMARY FUND
With the rapid decline and subsequent rise in long-term bond interest rates over
the past twelve months, investors who turned to short-term bonds found some
protection from the market's volatility. During the fourth quarter 1998,
investors concerns about a collapse of emerging markets and a liquidity crisis
drove long-term Treasury bond yields to a three-decade low.
Interest rates reversed course in 1999, however, as economic data rather than
stocks and emerging markets returned as the reason for movement in interest
rates. The yield on the 30-year Treasury bond rose by 100 basis points (or 1
percentage point) as Federal Reserve interest rate policy shifted from easing to
tightening. From September through November 1998, the Federal Reserve reduced
the Fed Funds rate (the rate banks charge each other for overnight loans) by 150
basis points in order to avert a worldwide liquidity crisis. In 1999, however,
concerns that a global recession could hurt U.S. economic growth changed to
worries that a global recovery could bring competition for the foreign capital
that has supported U.S. Treasury markets. In order to take a "preemptive strike"
against a rise in inflation, the Federal Reserve increased the Fed Funds rate
100 basis points, effectively "taking back" two-thirds of the interest rate
reductions of the fall.
The weighted-average maturity of 0.05 years at the beginning of 1999 provided a
great deal of price stability for your fund during this rise in interest rates.
Approximately three percent of your portfolio's net assets were invested in the
long bond (the 30-year U.S. Treasury bond) as yields topped 6.25%. Another 13
percent was invested in corporate bonds with maturities ranging from one to five
years. These bonds represent a mix of sectors, including utility, financial and
industrial. By the end of the fiscal year, August 31, 1999, the fund's
weighted-average maturity had lengthened to 1.46 years.
These changes enhanced the yield and return for your fund. The total return for
the SM&R Primary Fund from the beginning of 1999 through August 31, 1999 was
3.0% versus 1.8% for the Lehman 1-3 year Government/Corporate Bond Index. Your
fund also outpaced this index for the past 12 months, returning 4.8% versus 4.0%
for the index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SM&R PRIMARY
FUND AND LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
<S> <C> <C>
Lehman
Government/Corporate SM&R Primary Fund
Index
March 31, 1992 $10,000 $10,000
August 31, 1992 $10,495 $10,149
August 31, 1993 $11,094 $10,411
August 31, 1994 $11,292 $10,714
August 31, 1995 $12,140 $11,250
August 31, 1996 $12,781 $11,820
August 31, 1997 $13,688 $12,409
August 31, 1998 $14,681 $13,048
August 31, 1999 $15,273 $13,669
Average Annual Return
through 08/31/99. There is no initial sales
charge.
Since inception 4.28%
5 year 4.99%
1 year 4.75%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The SM&R Primary Fund's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. The SM&R Primary Fund does not have a sales charge. Average annual
returns include reinvestment of all dividends and capital gains. Investor's
share prices and returns will fluctuate and shares, when redeemed, may be worth
more or less than their original cost.
2
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SM&R TAX FREE FUND
Yields have climbed in all key sectors of the U.S. Fixed income markets in 1999.
The 30-year U.S. Treasury bond represents the extreme case with yields up
roughly 135 basis points from the lows reached in October 1998 after the Russian
debt crisis caused a worldwide flight to quality. The increase in yields in
other market sectors, including municipals, has not been nearly so dramatic
since these yields declined much less than similar maturity Treasuries.
Generally, municipal security yields are 80% to 90% of comparable Treasuries.
However, during October 1998, investors could buy AAA-rated municipal securities
at higher yields than Treasuries with the same maturity.
Municipal yields have risen 75 basis points, or 3/4 of 1%, since the beginning
of 1999. The slope of the municipal yield curve has remained extremely steep,
with 20-year municipals yielding roughly 210 basis points more than 1-year
issues. In the Treasury market, the difference between 1-year and 30-year bond
yields is only about 80 basis points.
Your fund continues to be conservatively managed, predominately invested in
general obligation and essential service revenue bonds. The weighted-average
quality rating and weighted-average maturity are approximately AA+ and 11 years,
respectively. This investment style has enabled your fund (Class T) to produce a
total return of 6.19% for the volatile interest rate environment over the last
five years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SM&R TAX FREE FUND AND LEHMAN BROTHERS MUNICIPAL INDEX
<S> <C> <C>
Lehman Brothers SM&R
Municipal Index Tax Free Fund Class T
September 9, 1993 $10,000 $9,551
August 31, 1994 $9,901 $9,412
August 31, 1995 $10,779 $10,274
August 31, 1996 $11,343 $10,806
August 31, 1997 $12,392 $11,737
August 31, 1998 $13,542 $12,744
August 31, 1999 $13,610 $12,708
Average Annual Return
Includes maximum sales charge
through 08/31/99. Inception date of
these classes is 01/01/99.
Share Class Since Inception w/o Sales Charge
A (6.99%) (2.37%)
B (5.76%) (2.85%)
C (4.68%) (2.72%)
Average Annual Return
Includes maximum sales charge of 4.50%
through 08/31/99 for Class T shares.
Since inception 4.09%
5 year 5.22%
1 year (4.75%)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The SM&R Tax Free Fund's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. Fund income from the SM&R Tax Free Fund may be subject to
alternative minimum tax. 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 4.75% and 1.00%,
respectively. Class B shares reflect the applicable contingent deferred sales
charge (CDSC), which is 3% in the first year, declines to 1% in the third year,
and is eliminated thereafter. A CDSC of 1.00% applies to redemption of Class C
shares only within the first thirteen months of purchase. Investor's share
prices and returns will fluctuate and shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT VALUE
<S> <C> <C> <C> <C>
GOVERNMENT AGENCIES--3.79%
Federal Home Loan Bank 09/10/99 4.920 $ 222,000 $ 221,724
Federal Home Loan Mortgage Corporation 09/03/99 5.170 181,000 180,948
Federal Home Loan Mortgage Corporation 10/08/99 5.120 100,000 99,472
Federal National Mortgage Association 09/27/99 5.150 119,000 118,555
Federal National Mortgage Association 10/15/99 5.130 100,000 99,371
Federal National Mortgage Association 10/25/99 5.350 169,000 167,643
-----------
TOTAL COMMERCIAL PAPER--3.79%
(Cost $887,713) 887,713
-----------
<CAPTION>
CORPORATE BONDS
AUTO & TRUCK MANUFACTURERS--4.02%
<S> <C> <C> <C> <C>
General Motors Corporation 05/01/08 6.375 1,000,000 942,172
BANKS--4.00%
Chase Manhattan Corporation 02/15/08 6.375 1,000,000 939,102
COMMUNICATION EQUIPMENT--2.22%
Tele-Communications, Incorporated 01/15/03 8.250 500,000 521,010
FINANCIAL SERVICES--17.04%
Bear Stearns Companies, Incorporated 03/30/03 6.200 175,000 169,033
CNA Financial Corporation 01/15/08 6.450 1,000,000 923,180
Household Finance Corporation 06/17/08 6.400 1,000,000 931,264
Morgan Stanley, Dean Witter & Discover 03/01/07 6.875 1,000,000 970,139
Salomon, Incorporated 03/01/00 6.500 1,000,000 1,002,653
-----------
3,996,269
MEDICAL SERVICES--4.28%
Aetna Services, Incorporated 08/15/36 6.970 1,000,000 1,004,748
-----------
TOTAL CORPORATE BONDS--31.56%
(Cost $7,814,826) 7,403,301
-----------
<CAPTION>
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--60.77%
<S> <C> <C> <C> <C>
Federal Home Loan Bank 08/05/04 7.380 1,000,000 1,031,576
Federal Home Loan Bank 08/19/04 7.570 1,000,000 1,039,798
Federal Home Loan Bank 10/25/05 6.230 150,000 146,907
Federal Home Loan Mortgage Corporation 08/01/05 6.750 165,000 165,976
Federal Home Loan Mortgage Corporation 09/15/06 7.000 162,289 163,370
Federal Home Loan Mortgage Corporation 03/15/07 7.000 861,999 864,784
Federal Home Loan Mortgage Corporation 09/15/07 7.000 1,000,000 999,420
Federal Home Loan Mortgage Corporation 08/15/08 7.000 1,600,000 1,601,600
Federal National Mortgage Association 02/11/02 7.500 1,585,000 1,627,846
Federal National Mortgage Association 04/22/02 7.550 200,000 205,891
Federal National Mortgage Association 09/12/05 6.550 100,000 99,596
Federal National Mortgage Association 02/02/07 7.500 500,000 489,126
Federal National Mortgage Association 04/10/07 7.700 300,000 296,549
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND, CONTINUED
<TABLE>
<CAPTION>
INTEREST/
U S GOVERNMENT AGENCY AND MATURITY STATED FACE
U S GOVERNMENT SECURITIES DATE RATE(%) AMOUNT VALUE
<S> <C> <C> <C> <C>
Federal National Mortgage Association 07/25/07 7.000 $1,000,000 $ 1,001,340
Federal National Mortgage Association 03/16/09 6.320 250,000 235,437
Federal National Mortgage Association 04/29/09 6.500 1,000,000 945,894
Federal National Mortgage Association 05/18/09 6.500 1,500,000 1,454,820
Federal National Mortgage Association 11/18/15 6.350 706,187 706,053
Tennessee Valley Authority 12/15/17 6.250 300,000 278,648
Vende 09/15/15 6.500 906,285 898,472
-----------
14,253,103
U S GOVERNMENT SECURITIES--2.50%
U S Treasury Bonds 02/15/26 6.000 500,000 475,312
U S Treasury Bonds 08/15/28 5.500 125,000 111,680
-----------
586,992
-----------
TOTAL U S GOVERNMENT AGENCY and U S GOVERNMENT SECURITIES--63.27%
(Cost $14,786,143) 14,840,095
-----------
TOTAL INVESTMENTS--98.62%
(Cost $23,488,682) 23,131,109
CASH AND OTHER ASSETS, LESS LIABILITIES--1.38% 324,579
-----------
TOTAL NET ASSETS--100.00% $23,455,688
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value $ 23,131,109
Cash 31,853
Prepaid expenses 22,887
Receivable from investment advisor 10,931
Receivable for:
Capital stock sold 18,571
Interest 238,602
Expense reimbursement 29,076
Other assets 2,782
------------
TOTAL ASSETS 23,485,811
------------
LIABILITIES
Capital stock reacquired 1,290
Distribution payable 4,139
Accrued:
Investment advisory fee 10,286
Service fee 5,143
Other liabilities 9,265
------------
TOTAL LIABILITIES 30,123
------------
NET ASSETS (applicable to shares outstanding) $ 23,455,688
============
NET ASSETS:
Class A $ 68,792
- --------------------------------------------------------------------------
Class B $ 7,743
- --------------------------------------------------------------------------
Class C $ 11,022
- --------------------------------------------------------------------------
Class T $ 23,368,131
- --------------------------------------------------------------------------
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 6,747
- --------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 762
- --------------------------------------------------------------------------
Class C:
Authorized 100,000,000
Outstanding 1,086
- --------------------------------------------------------------------------
Class T:
Authorized 23,000,000
Outstanding 2,313,314
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.20
Offering price per share: (Net Assets value of $10.20 /
95.25%) $ 10.71
- --------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.16
- --------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 10.15
Offering price per share: (Net Assets value of $10.15 /
99.00%) $ 10.25
- --------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.10
Offering price per share: (Net Assets value of $10.10 /
95.5%) $ 10.58
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS For Year Ended August 31, 1999
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 1,589,424
EXPENSES
Investment advisory fees 120,664
Service fees 60,332
Professional fees 12,586
Custody and transaction fees 15,707
Directors' fees 9,828
Qualification fees 17,315
Shareholder reporting expenses 28,828
Insurance expenses 2,159
Distribution Fees 86
Other 167
-----------
TOTAL EXPENSES 267,672
LESS EXPENSES REIMBURSED (25,950)
-----------
NET EXPENSES 241,722
-----------
INVESTMENT INCOME--NET 1,347,702
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 45,700
Change in unrealized depreciation of investments for the
year (1,198,180)
-----------
NET LOSS ON INVESTMENTS (1,152,480)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 195,222
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,347,702 $ 1,457,183
Net realized gain on investments 45,700 103,599
Change in unrealized appreciation (depreciation) (1,198,180) 340,609
----------- -----------
Net increase in net assets resulting from operations 195,222 1,901,391
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (651) --
Class B (209) --
Class C (131) --
Class T (1,346,738) (1,500,708)
----------- -----------
Total distributions to shareholders (1,347,729) (1,500,708)
CAPITAL SHARE TRANSACTIONS - NET
Class A 69,763 --
Class B 8,079 --
Class C 11,131 --
Class T 537,687 (102,449)
----------- -----------
Total net capital share transactions 626,660 (102,449)
----------- -----------
TOTAL INCREASE (DECREASE) (525,847) 298,234
NET ASSETS
Beginning of Year 23,981,535 23,683,301
----------- -----------
End of Year $23,455,688 $23,981,535
=========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
CLASS T SHARES
------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.60 $ 10.42 $ 10.14 $ 10.51 $ 10.07
Investment income--net 0.59 0.64 0.67 0.65 0.70
Net realized and unrealized gain (loss) on
investments (0.50) 0.20 0.26 (0.37) 0.44
------- ------- ------- ------- -------
Total from Investment Operations 0.09 0.84 0.93 0.28 1.14
Less distributions from
Investment income--net (0.59) (0.66) (0.65) (0.65) (0.70)
------- ------- ------- ------- -------
Total Distributions (0.59) (0.66) (0.65) (0.65) (0.70)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.10 $ 10.60 $ 10.42 $ 10.14 $ 10.51
======= ======= ======= ======= =======
Total Return 0.76 % 8.31 % 9.37 % 2.63 % 11.85 %
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $23,368 $23,982 $23,683 $21,127 $20,466
Ratio of expenses with reimbursement to average
net assets 1.00 % 1.00 % 1.00 % 1.00 % 0.70 %
Ratio of expenses without reimbursement to
average net assets 1.11 % 1.00 % 1.07 % 1.20 % 1.06 %
Ratio of net investment income to average net
assets 5.58 % 6.08 % 6.46 % 6.17 % 6.90 %
Portfolio turnover rate 22.86 % 32.71 % 9.06 % 30.17 % 2.20 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
AUGUST 31, AUGUST 31, AUGUST 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.62 $ 10.62 $ 10.62
Investment income--net 0.30 0.33 0.30
Net realized and unrealized gain (loss) on investments (0.42) (0.46) (0.47)
------- ------- -------
Total from Investment Operations (0.12) (0.13) (0.17)
Less distributions from
Investment income--net (0.30) (0.33) (0.30)
------- ------- -------
Total Distributions (0.30) (0.33) (0.30)
------- ------- -------
Net Asset Value, End of Period $ 10.20 $ 10.16 $ 10.15
======= ======= =======
Total Return ** (1.17)% (1.30)% (1.64)%
======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $68,792 $ 7,743 $11,022
Ratio of expenses with reimbursement to average net assets
* 1.25 % 1.75 % 2.00 %
Ratio of expenses without reimbursement to average net
assets * 1.42 % 1.77 % 2.25 %
Ratio of net investment income to average net assets * 5.25 % 4.86 % 4.54 %
Portfolio turnover rate 22.86 % 22.86 % 22.86 %
</TABLE>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
8
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
PRIMARY FUND
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
AEROSPACE/DEFENSE--4.95%
Litton Industries, Incorporated 09/16/99 5.450 $1,168,000 $ 1,165,345
Lockheed Martin Corporation 09/01/99 5.300 360,000 360,000
-----------
1,525,345
APPAREL--2.42%
VF Corporation 09/01/99 5.270 747,000 747,000
AUTO PARTS MANUFACTURERS--8.14%
Goodyear Tire & Rubber Company (The) 09/24/99 5.410 1,118,000 1,114,132
TRW Incorporated 09/23/99 5.400 1,400,000 1,395,365
-----------
2,509,497
CHEMICALS--4.84%
Engelhard Corporation 10/12/99 5.500 1,501,000 1,491,586
CONSTRUCTION--4.54%
Centex Corporation 09/03/99 5.320 1,400,000 1,399,584
CONTAINERS--3.78%
Crown Cork & Seal Company, Incorporated 09/09/99 5.320 1,169,000 1,167,613
COSMETICS/TOILETRIES--4.43%
Rite Aid Corporation 09/14/99 5.430 1,370,000 1,367,308
ELECTRIC POWER--4.56%
Public Service Company of Colorado 10/14/99 5.450 1,417,000 1,407,753
FINANCIAL SERVICES--23.10%
Case Credit 09/13/99 5.400 490,000 489,116
Comdisco Incorporated 09/08/99 5.280 1,416,000 1,414,541
Dana Corporation 09/17/99 5.440 1,393,000 1,389,631
Penney (J.C.) Company, Incorporated 09/08/99 5.320 1,309,000 1,307,641
Kerr-McGee Credit Corporation 09/07/99 5.350 1,206,000 1,204,921
Penn Power & Light Energy Trust 01/18/00 6.200 1,350,000 1,317,632
-----------
7,123,482
LODGING/HOTELS--2.97%
Marriott International, Incorporated 10/07/99 5.500 920,000 914,931
MEDICAL SERVICES--3.74%
Humana, Incorporated 09/02/99 5.350 1,154,000 1,153,827
OIL SERVICES--3.59%
UOP 09/20/99 5.500 1,110,000 1,106,778
RETAIL--SPECIALTY--7.33%
Mattel, Incorporated 10/18/99 5.470 1,047,000 1,039,508
Toys 'R' Us, Incorporated 09/15/99 5.400 1,224,000 1,221,428
-----------
2,260,936
TRUCKING & SHIPPING--4.86%
Ryder Systems, Incorporated 09/10/99 5.340 1,500,000 1,497,989
-----------
TOTAL COMMERCIAL PAPER--83.25%
(Cost $25,673,629) 25,673,629
-----------
CORPORATE BONDS
APPAREL/TEXTILES--1.61%
Hoechst Cel Corporation 02/01/04 6.125 500,000 496,587
BUILDING SUPPLIES--1.58%
Armstrong World Industries, Incorporated 08/15/03 6.350 500,000 487,611
</TABLE>
9
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
PRIMARY FUND, CONTINUED
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
CORPORATE BONDS
ELECTRIC POWER--1.58%
West Penn Power Company 06/01/04 6.375 $ 500,000 $ 485,840
ENVIRONMENTAL--1.50%
Browning-Ferris Industries, Incorporated 01/15/03 6.100 500,000 464,044
FINANCIAL SERVICES--2.40%
Finova Capital Corporation 03/15/04 6.125 500,000 482,096
Household Finance Corporation 08/15/03 6.250 265,000 257,383
-----------
739,479
LEISURE TIME/GAMING--1.27%
Carnival Cruise Lines 10/01/03 6.150 400,000 390,302
MEDIA-TV/RADIO/CABLE--1.59%
TCI Communications, Incorporated 05/01/03 6.375 500,000 491,661
TELECOM--LONG DISTANCE--1.61%
WorldCom, Incorporated 08/15/01 6.125 500,000 496,141
-----------
TOTAL CORPORATE BONDS--13.14%
(Cost $4,095,184) 4,051,665
-----------
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--0.63%
Federal Home Loan Bank 11/10/03 5.750 200,000 194,071
U S GOVERNMENT SECURITIES--2.83%
U S Treasury Bonds 02/15/29 5.250 1,000,000 873,438
-----------
TOTAL U S GOVERNMENT AGENCY and U S GOVERNMENT SECURITIES--3.46%
(Cost $1,074,991) 1,067,509
-----------
TOTAL INVESTMENTS--99.85%
(Cost $30,843,804) 30,792,803
CASH AND OTHER ASSETS, LESS LIABILITIES--0.15% 45,494
-----------
TOTAL NET ASSETS--100.00% $30,838,297
===========
</TABLE>
See notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
- --------------------------------------------------------------------------------
PRIMARY FUND
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value $30,792,803
Cash 4,596
Prepaid expenses 23,833
Receivable for:
Capital stock sold 5,209
Interest 62,950
Expense reimbursement 15,617
Other assets 2,782
-----------
TOTAL ASSETS 30,907,790
-----------
LIABILITIES
Distribution payable 10,457
Capital stock reacquired 34,995
Accrued:
Investment advisory fee 12,845
Service fee 6,423
Other liabilities 4,773
-----------
TOTAL LIABILITIES 69,493
-----------
NET ASSETS $30,838,297
===========
Shares of capital stock outstanding, (1,176,000,000 shares
authorized, $.01 par value per share) 30,907,621
===========
Net asset value $ 1.00
===========
</TABLE>
STATEMENT OF OPERATIONS For Year Ended August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest $1,816,144
EXPENSES
Investment advisory fees 167,289
Service fees 83,645
Professional fees 5,690
Custody and transaction fees 24,568
Directors' fees 9,826
Qualification fees 30,577
Shareholder reporting expenses 26,136
Insurance expenses 2,519
Other 1,286
----------
TOTAL EXPENSES 351,536
LESS EXPENSES REIMBURSED (85,317)
----------
NET EXPENSES 266,219
----------
INVESTMENT INCOME--NET 1,549,925
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (12,564)
Change in unrealized depreciation of investments for the
year (51,001)
----------
NET LOSS ON INVESTMENTS (63,565)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,486,360
==========
</TABLE>
See notes to financial statements.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
PRIMARY FUND
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,549,925 $ 1,767,808
Net realized loss on investments (12,564) --
Change in unrealized appreciation (depreciation) (51,001) --
----------- -----------
Net increase in net assets resulting from operations 1,486,360 1,767,808
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (1,549,925) (1,767,808)
CAPITAL SHARE TRANSACTIONS--NET (3,675,020) 1,532,007
----------- -----------
TOTAL INCREASE (DECREASE) (3,738,585) 1,532,007
NET ASSETS
Beginning of Year 34,576,882 33,044,875
----------- -----------
End of Year $30,838,297 $34,576,882
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
<TABLE>
<CAPTION>
CLASS T SHARES
--------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.05 0.05 0.05 0.05 0.05
------- ------- ------- ------- -------
Total from Investment Operations 0.05 0.05 0.05 0.05 0.05
Less distributions from
Investment income--net (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Total Distributions (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return 4.75 % 5.15 % 4.98 % 5.07 % 5.01 %
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $30,838 $34,577 $33,045 $37,465 $20,984
Ratio of expenses with reimbursement to average
net assets 0.80 % 0.80 % 0.80 % 0.81 % 0.84 %
Ratio of expenses without reimbursement to
average net assets 1.06 % 0.98 % 1.01 % 1.15 % 1.21 %
Ratio of net investment income to average net
assets 4.66 % 5.02 % 4.86 % 4.93 % 4.91 %
Portfolio turnover rate 30.47 % -- -- -- --
</TABLE>
See notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
TAX FREE FUND
<TABLE>
<CAPTION>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
CALIFORNIA--4.78%
Aa3/AA- California State General Obligation Bonds Unlimited 06/01/11 5.250 $ 100,000 $ 101,322
Aaa/AAA Sacramento, California Municipal Utility District Electric
Revenue Bonds, Series I 01/01/15 5.750 200,000 204,018
Aaa/AAA San Francisco, California City and County Sewer Revenue
Refunding Bonds 10/01/16 5.375 250,000 245,740
------------
551,080
------------
FLORIDA--7.79%
Aaa/AAA Dade County, Florida Water & Sewer System Revenue Bonds 10/01/16 5.375 400,000 396,232
Aaa/AAA Miami Dade County Solid Waste System Revenue Bonds 10/01/18 4.375 400,000 356,124
Aa2/AA+ State of Florida-State Board of Education, Public
Education Capital Outlay Bonds, 1992 Series E 06/01/19 5.750 145,000 145,689
------------
898,045
------------
GEORGIA--1.54%
A3/A Municipal Electric Authority of Georgia-Power Revenue
Bonds, Series AA 01/01/07 5.400 175,000 177,886
------------
ILLINOIS--13.31%
Aaa/AAA Chicago, Illinois-General Obligation Bonds Unlimited 01/01/25 5.125 100,000 90,719
Aaa/AAA Chicago, Illinois-Park District General Obligation Bonds
Unlimited, Series C 01/01/16 4.850 230,000 207,028
Aa2/AA Illinois Health Facilities Authority-Revenue Bonds,
Series A, (Northwestern Memorial Hospital) 08/15/24 6.000 100,000 100,334
Aa2/AA Illinois Health Facilities Authority-Revenue Bonds,
Series 1994A, (Northwestern Memorial Hospital) 08/15/14 6.100 200,000 204,534
Aaa/AAA Illinois State Toll Highway Authority-Highway Prioity
Revenue Bonds, Series A-FGIC 01/01/17 5.750 175,000 185,377
Aaa/AAA Regional Transportation Authority of Illinois Revenue
Bonds, Refunding MBIA 06/01/18 5.500 200,000 196,766
Aaa/NR Rockford, Illinois-General Obligation Bonds Unlimited 12/15/18 4.500 180,000 151,555
Aa2/AAA State of Illinois-Build Illinois Bonds, Sales Tax Revenue
Bonds, Series V 06/15/17 6.375 200,000 214,466
Aaa/AAA State of Illinois-General Obligation Bonds Unlimited 03/01/19 5.000 200,000 183,648
------------
1,534,427
------------
LOUISIANA--5.56%
Aaa/AAA Louisiana Public Facilities Authority Hospital Revenue
Bonds, Series C 07/01/19 5.000 400,000 362,984
Aaa/AAA New Orleans, Louisiana Sewer Service Revenue Bonds 06/01/18 5.000 300,000 278,586
------------
641,570
------------
MASSACHUSETTS--4.13%
Aaa/AAA Massachusetts State Water Revenues Authority, General
Purpose-Series A 11/01/21 5.500 450,000 475,731
------------
NEW MEXICO--0.88%
Aaa/AAA Central Consolidated School District No.22 San Juan
County, New Mexico General Obligation School Building
Bonds 08/15/09 5.300 100,000 101,423
------------
</TABLE>
13
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
TAX FREE FUND, CONTINUED
<TABLE>
<CAPTION>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
NEW YORK--7.25%
A3/A- New York City, New York-General Obligation Bonds
Unlimited, Series J 08/01/18 5.000 $ 200,000 $ 181,972
Aaa/AAA New York City, New York-General Obligation Bonds
Unlimited, Series J 02/15/07 5.000 100,000 100,989
Aa3/AA New York City, New York-Transititional Financial Authority
Revenue Bonds, Series C 05/01/19 5.000 250,000 229,997
Aa3/A+ Triborough Bridge & Tunnel Authority, New York, Revenue
Bonds, General Purpose-Series B 01/01/27 5.200 350,000 323,151
------------
836,109
------------
NORTH CAROLINA--1.79%
Aaa/AAA City of Charlotte, North Carolina-General Obligation
Public Improvement Bonds, Series 1994 02/01/08 5.700 100,000 106,563
Baa3/BBB North Carolina Eastern Municipal Power Agency-Power System
Revenue Bonds, Refunding Series 1993 B 01/01/12 6.250 100,000 100,393
------------
206,956
------------
OHIO--3.53%
Aaa/AAA Franklin County, Ohio-General Obligation Bonds Limited 12/01/08 5.100 300,000 305,844
Aaa/AAA Franklin County, Ohio-General Obligation Bonds Limited 12/01/11 5.300 100,000 101,258
------------
407,102
------------
OKLAHOMA--0.93%
Aaa/NR Oklahoma Housing Finance Agency-Single Family Mortgage
Revenue Bonds (Homeownership Loan Program), 1994
Series A-1 (b) 09/01/07 6.250 105,000 107,022
------------
OREGON--1.88%
A1/A+ City of Portland, Oregon-Sewer System Revenue Bonds, 1994
Series A 06/01/15 6.250 200,000 216,242
------------
PENNSYLVANIA--0.88%
Aa3/AA Pennsylvania State General Obligation Bonds Unlimited,
Refunding & Projects-First Series 04/15/06 5.000 100,000 101,799
------------
PUERTO RICO--2.05%
Baa1/A Commonwealth of Puerto Rico-Public Improvement Refunding
Bonds, Series 1992A, General Obligation Bonds 07/01/14 6.000 100,000 103,157
Baa1/BBB+ Puerto Rico Electric Power Authority-Power Revenue Bonds,
Series R 07/01/17 6.250 125,000 133,644
------------
236,801
------------
RHODE ISLAND--0.89%
Aa2/AA+ Rhode Island Housing & Mortgage Financial Corporation,
Homeownership Opportunity, Series 20-A 04/01/17 6.150 100,000 102,709
------------
TENNESSEE--1.75%
A1/A+ Tennessee Housing Development Agency-Mortgage Finance
Program Bonds, 1994 Series B (b) 01/01/09 6.200 200,000 202,330
------------
</TABLE>
14
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
TAX FREE FUND, CONTINUED
<TABLE>
<CAPTION>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
TEXAS--21.94%
Aaa/AAA Baytown, Texas-Water and Sewer Revenue Bonds 02/01/14 5.950 $ 100,000 $ 102,162
Aaa/AAA Board of Regents of The University of Texas
System-Permanent University Fund, Refunding Bonds
Series 1992A 07/01/13 6.250 200,000 208,118
Aaa/AAA City of Austin, Texas-Combined Utility Systems Revenue
Refunding Bonds, Series 1994 05/15/16 6.250 100,000 103,561
Aa2/AA City of Dallas, Texas-Waterworks and Sewer System Revenue
Bonds, Series 1994 04/01/07 5.600 100,000 102,562
Aaa/AAA Collin County, Texas-Community College District,
Consolidated Fund, Revenue Bonds 02/01/15 5.250 400,000 390,488
Aaa/AAA Dallas-Fort Worth International Airport-Dallas-Fort Worth
Regional Airport, Joint Revenue Refunding Bonds,
Series 1994A 11/01/10 6.000 100,000 105,146
Aaa/AAA Denton, Texas-General Obligation Bonds Limited 02/15/08 5.500 130,000 134,051
Aaa/AAA Denton, Texas-General Obligation Bonds Limited 02/15/09 5.600 120,000 123,727
Aaa/A+ Flower Mound, Texas-Refunding and Improvement, General
Obligation Bonds Unlimited 03/01/17 5.500 200,000 198,006
Aa1/AA Harris County, Texas-Tax and Revenue Certificates of
Obligation, Series 1994 10/01/12 6.100 135,000 144,585
Aa1/AA Harris County, Texas-Tax and Revenue Certificates of
Obligation, Series 1994 10/01/13 6.100 125,000 133,875
Aaa/AAA Laredo, Texas-General Obligation Bonds Unlimited 02/15/11 5.250 100,000 99,997
Aaa/AAA Mission Texas Consolidated Independent School
District-General Obligation Bonds Unlimited 02/15/18 4.500 200,000 169,564
AAA/NR Tarrant County Health Facilities Development
Corporation-Health System Revenue Bonds, (Harris
Methodist Health System), Series 1994 (c ) 09/01/14 6.000 200,000 213,218
Aaa/AAA Texas Turnpike Authority-Dallas North Tollway System
Revenue Bonds, Series 1995 (President George Bush
Turnpike) 01/01/15 5.400 100,000 98,924
Aaa/NR Weslaco, Texas Independent School District General
Obligation Bonds 02/15/13 5.650 100,000 101,301
Aaa/AAA West University Place, Texas-General Obligation Bonds
Limited, Permanent Improvement 02/01/14 5.650 100,000 100,754
------------
2,530,039
------------
UTAH--0.85%
Aa2/AA Utah Housing Finance Agency-Single Family Mortgage Bonds,
1995 Issue A, (Federally Insured or Guaranteed Mortgage
Loans) (b) 07/01/12 7.150 35,000 36,701
Aa2/NR Utah State Housing Financial Agency-Single Family Mortgage
Bonds, Series F1 07/01/13 6.000 60,000 61,355
------------
98,056
------------
VIRGINIA--0.90%
Aaa/AAA Virginia State Housing Development Authority Commonwealth
Mortgage Bonds, Series A, Subseries A-4 (b) 07/01/15 6.300 100,000 103,658
------------
</TABLE>
15
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
TAX FREE FUND, CONTINUED
<TABLE>
<CAPTION>
INTEREST/
MUNICIPAL BONDS MATURITY STATED FACE
RATING(a) DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
WASHINGTON--9.79%
Aaa/AAA City of Richland, Washington-Water and Sewer Improvement
Revenue Bonds, 1993 04/01/07 5.550 $ 300,000 $ 314,079
Aa1/AA+ King County, Washington-Department of Metropolitan
Services, Limited Tax General Obligation Bonds, 1994
Series A 01/01/08 5.800 200,000 213,580
Aa1/AA+ King County, Washington-Limited Tax General Obligation and
Refunding Bonds, 1993 Series A 12/01/10 6.000 100,000 106,212
Aaa/AAA Municipality of Metropolitan Seattle Sewer Refunding
Revenue Bonds, Series X 01/01/15 5.400 100,000 99,128
Aa1/AA+ Port of Seattle, Washington-General Obligation Bonds (b) 05/01/14 5.750 100,000 101,594
Aaa/AAA Seattle, Washington-Municipal Light & Power Revnue Bonds,
Series B 06/01/24 5.000 100,000 89,068
Aa1/AA+ State of Washington-General Obligation Bonds,
Series 1994B 05/01/09 5.750 100,000 102,996
Aa1/AA+ State of Washington-General Obligation Bonds,
Series 1994B 09/01/16 6.000 100,000 102,160
------------
1,128,817
------------
WISCONSIN--2.71%
Aa2/AA City of Green Bay-General Obligation Refunding Bonds,
Series 1994B 04/01/09 5.900 200,000 208,330
AAA/AA State of Wisconsin-General Obligation Bonds Unlimited,
Series C 05/01/09 5.400 100,000 103,869
------------
312,199
------------
TOTAL MUNICIPAL BONDS--95.13%
(Cost $10,875,591) 10,970,001
------------
<CAPTION>
COMMERCIAL PAPER
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES--0.87%
Ford Motor Credit Company 09/03/99 5.330 100,000 99,970
------------
TRANSPORTATION-MISCELLANEOUS--2.05%
Hertz Corporation 09/07/99 5.350 237,000 236,789
------------
TOTAL COMMERCIAL PAPER--2.92%
(Cost $336,759) 336,759
------------
TOTAL INVESTMENTS--98.05%
(Cost $11,212,350) 11,306,760
CASH AND OTHER ASSETS, LESS LIABILITIES--1.95% 225,440
------------
TOTAL NET ASSETS--100.00% $ 11,532,200
============
</TABLE>
Notes to Schedule of Investments
(a) Ratings assigned by Moody's Investor's Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are unaudited.
(b) Security subject to the alternative minimum tax.
(c) Issuer has defeased these bonds, collateral for such defeasance is U.S.
Government obligations.
See notes to financial statements.
16
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
- --------------------------------------------------------------------------------
TAX FREE FUND
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value $ 11,306,760
Cash 42,072
Prepaid expenses 21,993
Receivable from investment advisor 10,477
Receivable for:
Capital stock sold 750
Interest 154,335
Expense reimbursement 7,094
Other assets 3,211
------------
TOTAL ASSETS 11,546,692
------------
LIABILITIES
Distribution payable 1,504
Accrued:
Investment advisory fee 5,187
Service fee 2,528
Other liabilities 5,273
------------
TOTAL LIABILITIES 14,492
------------
NET ASSETS (applicable to shares outstanding) $ 11,532,200
============
NET ASSETS:
Class A $ 194,917
- --------------------------------------------------------------------------
Class B $ 113,143
- --------------------------------------------------------------------------
Class C $ 5,657
- --------------------------------------------------------------------------
Class T $ 11,218,483
- --------------------------------------------------------------------------
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 19,072
- --------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 11,092
- --------------------------------------------------------------------------
Class C:
Authorized 100,000,000
Outstanding 558
- --------------------------------------------------------------------------
Class T:
Authorized 21,000,000
Outstanding 1,106,222
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.22
Offering price per share: (Net Assets value of $10.22 /
95.25%) $ 10.73
- --------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.20
- --------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 10.14
Offering price per share: (Net Assets value of $10.14 /
99.00%) $ 10.24
- --------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.14
Offering price per share: (Net Assets value of $10.14 /
95.5%) $ 10.62
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
17
<PAGE>
STATEMENT OF OPERATIONS For Year Ended August 31, 1999
- --------------------------------------------------------------------------------
TAX FREE FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 613,232
EXPENSES
Investment advisory fees 57,794
Service fees 28,666
Professional fees 5,202
Custody and transaction fees 12,660
Directors' fees 9,828
Qualification fees 14,833
Shareholder reporting expenses 13,145
Insurance expenses 1,620
Distribution Fees 481
---------
TOTAL EXPENSES 144,229
LESS EXPENSES REIMBURSED (57,794)
---------
NET EXPENSES 86,435
---------
INVESTMENT INCOME--NET 526,797
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 26,918
Change in unrealized depreciation of investments for the
year (608,365)
---------
NET LOSS ON INVESTMENTS (581,447)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (54,650)
=========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 526,797 $ 491,640
Net realized gain on investments 26,918 28,603
Change in unrealized appreciation (depreciation) (608,365) 363,642
----------- -----------
Net increase (decrease) in net assets resulting from
operations (54,650) 883,885
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (2,378) --
Class B (1,020) --
Class C (333) --
Class T (523,038) (499,989)
----------- -----------
Total distributions from shareholders (526,769) (499,989)
CAPITAL SHARE TRANSACTIONS--NET
Class A 202,353 --
Class B 116,889 --
Class C 6,889 --
Class T 729,824 (26,401)
----------- -----------
Total net capital share transactions 1,055,955 (26,401)
----------- -----------
TOTAL INCREASE 474,536 357,495
NET ASSETS
Beginning of Year 11,057,664 10,700,169
----------- -----------
End of Year $11,532,200 $11,057,664
=========== ===========
</TABLE>
See notes to financial statements.
18
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
TAX FREE FUND
<TABLE>
<CAPTION>
CLASS T SHARES
------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.64 $ 10.27 $ 9.93 $ 9.95 $ 9.62
Investment income--net 0.48 0.49 0.51 0.53 0.51
Net realized and unrealized gain (loss) on
investments (0.50) 0.37 0.33 (0.02) 0.33
------- ------- ------- ------- -------
Total from Investment Operations (0.02) 0.86 0.84 0.51 0.84
Less distributions from
Investment income--net (0.48) (0.49) (0.50) (0.53) (0.51)
------- ------- ------- ------- -------
Total Distributions (0.48) (0.49) (0.50) (0.53) (0.51)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.14 $ 10.64 $ 10.27 $ 9.93 $ 9.95
======= ======= ======= ======= =======
Total Return (0.28)% 8.58 % 8.61 % 5.18 % 9.15 %
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $11,218 $11,058 $10,700 $ 9,148 $ 8,399
Ratio of expenses with reimbursement to average
net assets 0.73 % 0.75 % 0.54 % -- --
Ratio of expenses without reimbursement to
average net assets 1.23 % 1.25 % 1.27 % 1.18 % 1.25 %
Ratio of net investment income to average net
assets 4.53 % 4.60 % 4.97 % 5.27 % 5.43 %
Portfolio turnover rate 5.09 % 12.77 % 22.15 % 18.44 % 12.63 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
AUGUST 31, AUGUST 31, AUGUST 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.68 $ 10.68 $10.68
Investment income--net 0.21 0.18 0.25
Net realized and unrealized gain (loss) on investments (0.46) (0.48) (0.54)
-------- -------- ------
Total from Investment Operations (0.25) (0.30) (0.29)
Less distributions from
Investment income--net (0.21) (0.18) (0.25)
-------- -------- ------
Total Distributions (0.21) (0.18) (0.25)
-------- -------- ------
Net Asset Value, End of Period $ 10.22 $ 10.20 $10.14
======== ======== ======
Total Return** (2.37)% (2.85)% (2.72)%
======== ======== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $194,917 $113,143 $5,657
Ratio of expenses with reimbursement to average net assets * 1.51 % 2.01 % 2.28 %
Ratio of expenses without reimbursement to average net
assets * 2.02 % 2.52 % 2.78 %
Ratio of net investment income to average net assets * 3.69 % 3.20 % 2.92 %
Portfolio turnover rate 5.09 % 5.09 % 5.09 %
</TABLE>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
19
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1999
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT VALUE
<S> <C> <C> <C> <C>
CHEMICAL--SPECIALTY--5.00%
Eastman Kodak Company 09/08/99 5.30 $ 535,000 $ 534,448
ELECTRIC POWER--4.67%
Northern Indiana Public Service Company 09/16/99 5.30 500,000 498,894
FINANCIAL SERVICES--4.52%
American Honda Finance Corporation 10/06/99 5.30 485,000 482,501
GOVERNMENT AGENCIES--69.05%
Federal Agricultural Mortgage Corporation 09/02/99 5.03 553,000 552,922
Federal Home Loan Mortgage Corporation 09/01/99 5.20 300,000 300,000
Federal Home Loan Mortgage Corporation 09/09/99 5.12 1,000,000 998,860
Federal Home Loan Mortgage Corporation 09/20/99 5.01 358,000 357,050
Federal Home Loan Mortgage Corporation 10/14/99 5.20 1,040,000 1,033,534
Federal Home Loan Mortgage Corporation 10/28/99 5.11 631,000 625,873
Federal National Mortgage Association 09/15/99 5.07 804,000 802,410
Federal National Mortgage Association 09/27/99 5.15 1,175,000 1,170,621
Federal National Mortgage Association 10/25/99 5.10 1,546,000 1,534,126
-----------
7,375,396
MEDICAL PRODUCTS/SUPPLIES--4.66%
Becton Dickinson & Company 11/05/99 5.33 502,000 497,160
MEDIA-TV/RADIO/CABLE--1.72%
Walt Disney Company 09/03/99 5.25 184,000 183,946
NATURAL GAS--9.65%
Consolidated Natural Gas Company 10/15/99 5.32 500,000 496,742
Laclede Gas Company 09/14/99 5.35 535,000 533,966
-----------
1,030,708
RETAIL--DISCOUNT--2.80%
Wal-Mart Stores Incorporated 09/13/99 5.13 300,000 299,484
TRANSPORTATION--MISCELLANEOUS--3.37%
Hertz Corporation 09/07/99 5.17 360,000 359,689
-----------
TOTAL INVESTMENTS--105.44%
(Cost $11,262,226) 11,262,226
LIABILITIES IN EXCESS OF OTHER ASSETS--(5.44%) (580,745)
-----------
TOTAL NET ASSETS--100.00% $10,681,481
===========
</TABLE>
See notes to financial statements.
20
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value $11,262,226
Cash 6,548
Prepaid expenses 868
Receivable from investment advisor 10,927
Receivable for:
Interest 13
Capital stock sold 2,056
-----------
TOTAL ASSETS 11,282,638
-----------
LIABILITIES
Capital stock reacquired 588,053
Accrued:
Investment advisory fee 1,978
Service fee 1,978
Other liabilities 9,148
-----------
TOTAL LIABILITIES 601,157
-----------
NET ASSETS $10,681,481
===========
Shares of capital stock outstanding, (1,000,000,000 shares
authorized, $.01 par value per share) 10,681,481
===========
Net asset value $ 1.00
===========
</TABLE>
STATEMENT OF OPERATIONS For Period from January 1, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $152,787
EXPENSES
Investment advisory fees 7,237
Service fees 7,237
Professional fees 4,263
Custody and transaction fees 7,677
Directors' fees 6,874
Qualification fees 693
Shareholder reporting expenses 2,895
Insurance expenses 506
Other 376
--------
TOTAL EXPENSES 37,758
LESS EXPENSES REIMBURSED (22,364)
--------
NET EXPENSES 15,394
--------
INVESTMENT INCOME--NET $137,393
========
</TABLE>
See notes to financial statements.
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999
TO
AUGUST 31,
1999
----------------
<S> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 137,393
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (137,393)
CAPITAL SHARE TRANSACTIONS--NET 10,681,481
-----------
TOTAL INCREASE 10,681,481
NET ASSETS
Beginning of Period --
-----------
End of Period $10,681,481
===========
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999
TO
AUGUST 31,
----------------
1999
----------------
<S> <C>
Net Asset Value, Beginning of Period $ 1.00
Investment income--net 0.03
-------
Total from Investment Operations 0.03
Less distributions from
Investment income--net (0.03)
-------
Total Distributions (0.03)
-------
Net Asset Value, End of Period $ 1.00
=======
Total Return** 2.89 %
=======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $10,681
Ratio of expenses with reimbursement to average net assets * 0.50 %
Ratio of expenses without reimbursement to average net
assets * 1.22 %
Ratio of net investment income to average net assets * 4.45 %
</TABLE>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS August 31, 1999
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The SM&R Investments, Inc. (the "Funds"), formerly the SM&R Capital Funds, Inc.,
is a diversified open-end management investment company registered as a series
fund under the Investment Company Act of 1940, as amended. The Funds' name
change and the names of each of Funds' series became effective January 1, 1999.
The Funds are comprised of the SM&R Government Bond Fund ("Government Bond
Fund"), formerly American National Government Income Fund Series, SM&R Primary
Fund ("Primary Fund"), formerly American National Primary Fund Series, SM&R Tax
Free Fund ("Tax Free Fund"), formerly American National Tax Free Fund Series,
and SM&R Money Market Fund ("Money Market Fund"). Operations commenced
March 16, 1992, for the Government Bond Fund and Primary Fund. The Tax Free Fund
began operations September 9, 1993 and the Money Market Fund commenced
operations January 1, 1999.
The Funds adopted the Multiple Class Plan for two of the Funds' series: the
Government Bond Fund and the Tax Free Fund. 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 4.75% 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 have not commenced operations. The Primary Fund and Money Market Fund have
one class of shares, subject to no sales charge and no 12b-1 Plan.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of its 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 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 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 series 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. At December 31, 1998, the funds' tax year-end, the Government Bond
Fund and the Primary Fund had capital loss carryforwards that will expire in
2004 of approximately $267,000 and $6,000, respectively.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering and may be redeemed on any
business day.
SM&R GOVERNMENT BOND FUND
The Government Bond Fund invests primarily in the agencies or
instrumentalities of the U.S. Government. Dividends to shareholders from
net investment income are declared and paid monthly.
SM&R PRIMARY FUND
The Primary Fund's objective is to seek maximum current income consistent
with capital preservation and liquidity through investment primarily in
commercial paper. All capital stock transactions are made at net asset
value. Distributions are computed daily and distributed monthly.
SM&R TAX FREE FUND
The Tax Free Fund's objective is to provide as high a level of interest
income largely exempt from federal income taxes as is consistent with
preservation of capital through investment of at least 80% of its net
assets in tax-exempt securities during normal market conditions. Dividends
to shareholders from net investment income are declared and paid monthly.
SM&R MONEY MARKET FUND
The Money Market Fund's objective is to seek the highest current income
consistent with the stability of principal and maintenance of liquidity.
All capital stock transactions are made at net asset value. Distributions
are computed daily and distributed monthly.
EXPENSES:
Distribution and qualification fees 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 the series
based on the relative amount of each series' net assets or shareholders, and
then allocated among the classes of that series.
The organizational cost for the Money Market Fund and the Government Bond and
Tax Free Funds' Class A, Class B and Class C shares were paid by Securities
Management and Research, Inc.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES:
Securities Management and Research, Inc. ("SM&R") is the investment advisor and
principal underwriter for the Funds. Investment advisory fees paid to SM&R are
computed as a percentage of the average daily net assets as follows:
GOVERNMENT BOND FUND
TAX FREE FUND
<TABLE>
<CAPTION>
INVESTMENT
NET ASSETS ADVISORY FEE
<S> <C>
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%
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
PRIMARY FUND
<TABLE>
<S> <C>
All average daily net assets 0.50%
</TABLE>
MONEY MARKET FUND
<TABLE>
<S> <C>
All average daily net assets 0.25%
</TABLE>
ADMINISTRATIVE SERVICE FEES:
Administrative fees paid to SM&R by the Funds are computed as a percentage of
average daily net assets as follows:
<TABLE>
<CAPTION>
NET ASSETS SERVICE FEES
<S> <C>
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 agreed to reimburse the Funds for regular operating expenses in excess
of 1.25% per annum of the average daily net assets, except for the Money Market
Fund which is in excess of 0.50%. Regular operating expenses include the
advisory fee and administrative service fee, but does not include the
distribution and shareholder servicing fee. SM&R has voluntarily agreed to
reimburse the Primary Fund for regular operating expenses in excess of 0.80% per
annum of average daily net assets and the Government Bond Fund for regular
operating expenses in excess of 1.00% per annum of average daily net assets for
the year ended August 31, 1999.
SM&R has voluntarily agreed to waive investment advisory fees leaving the Tax
Free Fund responsible for all other expenses.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Funds have adopted a 12b-1 Plan, pursuant to Rule 12b-1 under the Investment
Company Act of 1940, for two of the Funds' series: the Government Bond Fund and
the Tax Free Fund, 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 eight months ended August 31, 1999, the Government Bond Fund
and Tax Free Fund paid $86 and $481, respectively as compensation under the
Plans.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
SALES CHARGES:
SM&R, as principal underwriter, received as sales charges on sales of Class T
shares, for the year ended August 31, 1999, and Class A and C shares, for the
eight months ended August 31, 1999, of capital stock of the Funds as follows:
<TABLE>
<CAPTION>
SALES
CHARGES
RECEIVED BY SM&R
<S> <C>
Government Bond Fund $11,297
Tax Free Fund $25,965
</TABLE>
For the eight months ended August 31, 1999, SM&R received $248 for contingent
deferred sales charges imposed on the redemptions of Class B and C shares of
capital stock of the Funds.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of August 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>
Government Bond 509,755 20% 698,751 30%
Primary -- -- 16,832,698 54%
Tax Free 131,508 12% 656,109 58%
Money Market 1,083,985 10% -- --
</TABLE>
The Funds pay directors' fees and expenses for all the disinterested directors
and three interested directors.
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investments in securities, other than
commercial paper, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Government Bond $5,298,670 $5,328,570
Primary $6,345,829 $1,166,228
Tax Free $1,625,640 $ 557,400
</TABLE>
Gross unrealized appreciation and depreciation as of August 31, 1999, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
------------ ------------
<S> <C> <C>
Government Bond $228,078 $585,651
Primary $ 5,182 $ 56,183
Tax Free $311,895 $217,485
</TABLE>
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 4--CAPITAL STOCK
GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1999 AUGUST 31, 1998
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sale of capital shares:
Class T 85,399 $ 902,135 107,893 $ 1,143,207
Class A 6,805 70,359 -- --
Class B 742 7,870 -- --
Class C 1,073 11,000 -- --
----------- ------------ ----------- ------------
Total sale of capital shares 94,019 991,364 107,893 1,143,207
Investment income dividends reinvested:
Class T 124,312 1,298,156 148,408 1,562,712
Class A 43 444 -- --
Class B 20 209 -- --
Class C 13 131 -- --
----------- ------------ ----------- ------------
Total investment income dividends reinvested 124,388 1,298,940 148,408 1,562,712
Redemptions of capital shares outstanding:
Class T (159,122) (1,662,604) (265,757) (2,808,368)
Class A (101) (1,040) -- --
Class B -- -- -- --
Class C -- -- -- --
----------- ------------ ----------- ------------
Total redemptions of capital shares outstanding (159,223) (1,663,644) (265,757) (2,808,368)
----------- ------------ ----------- ------------
Net increase (decrease) in capital shares outstanding 59,184 $ 626,660 (9,456) $ (102,449)
============ ============
Shares outstanding at beginning of year 2,262,725 2,272,181
----------- -----------
Shares outstanding at end of year 2,321,909 2,262,725
=========== ===========
Net assets as of August 31, 1999 are comprised of the following:
Capital (par value and additional paid-in) $ 24,037,070
Accumulated net realized loss on investments (223,809)
Net unrealized depreciation of investments (357,573)
------------
Net Assets $ 23,455,688
============
</TABLE>
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 4--CAPITAL STOCK--CONTINUED
<TABLE>
<CAPTION>
PRIMARY FUND
YEAR ENDED YEAR ENDED
AUGUST 31, 1999 AUGUST 31, 1998
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sale of capital shares 33,873,860 $ 33,873,860 35,251,969 $ 35,251,969
Investment income dividends reinvested 1,473,935 1,473,949 1,891,922 1,891,922
Redemptions of capital shares outstanding (39,022,829) (39,022,829) (35,611,884) (35,611,884)
----------- ------------ ----------- ------------
Net increase (decrease) in capital shares outstanding (3,675,034) $ (3,675,020) 1,532,007 $ 1,532,007
============ ============
Shares outstanding at beginning of year 34,582,655 33,050,648
----------- -----------
Shares outstanding at end of year 30,907,621 34,582,655
=========== ===========
Net assets as of August 31, 1999 are comprised of the following:
Capital (par value and additional paid-in) $ 30,907,617
Accumulated net realized loss on investments (18,319)
Net unrealized depreciation of investments (51,001)
------------
Net Assets $ 30,838,297
============
</TABLE>
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R INVESTMENTS, INC.
NOTE 4--CAPITAL STOCK--CONTINUED
<TABLE>
<CAPTION>
TAX FREE FUND
YEAR ENDED YEAR ENDED
AUGUST 31, 1999 AUGUST 31, 1998
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sale of capital shares:
Class T 72,514 $ 769,888 59,089 $ 621,304
Class A 19,748 209,198 -- --
Class B 11,098 116,931 -- --
Class C 2,475 26,359 -- --
----------- ------------ ----------- ------------
Total sales of capital shares 105,835 1,122,376 59,089 621,304
Investment income dividends reinvested:
Class T 48,162 507,956 51,288 536,758
Class A 226 2,345 -- --
Class B 98 1,019 -- --
Class C 32 333 -- --
----------- ------------ ----------- ------------
Total investment income dividends reinvested 48,518 511,653 51,288 536,758
Redemptions of capital shares outstanding:
Class T (53,448) (548,020) (113,023) (1,184,463)
Class A (902) (9,190) -- --
Class B (104) (1,061) -- --
Class C (1,949) (19,803) -- --
----------- ------------ ----------- ------------
Total redemptions of capital shares outstanding (56,403) (578,074) (113,023) (1,184,463)
----------- ------------ ----------- ------------
Net increase (decrease) in capital shares outstanding 97,950 $ 1,055,955 (2,646) $ (26,401)
============ ============
Shares outstanding at beginning of year 1,038,994 1,041,640
----------- -----------
Shares outstanding at end of year 1,136,944 1,038,994
=========== ===========
Net assets as of August 31, 1999 are comprised of the following:
Capital (par value and additional paid-in) $ 11,432,282
Accumulated net realized gain on investments 5,508
Net unrealized appreciation of investments 94,410
------------
Net Assets $ 11,532,200
============
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET
<S> <C> <C>
EIGHT MONTHS ENDED
AUGUST 31, 1999
-------------------------
SHARES AMOUNT
----------- -----------
Sale of capital shares 13,546,991 $13,546,991
Investment income dividends reinvested 138,407 138,407
Redemptions of capital shares outstanding (3,003,917) (3,003,917)
----------- -----------
Net increase in capital shares outstanding 10,681,481 $10,681,481
===========
Shares outstanding at beginning of period --
-----------
Shares outstanding at end of period 10,681,481
===========
Net assets as of August 31, 1999 are comprised of the following:
Capital (par value and additional paid-in) $10,681,481
-----------
Net Assets $10,681,481
===========
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SM&R Investments, Inc.
We have audited the accompanying statements of assets and liabilities of SM&R
Investments, Inc. (formerly SM&R Capital Funds, Inc.) comprised of SM&R
Government Bond Fund (formerly American National Government Income Fund Series),
SM&R Primary Fund (formerly American National Primary Fund Series), SM&R Tax
Free Fund (formerly American National Tax Free Fund Series) and SM&R Money
Market Fund, including the schedule of investments as of August 31, 1999, the
related statements of operations for the year then ended (with respect to SM&R
Money Market Fund for the period January 1, 1999 to August 31, 1999), the
statements of changes in net assets and the financial highlights for each of the
two years in the period then ended (with respect to SM&R Money Market Fund for
the period January 1, 1999 to August 31, 1999). These financial statements and
financial highlights are the responsibility of the Fund's 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 three years in the period ended August 31, 1997 were audited by other
auditors whose report dated October 10, 1997, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 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
Investments, Inc. as of August 31, 1999, the results of its operations for the
year then ended (with respect to SM&R Money Market Fund for the period
January 1, 1999 to August 31, 1999), the changes in its net assets and the
financial highlights for each of the two years in the periods then ended (with
respect to SM&R Money Market Fund for the period January 1, 1999 to August 31,
1999), in conformity with generally accepted accounting principles.
Tait, Weller & Baker, CPA
Philadelphia, Pennsylvania
October 1, 1999
30
<PAGE>
SM&R INVESTMENTS, INC. 2450 South Shore Blvd, League City, Texas 77573
- --------------------------------------------------------------------------------
DIRECTORS
Ernest S. Barratt, Ph.D.
Allan W. Matthews
Lea McLeod Matthews
Michael W. McCroskey
Ann McLeod Moody
Edwin K. Nolan
Robert V. Shattuck, Jr.
Jamie G. Williams
Frank P. Williamson
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
Terry E. Frank, Vice President and Portfolio Manager
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, CPA
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103-2108
