<PAGE> PAGE 1
000 B000000 08/31/96
000 C000000 0000881166
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
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000 I000000 3.0.a
000 J000000 U
001 A000000 SM&R CAPITAL FUNDS, INC
001 B000000 811-6477
001 C000000 4097632767
002 A000000 ONE MOODY PLAZA
002 B000000 GALVESTON
002 C000000 TX
002 D010000 77550
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 Y
007 B000000 3
077 A000000 Y
080 A00AA00 ICI MUTUAL INSURANCE COMPANY
080 C00AA00 2300
081 A00AA00 Y
081 B00AA00 7
082 A00AA00 N
082 B00AA00 0
083 A00AA00 N
083 B00AA00 0
084 A00AA00 N
084 B00AA00 0
085 A00AA00 N
085 B00AA00 N
062 A000100 Y
062 B000100 0.0
062 C000100 0.0
062 D000100 0.0
062 E000100 0.0
062 F000100 0.0
062 G000100 0.0
062 H000100 0.0
062 I000100 2.8
062 J000100 0.0
062 K000100 0.0
062 L000100 0.0
062 M000100 2.0
062 N000100 94.9
062 O000100 0.0
062 P000100 0.0
<PAGE> PAGE 2
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062 R000100 0.0
071 A000100 7412
071 B000100 6047
071 C000100 20045
071 D000100 30
072 A000100 12
074 A000100 22
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074 C000100 578
074 D000100 20482
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074 F000100 0
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074 J000100 0
074 K000100 0
074 L000100 160
074 M000100 23
074 N000100 21265
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074 P000100 14
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074 R020100 0
074 R030100 0
074 R040100 124
074 S000100 0
074 T000100 21127
074 U010100 2083
074 U020100 0
074 V010100 10.14
074 V020100 0.00
074 W000100 0.0000
074 X000100 873
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062 A000200 Y
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062 D000200 0.0
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<PAGE> PAGE 3
062 M000200 0.0
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SIGNATURE BRENDA T. KOELEMAY
TITLE VP/TREASURER
Independent Auditors Report on Internal Control and Consent
The Board of Directors
SM&R Capital Funds, Inc.
In planning and performing our audit of the financial statements of SM&R Capital
Funds, Inc. for the year ended August 31, 1996, we considered its internal
control structure, including procedures for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing our opinion on
the financial statements and to comply with the requirements of Form N-SAR, not
to provide assurance on the internal control structure.
The management of SM&R Capital Funds, Inc. is responsible for establishing and
maintaining an internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with managements authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it may
become inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
August 31, 1996.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
We consent to the use of this report in connection with the filing of the report
of SM&R Capital Funds, Inc. with the Securities and Exchange Commission on
Form N-SAR.
KPMG Peat Marwick LLP
Houston, Texas
October 11, 1996
[ARTICLE] 6
[CIK] 0000881166
[NAME] SM&R CAPITAL FUNDS, INC.
[SERIES]
[NUMBER] 01
[NAME] GOVERNMENT INCOME FUND SERIES
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1996
[PERIOD-END] AUG-31-1996
[INVESTMENTS-AT-COST] 21,122,578
[INVESTMENTS-AT-VALUE] 21,060,252
[RECEIVABLES] 159,724
[ASSETS-OTHER] 22,321
[OTHER-ITEMS-ASSETS] 22,583
[TOTAL-ASSETS] 21,264,880
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 137,415
[TOTAL-LIABILITIES] 137,415
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 21,560,404
[SHARES-COMMON-STOCK] 2,082,877
[SHARES-COMMON-PRIOR] 1,946,741
[ACCUMULATED-NII-CURRENT] 31
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (370,644)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (62,326)
[NET-ASSETS] 21,127,465
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,520,178
[OTHER-INCOME] 0
[EXPENSES-NET] 210,611
[NET-INVESTMENT-INCOME] 1,309,567
[REALIZED-GAINS-CURRENT] (17,444)
[APPREC-INCREASE-CURRENT] (741,026)
[NET-CHANGE-FROM-OPS] 551,097
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,309,536
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 254,620
[NUMBER-OF-SHARES-REDEEMED] 220,983
[SHARES-REINVESTED] 102,499
[NET-CHANGE-IN-ASSETS] 661,656
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (353,200)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 106,126
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 254,406
[AVERAGE-NET-ASSETS] 21,226,243
[PER-SHARE-NAV-BEGIN] 10.51
[PER-SHARE-NII] 0.65
[PER-SHARE-GAIN-APPREC] (0.37)
[PER-SHARE-DIVIDEND] 0.65
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.14
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1>Expenses for the calculation are net of a reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would have been 1.20% for the year ended August 31, 1996.
</FN>
</TABLE>
[ARTICLE] 6
[CIK] 0000881166
[NAME] SM&R CAPITAL FUNDS, INC.
[SERIES]
[NUMBER] 02
[NAME] PRIMARY FUND SERIES
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1996
[PERIOD-END] AUG-31-1996
[INVESTMENTS-AT-COST] 37,605,962
[INVESTMENTS-AT-VALUE] 37,605,962
[RECEIVABLES] 672
[ASSETS-OTHER] 1,996
[OTHER-ITEMS-ASSETS] 33,709
[TOTAL-ASSETS] 37,642,339
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 177,315
[TOTAL-LIABILITIES] 177,315
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 37,470,779
[SHARES-COMMON-STOCK] 37,470,797
[SHARES-COMMON-PRIOR] 20,990,035
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5,755)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 37,465,024
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,453,584
[OTHER-INCOME] 0
[EXPENSES-NET] 205,092
[NET-INVESTMENT-INCOME] 1,248,492
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 1,248,492
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,248,492
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 38,678,248
[NUMBER-OF-SHARES-REDEEMED] 23,262,832
[SHARES-REINVESTED] 1,065,346
[NET-CHANGE-IN-ASSETS] 16,480,762
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,755)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 126,371
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 291,187
[AVERAGE-NET-ASSETS] 25,303,532
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0.05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.81
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1>Expenses for the calculation are net of reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would have been 1.15% for the year ended August 31, 1996.
</FN>
</TABLE>
[ARTICLE] 6
[CIK] 0000881166
[NAME] SM&R CAPITAL FUNDS, INC.
[SERIES]
[NUMBER] 03
[NAME] TAX FREE FUND SERIES
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1996
[PERIOD-END] AUG-31-1996
[INVESTMENTS-AT-COST] 9,109,095
[INVESTMENTS-AT-VALUE] 9,133,611
[RECEIVABLES] 127,114
[ASSETS-OTHER] 33,055
[OTHER-ITEMS-ASSETS] 17,286
[TOTAL-ASSETS] 9,311,066
[PAYABLE-FOR-SECURITIES] 99,059
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 63,810
[TOTAL-LIABILITIES] 162,869
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 9,184,305
[SHARES-COMMON-STOCK] 920,950
[SHARES-COMMON-PRIOR] 844,414
[ACCUMULATED-NII-CURRENT] 2,217
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (62,841)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 24,516
[NET-ASSETS] 9,148,197
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 483,699
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 483,699
[REALIZED-GAINS-CURRENT] (11,015)
[APPREC-INCREASE-CURRENT] (30,116)
[NET-CHANGE-FROM-OPS] 442,568
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 483,700
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 119,074
[NUMBER-OF-SHARES-REDEEMED] 86,193
[SHARES-REINVESTED] 43,655
[NET-CHANGE-IN-ASSETS] 749,081
[ACCUMULATED-NII-PRIOR] 2,218
[ACCUMULATED-GAINS-PRIOR] (51,826)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 45,881
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 107,943
[AVERAGE-NET-ASSETS] 9,179,403
[PER-SHARE-NAV-BEGIN] 9.95
[PER-SHARE-NII] 0.53
[PER-SHARE-GAIN-APPREC] (0.02)
[PER-SHARE-DIVIDEND] 0.53
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.93
[EXPENSE-RATIO] 0<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Expenses for the calculation are net of reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would have been 1.18% for the year ended August 31, 1996.
</FN>
</TABLE>
