<PAGE>
Securities Management & Research, Inc.
One Moody Plaza
Galveston, TX 77550
FIRST CLASS
U.S. POSTAGE
PAID
PERMIT NO. 89
GALVESTON, TEXAS
[LOGO]
GOVERNMENT
INCOME FUND
PRIMARY
FUND
TAX FREE
FUND
FEBRUARY 28, 1998
FORM 9202
<PAGE>
SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
FOODS--0.84%
Quaker Oats Company 03/03/98 5.70 $ 200,000 $ 199,937
UTILITY-ELECTRIC--0.71%
Indiana Michigan Power Company 03/04/98 5.85 170,000 169,917
------------
TOTAL COMMERCIAL PAPER--1.55%
(COST $369,854) 369,854
------------
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--95.88%
Federal Home Loan Bank 08/05/04 7.38 1,000,000 1,084,230
Federal Home Loan Bank 08/19/04 7.57 1,000,000 1,094,810
Federal Home Loan Bank 10/25/05 6.23 150,000 153,552
Federal Home Loan Mortgage Corporation 07/27/04 7.81 1,000,000 1,025,940
Federal Home Loan Mortgage Corporation 08/01/05 6.75 165,000 173,920
Federal Home Loan Mortgage Corporation 08/03/05 7.46 250,000 251,092
Federal Home Loan Mortgage Corporation 05/17/06 7.70 1,000,000 1,021,140
Federal Home Loan Mortgage Corporation 06/21/06 8.00 1,500,000 1,540,815
Federal Home Loan Mortgage Corporation 09/11/06 8.00 1,000,000 1,009,120
Federal Home Loan Mortgage Corporation 09/15/06 7.00 356,792 360,981
Federal Home Loan Mortgage Corporation 11/15/06 7.00 1,500,000 1,522,575
Federal Home Loan Mortgage Corporation 03/15/07 7.00 1,000,000 1,015,740
Federal Home Loan Mortgage Corporation 09/15/07 7.00 1,000,000 1,023,450
Federal Home Loan Mortgage Corporation 08/15/08 7.00 1,600,000 1,638,784
Federal National Mortgage Association 02/11/02 7.50 1,585,000 1,682,081
Federal National Mortgage Association 04/22/02 7.55 200,000 213,072
Federal National Mortgage Association 09/12/05 6.55 100,000 104,272
Federal National Mortgage Association 06/07/06 7.85 1,000,000 1,012,050
Federal National Mortgage Association 07/14/06 8.03 2,000,000 2,057,820
Federal National Mortgage Association 08/11/06 7.50 500,000 511,415
Federal National Mortgage Association 09/08/06 8.00 1,000,000 1,008,990
Federal National Mortgage Association 02/02/07 7.50 1,500,000 1,541,955
Federal National Mortgage Association 02/07/07 7.49 250,000 256,952
Federal National Mortgage Association 04/10/07 7.70 300,000 310,458
Federal National Mortgage Association 07/25/07 7.00 1,000,000 1,011,580
Tennesse Valley Authority 12/15/17 6.25 300,000 303,375
------------
22,930,169
U S GOVERNMENT SECURITIES--2.09%
U S Treasury Bonds 02/15/26 6.00 500,000 499,980
------------
TOTAL U S GOVERNMENT AGENCY and U S GOVERNMENT SECURITIES--97.97%
(COST $22,596,476) 23,430,149
------------
TOTAL INVESTMENTS--99.52%
(COST $22,966,330) 23,800,003
CASH AND OTHER ASSETS, LESS LIABILITIES--0.48% 114,702
------------
TOTAL NET ASSETS--100.00% $ 23,914,705
------------
------------
</TABLE>
See notes to financial statements.
1
<PAGE>
SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
AEROSPACE--1.06%
Lockheed Martin Corporation 03/26/98 5.64 $ 347,000 $ 345,641
AUTO & TRUCKS--3.85%
Hertz Corporation 03/19/98 5.49 1,257,000 1,253,550
AUTO PARTS MANUFACTURES--4.68%
Cummins Engines Company, Incorporated 03/18/98 5.60 1,530,000 1,525,954
CHEMICALS--8.14%
Hercules Incorporated 03/27/98 5.62 1,159,000 1,154,296
Praxair Incorporated 03/02/98 5.57 1,500,000 1,499,768
-----------
2,654,064
COAL, GAS & PIPELINE--3.39%
Entech Incorporated 04/01/98 5.72 1,108,000 1,102,542
CONTAINERS--3.10%
Crown Cork & Seal Company, Incorporated 03/06/98 5.62 1,011,000 1,010,211
DIVERSIFIED--8.26%
Growmark, Incorporated 03/23/98 5.65 1,372,000 1,367,263
Textron, Incorporated 04/09/98 5.53 1,333,000 1,324,927
-----------
2,692,190
ELECTRICAL POWER--3.81%
Pennsylvania Power & Light Energy Trust 03/04/98 5.60 1,242,000 1,241,420
FINANCIAL SERVICES--7.49%
Aristar, Incorporated 03/05/98 5.51 1,045,000 1,044,360
Textron Financial Corporation 03/25/98 5.65 1,400,000 1,394,727
-----------
2,439,087
NATURAL GAS--9.21%
Enron Corporation 03/31/98 5.57 1,612,000 1,604,518
Sonat Incorporated 03/12/98 5.58 1,398,000 1,395,616
-----------
3,000,134
OIL DOMESTIC--3.89%
Occidental Petroleum Corporation 03/30/98 5.70 1,273,000 1,267,155
PAPER/FOREST PRODUCTS--7.69%
Champion International Corporation 04/02/98 5.68 1,397,000 1,389,947
Potlatch Corporation 03/17/98 5.54 1,117,000 1,114,250
-----------
2,504,197
RETAIL-GENERAL--4.76%
Dayton Hudson Corporation 03/09/98 5.58 1,552,000 1,550,075
RETAIL-SPECIALTY--8.54%
The Limited, Incorporated 03/24/98 5.57 1,591,000 1,585,338
Rite Aid Corporation 03/20/98 5.55 1,200,000 1,196,485
-----------
2,781,823
TELCOMM-LONG DISTANCE--3.58%
COMSAT Corporation 03/16/98 5.63 1,169,000 1,166,258
UTILITY-ELECTRIC/GAS/TELEPHONE--19.07%
Central & South West Corporation 03/11/98 5.65 1,154,000 1,152,189
GTE Corporation 03/13/98 5.53 1,298,000 1,295,607
Hawaiian Electric Industries Incorporated 03/03/98 5.62 1,118,000 1,117,651
Illinois Power Company 03/10/98 5.60 1,461,000 1,458,954
Public Service Electric & Gas Company 03/26/98 5.60 1,193,000 1,188,361
-----------
6,212,762
-----------
TOTAL INVESTMENTS--100.52%
(Cost $32,747,063) 32,747,063
CASH AND OTHER ASSETS, LESS LIABILITIES--(0.52%) (168,772)
-----------
TOTAL NET ASSETS--100.00% $32,578,291
-----------
-----------
</TABLE>
See notes to financial statements.
2
<PAGE>
SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
ARIZONA--2.92%
Aaa/AAA Central Arizona Water
Conservation District
(Central Arizona
Project)-Contract
Revenue Refunding Bonds,
Series B 1994, 4.750%,
11/01/07 $ 200,000 $ 205,860
Aaa/AAA Central Arizona Water
Conservation District
(Central Arizona
Project)-Contract
Revenue Refunding Bonds,
Series B 1994, 4.750%,
11/01/08 100,000 102,238
----------
308,098
----------
CALIFORNIA--5.42%
A1/A+ California State General
Obligation Bonds
Unlimited, 5.250%,
06/01/11 100,000 104,334
Aaa/AAA Sacramento, California
Municipal Utility
District Electric
Revenue Bonds, Series I,
5.750%, 01/01/15 200,000 213,092
Aaa/AAA San Francisco, California
City and County Sewer
Revenue Refunding Bonds,
5.375%, 10/01/16 250,000 254,498
----------
571,924
----------
FLORIDA--9.08%
Aaa/AAA Dade County, Florida
Water & Sewer System
Revenue Bonds, 5.375%,
10/01/16 400,000 411,992
Aa1/AA Orlando, Florida
Utilities Commonwealth
Water & Electric Revenue
Bonds, 5.125%, 10/01/19 400,000 395,092
Aa2/AA+ State of Florida-State
Board of Education,
Public Education Capital
Outlay Bonds, 1992
Series E, 5.750%,
06/01/19 145,000 151,721
----------
958,805
----------
GEORGIA--1.74%
A3/A Municipal Electric
Authority of
Georgia-Power Revenue
Bonds, Series AA,
5.400%, 01/01/07 175,000 183,234
----------
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
ILLINOIS--8.84%
Aa2/AA Illinois Health
Facilities
Authority-Revenue Bonds,
Series A, (Northwestern
Memorial Hospital),
6.000%, 08/15/24 $ 100,000 $ 106,619
Aa2/AA Illinois Health
Facilities
Authority-Revenue Bonds,
Series 1994A,
(Northwestern Memorial
Hospital), 6.100%,
08/15/14 200,000 216,434
Aaa/AAA Illinois State Toll
Highway
Authority-Highway
Priority Revenue Bonds,
Series A-FGIC, 5.750%,
01/01/17 175,000 181,898
Aaa/AAA Regional Transportation
Authority of Illinois
Revenue Bonds, Refunding
MBIA, 5.500%, 06/01/18 200,000 205,532
Aa3/AAA State of Illinois-Build
Illinois Bonds, Sales
Tax Revenue Bonds,
Series V, 6.375%,
06/15/17 200,000 222,806
----------
933,289
----------
MARYLAND--0.97%
Aa/AA+ Anne Arundel County,
Maryland-General
Obligation Bonds,
Consolidated Water and
Sewer Series, 1994,
4.700%, 02/01/07 100,000 102,390
----------
MASSACHUSETTS--4.41%
Aaa/AAA Massachusetts State Water
Revnues Authority,
General Purpose-Series
A, 5.500%, 11/01/21 450,000 465,021
----------
NEW MEXICO--0.99%
Aaa/AAA Central Consolidated
School District No. 22
San Juan County, New
Mexico General
Obligation School
Building Bonds, 5.300%,
08/15/09 100,000 104,508
----------
</TABLE>
3
<PAGE>
SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
NEW YORK--4.30%
Aaa/AAA New York City, New York-
General Obligation Bonds
Unlimited, Series J,
5.000%, 02/15/07 $ 100,000 $ 104,104
Aa3/A+ Triborough Bridge &
Tunnel Authority, New
York, Revenue Bonds,
General Purpose-Series
B, 5.200%, 01/01/27 350,000 349,975
----------
454,079
----------
NORTH CAROLINA--2.03%
Aaa/AAA City of Charlotte, North
Carolina-General
Obligation Public
Improvement Bonds,
Series 1994, 5.700%,
02/01/08 100,000 108,424
Baa1/BBB North Carolina Eastern
Municipal Power Agency-
Power System Revenue
Bonds, Refunding Series
1993 B, 6.250%, 01/01/12 100,000 105,915
----------
214,339
----------
OHIO--3.99%
Aaa/AAA Franklin County,
Ohio-General Obligation
Bonds Limited, 5.100%,
12/01/08 300,000 316,500
Aaa/AAA Franklin County,
Ohio-General Obligation
Bonds Limited, 5.300%,
12/01/11 100,000 104,870
----------
421,370
----------
OKLAHOMA--1.27%
Aaa/NR Oklahoma Housing Finance
Agency-Single Family
Mortgage Revenue Bonds
(Homeownership Loan
Program), 1994 Series
A-1, 6.250%, 09/01/07
(b) 130,000 134,502
----------
OREGON--2.11%
A1/A+ City of Portland,
Oregon-Sewer System
Revenue Bonds, 1994
Series A, 6.250%,
06/01/15 200,000 223,074
----------
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
PENNSYLVANIA--0.99%
Aa3/AA- Pennsylvania State
General Obligation Bonds
Unlimited, Refunding &
Projects-First Series,
5.000%, 04/15/06 $ 100,000 $ 104,159
----------
PUERTO RICO--2.29%
Baa1/A Commonwealth of Puerto
Rico-Public Improvement
Refunding Bonds, Series
1992A, General
Obligation Bonds,
6.000%, 07/01/14 100,000 106,884
Baa1/BBB+ Puerto Rico Electric
Power Authority-Power
Revenue Bonds, Series R,
6.250%, 07/01/17 125,000 134,516
----------
241,400
----------
RHODE ISLAND--1.00%
Aa2/AA+ Rhode Island Housing &
Mortgage Financial
Corporation,
Homeownership
Opportunity, Series
20-A, 6.150%, 04/01/17 100,000 105,839
----------
TENNESSEE--1.94%
A1/A+ Tennessee Housing
Development Agency-
Mortgage Finance Program
Bonds, 1994 Series B,
6.200%, 01/01/09 (b) 200,000 204,976
----------
TEXAS--24.23%
Aaa/AAA Baytown, Texas-Water and
Sewer Revenue Bonds,
5.950%, 02/01/14 100,000 106,681
Aaa/AAA Board of Regents of The
University of Texas
System-Permanent
University Fund,
Refunding Bonds Series
1992A, 6.250%, 07/01/13 200,000 215,292
Aaa/AAA City of Austin,
Texas-Combined Utility
Systems Revenue
Refunding Bonds, Series
1994, 6.250%, 05/15/16 100,000 110,478
Aa2/AA City of Dallas, Texas-
Waterworks and Sewer
System Revenue Bonds,
Series 1994, 5.600%,
04/01/07 100,000 104,743
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
TEXAS--CONTINUED
Aaa/AAA Collin County, Texas-
Community College
District, Consolidated
Fund, Revenue Bonds,
5.250%, 02/01/15 $ 400,000 $ 408,272
Aaa/AAA Dallas-Fort Worth
International
Airport-Dallas-Fort
Worth Regional Airport,
Joint Revenue Refunding
Bonds, Series 1994A,
6.000%, 11/01/10 100,000 108,382
Aaa/AAA Denton, Texas-General
Obligation Bonds
Limited, 5.500%,
02/15/08 130,000 138,889
Aaa/AAA Denton, Texas-General
Obligation Bonds
Limited, 5.600%,
02/15/09 120,000 128,339
Aaa/NR Flower Mound, Texas-
Refunding and
Improvement, General
Obligation Unlimited,
5.500%, 03/01/17 200,000 207,036
Aaa/AAA Galveston Independent
School
District-Unlimited Tax
Schoolhouse Bonds,
Series 1994, 5.200%,
02/01/07 100,000 104,184
Aa2/AA Harris County, Texas-Tax
and Revenue Certificates
of Obligation, Series
1994, 6.100%, 10/01/12 135,000 149,063
Aa2/AA Harris County, Texas-Tax
and Revenue Certificates
of Obligation, Series
1994, 6.100%, 10/01/13 125,000 138,021
Aaa/AAA Laredo, Texas-General
Obligation Bonds
Unlimited, 5.250%,
02/15/11 100,000 103,216
Aaa/AAA Tarrant County Health
Facilities Development
Corporation-Health
System Revenue Bonds,
(Harris Methodist Health
System), Series 1994,
6.000%, 09/01/14 (c) 200,000 219,882
Aaa/AAA Texas Turnpike
Authority-Dallas North
Tollway System Revenue
Bonds, Series 1995
(President George Bush
Turnpike), 5.400%,
01/01/15 100,000 103,356
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C> <C>
TEXAS--CONTINUED
Aaa/AAA West University Place,
Texas-General Obligation
Bonds Limited, Permanent
Improvement, 5.650%,
02/01/14 $ 100,000 $ 105,519
Aaa/NR Weslaco, Texas
Independent School
District General
Obligation Bonds,
5.650%, 02/15/13 100,000 105,747
----------
2,557,100
----------
UTAH--1.56%
Aa2/AA Utah Housing Finance
Agency-Single Family
Mortgage Bonds, 1995
Issue A, (Federally
Insured or Guaranteed
Mortgage Loans), 7.150%,
07/01/12 (b) 65,000 69,778
Aa2/NR Utah State Housing
Financial Agency-Single
Family Mortgage Bonds,
Series F1, 6.000%,
07/01/13 90,000 94,464
----------
164,242
----------
VIRGINIA--1.01%
Aaa/AAA Virginia State Housing
Development Authority
Commonwealth Mortgage
Bonds, Series A,
Subseries A-4, 6.300%,
07/01/15 (b) 100,000 106,952
----------
WASHINGTON--10.07%
Aaa/AAA City of Richland,
Washington-Water and
Sewer Improvement
Revenue Bonds, 1993,
5.550%, 04/01/07 300,000 317,559
Aa1/AA+ King County, Washington-
Department of
Metropolitan Services,
Limited Tax General
Obligation Bonds, 1994
Series A, 5.800%,
01/01/08 200,000 216,490
Aa1/AA+ King County, Washington-
Limited Tax General
Obligation and Refunding
Bonds, 1993 Series A,
6.000%, 12/01/10 100,000 108,162
Aaa/AAA Municipality of
Metropolitan Seattle
Sewer Refunding Revenue
Bonds, Series X, 5.400%,
01/01/15 100,000 102,264
</TABLE>
5
<PAGE>
SCHEDULE OF INVESTMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
WASHINGTON--CONTINUED
Aa1/AA+ Port of Seattle,
Washington-General
Obligation Bonds,
5.750%, 05/01/14 (b) $ 100,000 $ 104,839
Aa1/AA+ State of
Washington-General
Obligation Bonds, Series
1994B, 5.750%, 05/01/09 100,000 106,948
Aa1/AA+ State of
Washington-General
Obligation Bonds, Series
1994B, 6.000%, 09/01/16 100,000 106,355
-----------
1,062,617
-----------
WISCONSIN--3.03%
Aa2/AA City of Green Bay-General
Obligation Refunding
Bonds, Series 1994B,
5.900%, 04/01/09 200,000 213,662
Aa2/AA State of
Wisconsin-General
Obligation Bonds
Unlimited, Series C,
5.400%, 05/01/09 100,000 106,251
-----------
319,913
-----------
TOTAL MUNICIPAL BONDS--94.19%
(Cost $9,331,555) 9,941,831
-----------
<CAPTION>
FACE
GOVERNMENT AGENCIES AMOUNT VALUE
<S> <C> <C> <C>
Federal Farm Credit Bank, 5.36%,
03/12/98 $ 200,000 $ 199,821
Student Loan Marketing Association,
5.44%, 03/03/98 300,000 299,910
-----------
TOTAL GOVERNMENT AGENCIES--4.73%
(Cost $499,731) 499,731
-----------
TOTAL INVESTMENTS--98.92%
(Cost $9,831,286) 10,441,562
-----------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.08% 113,512
-----------
TOTAL NET ASSETS--100.00% $10,555,074
-----------
-----------
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.
</TABLE>
See notes to financial statements.
6
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT PRIMARY TAX FREE
INCOME FUND FUND FUND
SERIES SERIES SERIES
<S> <C> <C> <C>
ASSETS
Investment in securities, at value $23,800,003 $32,747,063 $10,441,562
Cash 2,740 65 29,211
Receivable for:
Interest 254,728 -- 138,182
Expense reimbursement -- 3,647 4,885
Other assets 2,782 2,782 3,211
------------ ----------- -----------
TOTAL ASSETS 24,060,253 32,753,557 10,617,051
------------ ----------- -----------
LIABILITIES
Distribution payable 115,406 123,635 39,110
Capital stock reacquired -- 14,769 --
Accrued:
Investment advisory fee 9,596 11,851 4,191
Service fee 4,798 5,925 2,096
Other liabilities 15,748 19,086 16,580
------------ ----------- -----------
TOTAL LIABILITIES 145,548 175,266 61,977
------------ ----------- -----------
NET ASSETS $23,914,705 $32,578,291 $10,555,074
------------ ----------- -----------
------------ ----------- -----------
Shares of capital stock outstanding, (2,000,000 shares
authorized, $.01 par value per share) 2,266,422 32,584,064 1,002,040
------------ ----------- -----------
------------ ----------- -----------
Net asset value $ 10.55 $ 1.00 $ 10.53
------------ ----------- -----------
------------ ----------- -----------
Offering price per share:
(Net asset value DIVIDED BY 95.5%) $ 11.05 $ 11.03
------------ -----------
------------ -----------
Offering price per share $ 1.00
-----------
-----------
</TABLE>
STATEMENTS OF OPERATIONS Six Months Ended February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT PRIMARY TAX FREE
INCOME FUND FUND FUND
SERIES SERIES SERIES
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 852,723 $1,019,610 $ 288,238
EXPENSES
Investment advisory fees 59,803 86,992 26,317
Service fees 29,901 43,496 13,158
Professional fees 6,017 6,507 6,506
Custody and transaction fees 7,153 13,365 4,720
Directors' fees 5,119 7,807 5,119
Qualification fees 4,947 9,007 6,723
Shareholder reporting expenses 1,709 2,223 308
Insurance expenses 1,263 1,481 1,019
Other 398 1,788 836
----------- --------- ---------
TOTAL EXPENSES 116,310 172,666 64,706
LESS EXPENSES REIMBURSED -- (33,479) (26,317)
----------- --------- ---------
NET EXPENSES 116,310 139,187 38,389
----------- --------- ---------
INVESTMENT INCOME--NET 736,413 880,423 249,849
----------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 2,788 -- 6,395
Change in unrealized appreciation of investments for the period 333,675 -- 271,143
----------- --------- ---------
NET GAIN ON INVESTMENTS 336,463 -- 277,538
----------- --------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,072,876 $ 880,423 $ 527,387
----------- --------- ---------
----------- --------- ---------
</TABLE>
See notes to financial statements.
7
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 736,413 $ 1,462,594
Net realized gain (loss) on investments 2,788 (2,446)
Change in unrealized appreciation (depreciation) 333,675 562,324
------------- -------------
Net increase in net assets resulting from operations 1,072,876 2,022,472
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (779,941) (1,419,091)
CAPITAL SHARE TRANSACTIONS--NET (61,531) 1,952,455
------------- -------------
TOTAL INCREASE 231,404 2,555,836
NET ASSETS
Beginning of period 23,683,301 21,127,465
------------- -------------
End of period $ 23,914,705 $ 23,683,301
------------- -------------
------------- -------------
</TABLE>
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 880,423 $ 1,712,208
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (880,423) (1,712,208)
CAPITAL SHARE TRANSACTIONS--NET (466,584) (4,420,149)
------------- -------------
TOTAL DECREASE (466,584) (4,420,149)
NET ASSETS
Beginning of period 33,044,875 37,465,024
------------- -------------
End of period $ 32,578,291 $ 33,044,875
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 249,849 $ 499,113
Net realized gain on investments 6,395 12,803
Change in unrealized appreciation (depreciation) 271,143 314,617
------------- -------------
Net increase in net assets resulting from operations 527,387 826,533
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (258,193) (492,984)
CAPITAL SHARE TRANSACTIONS--NET (414,289) 1,218,423
------------- -------------
TOTAL INCREASE (DECREASE) (145,095) 1,551,972
NET ASSETS
Beginning of period 10,700,169 9,148,197
------------- -------------
End of period $ 10,555,074 $ 10,700,169
------------- -------------
------------- -------------
</TABLE>
FINANCIAL HIGHLIGHTS (Unaudited)
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------- -------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.42 $ 10.14 $ 10.51 $ 10.07 $ 10.87 $ 10.56
Investment income--net 0.32 0.67 0.65 0.70 0.54 0.50
Net realized and unrealized gain
(loss) on investments 0.15 0.26 (0.37) 0.44 (0.79) 0.49
------------- ------------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.47 0.93 0.28 1.14 (0.25) 0.99
Less distributions from
Investment income--net (0.34) (0.65) (0.65) (0.70) (0.55) (0.50)
Capital gains 0.00 0.00 0.00 0.00 0.00 (0.18)
------------- ------------- ---------- ---------- ---------- ----------
Total Distributions (0.34) (0.65) (0.65) (0.70) (0.55) (0.68)
------------- ------------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.55 $ 10.42 $ 10.14 $ 10.51 $ 10.07 $ 10.87
------------- ------------- ---------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ---------- ----------
Total Return 4.58%** 9.37% 2.63% 11.85% (2.41)% 10.23%
------------- ------------- ---------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ---------- ----------
RATIOS (IN PERCENTAGES)/ SUPPLEMENTAL
DATA
Net Assets, end of period (000's
omitted) $ 23,915 $ 23,683 $ 21,127 $ 20,466 $ 19,790 $ 19,783
Ratio of expenses to average net
assets 0.97%* 1.00%(1) 1.00%(1) 0.70%(1) 1.12% 1.07%
Ratio of net investment income to
average net assets 6.16% 6.46% 6.17% 6.90% 5.11% 5.07%
Portfolio turnover rate 0.92% 9.06% 30.17% 2.20% 45.48% 18.14%
</TABLE>
* Ratios annualized
** Returns are not annualized
(1) 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 1.07%, 1.20% and 1.06% for
the years ended August 31, 1997, 1996 and 1995, respectively.
See notes to financial statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS (Unaudited)
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.03 0.05 0.05 0.05 0.03 0.02
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.03 0.05 0.05 0.05 0.03 0.02
Less distributions from
Investment income--net (0.03) (0.05) (0.05) (0.05) (0.03) (0.02)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.03) (0.05) (0.05) (0.05) (0.03) (0.02)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ---------- ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ---------- ----------
Total Return 2.55%** 4.98% 5.07% 5.01% 2.91% 2.59%
------------ ---------- ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ---------- ----------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 32,578 $ 33,045 $ 37,465 $ 20,984 $ 15,208 $ 15,539
Ratio of expenses to average net assets
(1) 0.80%* 0.80% 0.81% 0.84% 0.79% 0.85%
Ratio of net investment income to average
net assets 5.05% 4.86% 4.93% 4.91% 2.88% 2.47%
</TABLE>
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31,
------------- ---------------------------------------- ------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.27 $ 9.93 $ 9.95 $ 9.62 $ 10.00
Investment income--net 0.26 0.51 0.53 0.51 0.24
Net realized and unrealized gain (loss) on
investments 0.26 0.33 (0.02) 0.33 (0.38)
------------- ------------ ------ ------ ------
Total from Investment Operations 0.52 0.84 0.51 0.84 (0.14)
Less distributions from
Investment income--net (0.26) (0.50) (0.53) (0.51) (0.24)
------------- ------------ ------ ------ ------
Total Distributions (0.26) (0.50) (0.53) (0.51) (0.24)
------------- ------------ ------ ------ ------
Net Asset Value, End of Period $ 10.53 $ 10.27 $ 9.93 $ 9.95 $ 9.62
------------- ------------ ------ ------ ------
------------- ------------ ------ ------ ------
Total Return 4.62%** 8.61% 5.18% 9.15% (1.49)%**
------------- ------------ ------ ------ ------
------------- ------------ ------ ------ ------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 10,555 $ 10,700 $ 9,148 $ 8,399 $ 7,295
Ratio of expenses to average net assets 0.73%*(2) 0.54%(2) -- (2) -- (2) 1.11%*
Ratio of net investment income to average net
assets 4.75% 4.97% 5.27% 5.43% 2.50%*
Portfolio turnover rate -- 22.15% 18.44% 12.63% 16.49%
</TABLE>
* Ratios annualized
** Returns are not annualized
(1) 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 0.99% (annualized), 1.01%,
1.15%, 1.21%, 1.20% and 1.23% for the six months ended February 28, 1998 and
the years ended August 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) 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 1.23% (annualized), 1.27%,
1.18% and 1.25% for the six months ended February 28, 1998 and the years
ended August 31, 1997, 1996 and 1995, respectively.
See notes to financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The SM&R Capital Funds, Inc. (the "Funds") is a diversified open-end management
investment company registered as a series fund under the Investment Company Act
of 1940, as amended. The Funds are comprised of the American National Government
Income Fund Series ("Government Income Fund Series"), American National Primary
Fund Series ("Primary Fund Series"), and American National Tax Free Fund Series
("Tax Free Fund Series"). Operations commenced March 16, 1992, for the
Government Income Fund Series and Primary Fund Series. The Tax Free Fund Series
began operations September 9, 1993.
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, 1997, the Government Income Fund Series, Primary
Fund Series and the Tax Free Fund Series had capital loss carryforwards that
will expire in 2007 of approximately $373,000, $6,000 and $45,000, respectively.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering and may be redeemed on any
business day.
AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES
The Government Income Fund Series invest primarily in the agencies or
instrumentalities of the U.S. Government. Dividends to shareholders from
net investment income are declared and paid monthly.
AMERICAN NATIONAL PRIMARY FUND SERIES
The Primary Fund Series' 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.
AMERICAN NATIONAL TAX FREE SERIES
The Tax Free Series' objective is to provide as high a level of 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.
EXPENSES:
Operating expenses not directly attributable to a series' shares are prorated
among the series based on the relative amount of each series' net assets or
shareholders.
NOTE 2--INVESTMENT ADVISORY AND SERVICE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Securities Management & 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:
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 2--CONTINUED
GOVERNMENT INCOME FUND SERIES
TAX FREE FUND SERIES
<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>
PRIMARY FUND SERIES
<TABLE>
<S> <C>
All average daily net assets 0.50%
</TABLE>
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 all 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. SM&R
has voluntarily agreed to reimburse the Primary Fund Series for expenses in
excess of 0.80% per annum of average daily net assets and the Government Income
Fund Series for expenses in excess of 1.00% per annum of average daily net
assets for the six months ended February 28, 1998.
The Tax Free Fund Series has voluntarily agreed to waive investment advisory
fees leaving the Tax Free Fund responsible for all other expenses.
For the six months ended February 28, 1998, SM&R, as principal underwriter,
received as sales charges on sales of shares of capital stock of the Funds as
follows:
<TABLE>
<CAPTION>
SALES CHARGES
RECEIVED BY SM&R
<S> <C>
Government Income $ 8,815
Tax Free $ 3,336
</TABLE>
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of February 28, 1998, 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 Income 467,377 21% 641,027 28%
Primary 898,548 3% 16,442,706 50%
Tax Free 122,624 12% 613,122 61%
</TABLE>
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 Income $ 300,539 $ 215,192
Tax Free $ 0 $ 515,379
</TABLE>
Gross unrealized appreciation and depreciation as of February 28, 1998, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
<S> <C> <C>
Government Income $ 833,673 $ 0
Tax Free $ 610,276 $ 0
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 4--CAPITAL STOCK
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Sale of capital shares 79,608 $ 844,807 291,016 $3,010,920
Investment income dividends reinvested 72,480 762,904 127,868 1,322,811
--------- ----------- --------- ----------
Subtotals 152,088 1,607,711 418,884 4,333,731
Redemptions of capital shares (157,847) (1,669,242) (229,580) (2,381,276)
--------- ----------- --------- ----------
Net increase(decrease) in capital shares outstanding (5,759) $ (61,531) 189,304 $1,952,455
----------- ----------
----------- ----------
Shares outstanding at beginning of period 2,272,181 2,082,877
--------- ---------
Shares outstanding at end of period 2,266,422 2,272,181
--------- ---------
--------- ---------
Net assets as of February 28, 1998 are comprised of the following:
Capital (par value and additional paid-in) $23,451,334
Accumulated net realized loss on investments (370,302)
Net unrealized appreciation of investments 833,673
-----------
Net Assets $23,914,705
-----------
-----------
</TABLE>
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 20,936,864 $20,936,864 37,131,503 $37,131,503
Investment income dividends reinvested 890,782 890,782 1,614,059 1,614,059
---------- ----------- ---------- -----------
Subtotals 21,827,646 21,827,646 38,745,562 38,745,562
Redemptions of capital shares (22,294,230) (22,294,230) (43,165,711) (43,165,711)
---------- ----------- ---------- -----------
Net decrease in capital shares outstanding (466,584) $ (466,584) (4,420,149) $(4,420,149)
----------- -----------
----------- -----------
Shares outstanding at beginning of period 33,050,648 37,470,797
---------- ----------
Shares outstanding at end of period 32,584,064 33,050,648
---------- ----------
---------- ----------
Net assets as of February 28, 1998 are comprised of the
following:
Capital (par value and additional paid-in) $32,584,046
Accumulated net realized loss on investments (5,755)
-----------
Net Assets $32,578,291
-----------
-----------
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 4--CONTINUED
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Sale of capital shares 23,822 $ 250,903 95,379 $ 964,391
Investment income dividends reinvested 25,176 262,040 47,765 482,300
--------- ----------- ---------- ----------
Subtotals 48,998 512,943 143,144 1,446,691
Redemptions of capital shares (88,598) (927,232) (22,454) (228,268)
--------- ----------- ---------- ----------
Net increase(decrease) in capital shares outstanding (39,600) $ (414,289) 120,690 $1,218,423
----------- ----------
----------- ----------
Shares outstanding at beginning of period 1,041,640 920,950
--------- ---------
Shares outstanding at end of period 1,002,040 1,041,640
--------- ---------
--------- ---------
Net assets as of February 28, 1998 are comprised of the following:
Capital (par value and additional paid-in) $ 9,988,441
Accumulated net realized loss on investments (43,643)
Net unrealized appreciation of investments 610,276
-----------
Net Assets $10,555,074
-----------
-----------
</TABLE>
14
<PAGE>
SM&R CAPITAL FUNDS, INC. One Moody Plaza, Galveston, Texas 77550
- --------------------------------------------------------------------------------
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
Vera M. Young, Vice President and Portfolio Manager--
Primary Fund Series
Terry E. Frank, Vice President and Portfolio Manager--
Government Income Fund Series and Tax Free Fund Series
INVESTMENT ADVISOR AND MANAGER
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
CUSTODIAN
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
INDEPENDENT AUDITORS
Tait, Weller & Baker, CPA
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103-2108
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000881166
<NAME> SM&R CAPITAL FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> GOVERNMENT INCOME FUND SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 22966330
<INVESTMENTS-AT-VALUE> 23800003
<RECEIVABLES> 254728
<ASSETS-OTHER> 2782
<OTHER-ITEMS-ASSETS> 2740
<TOTAL-ASSETS> 24060253
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 145548
<TOTAL-LIABILITIES> 145548
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23451334
<SHARES-COMMON-STOCK> 2266422
<SHARES-COMMON-PRIOR> 2272181
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (370302)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 833673
<NET-ASSETS> 23914705
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 852723
<OTHER-INCOME> 0
<EXPENSES-NET> 116310
<NET-INVESTMENT-INCOME> 736413
<REALIZED-GAINS-CURRENT> 2788
<APPREC-INCREASE-CURRENT> 333675
<NET-CHANGE-FROM-OPS> 1072876
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 779941
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 79608
<NUMBER-OF-SHARES-REDEEMED> 157847
<SHARES-REINVESTED> 72480
<NET-CHANGE-IN-ASSETS> 231404
<ACCUMULATED-NII-PRIOR> 43534
<ACCUMULATED-GAINS-PRIOR> (373090)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59803
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 116310
<AVERAGE-NET-ASSETS> 24125304
<PER-SHARE-NAV-BEGIN> 10.42
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are not net of a reimbursement from Securities
Management & Research, Inc.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000881166
<NAME> SM&R CAPITAL FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> PRIMARY FUND SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 32747063
<INVESTMENTS-AT-VALUE> 32747063
<RECEIVABLES> 3647
<ASSETS-OTHER> 2782
<OTHER-ITEMS-ASSETS> 65
<TOTAL-ASSETS> 32753557
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 175266
<TOTAL-LIABILITIES> 175266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32584046
<SHARES-COMMON-STOCK> 32584064
<SHARES-COMMON-PRIOR> 33050648
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5755)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32578291
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1019610
<OTHER-INCOME> 0
<EXPENSES-NET> 139187
<NET-INVESTMENT-INCOME> 880423
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 880423
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 880423
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20936864
<NUMBER-OF-SHARES-REDEEMED> 22294230
<SHARES-REINVESTED> 890782
<NET-CHANGE-IN-ASSETS> (466584)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5755)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86992
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172666
<AVERAGE-NET-ASSETS> 35128121
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net from Securities Management & Research,
Inc. Without this reimbursement, the ratio of expenses to average net assets
would have been 0.99% (annualized) for the six months ended February 28, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000881166
<NAME> SM&R CAPITAL FUNDS, INC.
<SERIES>
<NUMBER> 03
<NAME> TAX FREE FUND SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 9831286
<INVESTMENTS-AT-VALUE> 10441562
<RECEIVABLES> 143067
<ASSETS-OTHER> 3211
<OTHER-ITEMS-ASSETS> 29211
<TOTAL-ASSETS> 10617051
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61977
<TOTAL-LIABILITIES> 61977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9988441
<SHARES-COMMON-STOCK> 1002040
<SHARES-COMMON-PRIOR> 1041640
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43643)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 610276
<NET-ASSETS> 10555074
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 288238
<OTHER-INCOME> 0
<EXPENSES-NET> 38389
<NET-INVESTMENT-INCOME> 249849
<REALIZED-GAINS-CURRENT> 6395
<APPREC-INCREASE-CURRENT> 271143
<NET-CHANGE-FROM-OPS> 527387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 258193
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23822
<NUMBER-OF-SHARES-REDEEMED> 88598
<SHARES-REINVESTED> 25176
<NET-CHANGE-IN-ASSETS> (145095)
<ACCUMULATED-NII-PRIOR> 8346
<ACCUMULATED-GAINS-PRIOR> (50038)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64706
<AVERAGE-NET-ASSETS> 10615706
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0.26
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 0.73
<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 1.23% (annualized) for the six months
ended February 28, 1998.
</FN>
</TABLE>
