SM&R CAPITAL FUNDS INC, 497, 1998-12-23

SM&R CAPITAL FUNDS INC
497, 1998-12-23

Previous: AIM INTERNATIONAL FUNDS INC, 485APOS, 1998-12-23

Next: DESTRON FEARING CORP /DE/, 10-K, 1998-12-23

<PAGE>

[LOGO]
FIXED INCOME FUNDS

INVESTMENT STRATEGIES FOR A CHANGING WORLD

<PAGE>

THE 3 "GOLDEN RULES"
FOR LOW RISK INVESTING.

UNDERSTAND YOUR OPTIONS

1 The key to successful investing isn't necessarily to avoid risk,
but rather to understand it. All investments involve some risk. If you
want your money to hold its value over time, there are a number of
attractive investment options suitable for the conservative investor.

Fixed income funds are an excellent choice for investors who seek
rewards with low risk. Like stock funds, there are numerous options.
SM&R fixed income funds can provide income. One is tax-free. Another
contains securities backed by the U.S. Government. Another contains
corporate bonds which are "rated," so portfolio managers can identify
suitable choices. Talk to a SM&R registered representative and get
informed.

(ON THE INSIDE OF THE BACK COVER, THERE IS A SHORT RISK-TOLERANCE QUIZ
THAT MAY GIVE YOU SOME INSIGHT INTO HOW YOU CAN APPROACH YOUR
INVESTMENT STRATEGY.)

CONSIDER DIVERSIFYING YOUR INVESTMENT

2 One of the most recommended protections against the loss of
capital is investment diversification, which customarily means owning
different types of funds. Even the most conservative investor should
consider diversifying their portfolio. If you have not already done
so, assess your current financial resources. Figure out how much must
be devoted to your day-to-day needs. This amount should probably go to
low-risk options, such as income-producing bond funds and money market
funds. If there is a portion of your assets which you do not need
immediately, consider whether it makes sense to diversify a portion of
it into stock funds. Historically, stock fund values have grown more
than the rate of inflation over the long term.

CONTINUE TO INVEST

3 One of the mistakes low risk investors and fixed-income investors
can make is to stop actively investing. The tendency may be to make do
with what has been previously invested and avoid additional risk. When
possible, devote some part of your budget to new investments that can
enhance the financial goals you've already attained.* Staying an
active knowledgeable investor is an effective way to stay in control
of your financial health.

* You should always consider your financial ability to continue
investing, even in periods of low prices. Dollar cost averaging does
not assure a profit nor does it protect you against loss in declining
markets.

This brochure is authorized for distribution to current and prospective
investors only when preceded or accompanied by a current prospectus. This
brochure includes a prospectus that describes in detail the Funds' objectives,
investment policies, risks, fees and other matters of interest. Please read the
prospectus carefully before you invest or send money.

NOT PART OF THE PROSPECTUS
<PAGE>

SECURITIES MANAGEMENT AND RESEARCH, INC.
("SM&R")

For over 30 years, the financial professionals at Securities Management and
Research, Inc. who manage the SM&R Mutual Funds, have become a family investment
tradition based on our commitment, experience and ability to thrive in changing
economic environments. We hope you will consider our family of funds as you
design your investment portfolio.

EACH FUND IS DESIGNED TO PURSUE A DISTINCT FINANCIAL OBJECTIVE.
You can concentrate your assets in one fund, move them back and forth
between funds (exchange*) or spread them over a combination of funds. You
have the opportunity to achieve the exact combination of investments that
is compatible with your investment goals.

A DISCIPLINED, CONSERVATIVE APPROACH TO BONDS AND CASH PRODUCTS INVESTING.
Before any investment option is purchased for an SM&R fund, it must meet
strict performance criteria. Each opportunity is evaluated on the basis of
its anticipated return, industry rating and on how well it compares to
other available options. You can rest assured that a rigorous, objective
performance model drives every decision.

OUR UNIQUE TEAM APPROACH TO FUND MANAGEMENT OFFERS YOU MAXIMUM BENEFITS.
Normally, the performance of a mutual fund is solely dependent on the
expertise and decisions of one individual fund manager. At SM&R, our
portfolio managers work in a team environment to determine the strategy for
each portfolio and to approve the list of securities for use in the
portfolios. The team approach provides further assurance that each
portfolio will receive the maximum benefits of the organization's talents
and resources.

PLEASE TAKE A MOMENT TO REVIEW THE INFORMATION AND PROSPECTUSES FOR EACH OF
OUR FUNDS. THEN LET US HELP YOU DESIGN AN INVESTMENT PORTFOLIO THAT CAN
HELP YOU MEET YOUR GOALS.

* For income tax purposes, an exchange is treated as a sale of
shares and will generally result in a capital gain or loss. The
redemption of B or C shares may be subject to a CDSC depending upon
when you initially purchased the shares.

PAGE ONE
NOT PART OF THE PROSPECTUS
<PAGE>

SM&R GOVERNMENT BOND FUND
FORMERLY AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES

FUND OBJECTIVE
To provide a high level of current income and liquidity, while protecting the
value of the initial investment.

FUND INVESTMENT STRATEGY
Invests primarily in securities issued by the U.S. government and its agencies.

INVESTOR OBJECTIVE
Suitable for those who need stability and security in their investment choice
for shorter-term goals.

X
LOW MODERATE HIGH

POTENTIAL REWARD/RISK
(refer to inside, back cover for more complete information)

AVERAGE ANNUAL RETURN
Includes maximum sales charge of 4.50% through 9/30/98.

1-year 4.13%
- --------------------------------
5-year 5.16%
- --------------------------------
Since Inception 6.79%
- --------------------------------
(3/16/92)

[GRAPH]

<TABLE>
<CAPTION>
Government Bond Fund
<S> <C>
03/16/92 9550
03/31/92 9570
06/30/92 9956
09/30/92 10482
12/31/92 10420
03/31/93 10823
06/30/93 11080
09/30/93 11410
12/31/93 11390
03/31/94 11200
06/30/94 11054
09/30/94 10859
12/31/94 10860
03/31/95 11486
06/30/95 12226
09/30/95 12490
12/31/95 12876
03/31/96 12706
06/30/96 12720
09/30/96 12974
12/31/96 13318
03/31/97 13197
06/30/97 13681
09/30/97 14098
12/31/97 14402
03/31/98 14600
06/30/98 14825
09/30/98 15367
</TABLE>

ILLUSTRATION OF AN ASSUMED $10,000
INVESTMENT IF YOU HAD REINVESTED
INCOME AND CAPITAL GAINS.

PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS.

The SM&R Government Bond Fund fiscal year ended on 8/31. Performance figures are
based on Class T shares, and reflect the reinvestment of distributions.
Performance for Class A, B, and C shares will vary due to difference in expenses
and sales charge structure.

It is the securities in which the Fund invests that are guaranteed by the U.S.
Government and it's agencies for timely payment of principal and interest and
not the Funds' shares.

The investment return and principal value of an investment will fluctuate.
Investor's shares, when redeemed, may be worth more or less than their original
cost.

PAGE TWO
NOT PART OF THE PROSPECTUS
<PAGE>

SM&R TAX FREE FUND*
FORMERLY AMERICAN NATIONAL TAX FREE FUND SERIES

FUND OBJECTIVE
To provide tax free income, while maintaining the value of the initial
investment.

FUND INVESTMENT STRATEGY
Invests at least 80% of assets in highly-rated municipal bonds which are exempt
from federal income taxes (some may also be exempt from state and local taxes).

INVESTOR OBJECTIVE
Suitable for those who may realize more profit in a tax-free investment than in
higher risk taxable investments, such as investors in the 28% and up tax
brackets.

X
LOW MODERATE HIGH

POTENTIAL REWARD/RISK
(refer to inside, back cover for more complete information)

AVERAGE ANNUAL RETURN
Includes maximum sales charge of 4.50% through 9/30/98.

1-year 3.78%
- ---------------------------------
5-year 5.23%
- ---------------------------------
Since Inception 5.18%
- ---------------------------------
(9/9/93)

[GRAPH]

ILLUSTRATION OF AN ASSUMED $10,000
INVESTMENT IF YOU HAD REINVESTED
INCOME AND CAPITAL GAINS.
PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS.

The SM&R Tax Free Fund fiscal year ended on 8/31. Performance figures are based
on Class T shares, and reflect the reinvestment of all distributions.
Performance for Class A, B, and C shares will vary due to difference in expenses
and sales charge structure.

* May be subject to alternative minimum tax.

The investment return and principal value of an investment will fluctuate.
Investor's shares, when redeemed, may be worth more or less than their original
cost.

PAGE THREE
NOT PART OF THE PROSPECTUS
<PAGE>

SM&R PRIMARY FUND
FORMERLY AMERICAN NATIONAL PRIMARY FUND SERIES

X
LOW MODERATE HIGH

POTENTIAL REWARD/RISK
(refer to inside, back cover for more complete information)

FUND OBJECTIVE
To provide safety, protection and quick access to funds, along with an
appropriate return on investment.

FUND INVESTMENT STRATEGY
Invests in a managed portfolio of high-quality, very short-term securities,
primarily commercial paper.

INVESTOR OBJECTIVE
Suitable for fixed-income or risk-averse investors.

AVERAGE ANNUAL RETURN
Includes maximum sales charge of 0.0% through 9/30/98.

1-year 5.15%
-------------------------------
5-year 4.66%
-------------------------------
Since Inception 4.21%
-------------------------------
(3/16/92)

The SM&R Primary Fund fiscal year ended on 8/31.

Past performance cannot guarantee future results and includes reinvestment of
all distributions.

SM&R MONEY MARKET FUND*
Inception Date: 1/1/99

X
LOW MODERATE HIGH

POTENTIAL REWARD/RISK
(refer to inside, back cover for more complete information)

FUND OBJECTIVE
To provide current income and easy liquidity while striving to maintain a
$1.00 share price.

FUND INVESTMENT STRATEGY
Invests in high quality U.S. securities and short-term money market securities
of all types.

INVESTOR OBJECTIVE
Suitable for fixed-income investors or as a cash deposit account. Free check
writing available.

* An investment in the Money Market Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Money Market Fund.

The investment return and principal value of an investment will fluctuate.
Investor's shares, when redeemed, may be worth more or less than their original
cost.

PAGE FOUR
NOT PART OF THE PROSPECTUS
<PAGE>
[LOGO]

P R O S P E C T U S

JANUARY 1, 1999

SM&R INVESTMENTS, INC.
- SM&R GOVERNMENT BOND FUND
- SM&R TAX FREE FUND
- SM&R PRIMARY FUND
- SM&R MONEY MARKET FUND

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
CLASSES A, B, AND C
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
RISK/RETURN SUMMARY....................................................................... 1
SM&R Government Bond Fund............................................................... 1
SM&R Tax Free Fund...................................................................... 2
SM&R Primary Fund....................................................................... 3
SM&R Money Market Fund.................................................................. 4
Types of Investment Risk................................................................ 5
Bar Chart and Performance Table......................................................... 5
Fees and Expenses of the Funds.......................................................... 9
SHARES OF THE FUNDS....................................................................... 13
Sales Charges........................................................................... 14
Sales Charge Reductions and Waivers..................................................... 15
Distribution and Shareholder Service (12b-1) Fees....................................... 17
INVESTMENT OBJECTIVES AND POLICIES........................................................ 18
Government Bond Fund.................................................................... 18
Tax Free Fund........................................................................... 20
Primary Fund............................................................................ 23
Money Market Fund....................................................................... 24
RISK FACTORS.............................................................................. 25
PURCHASES AND REDEMPTIONS................................................................. 27
Purchasing Shares....................................................................... 27
Pricing of Fund Shares.................................................................. 28
Special Purchase Plans and Services..................................................... 29
Retirement Plans........................................................................ 32
Dividends, Distributions, and Taxes..................................................... 33
Redeeming Shares........................................................................ 34
THE FUNDS AND MANAGEMENT.................................................................. 38
FINANCIAL HIGHLIGHTS...................................................................... 41
Government Bond Fund.................................................................... 41
Tax Free Fund........................................................................... 42
Primary Fund............................................................................ 43
APPENDIX.................................................................................. A-1
</TABLE>

ii
<PAGE>
RISK/RETURN SUMMARY SM&R GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

GOVERNMENT BOND FUND'S INVESTMENT OBJECTIVE
To provide as high a level of current income, liquidity, and
safety of principal as is consistent with prudent investment
risks through investment in a portfolio consisting primarily of
securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities.

GOVERNMENT BOND FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Government Bond Fund normally invests at least 65% of its
assets in securities issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. These may
include Treasuries and mortgage-backed securities, such as
Ginnie Maes, Freddie Macs, and Fannie Maes. This fund may also
invest assets in collateralized mortgage obligations.

The Government Bond Fund may invest in zero coupon bonds, which
are U.S. Government obligations. The fund may also invest in
commercial paper, certificates of deposit, corporate debt
securities rated "A" or higher, and repurchase agreements.

The Government Bond Fund generally invests primarily in medium
and long term securities. The average portfolio maturity
generally is expected to be in the six to fifteen year range
(some securities may have longer or shorter durations). The
average portfolio maturity may be shorter when management
anticipates that interest rates will increase, and longer when
management anticipates that interest rates will decrease.

PRINCIPAL RISKS OF INVESTING IN THE GOVERNMENT BOND FUND
You could lose money on your investment in the Government Bond
Fund, or it could underperform other investments, if any of the
following occurs:
- interest rates rise (thus causing a decline in the market
value of debt securities)
- the worldwide demand for U.S. government securities falls
- interest rates fall enough to prompt an unexpected number of
people to refinance (or prepay) their mortgages
- interest rates rise enough to cause fewer people than
expected to repay their mortgages early
- if any bonds the fund owns are downgraded in credit rating or
go into default

WHO MAY WANT TO INVEST IN THE GOVERNMENT BOND FUND
The Government Bond Fund may be appropriate if you:
- are seeking a regular stream of income to meet current needs
- are seeking higher potential returns than money market funds
and are willing to accept moderate risk of volatility
- are retired or nearing retirement

The Government Bond Fund may NOT be appropriate if you:
- are investing for maximum return over a long time horizon
- require absolute stability of your principal

1
<PAGE>
RISK/RETURN SUMMARY SM&R TAX FREE FUND
- --------------------------------------------------------------------------------

TAX FREE FUND'S INVESTMENT OBJECTIVE
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.

TAX FREE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Tax Free Fund invests primarily in tax-exempt securities.
During normal market conditions, this fund invests at least 80%
of its assets in municipal securities that pay interest exempt
from federal income taxes. The Tax Free Fund generally invests
in securities rated Baa or better by Moody's or BBB or better
by Standard and Poor's and Fitch. This fund may not invest more
than 20% of its assets in UNRATED municipal securities. These
securities may be less liquid than comparably rated municipal
securities and involve somewhat greater risk. This fund may
also invest up to 20% of its assets in Government guaranteed
taxable bonds, highly rated corporate bonds, or commercial
paper.

The average portfolio maturity of the Tax Free Fund generally
is expected to be in the six to twelve year range (some
securities have longer or shorter durations). The average
portfolio maturity may be shorter when management anticipates
that interest rates will increase, and longer when management
anticipates that interest rates will decrease.

PRINCIPAL RISKS OF INVESTING IN THE TAX FREE FUND
You could lose money on your investment in the Tax Free Fund,
or it could underperform other investments, if any of the
following occurs:
- interest rates rise (thus causing a decline in the market
value of debt securities)
- if any bonds the fund owns are downgraded in credit rating or
go into default
- certain securities become harder to value or to sell at a
fair price

ALSO, SOME OF YOUR DIVIDEND INCOME MAY BE TAXABLE.

WHO MAY WANT TO INVEST IN THE TAX FREE FUND
The Tax Free Fund may be appropriate if you:
- are willing to sacrifice some investment return for income
exempt from federal income tax and, under certain conditions,
exempt from state and local taxes
- are in a high tax bracket (28% and up)
- are seeking a regular stream of income to meet current needs
- are seeking higher potential returns than money market funds
and are willing to accept moderate risk of volatility

The Tax Free Fund may NOT be appropriate if you:
- are investing for maximum return
- require absolute stability of your principal
- prefer capital gains over ordinary income

2
<PAGE>
RISK/RETURN SUMMARY SM&R PRIMARY FUND
- --------------------------------------------------------------------------------

PRIMARY FUND'S INVESTMENT OBJECTIVE
To seek maximum current income consistent with capital
preservation and liquidity through investment primarily in
commercial paper.

PRIMARY FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Primary Fund invests primarily in commercial paper.
Commercial paper is short-term unsecured promissory notes
issued by corporations. This fund will only invest in
commercial paper rated in one of the two highest rating
categories.

The Primary Fund may also invest in:
- U.S. Government obligations;
- corporate debt obligations maturing in five years or less and
rated "A" or higher;
- certificates of deposit, generally maturing in 3 years or
less; and
- repurchase agreements.

PRINCIPAL RISKS OF INVESTING IN THE PRIMARY FUND
You could lose money on your investment in the Primary Fund, or
it could underperform other investments, if any of the
following occurs:
- interest rates rise (thus causing a decline in the market
value of debt securities)
- if any of the fund's investments are downgraded in credit
rating or go into default

By limiting its investments as described above, the Primary
Fund may not achieve as high a level of current income as a
fund investing in lower-rated securities or longer-term
securities.

WHO MAY WANT TO INVEST IN THE PRIMARY FUND
The Primary Fund may be appropriate if you:
- are seeking a regular stream of income to meet current needs
- are seeking higher potential returns than money market funds
and are willing to accept moderate risk of volatility
- are more concerned with safety of principal than with
investment returns
- are retired or nearing retirement

The Primary Fund may NOT be appropriate if you:
- are investing for maximum return
- require absolute stability of your principal
- are investing for goals that are many years in the future
- prefer capital gains over ordinary income

3
<PAGE>
RISK/RETURN SUMMARY SM&R MONEY MARKET FUND
- --------------------------------------------------------------------------------

MONEY MARKET FUND'S INVESTMENT OBJECTIVE
To seek the highest current income consistent with the
stability of principal and maintenance of liquidity.

MONEY MARKET FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Money Market Fund seeks to achieve its objective by
investing in high-quality short-term money market instruments,
including: U.S. Government obligations, certificates of
deposit, banker's acceptances, commercial paper, collateralized
mortgage obligations, and corporate bonds and notes. This fund
limits its investments to those short-term securities that it
determines present minimal credit risk and meet certain rating
requirements (in the two highest short-term rating categories).

PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET FUND
The Money Market Fund is subject to the following risks:
- that interest rates may rise (thus causing a decline in the
market value of debt securities)
- that the fund's investments may be downgraded in credit
rating or go into default

However, the risks of investment in the Money Market Fund may
be expected to be less than for other mutual funds. By limiting
its investments as described above, this fund may not achieve
as high a level of current income as a fund investing in
lower-rated securities. ALTHOUGH THE MONEY MARKET FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THE MONEY MARKET FUND.

WHO MAY WANT TO INVEST IN THE MONEY MARKET FUND
The Money Market Fund may be appropriate if you:
- require stability of principal
- are seeking a mutual fund for the cash portion of an asset
allocation program
- need to "park" your money temporarily
- are more concerned with safety of principal than with
investment returns
- are investing emergency reserves

The Money Market Fund may NOT be appropriate if you:
- want federal deposit insurance
- are seeking an investment that is likely to outpace inflation
- are investing for retirement or other goals that are many
years in the future
- are investing for growth or maximum current income

YOU SHOULD KEEP IN MIND THAT AN INVESTMENT IN THE MONEY MARKET
FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

4
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------

TYPES OF INVESTMENT RISK

As indicated above, each of the four funds may be subject to certain of the
following types of risks:

CREDIT RISK. The risk that the issuer of a security, or a party to a contract,
will default or otherwise not honor a financial obligation. THIS RISK PRIMARILY
AFFECTS THE TAX FREE, PRIMARY AND MONEY MARKET FUNDS.

INTEREST RATE RISK. The risk of declines in market value of an income-bearing
investment due to changes in prevailing interest rates. With fixed-rate
securities, a rise in interest rates typically causes a decline in market
values, while a fall in interest rates typically causes an increase in market
values. THIS RISK AFFECTS ALL FOUR FUNDS, BUT HAS LESS EFFECT ON THE MONEY
MARKET AND PRIMARY FUNDS.

LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the fund would like to sell them or
at the price the fund values them. The fund may have to sell at a lower price,
sell other securities instead, or forego an investment opportunity, any of which
could have a negative effect on fund management or performance. THIS RISK
PRIMARILY AFFECTS THE TAX FREE, PRIMARY AND MONEY MARKET FUNDS.

MANAGEMENT RISK. The risk that a strategy used by a fund's management may fail
to produce the intended result. THIS RISK AFFECTS ALL FOUR FUNDS.

MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. The fluctuations may cause a security to be
worth less than the price originally paid for it, or less than it was worth at
an earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. This risk is common to all stocks and bonds
and the mutual funds that invest in them. THIS RISK AFFECTS ALL FOUR FUNDS.

PREPAYMENT AND EXTENSION RISK. PREPAYMENT RISK is the risk that an unexpected
fall in prevailing interest rates will shorten the life of an outstanding
mortgage-backed security by increasing the actual or expected number of mortgage
prepayments, thereby reducing the security's value. EXTENSION RISK is the risk
that an unexpected rise in prevailing interest rates will extend the life of an
outstanding mortgage-backed security by reducing the actual or expected number
of mortgage prepayments, thereby reducing the security's value. THIS RISK
APPLIES ONLY TO THE GOVERNMENT BOND FUND.

BAR CHART AND PERFORMANCE TABLE

The bar charts and performance tables shown below provide some indication of the
risks of investing in the funds and the variability of returns:
- - by showing each fund's performance for each year since inception and
- - by showing how each fund's average annual returns for certain periods compare
to those of a broad-based securities market index.

Because the Money Market Fund was not in operation during these periods, it is
not included in the bar chart or the performance table.

The returns shown are based on an investment in the funds prior to the creation
of multiple classes of shares, but do not reflect any sales loads that would be
imposed on the purchase or sale of any shares. We created the multiple classes
of shares on January 1, 1999. If multiple classes of shares of the Government
Bond and Tax Free Funds had been in existence, the financial performance of
Class A, B, and C shares would have been lower than depicted because of the
imposition of distribution and/or service (12b-1) fees.

Past performance is not necessarily an indication of how the funds will perform
in the future.

5
<PAGE>
RISK/RETURN SUMMARY SM&R GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* For the nine month period ended September 30, 1998, the Government Bond Fund
had a total return of 6.70%.

During the period shown in the bar chart, the highest return for a quarter was
6.44% achieved June 30, 1995 and the lowest return for a quarter was minus 1.77%
for the quarter September 30, 1994.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER
31, 1997) PAST ONE YEAR PAST 5 YEARS
<S> <C> <C>
SM&R GOVERNMENT BOND FUND 3.28% 5.71%
*LEHMAN BROTHERS 9.54% 8.71%
GOVERNMENT/MORTGAGE-BACKED
SECURITIES INDEX.
</TABLE>

* Lehman Brothers Government/Mortgage-Backed Securities Index is an index
which includes all public obligations of the U.S. Treasury and all publicly
issued debt of U.S. Government agencies, quasi-federal corporations and
corporate debt guaranteed by the U.S. Government as well as 15 and 30 year
fixed rate securities backed by mortgage pools of the GNMA, FHLMA and FNMA.

6
<PAGE>
RISK/RETURN SUMMARY SM&R PRIMARY FUND
- --------------------------------------------------------------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* For the nine month period ended September 30, 1998, the Primary Fund had a
total return of 3.81%.

During the period shown in the bar chart, the highest return for a quarter was
2.54% achieved September 30, 1997 and the lowest return for a quarter was 0.60%
for the quarter June 30, 1993.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER
31, 1997) PAST ONE YEAR PAST 5 YEARS
<S> <C> <C>
SM&R PRIMARY FUND 5.08% 4.26%
*LEHMAN GOVERNMENT/ CORPORATE 7.99% 7.02%
INDEX
</TABLE>

* Lehman Government/Corporate Index is an index representing all public
obligations of the U.S. Treasury as well as all publicly issued debt of U.S.
Government agencies with maturities of one to three years.

7
<PAGE>
RISK/RETURN SUMMARY SM&R TAX FREE FUND
- --------------------------------------------------------------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* For the nine month period ended September 30, 1998, the Tax Free Fund had a
total return of 5.73%.

During the period shown in the bar chart, the highest return for a quarter was
7.41% achieved March 31, 1995 and the lowest return for a quarter was minus
3.94% for the quarter March 31, 1994.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER
31, 1997) PAST ONE YEAR PAST 4 YEARS
<S> <C> <C>
SM&R TAX FREE FUND 4.08% 4.94%
*LEHMAN BROTHERS MUNICIPAL 9.19% 11.18%
INDEX
</TABLE>

* Lehman Brothers Municipal Index is an index of investment grade tax exempt
bonds classified into four major sections: General Obligation, Revenue,
Insured and Preferred.

8
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------

FEES AND EXPENSES OF THE FUNDS

This table describes the fees and expenses that you may pay if you buy and hold
shares of the funds.

SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
---------------------------------
CLASS A CLASS B CLASS C PRIMARY FUND
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
MAXIMUM SALES CHARGE (TOTAL) 4.75% 3.00% 2.00% None
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75%(1) None 1.00% None
Maximum Deferred Sales Charge (as a
percentage of offering price)(2) None(3) 3.00%(4) 1.00%(5) None
Maximum Sales Charge Imposed on Reinvested
Dividends and Other Distributions (as a
percentage of offering price) None None None None
EXCHANGE FEES None None None None

<CAPTION>
TAX FREE FUND
---------------------------------
CLASS A CLASS B CLASS C MONEY MARKET FUND
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
MAXIMUM SALES CHARGE (TOTAL) 4.75% 3.00% 2.00% None
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75%(1) None 1.00% None
Maximum Deferred Sales Charge (as a
percentage of offering price)(2) None(3) 3.00%(4) 1.00%(5) None
Maximum Sales Charge Imposed on Reinvested
Dividends and Other Distributions (as a
Percentage of offering price) None None None None
EXCHANGE FEES None None None None
</TABLE>

9
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES(6)
(expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
---------------------------------
CLASS A CLASS B CLASS C PRIMARY FUND
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00% None
Other Expenses(7) 0.50% 0.50% 0.50% 0.48%
Total Annual Fund Operating Expenses 1.25% 1.75% 2.00% 0.98%
Fee Waivers and Expense Reimbursements(8) -- -- -- --
------- ------- ------- ------
Net Expenses 1.25% 1.75% 2.00% 0.98%

<CAPTION>
TAX FREE FUND
---------------------------------
CLASS A CLASS B CLASS C MONEY MARKET FUND
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.25%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00% None
Other Expenses(7) 0.75% 0.75% 0.75% 0.25%
Total Annual Fund Operating Expenses 1.50% 2.00% 2.25% 0.50%
Fee Waivers and Expense Reimbursements(8) -- -- -- --
------- ------- ------- ------
Net Expenses 1.50% 2.00% 2.25% 0.50%
</TABLE>

NOTES TO THE FEES AND EXPENSES OF THE FUNDS

(1) You pay a sales charge of 4.75% on initial investments in Class A shares of
less than $50,000. You pay a reduced sales charge at certain breakpoints, as
follows:

- 4.50% on initial investments of at least $50,000 but less than $100,000

- 3.50% on initial investments of at least $100,000 but less than $250,000

- 2.50% on initial investments of at least $250,000 but less than $500,000

- 1.50% on initial investments of at least $500,000 but less than $1 million

- zero on initial investments of $1 million or more

(2) You pay an $8.00 transaction fee for each expedited wire redemption.

(3) Purchases of $1 million or more of Class A shares may be made without an
initial sales charge. Redemptions of such shares within the first thirteen
months after purchase, however, will be subject to a contingent deferred
sales charge of 1.00%.

(4) The maximum 3.00% contingent deferred sales charge on Class B shares applies
to redemptions during the first year after purchase. The charge declines to
2.00% during the second year, 1.00% during the third year, and zero during
the fourth year and thereafter.

10
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------

(5) A contingent deferred sales charge of 1.00% only applies to redemptions of
Class C shares during the first thirteen months after purchase.

(6) The "Management Fees" and "Other Expenses" shown for the Government Bond,
Primary, and Tax Free Funds are for the year ended August 31, 1998; for the
Money Market Fund, they are estimates for the first year of operation
(ending August 31, 1999).

(7) "Other Expenses" include the 0.25% Administrative Service Fee. Because Class
A, B, and C shares were not available prior to the date of this Prospectus,
"Other Expenses" for Class A, B, and C shares are based on the expenses and
average net assets of the Government Bond Fund and the Tax Free Fund for the
fiscal year ended August 31, 1998. "Other Expenses" shown for the Money
Market Fund are estimated for the current fiscal year ending August 31,
1999.

(8) The Fee Table reflects fees waived and expenses assumed CONTRACTUALLY by the
funds' manager, Securities Management and Research, Inc. ("SM&R"). Pursuant
to the Administrative Service Agreement, SM&R will pay (or reimburse) each
fund for regular operating expenses in excess of 1.25% (0.50% for the Money
Market Fund) per year of such fund's average daily net assets. Regular
operating expenses include the advisory fee and administrative fee, but do
not include the 12b-1 fee or class-specific expenses.

The Fee Table does not reflect fees waived or expenses assumed by SM&R on a
VOLUNTARY basis. During the fiscal year ended August 31, 1998, SM&R
voluntarily waived fees of 0.18% and 0.50% for the Primary Fund and Tax Free
Fund, respectively. SM&R intends to continue to voluntarily waive the
advisory fee for the Tax Free Fund. SM&R also intends to reimburse regular
operating expenses that exceed average daily net assets as follows: 0.80%
for the Primary Fund and 1.00% for the Government Bond Fund. SM&R may
discontinue or reduce any such waiver or reimbursement of expenses at any
time without notice.

The following table shows fees and expenses for the Government Bond,
Primary, and Tax Free Funds for the year ended August 31, 1998 taking into
account all fee waivers and expense reimbursements, both contractual and
voluntary. For the Money Market Fund, they are estimates considering
estimated fee waivers and expense reimbursements for the year ending August
31, 1999.

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER All Fee Waivers and Expense
Reimbursements)
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
------------------------------------------
CLASS A CLASS B CLASS C PRIMARY FUND
------------- ------------- ------------ ------------------------
<S> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.32%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00% None
Other Expenses 0.50% 0.50% 0.50% 0.48%
Total Annual Fund Operating Expenses 1.25% 1.75% 2.00% 0.80%

<CAPTION>
TAX FREE FUND
------------------------------------------
CLASS A CLASS B CLASS C MONEY MARKET FUND
------------- ------------- ------------ ------------------------
<S> <C> <C> <C> <C>
Management Fees 0.00% 0.00% 0.00% 0.25%
Distribution and/or Service (12 b-1) Fees 0.25% 0.75% 1.00% None
Other Expenses 0.75% 0.75% 0.75% 0.25%
Total Annual Fund Operating Expenses 1.00% 1.50% 1.75% 0.50%
</TABLE>

11
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------

EXAMPLES OF EXPENSES

These examples are intended to help you compare the cost of investing in the
funds with the cost of investing in other mutual funds. These examples assume
that you invest $10,000 in each fund and applicable class thereof for the time
periods indicated, based on expenses BEFORE fee waivers and expense
reimbursements. These examples also assume that your investment has a 5% return
each year and that the funds' operating expenses remain the same. YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER THAN SHOWN.

You would pay the following expenses, based on these assumptions, if you
actually redeem all of your shares at the end of the period shown:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Government Bond Fund
Class A...................................... $ 596 $ 853 $ 1,129 $ 1,915
Class B...................................... 478 651 949 1,931
Class C...................................... 401 721 1,167 2,404
Tax Free Fund
Class A...................................... $ 620 $ 927 $ 1,255 $ 2,180
Class B...................................... 503 727 1,078 2,199
Class C...................................... 426 796 1,293 2,659
Primary Fund................................... $ 100 $ 312 $ 542 $ 1,201
Money Market Fund.............................. $ 51 $ 160 $ 280 $ 628
</TABLE>

However, you would pay the following expenses, based on these assumptions, if
you did not redeem your shares:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Government Bond Fund
Class A...................................... $ 596 $ 853 $ 1,129 $ 1,915
Class B...................................... 178 551 949 1,931
Class C...................................... 301 721 1,167 2,404
Tax Free Fund
Class A...................................... $ 620 $ 927 $ 1,255 $ 2,180
Class B...................................... 203 627 1,078 2,199
Class C...................................... 326 796 1,293 2,659
Primary Fund................................... $ 100 $ 312 $ 542 $ 1,201
Money Market Fund.............................. $ 51 $ 160 $ 280 $ 628
</TABLE>

12
<PAGE>
SHARES OF THE FUNDS
- --------------------------------------------------------------------------------

SM&R Investments, Inc., formerly known as SM&R Capital Funds, Inc. (the
"Company" or "we") offers four separate investment portfolios. Two of the funds
offer multiple classes of shares with different sales charge and distribution
and service (12b-1) fee structures. Each class has its own cost structure,
allowing you to choose the class that best suits your circumstances and
preferences. Your representative can help you decide.

The Money Market and Primary Funds each consist of a single class of shares
offered at net asset value and do not impose any sales charges or distribution
and service (12b-1) fees. The Government Bond and Tax Free Funds offer three
classes of shares through this Prospectus, called Class A, Class B, and Class C.
The Government Bond and Tax Free Funds offer other classes through separate
prospectuses. The other classes can only be bought by specified types of
investors or through certain distribution channels. FOR MORE INFORMATION ON THE
OTHER CLASSES OF SHARES OR TO REQUEST A PROSPECTUS FOR ANOTHER CLASS, CALL
INVESTOR SERVICES AT (800) 231-4639.

You may select from among the following three classes of shares:

CLASS A
(FRONT-END LOAD)

- - Front-end sales charges, as described below. There are several ways to reduce
these charges, also described below.

- - Lower annual expenses than Class B or Class C shares.

CLASS B
(BACK-END LOAD)

- - No front-end sales charge; all your money goes to work for you right away.

- - Higher annual expenses than Class A shares.

- - A deferred sales charge on shares you sell within three years of purchase, as
described below.

- - Automatic conversion to Class A shares after eight years, thus reducing future
annual expenses.

CLASS C
(LEVEL LOAD)

- - Lower front-end sales charge than Class A shares, as described below.

- - Higher annual expenses than Class A and Class B shares.

- - A deferred sales charge on shares you sell within thirteen months of purchase,
as described below.

FOR EXPENSES OF CLASS A, B, AND C SHARES, SEE THE FEES AND EXPENSES OF THE FUNDS
EARLIER IN THIS PROSPECTUS.

13
<PAGE>
SALES CHARGES
- --------------------------------------------------------------------------------

CLASS A SALES CHARGES

The offering price of Class A shares is the net asset value plus a "front-end"
sales charge. The sales charge is a percentage of the offering price, as shown
in the following table:

<TABLE>
<CAPTION>
SALES CHARGE AS A %
SALES CHARGE AS A % OF
AMOUNT OF INVESTMENT OF OFFERING PRICE NET AMOUNT INVESTED
- ---------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $50,000 4.75% 4.9%
$50,000 but less than $100,000 4.5% 4.7%
$100,000 but less than $250,000 3.5% 3.6%
$250,000 but less than $500,000 2.5% 2.6%
$500,000 but less than $1,000,000 1.5% 1.5%
$1,000,000 and over See below None
</TABLE>

INVESTMENTS OF $1 MILLION OR MORE. If you invest $1 million or more in Class A
shares, you do not pay any "front-end" sales charge. However, you will pay a
contingent deferred sales charge (CDSC) of 1.00% of the offering price if you
redeem those shares within 13 months after you bought them. The CDSC will be
calculated in the same manner as for Class B shares, as described below.

CLASS B SALES CHARGES

Class B shares are sold at net asset value, without any initial sales charge.
However, there is a CDSC on shares you sell within three years of buying them.
The CDSC shown in the following table is a percentage of the offering price:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE PURCHASE (AS A % OF OFFERING PRICE)
- --------------------------------------------- ---------------------------------------------
<S> <C>
Year 1 3.00%
Year 2 2.00%
Year 3 1.00%
Year 4+ None
</TABLE>

If the net asset value of shares being redeemed has increased since you bought
them, we do not impose any CDSC on such increase in net asset value. We do not
impose any CDSC on shares you buy with reinvested dividends or capital gain
distributions. We will minimize any applicable CDSC by assuming that an investor
(i) first redeems Class B shares bought through reinvested dividends and capital
gains distributions, and (ii) next redeems Class B shares held the longest.

CLASS C SALES CHARGES

Class C shares are sold at the net asset value plus a "front-end" sales charge
of 1.00% of the offering price. A contingent deferred sales charge of 1.00% also
applies on redemptions of Class C shares during the first thirteen months after
purchase.

14
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
- --------------------------------------------------------------------------------

REDUCING YOUR CLASS A SALES CHARGE

DISCOUNTS THROUGH CONCURRENT PURCHASES. To qualify for a reduced sales charge on
Class A shares, you may combine concurrent purchases of Class A shares of funds
managed by Securities Management and Research, Inc. ("SM&R") on which you
paid a front-end sales charge. Investors that are eligible to combine
concurrent purchases to qualify for a reduced sales charge include:
(1) Any individual;
(2) Any individual, his or her spouse, and trusts or custodial accounts
for their minor children;
(3) A trustee or fiduciary of a single trust estate or single fiduciary
account;
(4) Tax-exempt organizations specified in Sections 501(c)(3) or (13) of
the Internal Revenue Code, or employees' trusts, pension,
profit-sharing, or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code; and
(5) Employees (or employers on behalf of employees) under any employee
benefit plan not qualified under Section 401 of the Internal Revenue
Code.

Purchases in connection with employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the fund will realize economies of scale in sales effort
and sales related expenses as a result of the employer's or the plan's
bearing the expense of any payroll deduction plan, making the fund's
prospectus available to individual investors or employees, forwarding
investments by such employees to the funds or the like.

DISCOUNTS THROUGH A RIGHT OF ACCUMULATION. If you already own Class A or Class T
shares of a fund managed by SM&R, on which you paid a front-end sales charge,
you may be able to receive a discount when you buy additional shares. The
current net asset value of the shares you already own may be
"accumulated"--I.E., combined together with the dollar amount being
invested-- to achieve quantities eligible for discount.

LETTER OF INTENT. You may qualify for a reduced sales charge on purchases of
Class A shares of funds managed by SM&R by completing the Letter of Intent
section of the account application. Under a Letter of Intent, an investor
expresses an intention to purchase, within 13 months of the initial
investment, a specified amount of Class A shares of funds managed by SM&R
which, if made concurrently, would qualify for a reduced sales charge. Upon
execution of the Letter of Intent, the investor must make a minimum initial
investment equal to ten percent (10%) of the amount necessary to qualify for
the applicable reduced sales charge. To assure that the full applicable
sales charge will be paid if the intended purchase is not completed, five
percent (5%) of the total intended purchase amount will be held in escrow in
shares registered in the investor's name. Shares held in escrow under a
Letter of Intent are not eligible for the exchange privilege until the
Letter of Intent is completed or canceled. A Letter of Intent does not
represent a binding obligation on the part of the investor to purchase or
the funds to sell the full amount of shares specified.

15
<PAGE>
WAIVER OF SALES CHARGES. Class A shares may be sold without a "front-end" sales
charge (at net asset value) to:
a. persons appointed as insurance agents by: (1) American National
Insurance Company ("American National"), (2) American National
subsidiaries, and (3) any insurance company for which any of American
National's present directors serve as a director (and the spouses of
such persons);
b. any child, step-child, grand child, parent, grandparent, brother or
sister of any person named in (a) above and their spouses;
c. any trust, pension, profit-sharing plan, IRA, or other benefit plan
for any persons mentioned in (a) or (b) above;
d. custodial accounts for minor children of such persons mentioned in
(a) pursuant to the Uniform Gift to Minors or Uniform Transfers to
Minors Acts;
e. persons who have received a distribution from a pension,
profit-sharing, or other benefit plan, to the extent such
distribution represents the proceeds of a redemption of shares of any
fund managed by SM&R (other than the Money Market and Primary Funds);
f. policyholders of American National subsidiaries that have entered
into a net asset value agreement with SM&R;
g. persons purchasing shares for a federal or state sponsored
post-secondary education funding program;
h. members of any non-profit business, trade, professional, charitable,
civic or similar associations and clubs with an active membership of
at least 100 persons;
i. registered representatives and employees of dealers who have entered
into mutual fund sales or distribution agreements with SM&R and
members of the immediate family (including spouse, children, parents
and parents of spouse) provided that purchases at net asset value are
permitted by the policies of the dealer; and
j. any other persons that have been determined by the Board of
Directors (or by the distributor based on guidelines established by
the Board) to have acquired shares under circumstances not involving
any sales expense to the Funds.

YOU HAVE THE SOLE RESPONSIBILITY OF NOTIFYING SM&R THAT YOU INTEND TO QUALIFY
UNDER ONE OF THESE CATEGORIES.

The funds may terminate or change the terms of any waiver of sales charges at
any time.

CLASS B WAIVERS OF CONTINGENT DEFERRED SALES CHARGES

The CDSC will be waived on the following redemptions of Class B shares:

(1) 12% FREE AMOUNT. We waive the CDSC on redemptions pursuant to a
systematic withdrawal plan of up to 12% of account value per year. We
apply this 12% waiver on a per fund basis to the account value determined
at the time you elect a systematic withdrawal plan. (Remember that the
CDSC does not apply to appreciation and reinvested dividends. Redemptions
from appreciation and reinvested dividends, which occur first, do not
count toward the 12% free amount.)

(2) DEATH OR DISABILITY. We waive the CDSC on redemptions of Class B shares
following the shareholder's death or disability, so long as:

16
<PAGE>
(a) the disability began after the shares were purchased;
(b) SM&R is notified of such death or disability at the time of the
redemption request and receives satisfactory evidence of such death
or post-purchase disability;
(c) the redemptions are made within one year following death or initial
determination of disability; and
(d) the shares were held at the time of death or initial determination of
disability.

For purposes of this waiver, the death or disability must meet the
definition in Section 72(m)(7) of the Internal Revenue Code (the "Code"). If
the shares are held in a joint account, then all registered joint owners
must be dead or disabled.

(3) MINIMUM REQUIRED DISTRIBUTIONS. We waive the CDSC on redemptions of
Class B shares in connection with certain distributions from four types
of qualified retirement plans: IRAs, custodial accounts maintained
pursuant to Code Section 403(b), deferred compensation plans qualified
under Code 457 and plans qualified under Code Section 401. To qualify for
the waiver, the redemptions must result from one of the following:
(a) required minimum distributions to plan participants or beneficiaries
who are age 70 1/2 or older to the extent it does not exceed 12%
annually of the participant's or beneficiary's account value;
(b) tax-free rollovers or transfers of assets to another IRA, Section
403(b) plan, Section 457 plan or Section 401 plan invested in Class B
shares of one or more funds managed by SM&R;
(c) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(d) distributions upon the death or disability (as defined in the Code)
of the participant or beneficiary.

(4) SMALL ACCOUNTS. We waive the CDSC on redemptions by the funds of small
accounts (accounts with a value less than $500).

(5) SM&R INVESTMENTS. We waive the CDSC on redemptions of shares owned by
SM&R or any of its affiliates.

DISTRIBUTION AND SHAREHOLDER SERVICE (12b-1) FEE

Classes A, B, and C pay SM&R, the principal underwriter, a distribution and/or
shareholder servicing (12b-1) fee. BECAUSE DISTRIBUTION AND/OR SHAREHOLDER
SERVICING (12b-1) FEES ARE PAID OUT OF FUND ASSETS ON AN ONGOING BASIS, THE FEES
MAY, OVER TIME, INCREASE THE COST OF AN INVESTMENT IN A FUND AND COST INVESTORS
MORE THAN OTHER TYPES OF SALES LOADS.

These fees are computed as an annual percentage of the average daily net assets
of each class of shares of a fund, as follows:

<TABLE>
<CAPTION>
DISTRIBUTION SERVICE TOTAL 12b-1
CLASS FEE FEE FEE
- ------------------------------------------------------------------------------------ ----------- --------- -----------
<S> <C> <C> <C>
Class A Shares (FRONT-END LOAD)..................................................... 0.25% -0- 0.25%
Class B Shares (BACK-END LOAD (CDSC))............................................... 0.50% 0.25% 0.75%
Class C Shares (LEVEL LOAD)......................................................... 0.75% 0.25% 1.00%
</TABLE>

The distribution fee is for services that are primarily intended to result in or
are primarily attributable to the distribution of the Class A, B, and C shares.
The service fee is for providing ongoing

17
<PAGE>
servicing to shareholders of the Class B and C shares. These fees compensate
SM&R, or enable SM&R to compensate other persons (including distributors of the
shares), for providing such services.

INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

Each fund pursues its own investment objective through various investment
policies and techniques. ONLY THE PRINCIPAL INVESTMENT STRATEGIES OF EACH FUND
AND THE PRINCIPAL TYPES OF SECURITIES EACH FUND PLANS TO PURCHASE ARE DESCRIBED
BELOW. More investment information is in the Statement of Additional
Information. These policies and techniques are not fundamental and may be
changed by the Board of Directors without shareholder approval.

Because of the market risks inherent in any investment, the funds may not
achieve their investment objectives. In addition, effective management of each
fund is subject to general economic conditions and to the ability and investment
techniques of management. The net asset value of each fund's shares will vary
and the redemption value of shares may be either higher or lower than the
shareholder's cost. Since each fund has a different investment objective, each
will have different investment results and incur different market, financial,
and other risks.

GOVERNMENT BOND FUND
(FORMERLY NAMED AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES)

The Government Bond Fund seeks to achieve its objective through investment of
65% or more of its total assets in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations")
which include, but are not limited to, U.S. Treasury Bonds, Notes and Bills and
securities issued by instrumentalities of the U.S. Government.

U.S. GOVERNMENT OBLIGATIONS--There are two broad categories of U.S. Government
Obligations:
(1) direct obligations of the U.S. Treasury, and
(2) obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government.

Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government are backed by the full faith and credit of the United
States (such as Government National Mortgage Association Certificates);
others, by the agency or instrumentality with limited rights of the issuer
to borrow from the U.S. Treasury (such as Federal National Mortgage
Association Bonds); and others, only by the credit of the issuer. No
assurance can be given that the U.S. Government would lend money to or
otherwise provide financial support to U.S. Government sponsored
instrumentalities; it is not obligated by law to do so.

18
<PAGE>
originated by the U.S. Government and guaranteed by U.S. Government agencies
such as GNMA, FNMA, or FHLMC. Such certificates, which are ownership
interests in the underlying mortgage loans, differ from conventional debt
securities which provide for periodic payment of interest in fixed amounts
and principal payments at maturity or on specified dates. With pass-through
certificates, both principal and interest payments, including prepayments,
are passed through to the holder of the certificate and provide for monthly
payments of interest and principal. GNMA, a federal agency, issues
pass-through certificates that are guaranteed as to timely payment of
principal and interest. FNMA, a federally chartered and privately owned
corporation, issues mortgage pass-through securities and guarantees them as
to timely payment of principal and interest. FHLMC, a corporate
instrumentality of the United States, issues participation certificates that
represent an interest in mortgages from FHLMC's portfolio. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal.
FNMA and FHLMC are not backed by the full faith and credit of the United
States, although FNMA and FHLMC are authorized to borrow from the U.S.
Treasury to meet their obligations. Those mentioned are but a few of the
mortgage-backed securities currently available. The Government Bond Fund
will not purchase interest-only or principal-only mortgage-backed
securities.

The yield characteristics of mortgage-backed securities differ from
traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. The average mortgage in a pool may be
expected to be repaid within about twelve (12) years. If mortgage interest
rates decrease, the value of the Government Bond Fund's securities will
generally increase. However, we anticipate that the average life of the
mortgages in the pool will decrease as borrowers refinance and prepay
mortgages to take advantage of lower interest rates. The Government Bond
Fund invests the proceeds from such prepayments at the then prevailing lower
interest rates. On the other hand, if interest rates increase, the value of
the Fund's securities generally will decrease while it is anticipated that
borrowers will not refinance and, therefore, the average life of the
mortgages in the pool will be longer. In addition, if the Government Bond
Fund purchases such a security at a premium, a prepayment rate faster than
expected will reduce yield to maturity, while a prepayment rate slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Government Bond Fund purchases these securities at a
discount, faster than expected prepayments will increase yield to maturity,
while slower than expected prepayments will reduce yield to maturity.

COLLATERALIZED MORTGAGE OBLIGATIONS--The Government Bond Fund may invest a
portion of its assets in collateralized mortgage obligations or "CMOs," which
are debt obligations collateralized by a portfolio or pool of mortgages,
mortgage-backed securities, or U.S. Government securities. Collateralized
obligations in which the Government Bond Fund may invest are issued or
guaranteed by a U.S. Government agency or instrumentality, such as the
FHLMC. A variety of types of collateralized obligations are currently
available and others may become available in the future. One should keep in
mind that during periods of rapid interest rate fluctuation, the price of a
security, such as a CMO, could either increase or decrease based on inherent
interest rate risk. Additionally, the risk of maturities shortening or
lengthening in conjunction with interest rate movement, could magnify the
overall effect of the price fluctuation.

19
<PAGE>
A CMO is often issued in multiple classes with varying maturities and
interest rates. As a result the investor may obtain greater predictability
of maturity than with direct investments in mortgage-backed securities.
Thus, classes with shorter maturities may have lower volatility and lower
yield while those with longer maturities may have higher volatility and
higher yields. This provides the investor with greater control over the
characteristics of the investment in a changing interest rate environment. A
more complete description of CMOs is contained in the Statement of
Additional Information.

The Government Bond Fund may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
PAC Bonds generally require payments of a specified amount of principal on
each payment date. PAC Bonds are always parallel pay CMOs with the required
principal payment on such securities having the highest priority after
interest has been paid to all classes.

The Government Bond Fund may also invest in securities issued by private
issuers that represent an interest in or are secured by mortgage-backed
securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities. In addition, the fund may invest in
securities issued by private issuers that represent an interest in or are
secured by mortgage loans or mortgage-backed securities without a government
guarantee but usually have some form of private credit enhancement.

ZERO COUPON BONDS--The Government Bond Fund may invest in zero coupon bonds,
which are debt obligations issued or purchased at a significant discount from
face value. The Government Bond Fund will only purchase zero coupon bonds
which are U.S. Government Obligations. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds
do not entitle the holder to any periodic payments of interest prior to
maturity. Its value as an investment consists of the difference between its
face value at the time of maturity and the price for which it was acquired
which is generally an amount significantly less than face value (sometimes
referred to as a "deep discount" price). Zero coupon bonds require a higher
rate of return to attract investors who are willing to defer receipt of
cash. Accordingly, although not providing current income, SM&R believes that
zero coupon bonds can be effectively used to lock in a higher rate of return
in a declining interest environment. Such investments may experience greater
volatility in market value than debt obligations which make regular payments
of interest. The Fund will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations.

TAX FREE FUND (FORMERLY NAMED AMERICAN NATIONAL TAX FREE FUND SERIES)

The Tax Free Fund, as a matter of fundamental policy, seeks to achieve its
objective by investing at least 80% of the value of its net assets in municipal
securities the interest on which is exempt from federal income taxes.

The Tax Free Fund has no restrictions on the maturity of municipal securities in
which it may invest. Accordingly, it will seek to invest in municipal securities
of such maturities which, in the

20
<PAGE>
judgement of SM&R, the adviser, will provide a high level of current income
consistent with prudent investment, with consideration given to market
conditions.

The Tax Free Fund will invest, without percentage limitations, in municipal
securities having at the time of purchase one of the four highest municipal
ratings by Moody's Investor Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), or Fitch IBCA ("Fitch") (E.G., MIG 4 or higher by Moody's)
or in securities which are not rated, provided that, in the opinion of SM&R,
such securities are comparable in quality to those within the four highest
ratings. The rating agencies consider that bonds rated in the fourth highest
category may have some speculative characteristics and that changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments on those bonds than is the case with
higher grade bonds. SM&R will only purchase bonds rated in such fourth category
if it believes that the purchase of such bonds is consistent with the Tax Free
Fund's investment objective. In the event the rating of an issue held by the Tax
Free Fund is changed by the rating service, such change will be considered by
the Tax Free Fund in its evaluation of the overall investment merits of that
security but such change will not necessarily result in an automatic sale of the
security. Any security held which is subsequently downgraded below BBB by S&P or
Baa by Moody's will be sold as soon as it is advantageous to do so after the
downgrade. A description of the ratings may be found in the Appendix to this
Prospectus.

Purchasing unrated municipal securities, which may be less liquid than
comparably rated municipal securities, involves somewhat greater risk and
consequently the Tax Free Fund may not invest more than 20% of its net assets in
unrated municipal securities. To attempt to minimize the risk of such
investments, SM&R will, prior to acquiring unrated securities, consider the
terms of the offering and various other factors to determine the issuer's
comparative credit rating and whether the securities are consistent with the Tax
Free Fund's investment objective and policies.

During normal market conditions, the Tax Free Fund will have at least 80% of its
net assets invested in municipal securities the income of which is fully exempt
from federal income taxation. Furthermore, under normal market conditions up to
20% of the Tax Free Fund's net assets, and as a temporary defensive measure
during abnormal market conditions, up to 50% of its net assets may be invested
in the following types of taxable fixed income obligations:
(1) obligations issued or guaranteed by the U.S. government, its
agencies, instrumentalities or authorities (See "Government Bond
Fund" above for an explanation of U.S. government obligations);
(2) corporate debt securities which at the date of the investment are
rated A or higher by Moody's, S&P or Fitch;
(3) commercial paper which at the date of the investment is rated in one
of the two top categories by Moody's or by S&P or if not rated, is
issued by a company which at the date of the investment has an
outstanding debt issue rated A or higher by Moody's or A or higher by
S&P;
(4) certificates of deposit issued by U.S. banks which at the date of the
investment have capital surplus and undivided profits of $1 billion
as of the date of their most recently published financial statements;
and
(5) repurchase agreements secured by U.S. government securities, provided
that no more than 15% of the Fund's net assets will be invested in
illiquid securities including repurchase agreements with maturities
in excess of seven days.

21
<PAGE>
To the extent income dividends include income from taxable sources, a portion of
a shareholder's dividend income may be taxable. (See "Dividends, Distributions,
and Taxes"). In addition, Congress could enact tax legislation such as a flat
tax rate that would make tax-free bonds less desirable to investors seeking ways
to reduce taxable income. If that were to occur, it could cause the value of the
securities to drop.

The Tax Free Fund's ability to achieve its objective depends partially on the
prompt payment by issuers of the interest on and principal of the municipal
securities held. A moratorium, default, or other non-payment of interest or
principal when due could, in addition to affecting the market value and
liquidity of the particular security, affect the market value and liquidity of
other municipal securities. Additionally, the market for municipal securities is
often thin and can be temporarily affected by large purchases and sales. As a
result, the Tax Free Fund will attempt to minimize risk by diversifying its
investments by investing no more than 5% of its net assets in the securities of
any one issuer (this limitation does not apply to investments issued or
guaranteed by the U.S. Government or its instrumentalities) and by investing no
more than 25% of its net assets in municipal securities issued in any one state
or territory. Each political subdivision, agency, instrumentality, and each
multi-state agency of which a state is a member will be regarded as a separate
issuer for the purpose of determining diversification.

MUNICIPAL SECURITIES--The term "municipal securities," as used in this
Prospectus means obligations issued by or on behalf of states, territories, and
possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is
exempt from federal income tax. An opinion as to the tax-exempt status of a
municipal security generally is rendered to the issuer by the issuer's
counsel at the time of issuance of the security. Neither the funds nor SM&R
will review the proceedings relating to the issuance of municipal
obligations or the basis for opinions of counsel.

Municipal securities are used to raise money for various public purposes
such as constructing public facilities and making loans to public
institutions. Certain types of municipal bonds are issued to obtain funding
for privately operated facilities. Further information on the maturity and
funding classifications of municipal securities is included in the Statement
of Additional Information.

Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the
municipal securities market, the size of a particular offering, the maturity
of the obligation and the credit rating of the issuer. Like other
interest-bearing securities, the value of municipal securities changes as
interest rates fluctuate. For example, if interest rates increase from the
time a security is purchased, the security's value and sales price generally
will be less than its purchase cost. Conversely, if interest rates decline
from the time a security is purchased, the security's value and sales price
may be greater than its purchase cost. Generally, municipal securities of
longer maturities produce higher current yields than municipal securities
with shorter maturities but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher yield with
shorter maturities than higher-rated municipal securities due to the
perception of a greater degree of risk as to the ability of the issuer to
pay principal and interest.

22
<PAGE>
The Tax Free Fund may purchase municipal bonds for which the payments of
principal and interest are secured by an escrow account of securities backed
by the full faith and credit of the U.S. government ("defeased") and
municipal securities whose principal and interest payments are insured by a
commercial insurance company as long as the underlying credit is investment
grade (BBB or better by S&P and Fitch and Baa or better by Moody's)
("insured"). The Tax Free Fund may also purchase unrated securities of
issuers which SM&R believes would have been rated BBB or Baa had the issuer
requested a rating from S&P, Fitch or Moody's. Such implied investment grade
rating will be determined by SM&R upon its performance of a credit analysis
of the issue and the issuer. Such credit analysis may consist of a review of
such items as the issuer's debt characteristics, financial information,
structure of the issue, liquidity of the issue, quality of the issuer,
current economic climate, financial adviser, and underwriter. Insured and
defeased bonds are further described in the Statement of Additional
Information. In general, these types of municipal securities will not be
treated as an obligation of the original municipality for purposes of
determining industry concentration.

PRIMARY FUND (FORMERLY NAMED AMERICAN NATIONAL PRIMARY FUND SERIES)

Commercial paper is short-term unsecured promissory notes issued by corporations
to finance short-term credit needs. Commercial paper is usually sold on a
discount basis and has a maturity at the time of issuance not exceeding nine
months. The Primary Fund will invest only in commercial paper which, at the date
of such investment, is rated in one of the two top categories by one or more of
the nationally recognized statistical rating organizations ("NRSROs") (See the
"Appendix" hereto for information about such ratings and such rating
organizations).

The Primary Fund, consistent with its investment objective, will attempt to
maximize yield by trying to take advantage of changing conditions and trends. It
may also attempt to take advantage of what are believed to be disparities in
yield relationships between different instruments. This procedure may increase
or decrease the portfolio yield depending upon the Primary Fund's ability to
correctly time and execute such transactions. Although the Primary Fund's assets
will be invested in securities with short maturities, the Primary Fund will
manage its portfolio as described above. (See "Portfolio Transactions and
Brokerage Allocation" in the Statement of Additional Information.)

OTHER INVESTMENTS--The Primary Fund may invest in (i) U.S. Government
Obligations (See the "Government Bond Fund" above for an explanation of U.S.
Government Obligations); (ii) other corporate obligations, such as bonds,
debentures or notes maturing in five (5) years or less at the time of
purchase which at the date of the investment are rated "A" or higher by an
NRSRO; and (iii) negotiable certificates of deposit of banks (including U.S.
dollar denominated obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks and savings and loan associations and banker's
acceptances of U.S. banks which banks and savings and loan associations have
total assets at the date of investment (as of the date of their most recent
published financial statements) of at least $1 billion (See "INVESTMENT
OBJECTIVES AND POLICIES-Certificates of Deposit and Bankers Acceptances" in
the Statement of Additional Information for a description of the securities)
and (iv) repurchase agreements with respect to any type of instrument in
which the Primary Fund is authorized to invest even though the underlying
instrument may mature in more than two (2) years.

23
<PAGE>
MONEY MARKET FUND

The Money Market Fund seeks to achieve its objective by investing in short-term
money market instruments determined to be of high quality by SM&R pursuant to
guidelines established by the Company's Board of Directors. The Money Market
Fund may invest in the following types of high quality debt obligations:

(1) U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations consist of
marketable securities issued or guaranteed as to both principal and
interest by the United States Government or by its agencies and
instrumentalities. (See "Government Bond Fund" above for an explanation
of U.S. Government Obligations).

(2) CERTIFICATES OF DEPOSIT. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a
definite period of time and earning a specified return. The Money Market
Fund will invest only in certificates of deposit of U.S. banks that have
total assets in excess of $1 billion at the time of investment.

(3) BANKER'S ACCEPTANCES. Banker's acceptances are short-term instruments
issued by banks, generally for the purpose of financing imports or
exports. An acceptance is a time draft drawn on a bank by the importer or
exporter to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" and is an irrevocable
obligation of the issuing bank.

(4) COMMERCIAL PAPER. As discussed above under "Primary Fund," commercial
paper is short-term unsecured promissory notes issued by corporations to
finance short-term credit needs.

(5) BONDS AND NOTES. The Money Market Fund may invest in corporate bonds or
notes with a remaining maturity of one year or less.

(6) COLLATERALIZED MORTGAGE OBLIGATIONS As discussed above under
"Government Bond Fund," CMOs are debt obligations collateralized by a
portfolio or pool of mortgages, mortgage-backed securities, or U.S.
Government securities.

The Money Market Fund does not currently intend to invest in unrated securities,
securities subject to demand features, floating rate instruments, securities
subject to guarantees, and variable rate instruments.

The Money Market Fund limits its investments to those short-term securities that
the Board determines present minimal credit risk and that are "Eligible
Securities" when acquired by the Fund. As used in this Prospectus, "Eligible
Securities" means securities that are:
(a) rated in one of the two highest short-term rating categories, or
(b) whose issuer has another class of debt obligations rated in one of
the two highest short-term rating categories.

To rely on a rating assigned to other debt obligations, those obligations must
be of comparable priority and security. All ratings must have been issued by the
requisite NRSROs. Currently, five organizations are NRSROs: Moody's, S&P, Fitch
IBCA, Duff and Phelps, Inc., and Thomson BankWatch, Inc. A discussion of the
ratings categories of S&P and Moody's is contained in the Appendix.

24
<PAGE>
The Money Market Fund generally limits its investments in securities, as
follows:

- It will not invest in securities issued by any one issuer, other than the
U.S. Government, its agencies, or instrumentalities, in an amount that
exceeds 5% of its total assets.

- It will not invest more than 5% of its total assets in securities relying
on ratings in the second highest rating category.

- It will not invest more than 1% of its total assets in securities of any
one issuer that rely on ratings in the second highest rating category.

(See "Investment Objectives and Policies" in the Statement of Additional
Information for a more detailed explanation of the investment categories.) The
Fund will maintain a dollar-weighted average portfolio maturity of 90 days or
less, and will not invest in any security with a remaining maturity of over 397
days (13 months).

Investments in money market instruments are subject to the ability of the issuer
to make payment at maturity. In addition, the Money Market Fund's performance
will vary depending on changes in short-term interest rates. However, both the
financial and market risks of investment in the Money Market Fund may be
expected to be less than for any other Fund. By limiting its investments to
Eligible Securities, the Money Market Fund may not achieve as high a level of
current income as a fund investing in lower-rated securities.

RISK FACTORS
- --------------------------------------------------------------------------------

The following discussion relates to all four funds. The risk/return summary
located at the beginning of this prospectus identifies some specific risks
applicable to each individual fund.

GENERAL. There is no assurance that a fund will achieve its goals. Generally, if
the securities owned by a fund increase in value, the value of the shares of the
fund which you own will increase. Similarly, if the securities owned by a
fund decrease in value, the value of your shares will also go down. In this
way, you participate in any change in the value of the securities owned by a
fund.

The risk inherent in investing in any fund is a risk common to any security.
That is, the value of a fund's shares will fluctuate in response to changes
in economic conditions, interest rates and the market's perception of the
underlying portfolio securities held by that fund. Each fund's share value
depends on general economic and securities market conditions, the investment
decisions of its management, and numerous other factors. All of these
factors are inherently uncertain and, in some cases, unforeseeable.

Any of the funds could lose money if the stock markets in general go down or
if the particular debt obligations purchased by a fund go down in value. In
addition, the funds could lose money if prevailing interest rates increase
or if the debt securities purchased by a fund are downgraded or defaulted
upon.

25
<PAGE>
after a security is purchased, such security might be valued and/or sold at
a price greater than its cost. If interest rates were to drop dramatically,
some of the securities could be called and/ or prepaid, requiring
reinvesting in securities at much lower yields.

On the other hand, when prevailing interest rates rise, the values of
already-issued debt securities generally fall. Accordingly, if interest
rates increase after a security is purchased, such security might be valued
and/or sold at a price less than its cost. In such circumstances, the value
of existing bonds decrease because the interest payments from existing bonds
are less attractive than new issues with higher interest rates and investors
would lose money if they liquidate holdings.

The funds could lose money if any bonds they own are downgraded in credit
rating or go into default. A moratorium, default, or other non-payment of
interest or principal when due could, in addition to affecting the market
value and liquidity of the particular security, affect the market value and
liquidity of other securities. A change in credit rating of an issuer can
also affect the bond's value, thus affecting the market value of the funds.
However, the funds invest predominately in investment grade bonds in order
to minimize credit risk. (See "Investment Objectives and Policies" for more
information about the ratings required for investments by each specific
fund.) Moreover, substantial redemptions of fund shares could require a fund
to sell portfolio securities at a time when a sale might not be favorable.

U.S. GOVERNMENT OBLIGATIONS. Investments in U.S. Government Obligations are not
all backed by the "full faith and credit" of the United States Government. Some
are backed only by the rights of the issuer to borrow from the U.S. Treasury
and others are supported only by the credit of the issuing instrumentality.
No assurance can be given that the U.S. Government would lend money to or
otherwise provide financial support to U.S. Government sponsored
instrumentalities.

MARKET RISKS. Because the funds may invest in debt obligations which are traded
on securities exchanges, the value of each fund's portfolio will be affected by
changes in the stock markets. At times, the stock markets can be volatile
and stock prices can change substantially. This market risk will affect each
fund's net asset value per share, which will fluctuate as the values of each
fund's portfolio securities change. Prices do not always change uniformly or
at the same time and the various stock markets do not always move in the
same direction at the same time. Other factors specific to a particular
company also affect the price of that company's debt obligations (for
example, poor earnings, loss of major customers, or major litigation). The
funds cannot always predict the factors that will affect a security's price.
The funds, however, do attempt to limit market risk by diversifying their
investments. The funds diversify their investments by generally investing
only a small percentage of their assets in the debt obligations of any one
company and by not holding a substantial amount of the debt obligations of
any one company.

26
<PAGE>
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a security and
simultaneously sells it to the vendor for delivery at a future date. These
agreements are used primarily for cash purposes. A fund entering into a
repurchase agreement may lose money if the other party to the transaction
fails to pay the resale price on the delivery date. Such a default may delay
or prevent the fund from disposing of the underlying securities. The value
of the underlying securities may go down during the period in which the fund
seeks to dispose of them. Also, the fund may incur expenses while trying to
sell the underlying securities. Finally, the fund risks losing all or a part
of the income from the agreement.

OTHER RISKS. Each investor will be subject to all the risks normally attendant
to business operations, changes in general economic conditions, governmental
rules and fiscal policies, acts of God, and other factors beyond the control
of the funds' management.

YEAR 2000 RISKS. Many services provided to the funds and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900
because of the way dates are encoded and calculated, referred to as the
"Year 2000 Problem." The Year 2000 Problem could have a negative impact on
handling securities trades, payment of interest and dividends, pricing, and
account services. Like other mutual funds, financial and business
organizations, and individuals around the world, the funds could be
adversely affected if the computer systems used by SM&R (which acts as their
investment adviser, underwriter, custodian, and transfer agent) do not
properly process and calculate date-related information and data from and
after January 1, 2000. SM&R is taking steps to address the Year 2000 Problem
with respect to the computer systems that it uses and to obtain assurances
that comparable steps are being taken by any other service providers. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the funds and their shareholders.

PURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
PURCHASING SHARES

You may purchase shares of a fund from registered representatives of SM&R, from
authorized broker-dealers, or directly from SM&R. Such purchases will be at the
offering price for such shares determined as and when provided below (See
"Pricing of Fund Shares"). You should carefully review all account statements
and promptly report any discrepancies to SM&R. You may make initial and
subsequent purchases directly through SM&R at the following address:

Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969

Certificates are not issued for shares of the funds. SM&R confirms investors'
purchases and credits such purchases to their accounts on the books maintained
by SM&R. Investors have the same rights of share ownership as they would if
certificates had been issued.

Investors whose shares are held in the name of a broker-dealer or other party
are not shareholders of record and, therefore, may not be able to utilize
services available only to shareholders of record.

27
<PAGE>
OPENING AN ACCOUNT: To purchase shares, you must submit a completed account
application which includes the purchaser suitability form. If you would like
to take advantage of the electronic services available, please complete the
applicable Special Investor Services section of the account application.
Special forms are required when establishing an IRA/SEP or 403(b) plan.
Please call Investor Services at (800) 231-4639 and request special forms
when establishing retirement plans.

MINIMUM PURCHASE REQUIREMENT: The minimum initial investment requirement is $100
for the Government Bond and Tax Free Funds, and $1,000 for the Money Market
and Primary Funds. The minimum amount of any subsequent purchase is $20 for
the Government Bond and Tax Free Funds, and $100 for the Money Market and
Primary Funds. We waive these initial investment minimums when purchases are
part of certain systematic investment programs (See "Special Purchase Plans
and Services" for additional information on reduction of the minimums). We
reserve the right to reject any purchase.

PURCHASES BY MAIL: Make your check(s) payable to SM&R and send the check(s) to
the address indicated above. Please note that third party checks will not be
accepted to open a new account, except for IRA rollover checks that are
properly endorsed. If you make subsequent investments by mail, you must
indicate your name, account number, and the name of the class and the fund
being purchased. You may use the remittance slip attached to the
confirmation statement.

PURCHASES BY WIRE: TO ENSURE PROPER CREDITING OF A WIRE INVESTMENT, YOU MUST
HAVE AN EXECUTED ACCOUNT APPLICATION AND PURCHASER SUITABILITY FORM ON FILE
WITH THE TRANSFER AGENT. You may then wire your investment to The Moody
National Bank of Galveston ("Moody National Bank") by providing the
following instructions to your bank:

The Moody National Bank of Galveston ABA #113100091
Securities Management and Research, Inc. #035 868 9
Name of Class and Fund (E.G., Class A of the Government Bond Fund)
Fund Account Number (number appears on your confirmation statement)
Your Name (E.G., Mary Smith)

PURCHASES BY EXCHANGE: Call Investor Services if you have established telephone
exchange privileges on your account. See "Special Purchase Plans and
Services--Exchange Privilege" for procedures and additional information
relating to telephone exchanges. For limitations on exchanges, see
"Excessive Trading" also under "Special Purchase Plans and Services."

PRICING OF FUND SHARES

GENERAL (HOW SHARES ARE PRICED). We determine each fund's offering price once
each day the New York Stock Exchange (the "Exchange") is open for regular
trading. The offering price equals a fund's net asset value plus the sales
charge, if any, computed at the rate set forth in the applicable tables for
the classes. (See "Shares of the Funds--Sales Charges.") You may purchase
shares of the Primary and Money Market Funds without a sales charge.
Accordingly, the offering price for shares of the Primary and Money Market
Funds is net asset value.

Although the legal rights of the Class A, B, and C shares are substantially
identical, the different expenses borne by each class will result in
different net asset values and dividends. The net

28
<PAGE>
asset value of the Class B and C shares generally will be lower than the
Class A shares as a result of respective service and distribution (12b-1)
fees charged.

EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS (WHEN SHARES ARE PRICED). We
calculate net asset value once each day at the close of regular trading on
the Exchange (currently 3:00 p.m. Central Time). In the event the Exchange
closes early on a particular day, we will determine the net asset value of
each fund as of the close of the Exchange that day. The price you pay or
receive for shares of a fund depends, in part, on the day and time you make
your purchase or redemption. On any day the Exchange is open for regular
trading, we will execute purchases and redemptions at the next applicable
price determined THAT DAY if:

- SM&R receives your order in proper form prior to the close of the
Exchange;

- a securities dealer having a dealer contract with SM&R receives your
order prior to the close of the Exchange and reports your order to SM&R
prior to SM&R's close of business (currently 4:30 p.m. Central Time) on
the same day; or

- for purchases, Moody National Bank receives your purchase payment by bank
wire and reports it to SM&R prior to the close of the Exchange.

If we receive your order after the close of the Exchange or on any day that
the Exchange is closed, we will execute your purchase or redemption at the
price determined on the next business day. In unusual circumstances, any
fund may temporarily suspend the processing of sell requests, or may
postpone payment of proceeds for up to three business days or longer, as
allowed by federal securities laws.

SPECIAL PURCHASE PLANS AND SERVICES

In addition to the special plans described above, that permit you to reduce the
initial sales charge assessed on Class A shares or the CDSC on Class B shares,
the Company offers other services and plans that are designed to facilitate
investment in the funds. At this time, there is no charge to you for these
services. The Company may impose fees for such services in the future. Be aware,
however, that if you elect to participate in the ACH plan described below, you
should check with your financial institution for any additional charges imposed
for this service. For additional information contact your registered
representative, broker-dealer or SM&R. A shareholder considering any of the
plans or services described below should consult a tax advisor before beginning
a plan.

ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your account(s) and your bank, savings and loan, or credit
union account using the Automated Clearing House ("ACH") network. To arrange
for electronic transfers, complete the relevant Special Investor Services
section of the account application at the time you open your account and
specify the type of service or services desired. Attach a voided,
pre-printed check or deposit slip from your checking, savings and loan, or
credit union account. PASSBOOK SAVINGS ACCOUNTS ARE NOT ELIGIBLE FOR THE
ELECTRONIC TRANSFER OPTION. ADDITIONALLY, YOUR BANK MUST BE A MEMBER OF THE
AUTOMATED CLEARING HOUSE (ACH) NETWORK FOR YOU TO TAKE ADVANTAGE OF THIS
SERVICE. You will receive a confirmation verifying initialization of the
electronic transfer option and may begin conducting transactions in your
account(s) under this option approximately 20 calendar days after receipt of
the verification notice from SM&R. If you elect this option after

29
<PAGE>
your account is established, it may be necessary for you to obtain a
signature guarantee for all individuals named on the account(s).

TELEPHONE SERVICES. You can only use telephone services for transaction amounts
of $500 or more. You can take advantage of this service by completing the
appropriate Special Investor Services sections of the account application
when opening your account. Through this service, you will be able to
purchase additional shares for an existing SM&R mutual fund account by ACH.
You may also use the telephone services to redeem and exchange shares on
those accounts for which you have an executed account application on file,
and have received written verification from SM&R that the service has been
initialized as explained under Electronic Transfers above. If this option is
elected after your account is established, it may be necessary for you to
obtain a signature guarantee for all individuals named on the account(s). We
permit transfers by telephone from a joint account only to another joint
account registered in the identical names. There may be additional
restrictions on telephone transactions by joint account owners. Contact your
registered representative for more information. PLEASE NOTE THAT THE
TELEPHONE REDEMPTION OPTION IS NOT AVAILABLE TO RETIREMENT PLANS.

The funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions: The caller must know:

(i) the name of the fund or funds;
(ii) all digits of the account number;
(iii) the exact name and address used in the registration(s); and
(iv) the Social Security or Employer Identification Number listed on the
account(s).

Additionally, we record all telephone transactions for your protection.

Neither the funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, you
should bear the risk of any losses resulting from unauthorized or fraudulent
telephone transactions on your account(s).

During times of economic turmoil or market volatility or as a result of
severe weather or a natural disaster, it may be difficult to contact SM&R by
telephone to institute a redemption or exchange.

AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via ACH) from your bank account and invested
monthly, bi-monthly, quarterly, or annually into the designated fund(s) at
the applicable offering price determined on the date of the electronic
transfer.

GROUP SYSTEMATIC INVESTMENT PLAN. SM&R can establish a Group Systematic
Investment Plan with an employer having 5 or more participants under a
single payroll deduction arrangement. The employees may initially invest a
minimum of $100 ($20 per individual) in the funds followed by additional
payments of at least $20 for each individual investing under a single
payroll deduction plan. Any such plan may be terminated by SM&R or the
shareholder at any time

30
<PAGE>
upon sixty (60) days written notice. However, all other investment amount
minimums apply. Contact SM&R for further information regarding these plans.

EXCHANGE PRIVILEGE. As an investor in a fund, you may be permitted to exchange
shares that you own in a fund with shares of some of the other mutual funds
managed by SM&R without the payment of an exchange fee, subject to certain
conditions. EXCHANGES BETWEEN A FUND AND ANOTHER FUND MANAGED BY SM&R ARE
AVAILABLE ONLY IN STATES WHERE THE APPLICABLE FUNDS ARE REGISTERED AND THE
EXCHANGE MAY BE LEGALLY MADE. YOU SHOULD CONTACT SM&R TO DETERMINE WHETHER A
FUND IS REGISTERED IN A PARTICULAR STATE AND WHETHER AN EXCHANGE IS
PERMITTED.

WE MAY TERMINATE OR CHANGE THE TERMS OF ANY EXCHANGE OFFER AT ANY TIME.

GOVERNMENT BOND FUND AND TAX FREE FUND. You may exchange Class A, Class B, or
Class C shares that you own in the Government Bond or Tax Free Fund, without
an exchange fee or sales charge, for shares of the corresponding class of
another fund managed by SM&R. You also may exchange your Class A or Class B
shares for shares of the Primary or Money Market Fund, subject to two
conditions:

- any applicable CDSC period has expired on the shares you wish to exchange
(I.E., 13 months in the case of Class A shares and 3 years in the case of
Class B shares), and

- you meet any minimum investment requirement for the shares you wish to
acquire.

You CANNOT exchange Class C shares for shares of the Money Market Fund or
Primary Fund.

PRIMARY FUND AND MONEY MARKET FUND. You may exchange shares you own in the
Primary Fund for shares of the Money Market Fund, and vise versa. You may
exchange shares you own in the Primary or Money Market Fund for Class A, T,
J, or Y shares of a class of another fund managed by SM&R, provided you meet
any eligibility requirements and pay any sales charge applicable to the
acquired shares. You CANNOT exchange shares of the Money Market Fund or
Primary Fund for Class B or C shares of another fund.

We waive any sales charges on Class A and Class T shares acquired through an
exchange if you previously paid a sales charge on amounts invested in those
shares. For example, assume you purchase Class A shares of the Government
Bond Fund. You then exchange your Class A shares for shares of the Money
Market Fund. Later, you re-exchange those shares of the Money Market Fund
for Class A shares of the Tax Free Fund. We would not impose any sales
charge upon the re-exchange into Class A shares because you previously paid
a sales charge on amounts invested in those shares. In other words, we will
never impose a front-end sales charge on the same investment TWICE.

Shares of any fund managed by SM&R held in escrow under a Letter of Intent
are not eligible for the exchange privilege. Such shares will not be
released from escrow until the balance invested during the period specified
in the Letter of Intent equals or exceeds the amount required to be invested
under the Letter of Intent or the shareholder requests, in writing, that the
Letter of Intent be canceled and pays any adjustments in sales charge. After
release from escrow, shares may be exchanged, provided all other applicable
conditions are met.

You may request an exchange by telephone or in writing. In order to exchange
shares, the following requirements must be met:

31
<PAGE>
(a) the exchange must be made between accounts that are registered in the
same name, address and, if applicable, taxpayer identification
number;
(b) the shares of the fund acquired through exchange must be qualified
for sale in the state in which you reside;
(c) the dollar amount of a written exchange must meet the minimum
investment requirement applicable to the shares of the fund that you
would acquire through the exchange;
(d) the minimum dollar amount of a telephone exchange is $500;
(e) SM&R must have received full payment for the shares being exchanged;
(f) your account must have been coded to reflect your certified taxpayer
identification number, or, if applicable, an appropriate Internal
Revenue Service Form W-8 (certificate of foreign status) or Form W-9
(certifying exempt status);
(g) any shares that you wish to exchange must have been held for at least
ten (10) business days; and
(h) you have received a prospectus for the shares you receive in the
exchange.

The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may
be modified or discontinued by the participating funds or by SM&R at any
time. ANY GAIN OR LOSS REALIZED ON AN EXCHANGE OR RE-EXCHANGE MAY BE
RECOGNIZED FOR FEDERAL AND STATE INCOME TAX PURPOSES. YOU SHOULD CONSULT
YOUR TAX ADVISOR FOR THE TAX TREATMENT AND EFFECT OF EXCHANGES.

AUTOMATIC CONVERSIONS. Class B shares convert automatically to the appropriate
number of Class A shares of equal dollar value after the investor has owned
the Class B shares for eight (8) years. Dividends and other distributions
paid to an investor in the form of additional Class B shares also convert to
Class A shares on a pro-rata basis. The conversion benefits shareholders
because Class A shares are subject to a lower ongoing 12b-1 fee. If an
investor exhanges Class B shares of a fund for Class B shares of another
fund managed by SM&R, the purchase date of the original investment will be
used to determine the appropriate conversion date.

EXCESSIVE TRADING. Frequent trades, involving either substantial fund assets or
a substantial portion of your account or accounts controlled by you, can
disrupt management of the Company and raise the Company's expenses. We
currently define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.

For example, you are in Fund X. You can move substantial assets from Fund X
to Fund Y and, within the next 120 days, sell your shares in Fund Y to
return to Fund X or move to Fund Z. If you exceed the number of trades
described above, you may be barred indefinitely from further transactions
between the participating funds.

There are two types of transactions exempted from the excessive trading
guidelines. They are (1) redemptions that are not part of exchanges and (2)
systematic purchases or redemptions.

RETIREMENT PLANS

The following retirement plans may invest in shares of the Government Bond,
Primary, and Money Market Funds:

32
<PAGE>
- Individual Retirement Accounts (IRAs), which include traditional IRAs,
Roth IRAs, Education IRAs, and SIMPLE IRAs,

- Simplified Employee Pension Plans (SEPs),

- 403(b) Custodial Accounts (TSAs), and

- corporate retirement plans.

These plans allow you to shelter investment income from federal income tax
while saving for retirement. Information concerning IRAs and TSAs, and the
forms necessary to adopt such plans, can be obtained by contacting your
registered representative or calling SM&R. A regular fund application should
be used when establishing a corporate retirement plan. In connection with
retirement plans, the minimum initial purchase for each fund is $100. The
minimum subsequent purchase is $20 for the Government Bond Fund and $100 for
the Money Market and Primary Funds. SM&R acts as trustee or custodian for
IRAs, SEPs, and TSAs for the Company. An annual custodial fee of $7.50 per
account will be charged for any part of a calendar year in which an investor
has an IRA, SEP, or TSA in the Company and will be automatically deducted
from each account. An individual considering a retirement plan may wish to
consult with an attorney or tax adviser.

Because IRAs, SEPs, TSAs, and other qualified plans are exempt from federal
income tax, they will be unable to benefit from the general tax-exempt
nature of the Tax Free Fund. Accordingly, the Tax Free Fund is not generally
considered to be suited for such plans or persons.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

DIVIDENDS.

GOVERNMENT BOND AND TAX FREE FUNDS. The Government Bond and Tax Free Funds
generally will declare and pay dividends from net investment income monthly
and net realized short-term or long-term capital gains, if any, annually. In
order to be entitled to a dividend, an investor must have acquired shares of
a fund prior to the close of business on the record date. A shareholder
should be cautioned, however, before purchasing shares of a fund immediately
prior to a distribution. Dividends and distributions paid by the funds have
the effect of reducing net asset value per share on the record date by the
amount of the payment. Therefore, a dividend or distribution of record
shortly after the purchase of shares by an investor represents, in
substance, a return of capital.

PRIMARY AND MONEY MARKET FUNDS. At 3:00 p.m. Central Time, on each day that the
Exchange is open for trading, the Primary and Money Market Funds each will
declare a dividend of all of its net investment income to shareholders of
record on that date. Such dividends will be paid monthly.

33
<PAGE>
reinvest your distribution check in your account at the net asset value on
the business day of the reinvestment and to reinvest all future
distributions in shares of the applicable fund(s). Dividends and capital
gains declared in December to shareholders of record in December and paid
the following January will be taxable to shareholders as if received in
December. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earning base. Of course, any shares
so acquired remain at market risk.

Shareholders have the right to change their election with respect to the
receipt of distributions by notifying SM&R in writing, but any such change
will be effective only as to distributions for which the record date is
seven or more business days after SM&R has received the shareholder's
written request.

TAXABILITY OF DIVIDENDS. Dividends you receive from the Government Bond,
Primary, and Money Market Funds, whether reinvested or taken as cash, are
generally considered taxable. A fund's long-term capital gains distributions
are taxable as capital gains; dividends from other sources are generally
taxable as ordinary income. Some dividends paid in January may be taxable as
if they had been paid the previous December. The Form 1099 that is mailed to
you every January details your dividends and their federal tax category,
although you should verify your tax liability with your tax professional.

The Tax Free Fund intends to distribute tax-exempt dividends that shareholders
may exclude from their gross income for federal income tax purposes. However,
the Tax Free Fund may invest a portion of its assets in securities that generate
income that is not exempt from federal or state income tax. Income exempt from
federal tax may be subject to state and local income tax. Any capital gains
distributed by the Tax Free Fund may be taxable. Also, you should also keep in
mind that certain income from the Tax Free Fund may be subject to the federal
alternative minimum tax.

BACKUP WITHHOLDING. Backup withholding of federal income tax may be applied at
the rate of 31% from taxable dividends, distributions, and redemption
proceeds (including exchanges) if you fail to furnish the Company with a
correct and properly certified Social Security or Employer Identification
Number when you sign your application, or if you underreport your income to
the Internal Revenue Service.

TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss
on the transaction. You are responsible for any tax liabilities generated by
your transactions. You should consult with a tax advisor concerning the tax
reporting requirements in effect on the redemption or exchange of such
shares.

REDEEMING SHARES

You can redeem fund shares at net asset value, plus any applicable CDSC,
determined on the date the request is received by SM&R in proper form. A
redemption request must be addressed to Securities Management and Research,
Inc., P.O. Box 58969, Houston, Texas 77258-8969.

If uncertain of the redemption requirements, investors should call Investor
Services or write SM&R. Payment will be made as soon as practicable and normally
within seven days after receipt of a redemption request in proper form. We
currently charge a fee in the amount of $8.00 for redemptions by wire under
$5,000.

34
<PAGE>
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by a personal check or ACH transfer, SM&R will process your redemption but will
generally delay sending you the proceeds for up to ten (10) business days to
allow the check or transfer to clear.

TELEPHONE REDEMPTIONS. You may request redemptions by telephone if you have
completed the account application and requested this option. Telephone
privileges are not available to shareholders automatically. This redemption
feature can only be used if:

(a) the redemption proceeds are to be mailed to the address of record or
wired to the pre-authorized bank account indicated on the account
application;
(b) there has been no change of address of record or pre-authorized bank
account within the preceding 30 business days;
(c) the proceeds of the redemption are $500 or more and do not exceed
$25,000; and
(d) the security procedures discussed under "Special Purchase Plans And
Services-- Exchange Privilege" have been met.

These instructions may be changed only in writing, accompanied by a
signature guarantee and additional documentation may be required for
corporations.

FAX REDEMPTIONS. You may request redemptions by fax as long as they meet the
requirements stated in (a)-(c) under Telephone Redemptions above.

SYSTEMATIC WITHDRAWAL PLAN. The Company has a Systematic Withdrawal Plan
("Withdrawal Account"), which permits shareholders having an account value
of $5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter on or about the 20th of the applicable month. Shareholders
maintaining a Withdrawal Account may elect to have the withdrawal proceeds
automatically deposited in their pre-authorized bank account via an ACH
transaction. This is accomplished by completing the relevant section of the
account application and returning it to SM&R. See "Special Purchase Plans
and Services--Electronic Transfers" for additional information. It may not
be advisable for shareholders to maintain a Withdrawal Account while
concurrently purchasing shares of the Government Bond Fund or the Tax Free
Fund because of the sales charge or CDSC (as applicable) involved in
additional purchases. See "Class B Waivers of Contingent Deferred Sales
Charges" for a discussion of the CDSC waivers available. You should
carefully consider such purchases and contact your financial adviser
regarding their advisability. Dividends and capital gains distributions will
automatically be reinvested in additional shares at net asset value. As with
other redemptions, a withdrawal is a sale for federal income tax purposes.
The Systematic Withdrawal Plan will automatically terminate if all shares
are liquidated or withdrawn from the account. No account covered by a Letter
of Intent can be changed to a Systematic Withdrawal Plan until such time as
the Letter of Intent is fulfilled or terminated, nor can an account under a
Systematic Withdrawal Plan be placed under a Letter of Intent.

REINVESTMENT PRIVILEGE. Within ninety (90) days of a redemption of Class A
shares of a fund, a shareholder may reinvest all or part of the proceeds in
Class A shares of that same fund at the net asset value next computed after
receipt of the proceeds to be reinvested by SM&R. The shareholder must ask
the transfer agent for this privilege at the time of reinvestment. Prior to
reinvestment of redemption proceeds, a shareholder is encouraged to consult
with his or her accountant or tax advisor to determine any possible tax
ramifications of such a transaction. Each fund managed by SM&R may amend,
suspend, or cease offering this privilege at any time as to shares redeemed
after the date of the amendment, suspension, or cessation.

35
<PAGE>
For further information about the "Systematic Withdrawal Plan" and
"Reinvestment Privilege," contact a registered representative or SM&R.

"PROPER FORM" means the request for redemption must include:
(1) your letter of instruction or a stock assignment specifying the fund,
account number, and number of shares or dollar amount to be redeemed.
Both share certificates and stock powers, if any, must be endorsed
and executed exactly as the fund shares are registered. It is
suggested that certificates be returned by certified mail for your
protection;
(2) any required signature guarantees (see "Signature Guarantees" below);
and
(3) other supporting legal documents, if required in the case of estates,
trusts, guardianships, divorce, custodianships, corporations,
partnerships, pension or profit sharing plans, retirement plans, and
other organizations.

Please keep in mind that as a shareholder, it is your responsibility to
ensure that all requests are submitted to the Company's transfer agent in
proper form for processing.

SIGNATURE GUARANTEES. A signature guarantee verifies the authenticity of your
signature. Signature guarantees are required when:

(1) the proceeds of the redemption exceed $25,000;
(2) the proceeds (in any amount) are to be paid to someone OTHER THAN the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address OTHER THAN
the shareholder's address of record, pre-authorized bank account or
exchanged to one of the other funds managed by SM&R; or
(4) the Company or its transfer agent believes a signature guarantee
would protect against potential claims based on the transfer
instructions, including, when the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Company or transfer agent.

You should be able to obtain an acceptable signature guarantee from a bank,
broker, dealer, municipal securities dealer or broker, government securities
dealer or broker, credit union, national securities exchange, or registered
securities association. WITNESSING OR NOTARIZATION IS NOT SUFFICIENT.

TEXAS OPTIONAL RETIREMENT PROGRAM. You may not redeem shares of the Government
Bond Fund, Primary Fund, and Money Market Fund in any account established
under the Texas Optional Retirement Program, unless SM&R receives
satisfactory evidence from the state that one of the following conditions
exist:
(1) death of the employee;
(2) termination of service with the employer; or
(3) retirement of employee.

CHECK WRITING OPTION. Check writing is available in the Money Market Fund to
investors having an account value of $1,000 or more. $250 is the minimum
check amount under the check writing option. This option is not available on
IRAs or TSAs. Shareholders wishing to avail themselves of this option must
complete the check writing option signature card in the Prospectus. After
obtaining specimen signatures and the fully executed card, SM&R will order
checks and arrange for the shareholder's checks to be honored by a bank.
Investments made by personal check or third party check will be held for
fifteen (15) business days following the investment during which time checks
may not be drawn on the amount of such investment. This service

36
<PAGE>
may be terminated or suspended or additional charges may be imposed for this
service. Shareholders will be provided the initial checkbook free of charge.
There will be a $5 fee for re-orders. Shareholders will be allowed to write
ten (10) checks free each calendar quarter.

When a check is presented for payment, SM&R, as the shareholder's agent,
will cause each fund to redeem a sufficient number of full and fractional
shares to cover the amount of the check. Shareholders will continue to be
entitled to dividends on their shares up to the time the check is presented
to SM&R for payment. If the amount of the check is greater than the value of
the shares held in the shareholder's account for more than fifteen (15)
business days at the time the check is presented for payment, the check will
be returned to the payee as not being covered by sufficient funds, and the
shareholder will be subject to extra charges as a result.

Primary Fund shareholders that had check writing privileges prior to
December 31, 1998 will be permitted to continue writing checks on the
Primary Fund subject to the terms applicable to the Money Market Fund
described above. SHAREHOLDERS USING THE PRIMARY FUND CHECK WRITING OPTION
SHOULD BE AWARE THAT WRITING A CHECK IS A REDEMPTION OF SHARES. THOSE SHARES
MAY BE WORTH LESS WHEN THE CHECK IS PRESENTED FOR PAYMENT THAN WHEN THE
CHECK WAS WRITTEN.

REDEMPTION OF SMALL ACCOUNTS. The Company reserves the right to redeem shares in
any account (which will be promptly paid to the shareholder) if, due to your
redemptions, the value of the account falls below $500 in the case of the
Government Bond and Tax Free Funds or $1,000 in the case of the Primary and
Money Market Funds. You will be notified that the value of your account is
less than the required minimum indicated above and allowed at least 60 days
to make an additional investment to increase the value of your account above
the required minimum. The funds may, from time to time, change such required
minimum investment.

RIGHTS RESERVED BY THE COMPANY. The Company, acting through its transfer agent,
reserves the right:

- to waive or lower investment minimums;

- to accept initial purchases by telephone from a registered
representative;

- to refuse any purchase order;

- to cancel or rescind any purchase or exchange at any time prior to
receipt by the shareholder of written confirmation or, if later, within
five (5) business days of the transaction;

- to freeze an account and suspend account services when notice has been
received of a dispute involving the account owners or other parties or
there is reason to believe a fraudulent transaction may occur;

- to restrict or refuse the use of faxed redemptions where there is a
question as to the validity of the request or proper documents have not
been received;

- to otherwise modify the conditions of purchase and any services at any
time;

- to act on instructions not believed to be genuine; or

- to eliminate duplicate mailings of fund material to shareholders who
reside at the same address.

37
<PAGE>
THE FUNDS AND MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT ADVISOR

The Company's Board of Directors has delegated to Securities Management and
Research, Inc. ("SM&R"), the funds' investment adviser, the management of the
funds' day-to-day business and affairs. In addition, SM&R invests the funds'
assets, provides administrative services, and serves as transfer agent,
custodian, dividend paying agent, and underwriter.

SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). SM&R was incorporated in 1964 and has managed mutual
funds since 1966. SM&R does and may, from time to time, serve as investment
adviser to other clients including employee benefit plans, other investment
companies, banks, foundations and endowment funds.

Under the Advisory Agreements with the Company, SM&R is paid an investment
advisory fee, which is calculated separately for each fund, as compensation for
its services. The agreement provides that SM&R will receive advisory fees as set
forth below.

GOVERNMENT BOND FUND AND TAX FREE FUND. We deduct an investment advisory fee
from the value of the shares each day. We calculate this fee for the Government
Bond and Tax Free Funds at the annual rate as follows:

<TABLE>
<CAPTION>
ON THE PORTION OF EACH FUND'S INVESTMENT ADVISORY
AVERAGE DAILY NET ASSETS FEE ANNUAL RATE
- -------------------------------------------------------------- -----------------------
<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>

MONEY MARKET FUND AND PRIMARY FUND. For the Money Market and Primary Funds, we
calculate the investment advisory fee at the annual rate of 0.25% and 0.50%,
respectively, of each fund's average daily net asset value.

After applicable fee waivers, SM&R received total advisory fees from the
Government Bond Fund and Primary Fund for the fiscal year ended August 31, 1998
which represented 0.50% and 0.32%, respectively, of each such fund's average
daily net assets. SM&R waived all advisory fees for the Tax Free Fund for the
fiscal year ended August 31, 1998. The Money Market Fund was not in operation
during the fiscal year ended August 31, 1998.

ADMINISTRATIVE SERVICES

Pursuant to an Administrative Service Agreement with the Company, SM&R provides
all non-investment related management, executive, administrative, transfer
agent, and operational services

38
<PAGE>
to the funds. Under the agreement, SM&R receives an administrative service fee
from each fund at the annual rate of average daily net asset values as follows:

<TABLE>
<CAPTION>
ON THE PORTION OF THE FUND'S ADMINISTRATIVE SERVICE FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
- ----------------------------------------------------------- -----------------------------
<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>

REIMBURSEMENTS AND WAIVERS

SM&R has agreed to pay (or to reimburse each fund for) each fund's regular
operating expenses in excess of 1.25% (0.50% for the Money Market Fund) per year
of such fund's average daily net assets. Regular operating expenses include the
advisory fee and administrative service fee, if any, paid to SM&R, but do not
include 12b-1 fees, class-specific expenses, interest, taxes, commissions, and
other expenses incidental to portfolio transactions. SM&R received
administrative service fees of 0.25% for the fiscal year ended August 31, 1998
of each fund's average daily net assets. The Money Market Fund was not in
operation during the fiscal year ended August 31, 1998.

In order to improve the yield and total return of any fund of the Company, SM&R
may from time to time voluntarily waive or reduce all or any portion of its
advisory fee, administrative fee, and/or assume certain or all expenses of any
fund of the Company while retaining its ability to be reimbursed for such fees
prior to the end of the fiscal year. Fee waivers and/or reductions, other than
those stated in the Administrative Service Agreement, may be rescinded by SM&R
at any time without notice to investors. SM&R has agreed to continue to waive
the advisory fee for the Tax Free Fund and reimburse expenses incurred by the
Government Bond and Primary Funds to the extent that regular operating expenses
exceed average daily net assets as follows: 0.80% for the Primary Fund and 1.00%
for the Government Bond Fund.

39
<PAGE>
PORTFOLIO MANAGEMENT

While the following individuals are primarily responsible for the day-to-day
portfolio management of their respective funds, all accounts are reviewed on a
regular basis by SM&R's Investment Committee to ensure that they are being
invested in accordance with investment policies.

TERRY E. FRANK, VICE PRESIDENT, PORTFOLIO MANAGER OF THE GOVERNMENT BOND FUND,
TAX FREE FUND, PRIMARY FUND AND MONEY MARKET FUND. Ms. Frank has served as
Portfolio Manager of the Government Bond Fund since 1993 and the Tax Free
Fund since its inception. She has served as Portfolio Manager of the Primary
Fund since November 1998 and the Money Market Fund since its inception
(January 1, 1999). She also serves as Portfolio Manager of the Money Market
Portfolio of American National Investment Accounts, Inc., a series mutual
fund used exclusively for variable contracts issued by American National.
She joined SM&R's investment staff in 1991 and prior to that time she held
positions with American Capital Asset Management and Gibraltar Savings
Association as a securities analyst and Equitable Investment Services as a
research analyst.

JOHN S. MAIDLOW, ASSISTANT PORTFOLIO MANAGER OF THE PRIMARY FUND AND THE MONEY
MARKET FUND. Mr. Maidlow has served as the Assistant Portfolio Manager of
the Primary Fund since November, 1998 and the Money Market Fund since its
inception (January 1, 1999). He also services as Assistant Portfolio Manager
of the Money Market Portfolio of American National Investment Accounts,
Inc., a series mutual fund used exclusively for variable contracts issued by
American National. He joined SM&R's staff in 1998 and prior to that time he
held positions with American Industries Trust Companies as a trust officer,
Texas Department of Insurance and the Texas Department of Banking as an
examiner, Landmark Group as Vice President of Investments, MBank as a trust
officer and Rotan-Mosle, Inc. and Eppler, Guerin & Turner as an investment
broker.

40
<PAGE>
FINANCIAL HIGHLIGHTS GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

The following financial highlights table is intended to help you understand the
Government Bond Fund's financial performance for the past five years. Certain
information reflects financial results for a single share outstanding throughout
each period shown. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Government Bond
Fund (assuming reinvestment of all dividends and distributions) prior to
addition of multiple classes of shares, but do not reflect any sales loads that
would be imposed on the purchase or sale of any shares. This information is
derived from the financial statements of the Government Bond Fund which for the
years ended through August 31, 1997 have been audited by KPMG Peat Marwick LLP
and for the year ended August 31, 1998 has been audited by Tait, Weller & Baker,
CPA. Each independent auditor's report, along with the Government Bond Fund's
financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request. IF MULTIPLE CLASSES OF
SHARES OF THE GOVERNMENT BOND FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE
YEARS, THE FINANCIAL PERFORMANCE OF CLASS A, B, AND C SHARES OF THE GOVERNMENT
BOND FUND WOULD HAVE BEEN LOWER THAN DEPICTED BECAUSE OF THE IMPOSITION OF
DISTRIBUTION AND/OR SERVICE (12b-1) FEES.

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.42 $ 10.14 $ 10.51 $ 10.07 $ 10.87
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.64 0.67 0.65 0.70 0.54
Net Realized and Unrealized Gain (Loss) on Securities 0.20 0.26 (0.37) 0.44 (0.79)
--------- --------- --------- --------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.84 0.93 0.28 1.14 (0.25)
--------- --------- --------- --------- ----------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.66) (0.65) (0.65) (0.70) (0.55)
--------- --------- --------- --------- ----------
TOTAL DISTRIBUTIONS (.066) (0.65) (0.65) (0.70) (0.55)
--------- --------- --------- --------- ----------
Net Asset Value, End of Period $ 10.60 $ 10.42 $ 10.14 $ 10.51 $ 10.07
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
TOTAL RETURN 8.31% 9.37% 2.63% 11.85% (2.41)%
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>

RATIOS/SUPPLEMENTAL DATA

<TABLE>
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period (000's omitted) $ 23,982 $ 23,683 $ 21,127 $ 20,466 $ 19,790
Ratio of Expenses to Average Net Assets(1) 1.00% 1.00% 1.00% 0.70% 1.12%
Ratio of Net Income to Average Net Assets 6.08% 6.46% 6.17% 6.90% 5.11%
Portfolio Turnover Rate 32.71% 9.06% 30.17% 2.20% 45.48%
</TABLE>

(1) Expenses for the calculation are net of a reimbursement from Securities
Management and 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.

41
<PAGE>
FINANCIAL HIGHLIGHTS TAX FREE FUND
- --------------------------------------------------------------------------------

The following financial highlights table is intended to help you understand the
Tax Free Fund's financial performance since inception. Certain information
reflects financial results for a single share outstanding throughout each period
shown. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Tax Free Fund (assuming
reinvestment of all dividends and distributions) prior to addition of multiple
classes of shares, but do not reflect any sales loads that would be imposed on
the purchase or sale of any shares. This information is derived from the
financial statements of the Tax Free Fund which for the years ended through
August 31, 1997 have been audited by KPMG Peat Marwick LLP and for the year
ended August 31, 1998 has been audited by Tait, Weller & Baker, CPA. Each
independent auditor's report, along with the Tax Free Fund's financial
statements, are incorporated by reference into the Statement of Additional
Information, which is available upon request. IF MULTIPLE CLASSES OF SHARES OF
THE TAX FREE FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE YEARS, THE
FINANCIAL PERFORMANCE OF CLASS A, B, AND C SHARES OF THE TAX FREE FUND WOULD
HAVE BEEN LOWER THAN DEPICTED BECAUSE OF THE IMPOSITION OF DISTRIBUTION AND/OR
SERVICE (12b-1) FEES.

<TABLE>
<CAPTION>
SEPT. 9, 1993
YEAR ENDED AUGUST 31, (DATE OPERATIONS
------------------------------------------ COMMENCED) THRU
1998 1997 1996 1995 AUG. 31, 1994
--------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,Beginning of Period $ 10.27 $ 9.93 $ 9.95 $ 9.62 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.49 0.51 0.53 0.51 0.24
Net Realized and Unrealized Gain (Loss) on Securities 0.37 0.33 (0.02) 0.33 (0.38)
--------- --------- --------- --------- ----------------
TOTAL FROM INVESTMENT OPERATIONS 0.86 0.84 0.51 0.84 (0.14)
--------- --------- --------- --------- ----------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.49) (0.50) (0.53) (0.51) (0.24)
--------- --------- --------- --------- ----------------
TOTAL DISTRIBUTIONS (0.49) (0.50) (0.53) (0.51) (0.24)
--------- --------- --------- --------- ----------------
Net Asset Value, End of Period $ 10.64 $ 10.27 $ 9.93 $ 9.95 $ 9.62
--------- --------- --------- --------- ----------------
--------- --------- --------- --------- ----------------
TOTAL RETURN 8.58% 8.61% 5.18% 9.15% (1.49)%(1)
--------- --------- --------- --------- ----------------
--------- --------- --------- --------- ----------------
</TABLE>

RATIOS/SUPPLEMENTAL DATA

(1) Returns are not annualized.

(2) Ratios are annualized.

(3) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.25%, 1.27%, 1.18%, and
1.25% for the years ended August 31, 1998, 1997, 1996, and 1995,
respectively.

42
<PAGE>
FINANCIAL HIGHLIGHTS PRIMARY FUND
- --------------------------------------------------------------------------------

The following financial highlights table is intended to help you understand the
Primary Fund's financial performance for the past five years. Certain
information reflects financial results for a single Primary Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Primary Fund (assuming reinvestment of all dividends and distributions).
This information is derived from the financial statements of the Primary Fund
which for the years ended through August 31, 1997 have been audited by KPMG Peat
Marwick LLP and for the year ended August 31, 1998 has been audited by Tait,
Weller & Baker, CPA. Each independent auditor's report, along with the Primary
Fund's financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request.

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.05 0.05 0.05 0.03
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.05 0.03
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.05) (0.05) (0.05) (0.05) (0.03)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.05) (0.05) (0.05) (0.05) (0.03)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN 5.15% 4.98% 5.07% 5.01% 2.91%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

RATIOS/SUPPLEMENTAL DATA

<TABLE>
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period (000's omitted) $ 34,577 $ 33,045 $ 37,465 $ 20,984 $ 15,208
Ratio of Expenses to Average Net Assets(1) 0.80% 0.80% 0.81% 0.84% 0.79%
Ratio of Net Income to Average Net Assets 5.02% 4.86% 4.93% 4.91% 2.88%
</TABLE>

(1) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement the ratio of
expenses to average net assets would have been 0.98%, 1.01%, 1.15%, 1.21%,
and 1.20% for the years ended August 31, 1998, 1997, 1996, 1995, and 1994,
respectively.

43
<PAGE>
- --------------------------------------------------------------------------------

APPENDIX

(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------

BOND RATINGS

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM BOND (BONDS THAT EXTEND
LONGER THAN ONE YEAR) RATING:

AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA An obligation rated "AA" differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

A An obligation rated "A" is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.

BBB An obligation rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.

BB An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

B An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.

DESCRIPTION OF MOODY'S INVESTOR'S SERVICE, INC.'S LONG-TERM BOND (BONDS THAT
EXTEND LONGER THAN ONE YEAR) RATINGS:

Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.

Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, fluctuation
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa securities.

A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

A-1
<PAGE>
Baa Bonds which are rated "Baa" are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.

DESCRIPTION OF FITCH IBCA BOND RATINGS:

AAA Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.

AA Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

A High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.

BBB Good credit quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This is
the lowest investment-grade category.

MUNICIPAL NOTE RATINGS

DESCRIPTION OF MOODY'S INVESTOR SERVICE INC.'S SHORT-TERM MUNICIPAL NOTE (NOTES
THAT MATURE IN LESS THAN ONE YEAR) RATINGS:

MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.

MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.

DESCRIPTION OF STANDARD AND POOR'S SHORT-TERM MUNICIPAL NOTE RATINGS:

SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.

SP-3 Speculative capacity to pay principal and interest.

A-2
<PAGE>
COMMERCIAL PAPER RATINGS

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S THREE HIGHEST COMMERCIAL PAPER
RATINGS:

A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S THREE HIGHEST COMMERCIAL PAPER
RATINGS:

Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the
level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.

DESCRIPTION OF FITCH IBCA SHORT-TERM DEBT RATINGS (INCLUDING COMMERCIAL PAPER):

F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.

F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.

F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in
a reduction to non-investment grade.

B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.

DESCRIPTION OF DUFF & PHELP'S HIGHEST COMMERCIAL RATINGS:

High Grade

D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.

D-1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.

A-3
<PAGE>
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.

Good Grade

D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

DESCRIPTION OF THOMSON BANKWATCH, INC.'S TWO HIGHEST COMMERCIAL RATINGS:

TBW-1 The highest category; indicates a very high likelihood that principal and
interest will be paid on a timely basis.

TBW-2 The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.

FEDERAL FUNDS

As used in this Prospectus and in the Fund's Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.

A-4
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
The following documents contain more information about the SM&R GOVERNMENT BOND FUND
funds and are available free upon request: SM&R TAX FREE FUND
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI contains SM&R PRIMARY FUND
additional information about all aspects of the funds. A SM&R MONEY
current SAI has been filed with the Securities and Exchange MARKET FUND
Commission and is incorporated herein by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. The funds' annual and
semi-annual reports provide additional information about the
funds' investments. The annual report contains a discussion
of the market conditions and investment strategies that
significantly affected each fund's performance during the
last fiscal year.
</TABLE>

REQUESTING DOCUMENTS. You may request a free copy of the SAI and these reports,
make shareholder inquiries, or request further information about the funds
either by contacting your broker or by contacting the funds at:

SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O BOX 58969
HOUSTON, TEXAS 77258-8969
TELEPHONE:1-800-231-4639 (TOLL FREE) OR
1-281-334-2469 (COLLECT)

PUBLIC INFORMATION. You can review and copy information about the funds,
including the SAI, at the Securities and Exchange Commission's Public Reference
Room in Washington D.C. You may obtain information on the operation of the
public reference room by calling the Commission at 1-800-SEC-0330. Reports and
other information about the funds also are available on the Commission's
Internet site at http://www.sec.gov. You may obtain copies of this information,
upon payment of a duplicating fee, by writing the Public Reference Section of
the Securities and Exchange Commission, Washington, D.C. 20549-6009.

Investment Company
File No. 811- 6477
<PAGE>

INVESTOR RISK TOLERANCE QUIZ

The results of this short quiz won't be conclusive, of course. But it may give
you some insight into how much risk you can or should build into your personal
investment plan. Risk is one of the factors you need to consider before making
investment decisions. Consult with your registered representative to guide you
in the use of the questionnaire.

1. WHAT DO YOU THINK ABOUT INVESTING?

/ / a. I prefer as little risk as possible to get a stable investment.
/ / b. I prefer a balanced approach to risk and return.
/ / c. I can accept more risk to get the highest possible return.

2. WHAT DO YOU THINK ABOUT INVESTING IN STOCKS COMPARED TO BONDS AND CASH?

/ / a. I prefer cash investments over stocks and bonds even though the
return may be less.
/ / b. I like a mix of stocks and bonds to give me a balanced
investment.
/ / c. I like stocks because of the opportunity for higher returns even
though the risk is greater.

3. WHAT DO YOU THINK ABOUT FLUCTUATIONS IN YOUR ACCOUNT?

/ / a. I want to reduce fluctuations even though my investment return
may be less.
/ / b. I can tolerate only moderate fluctuations to gain favorable
returns.
/ / c. I can tolerate larger fluctuations in order to increase the
potential for higher returns.

4. WHAT DO YOU THINK ABOUT INFLATION AND ITS IMPACT ON YOUR INVESTMENTS?

/ / a. I am satisfied if my returns only keep up with inflation.
/ / b. I am happy if my investment returns only slightly beat inflation.
/ / c. I want my investment returns to get a higher return than the rate
of inflation.

5. HOW MANY YEARS BEFORE YOU NEED THE MONEY?

/ / a. 1-5 years
/ / b. 6-10 years
/ / c. 11 years or more

SCORING:
For an "a" answer give yourself 1 point,
for each "b", 3pts.,
for each "c", 5pts.

5-12 POINTS
CONSERVATIVE INVESTING:
The goal is to preserve the original investment while achieving a small,
but predictable gain.

13-21 POINTS
MODERATE INVESTING:
The goal is to expect some ups-and-downs in return for a good gain over
time.

22-25 POINTS
AGGRESSIVE INVESTING:
The goal is to accept larger short-term losses than most investors in
return for the possibility of substantial long-term gains.

LOW MODERATE HIGH

POTENTIAL REWARD/RISK

Risk is defined as volatility of returns. A high-risk investment policy
provides an opportunity to achieve greater returns (rewards) than a
low-risk investment policy. A high-risk policy also creates the possibility
of achieving lower returns than a low-risk investment policy, so it is said
that a high-risk policy is more volatile. Before making any investment
decision, you should obtain and carefully read the current prospectus for
complete information, including all fees and expenses. When investing in
securities, shares may be worth more or less than the purchase price and
there is no guarantee against the loss of principal and profit.

NOT PART OF THE PROSPECTUS

<PAGE>

SM&R EQUITY FUNDS

GROWTH
SM&R Growth Fund, Inc.

EQUITY INCOME
SM&R Equity Income Fund, Inc.

BALANCED
SM&R Balanced Fund, Inc.

SM&R INVESTMENTS, INC.

CURRENT INCOME AND HIGH DEGREE OF SAFETY
SM&R Government Bond Fund

CURRENT TAX FREE INCOME
SM&R Tax Free Fund

STABILITY, LIQUIDITY AND CURRENT INCOME
SM&R Primary Fund

STABILITY, LIQUIDITY AND CURRENT INCOME
SM&R Money Market Fund

HOW TO REACH US:

SHAREHOLDER SERVICES
(800) 231-4639

FUND QUOTES
(800) 526-8346 ext.268

SALES AND MARKETING
(800) 526-8346

TO REQUEST A PROSPECTUS
(800) 231-4639

[LOGO] SECURITIES MANAGEMENT
AND RESEARCH, INC.
MANAGER & DISTRIBUTOR
----------------------
MEMBER NASD, SIPC

2450 SOUTH SHORE BLVD. - LEAGUE CITY, TX 77573
(281) 334-2469

FORM 9094 - 1/99

NOT PART OF THE PROSPECTUS
<PAGE>

SM&R

FIXED INCOME FUNDS

"Class T Shares"

Shares are available to Certain Eligible Purchasers
(and Shareholders of the Fund Prior to January 1, 1999)

INVESTMENT STRATEGIES FOR A CHANGING WORLD

PROSPECTUS DATED JANUARY 1, 1999

<PAGE>
SM&R
FIXED INCOME FUNDS

P R O S P E C T U S
JANUARY 1, 1999

SM&R INVESTMENTS, INC.
- SM&R GOVERNMENT BOND FUND
- SM&R TAX FREE FUND
- SM&R PRIMARY FUND
- SM&R MONEY MARKET FUND

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

CLASS T (CERTAIN ELIGIBLE PURCHASERS
AND SHAREHOLDERS
PRIOR TO JANUARY 1, 1999.)
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------

<TABLE>
<S> <C>
RISK/RETURN SUMMARY.......................................... 1
SM&R Government Bond Fund.................................. 1
SM&R Tax Free Fund......................................... 3
SM&R Primary Fund.......................................... 5
SM&R Money Market Fund..................................... 7
Types of Investment Risk................................... 9
Bar Chart and Performance Table............................ 10
Fees and Expenses of the Funds............................. 14
SHARES OF THE FUNDS.......................................... 17
Eligible Purchasers of Class T Shares...................... 17
Class T Sales Charges...................................... 19
Sales Charge Reductions and Waivers........................ 19
INVESTMENT OBJECTIVES AND POLICIES........................... 21
Government Bond Fund....................................... 21
Tax Free Fund.............................................. 25
Primary Fund............................................... 29
Money Market Fund.......................................... 30
RISK FACTORS................................................. 32
PURCHASES AND REDEMPTIONS.................................... 35
Purchasing Shares.......................................... 35
Pricing of Fund Shares..................................... 36
Special Purchase Plans and Services........................ 37
Retirement Plans........................................... 42
Dividends, Distributions, and Taxes........................ 43
Redeeming Shares........................................... 44
THE FUNDS AND MANAGEMENT..................................... 50
FINANCIAL HIGHLIGHTS......................................... 53
Government Bond Fund....................................... 53
Tax Free Fund.............................................. 54
Primary Fund............................................... 55
APPENDIX..................................................... A-1
</TABLE>

ii
<PAGE>
RISK/RETURN SUMMARY SM&R GOVERNMENT BOND FUND
- -------------------------------------------------------------------

GOVERNMENT BOND FUND'S INVESTMENT OBJECTIVE
To provide as high a level of current income,
liquidity, and safety of principal as is consistent with
prudent investment risks through investment in a portfolio
consisting primarily of securities issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities.

GOVERNMENT BOND FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Government Bond Fund normally invests at
least 65% of its assets in securities issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities.
These may include Treasuries and mortgage-backed securities,
such as Ginnie Maes, Freddie Macs, and Fannie Maes. This fund
may also invest assets in collateralized mortgage
obligations.

The Government Bond Fund may invest in zero coupon bonds,
which are U.S. Government obligations. The fund may also
invest in commercial paper, certificates of deposit,
corporate debt securities rated "A" or higher, and repurchase
agreements.

The Government Bond Fund generally invests primarily in
medium and long term securities. The average portfolio
maturity generally is expected to be in the six to fifteen
year range (some securities may have longer or shorter
durations). The average portfolio maturity may be shorter
when management anticipates that interest rates will
increase, and longer when management anticipates that
interest rates will decrease.

1
<PAGE>
RISK/RETURN SUMMARY SM&R GOVERNMENT BOND FUND
- -------------------------------------------------------------------

PRINCIPAL RISKS OF INVESTING IN THE GOVERNMENT BOND FUND
You could lose money on your investment in the
Government Bond Fund, or it could underperform other
investments, if any of the following occurs:
- interest rates rise (thus causing a decline in the market
value of debt securities)
- the worldwide demand for U.S. government securities falls
- interest rates fall enough to prompt an unexpected number
of people to refinance (or prepay) their mortgages
- interest rates rise enough to cause fewer people than
expected to repay their mortgages early
- if any bonds the fund owns are downgraded in credit rating
or go into default

WHO MAY WANT TO INVEST IN THE GOVERNMENT BOND FUND
The Government Bond Fund may be
appropriate if you:
- are seeking a regular stream of income to meet current
needs
- are seeking higher potential returns than money market
funds and are willing to accept moderate risk of volatility
- are retired or nearing retirement

The Government Bond Fund may NOT be appropriate if you:
- are investing for maximum return over a long time horizon
- require absolute stability of your principal

2
<PAGE>
RISK/RETURN SUMMARY SM&R TAX FREE FUND
- -------------------------------------------------------------------

TAX FREE FUND'S INVESTMENT OBJECTIVE
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.

TAX FREE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Tax Free Fund invests primarily in tax-
exempt securities. During normal market conditions, this fund
invests at least 80% of its assets in municipal securities
that pay interest exempt from federal income taxes. The Tax
Free Fund generally invests in securities rated Baa or better
by Moody's or BBB or better by Standard and Poors and Fitch.
This fund may not invest more than 20% of its assets in
UNRATED municipal securities. These securities may be less
liquid than comparably rated municipal securities and involve
somewhat greater risk. This fund may also invest up to 20% of
its assets in Government guaranteed taxable bonds, highly
rated corporate bonds, or commercial paper.

3
<PAGE>
RISK/RETURN SUMMARY SM&R TAX FREE FUND
- -------------------------------------------------------------------

PRINCIPAL RISKS OF INVESTING IN THE TAX FREE FUND
You could lose money on your investment in the
Tax Free Fund, or it could underperform other investments, if
any of the following occurs:
- interest rates rise (thus causing a decline in the market
value of debt securities)
- if any bonds the fund owns are downgraded in credit rating
or go into default
- certain securities become harder to value or to sell at a
fair price

ALSO, SOME OF YOUR DIVIDEND INCOME MAY BE TAXABLE.

WHO MAY WANT TO INVEST IN THE TAX FREE FUND
The Tax Free Fund may be appropriate if you:
- are willing to sacrifice some investment return for income
exempt from federal income tax and, under certain
conditions, exempt from state and local taxes
- are in a high tax bracket (28% and up)
- are seeking a regular stream of income to meet current
needs
- are seeking higher potential returns than money market
funds and are willing to accept moderate risk of volatility

The Tax Free Fund may NOT be appropriate if you:
- are investing for maximum return
- require absolute stability of your principal
- prefer capital gains over ordinary income

4
<PAGE>
RISK/RETURN SUMMARY SM&R PRIMARY FUND
- -------------------------------------------------------------------

PRIMARY FUND'S INVESTMENT OBJECTIVE
To seek maximum current income consistent
with capital preservation and liquidity through investment
primarily in commercial paper.

PRIMARY FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Primary Fund invests primarily in
commercial paper. Commercial paper is short-term unsecured
promissory notes issued by corporations. This fund will only
invest in commercial paper rated in one of the two highest
rating categories.

The Primary Fund may also invest in:
- U.S. Government obligations;
- corporate debt obligations maturing in five years or less
and rated "A" or higher;
- certificates of deposit, generally maturing in 3 years or
less; and
- repurchase agreements.

PRINCIPAL RISKS OF INVESTING IN THE PRIMARY FUND
You could lose money on your investment in the
Primary Fund, or it could underperform other investments, if
any of the following occurs:
- interest rates rise (thus causing a decline in the market
value of debt securities)
- if any of the fund's investments are downgraded in credit
rating or go into default

By limiting its investments as described above, the Primary
Fund may not achieve as high a level of current income as a
fund investing in lower-rated securities or longer-term
securities.

5
<PAGE>
RISK/RETURN SUMMARY SM&R PRIMARY FUND
- -------------------------------------------------------------------

WHO MAY WANT TO INVEST IN THE PRIMARY FUND
The Primary Fund may be appropriate if you:
- are seeking a regular stream of income to meet current
needs
- are seeking higher potential returns than money market
funds and are willing to accept moderate risk of volatility
- are more concerned with safety of principal than with
investment returns
- are retired or nearing retirement

6
<PAGE>
RISK/RETURN SUMMARY SM&R MONEY MARKET FUND
- -------------------------------------------------------------------

MONEY MARKET FUND'S INVESTMENT OBJECTIVE
To seek the highest current income consistent
with the stability of principal and maintenance of liquidity.

MONEY MARKET FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Money Market Fund seeks to achieve its
objective by investing in high-quality short-term money
market instruments, including: U.S. Government obligations,
certificates of deposit, banker's acceptances, commercial
paper, collateralized mortgage obligations, and corporate
bonds and notes. This fund limits its investments to those
short-term securities that it determines present minimal
credit risk and meet certain rating requirements (in the two
highest short-term rating categories).

PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET FUND
The Money Market Fund is subject to the
following risks:
- that interest rates may rise (thus causing a decline in the
market value of debt securities)
- that the fund's investments may be downgraded in credit
rating or go into default

However, the risks of investment in the Money Market Fund may
be expected to be less than for other mutual funds. By
limiting its investments as described above, this fund may
not achieve as high a level of current income as a fund
investing in lower-rated securities. ALTHOUGH THE MONEY
MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE MONEY MARKET FUND.

7
<PAGE>
RISK/RETURN SUMMARY SM&R MONEY MARKET FUND
- -------------------------------------------------------------------

WHO MAY WANT TO INVEST IN THE MONEY MARKET FUND
The Money Market Fund may be appropriate if
you:
- require stability of principal
- are seeking a mutual fund for the cash portion of an asset
allocation program
- need to "park" your money temporarily
- are more concerned with safety of principal than with
investment returns
- are investing emergency reserves

The Money Market Fund may NOT be appropriate if you:
- want federal deposit insurance
- are seeking an investment that is likely to outpace
inflation
- are investing for retirement or other goals that are many
years in the future
- are investing for growth or maximum current income

YOU SHOULD KEEP IN MIND THAT AN INVESTMENT IN THE MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

8
<PAGE>
\

RISK/RETURN SUMMARY
- -------------------------------------------------------------------

TYPES OF INVESTMENT RISK

As indicated above, each of the four funds may be subject to certain of the
following types of risks:

MANAGEMENT RISK. The risk that a strategy used by a fund's management may fail
to produce the intended result. This risk is common to all mutual funds. THIS
RISK AFFECTS ALL FOUR FUNDS.

9
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
expected number of mortgage prepayments, thereby reducing the security's value.
EXTENSION RISK is the risk that an unexpected rise in prevailing interest rates
will extend the life of an outstanding mortgage-backed security by reducing the
actual or expected number of mortgage prepayments, thereby reducing the
security's value. THIS RISK APPLIES ONLY TO THE GOVERNMENT BOND FUND.

BAR CHART AND PERFORMANCE TABLE

Because the Money Market Fund was not in operation during these periods, it is
not included in the bar chart or the performance table.

Past performance is not necessarily an indication of how the funds will perform
in the future.

10
<PAGE>
RISK/RETURN SUMMARY SM&R GOVERNMENT BOND FUND
- -------------------------------------------------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* For the nine month period ended September 30, 1998, the Government Bond Fund
had a total return of 6.70%.

During the period shown in the bar chart, the highest return for a quarter was
6.44% achieved June 30, 1995 and the lowest return for a quarter was minus 1.77%
for the quarter September 30, 1994.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR THE PERIODS
ENDING DECEMBER 31, 1997) PAST ONE YEAR PAST 5 YEARS
<S> <C> <C>
SM&R GOVERNMENT BOND FUND 3.28% 5.71%
* LEHMAN BROTHERS 9.54% 8.71%
GOVERNMENT/MORTGAGE-
BACKED SECURITIES INDEX
</TABLE>

* Lehman Brothers Government/Mortgage-Backed Securities Index is an index which
includes all public obligations of the U.S Treasury and all publicly issued debt
of U.S. Government agencies, quasi-federal corporations and corporate debt
guaranteed by the U.S. Government as well as 15 and 30 year fixed rate
securities backed by mortgage pools of the GNMA, FHLMA and FNMA.

11
<PAGE>
RISK/RETURN SUMMARY SM&R PRIMARY FUND
- -------------------------------------------------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* For the nine month period ended September 30, 1998, the Primary Fund had a
total return of 3.81%.

During the period shown in the bar chart, the highest return for a quarter was
2.54% achieved September 30, 1997 and the lowest return for a quarter was 0.60%
for the quarter June 30, 1993.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR THE PERIODS
ENDING DECEMBER 31, 1997) PAST ONE YEAR PAST 5 YEARS
<S> <C> <C>
SM&R PRIMARY FUND 5.08% 4.26%
* LEHMAN GOVERNMENT/ 7.99% 7.02%
CORPORATE INDEX
</TABLE>

* Lehman Government/Corporate Index is an index representing all public
obligations of the U.S. Treasury as well as all publicly issued debt of U.S.
government agencies with maturities of one to three years.

12
<PAGE>
RISK/RETURN SUMMARY SM&R TAX FREE FUND
- -------------------------------------------------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* For the nine month period ended September 30, 1998, the Tax Free Fund had a
total return of 5.73%.

During the period shown in the bar chart, the highest return for a quarter was
7.41% achieved March 31, 1995 and the lowest return for a quarter was minus
3.94% for the quarter March 31, 1994.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR THE PERIODS
ENDING DECEMBER 31, 1997) PAST ONE YEAR PAST 4 YEARS
<S> <C> <C>
SM&R TAX FREE FUND 4.08% 4.94%
* LEHMAN BROTHERS 9.19% 11.18%
MUNICIPAL INDEX
</TABLE>

* Lehman Brothers Municipal Index is an index of investment grade tax exempt
bonds classified into four major sections: General Obligation, Revenue, Insured
and Preferred.

13
<PAGE>
RISK/RETURN SUMMARY
- -------------------------------------------------------------------

FEES AND EXPENSES OF THE FUNDS

This table describes the fees and expenses that you may pay if you buy and hold
shares of the funds.

SHAREHOLDER FEES
(fees paid directly from your investment)

<TABLE>
<CAPTION>
MONEY
GOVERNMENT TAX FREE PRIMARY MARKET
BOND FUND FUND FUND FUND
----------- -------- -------- -------
CLASS T CLASS T
----------- --------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price) 4.5%(1) 4.5%(1) None None
Maximum Deferred Sales Charge (as a
percentage of offering price)(2) None None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a Percentage of offering
price) None None None None
Exchange Fees None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES(3)
(expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
MONEY
GOVERNMENT TAX FREE PRIMARY MARKET
BOND FUND FUND FUND FUND
----------- -------- -------- -------
CLASS T CLASS T
----------- --------
<S> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.25%
Other Expenses(4) 0.50% 0.75% 0.48% 0.25%
Total Annual Fund Operating Expenses 1.00% 1.25% 0.98% 0.50%
Fee Waivers and Expense Reimbursements(5) -- -- -- --
Net Expenses 1.00% 1.25% 0.98% 0.50%
</TABLE>

14
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------

NOTES TO THE FEES AND EXPENSES OF THE FUNDS

(1) You pay a sales charge of 4.5% on initial investments in Class T shares of
less than $100,000. You pay a reduced sales charge at certain breakpoints,
as follows:

- 3.50% on initial investments of at least $100,000 but less than $250,000

- 2.50% on initial investments of at least $250,000 but less than $500,000

- zero on initial investments of $500,000 or more

(2) You pay an $8.00 transaction fee for each expedited wire redemption.

(3) The "Management Fees" and "Other Expenses" for the Government Bond, Primary,
and Tax Free Funds are for the year ended August 31, 1998; for the Money
Market Fund, they are estimates for the first year of operation (ending
August 31, 1999). NO DISTRIBUTION OR SERVICE (12b-1) FEES ARE IMPOSED ON
CLASS T SHARES OF THE GOVERNMENT BOND FUND AND THE TAX FREE FUND, OR ON ANY
SHARES OF THE PRIMARY FUND AND MONEY MARKET FUND.

(4) "Other Expenses" include the 0.25% Administrative Service Fee. "Other
Expenses" for Class T shares are based on the expenses and average net
assets of the Government Bond Fund and the Tax Free Fund for the fiscal year
ended August 31, 1998. "Other Expenses" shown for the Money Market Fund are
estimated for the current fiscal year ending August 31, 1999.

(5) The Fee Table reflects fees waived and expenses assumed contractually by the
funds' manager, Securities Management and Research, Inc. ("SM&R"). Pursuant
to the Administrative Service Agreement, SM&R will pay (or reimburse) each
fund for regular operating expenses in excess of 1.25% (0.50% for the Money
Market Fund) per year of such fund's average daily net assets. Regular
operating expenses include the advisory fee and administrative fee, but do
not include any 12b-1 fee or class-specific expenses.

The Fee Table does not reflect fees waived or expenses assumed by SM&R on a
voluntary basis. During the fiscal year ended August 31, 1998, SM&R
voluntarily waived fees of 0.18%, and 0.50% for the, Primary Fund and Tax
Free Fund, respectively. SM&R intends to continue to voluntarily waive the
advisory fee for the Tax Free Fund. SM&R also intends to reimburse regular
operating expenses that exceed average daily net assets as follows: 0.80%
for the Primary Fund and 1.00% for the Government Bond Fund. SM&R may
discontinue or reduce any such waiver or reimbursement of expenses at any
time without notice.

The following table shows fees and expenses for the Government Bond,
Primary, and Tax Free Funds for the year ended August 31, 1998 taking

15
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
into account fee all waivers and expense reimbursements, both contractual
and voluntary. For the Money Market Fund, they are estimates considering
estimated fee waivers and expense reimbursements for the year ending August
31, 1999.

ANNUAL FUND OPERATING EXPENSES
(As a Percentage of Average Net Assets After All Fee Waivers and Expense
Reimbursements)

<TABLE>
<CAPTION>
GOVERNMENT BOND TAX FREE MONEY
FUND FUND PRIMARY FUND MARKET FUND
--------------- ------------ ------------ -----------
CLASS T CLASS T
--------------- ------------
<S> <C> <C> <C> <C>
Management Fees 0.50% 0.00% 0.32% 0.25%
Other Expenses 0.50% 0.75% 0.48% 0.25%
Total Annual Fund
Operating Expenses 1.00% 0.75% 0.80% 0.50%
--- ----- ----- -----
--- ----- ----- -----
</TABLE>

EXAMPLES OF EXPENSES

These examples are intended to help you compare the cost of investing in the
funds with the cost of investing in other mutual funds. These examples assume
that you invest $10,000 in each fund and applicable class thereof for the time
periods indicated, based on expenses before fee waivers and expense
reimbursements. These examples also assume that your investment has a 5% return
each year and that the funds' operating expenses remain the same. YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER THAN SHOWN.

You would pay the following expenses, based on these assumptions, if you
actually redeem all of your shares at the end of the period shown:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Government Bond Fund (Class T) $547 $754 $ 978 $1,620
Tax Free Fund (Class T) $572 $829 $1,105 $1,893
Primary Fund $100 $312 $ 542 $1,201
Money Market Fund $ 51 $160 $ 280 $ 628
</TABLE>

Because there are no deferred sales charges or redemption fees, you would pay
the same expenses, based on these assumptions, if you did not redeem your
shares.

16
<PAGE>
SHARES OF THE FUNDS
- -------------------------------------------------------------------

SM&R Investments, Inc., formerly known as SM&R Capital Funds, Inc. (the
"Company" or "we") offers four separate investment portfolios. The Money Market
and Primary Funds each consist of a single class of shares offered at net asset
value and do not impose any sales charges or distribution and service (12b-1)
fees. The Government Bond and Tax Free Funds offer Class T shares at net asset
value plus an initial sales charge. Class T shares do not impose any
distribution and service (12b-1) fees.

The Government Bond and Tax Free Funds offer five other classes through separate
prospectuses: (1) Class A "front-end load" shares; (2) Class B "back-end load"
shares; (3) Class C "level load" shares; (4) Class Y "institutional" shares; and
(5) Class J "network" shares offered through certain financial intermediaries
that have distribution agreements with SM&R. Class A, Class B, Class C, Class Y,
and Class J shares are subject to different sales charges and other expenses
and, accordingly, may have expense ratios and performance that differs from
those of Class T shares. You are encouraged to consider all of the Company's
class alternatives and choose the one that fits your individual circumstances at
the lowest level of fees. FOR MORE INFORMATION ON THE OTHER CLASSES OF SHARES OR
TO REQUEST A PROSPECTUS FOR ANOTHER CLASS, INVESTORS MAY CONTACT INVESTOR
SERVICES AT (800) 231-4639.

ELIGIBLE PURCHASERS OF CLASS T SHARES

In general, Class T shares may only be purchased by existing shareholders that
owned shares of the Government Bond Fund or Tax Free Fund on December 31, 1998
and certain other designated persons. The other designated persons that can
purchase Class T shares include:

(a) present and retired directors, officers, and full-time employees of the
Company;

(b) present and retired directors, officers, registered representatives, and
full-time employees of SM&R and their spouses;

(c) present and retired officers, directors, and full-time employees (and
their spouses) of: (1) American National Insurance Company ("American
National"), (2) American National subsidiaries, and (3) any insurance
company for which any

17
<PAGE>
of American National's present directors serve as a director or partner;

(d) present and retired partners and full-time employees of legal counsel to
SM&R (and officers and directors of any professional corporations which
are partners of such legal counsel) and their spouses;

(e) any child or step-child of any person named in (a), (b), (c), or (d)
above and their spouses;

(f) any trust, pension, profit-sharing, IRA, or other benefit plan for any
of such persons mentioned in (a), (b), (c), (d) or (e) (although shares
of the Tax Free Fund should not be purchased by these entities);

(g) custodial accounts for minor children of such persons mentioned in (a),
(b), (c), (d) or (e) pursuant to the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts (although shares of the Tax Free Fund should
not be purchased by these entities);

(h) persons who have received a distribution from a pension, profit-sharing,
or other benefit plan, to the extent such distribution represents the
proceeds of a redemption of shares of any fund managed by SM&R (other
than the Money Market and Primary Funds); and

(i) persons purchasing shares for a federal or state sponsored
post-secondary education funding program.

YOU HAVE THE SOLE RESPONSIBILITY OF NOTIFYING SM&R THAT YOU INTEND TO QUALIFY
UNDER ONE OF THESE CATEGORIES.

OPENING AN ACCOUNT. Your ability to open a new account depends on the basis of
your eligibility to purchase Class T shares, as follows:

- If you are eligible to purchase Class T shares because you are an existing
shareholder of either the Government Bond Fund or the Tax Free Fund (and
owned shares on December 31, 1998), you can purchase additional Class T
shares of the fund in which you are invested, but cannot open a new account
in another fund. For example, if you own shares of the Government Bond Fund
only (and you owned shares of that fund on December 31, 1998), you may
purchase additional Class T shares of that fund.

18
<PAGE>
However, you cannot purchase Class T shares of the Tax Free Fund.

- If you are a designated person listed in (a)-(i) above, you can open a new
account in Class T shares and may purchase Class T shares of any fund
managed by SM&R. YOU ARE ALSO ELIGIBLE FOR WAIVER OF THE INITIAL SALES
CHARGE AS DESCRIBED BELOW.

CLASS T SALES CHARGES

The offering price of Class T shares is the net asset value plus a "front-end"
sales charge. The sales charge is a percentage of the offering price, as shown
in the following table:

<TABLE>
<CAPTION>
SALES CHARGE AS A %
SALES CHARGE AS A % OF NET AMOUNT
AMOUNT OF INVESTMENT OF OFFERING PRICE INVESTED
- ---------------------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $100,000 4.5% 4.7%
$100,000 but less than $250,000 3.5% 3.6%
$250,000 but less than $500,000 2.5% 2.6%
$500,000 and over None None
</TABLE>

SALES CHARGE REDUCTIONS AND WAIVERS

DISCOUNTS THROUGH CONCURRENT PURCHASES. To qualify for a reduced sales charge on
Class T shares, you may combine concurrent purchases of Class T shares of funds
managed by SM&R that impose a front-end sales charge. Investors that are
eligible to combine concurrent purchases to qualify for a reduced sales charge
include:

(1) Any individual;

(2) Any individual, his or her spouse, and trusts or custodial accounts for
their minor children;

(3) A trustee or fiduciary of a single trust estate or single fiduciary
account;

(4) Tax-exempt organizations specified in Sections 501(c)(3) or (13) of the
Internal Revenue Code, or employees' trusts, pension, profit-sharing, or
other employee benefit plans qualified under Section 401 of the Internal
Revenue Code; and

(5) Employees (or employers on behalf of employees) under any employee
benefit plan not qualified under Section 401 of the Internal Revenue
Code.

19
<PAGE>
Purchases in connection with employee benefit plans not qualified under Section
401 of the Internal Revenue Code will qualify for the above quantity discounts
only if the fund will realize economies of scale.

DISCOUNTS THROUGH A RIGHT OF ACCUMULATION. If you already own Class A or Class T
shares of a fund managed by SM&R on which you paid a front-end sales charge, you
may be able to receive a discount when you buy additional shares. The current
net asset value of the shares you already own may be "accumulated"--I.E.,
combined together with the dollar amount being invested--to achieve quantities
eligible for discount.

LETTER OF INTENT. You may qualify for a reduced sales charge on purchases of
Class T shares of funds managed by SM&R by completing the Letter of Intent
section of the account application. Under a Letter of Intent, an investor
expresses an intention to purchase, within 13 months of the initial investment,
a specified amount of Class T shares of funds managed by SM&R which, if made
concurrently, would qualify for a reduced sales charge. Upon execution of the
Letter of Intent, the investor must make a minimum initial investment equal to
ten percent (10%) of the amount necessary to qualify for the applicable reduced
sales charge. To assure that the full applicable sales charge will be paid if
the intended purchase is not completed, five percent (5%) of the total intended
purchase amount will be held in escrow in shares registered in the investor's
name. Shares held in escrow under a Letter of Intent are not eligible for the
exchange privilege until the Letter of Intent is completed or canceled. A Letter
of Intent does not represent a binding obligation on the part of the investor to
purchase or the funds to sell the full amount of shares specified.

WAIVER OF INITIAL SALES CHARGE FOR CERTAIN PURCHASERS. After SM&R receives a
written request, those designated person listed in (a)-(i) above may purchase
Class T shares of the Government Bond Fund and the Tax Free Fund at net asset
value per share without the imposition of any sales charge.

20
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------

GOVERNMENT BOND FUND
(FORMERLY NAMED AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES)

U.S. GOVERNMENT OBLIGATIONS--There are two broad categories of U.S. Government
Obligations:

(1) direct obligations of the U.S. Treasury, and

(2) obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government.

21
<PAGE>
the credit of the issuer. No assurance can be given that the U.S. Government
would lend money to or otherwise provide financial support to U.S. Government
sponsored instrumentalities; it is not obligated by law to do so.

MORTGAGE-BACKED SECURITIES--We anticipate that a substantial portion of the
Government Bond Fund's portfolio will consist of mortgage-backed securities
issued or guaranteed by the U.S. Government, its agencies, or instrumentalities.
These securities represent part ownership of pools of mortgage loans secured by
real property, such as certificates issued by the Government National Mortgage
Association ("GNMA" or "Ginnie Mae"), the Federal National Mortgage Association
("FNMA" or "Fannie Mae"), and the Federal Home Loan Mortgage Corporation
("FHLMC" or "Freddie Mac"). Mortgage-backed securities also include mortgage
pass-through certificates representing participation interests in pools of
mortgage loans originated by the U.S. Government and guaranteed by U.S.
Government agencies such as GNMA, FNMA, or FHLMC. Such certificates, which are
ownership interests in the underlying mortgage loans, differ from conventional
debt securities which provide for periodic payment of interest in fixed amounts
and principal payments at maturity or on specified dates. With pass-through
certificates, both principal and interest payments, including prepayments, are
passed through to the holder of the certificate and provide for monthly payments
of interest and principal. GNMA, a federal agency, issues pass-through
certificates that are guaranteed as to timely payment of principal and interest.
FNMA, a federally chartered and privately owned corporation, issues mortgage
pass-through securities and guarantees them as to timely payment of principal
and interest. FHLMC, a corporate instrumentality of the United States, issues
participation certificates that represent an interest in mortgages from FHLMC's
portfolio. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal. FNMA and FHLMC are not backed by the full faith and
credit of the United States, although FNMA and FHLMC are authorized to borrow
from the U.S. Treasury to meet their obligations. Those mentioned are but a few
of the mortgage-backed securities currently available. The Government Bond Fund
will not purchase interest-only or principal-only mortgage-backed securities.

The yield characteristics of mortgage-backed securities differ from traditional
debt securities. Among the major differences are that

22
<PAGE>
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. The average mortgage in a pool may be
expected to be repaid within about twelve (12) years. If mortgage interest rates
decrease, the value of the Government Bond Fund's securities will generally
increase. However, we anticipate that the average life of the mortgages in the
pool will decrease as borrowers refinance and prepay mortgages to take advantage
of lower interest rates. The Government Bond Fund invests the proceeds from such
prepayments at the then prevailing lower interest rates. On the other hand, if
interest rates increase, the value of the Fund's securities generally will
decrease while it is anticipated that borrowers will not refinance and,
therefore, the average life of the mortgages in the pool will be longer. In
addition, if the Government Bond Fund purchases such a security at a premium, a
prepayment rate faster than expected will reduce yield to maturity, while a
prepayment rate slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Government Bond Fund purchases these
securities at a discount, faster than expected prepayments will increase yield
to maturity, while slower than expected prepayments will reduce yield to
maturity.

COLLATERALIZED MORTGAGE OBLIGATIONS--The Government Bond Fund may invest a
portion of its assets in collateralized mortgage obligations or "CMOs," which
are debt obligations collateralized by a portfolio or pool of mortgages,
mortgage-backed securities, or U.S. Government securities. Collateralized
obligations in which the Government Bond Fund may invest are issued or
guaranteed by a U.S. Government agency or instrumentality, such as the FHLMC. A
variety of types of collateralized obligations are currently available and
others may become available in the future. One should keep in mind that during
periods of rapid interest rate fluctuation, the price of a security, such as a
CMO, could either increase or decrease based on inherent interest rate risk.
Additionally, the risk of maturities shortening or lengthening in conjunction
with interest rate movement, could magnify the overall effect of the price
fluctuation.

23
<PAGE>
may have higher volatility and higher yields. This provides the investor with
greater control over the characteristics of the investment in a changing
interest rate environment. A more complete description of CMOs is contained in
the Statement of Additional Information.

The Government Bond Fund may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. PAC
Bonds generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.

The Government Bond Fund may also invest in securities issued by private issuers
that represent an interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities. In addition, the fund may invest in securities issued by
private issuers that represent an interest in or are secured by mortgage loans
or mortgage-backed securities without a government guarantee but usually have
some form of private credit enhancement.

ZERO COUPON BONDS--The Government Bond Fund may invest in zero coupon bonds,
which are debt obligations issued or purchased at a significant discount from
face value. The Government Bond Fund will only purchase zero coupon bonds which
are U.S. Government Obligations. The discount approximates the total amount of
interest the bonds will accrue and compound over the period until maturity or
the first interest payment date at a rate of interest reflecting the market rate
of the security at the time of issuance. Zero coupon bonds do not entitle the
holder to any periodic payments of interest prior to maturity. Its value as an
investment consists of the difference between its face value at the time of
maturity and the price for which it was acquired which is generally an amount
significantly less than face value (sometimes referred to as a "deep discount"
price). Zero coupon bonds require a higher rate of return to attract investors
who are willing to defer receipt of cash. Accordingly, although not providing
current income, SM&R believes that zero coupon bonds can be effectively used to
lock in a higher rate of return in a declining interest environment. Such
investments may experience greater volatility in market value than debt
obligations which make regular

24
<PAGE>
payments of interest. The Fund will accrue income on such investments for tax
and accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations.

TAX FREE FUND (FORMERLY NAMED AMERICAN NATIONAL TAX FREE FUND SERIES)

The Tax Free Fund has no restrictions on the maturity of municipal securities in
which it may invest. Accordingly, it will seek to invest in municipal securities
of such maturities which, in the judgement of SM&R, the adviser, will provide a
high level of current income consistent with prudent investment, with
consideration given to market conditions.

25
<PAGE>
after the downgrade. A description of the ratings may be found in the Appendix
to this Prospectus.

(1) obligations issued or guaranteed by the U.S. government, its agencies,
instrumentalities or authorities (See "Government Bond Fund" above for
an explanation of U.S. government obligations);

(2) corporate debt securities which at the date of the investment are rated
A or higher by Moody's, S&P or Fitch.

(3) commercial paper which at the date of the investment is rated in one of
the two top categories by Moody's or by S&P or if not rated, is issued
by a company which at the date of the investment has an outstanding debt
issue rated A or higher by Moody's or A or higher by S&P;

(4) certificates of deposit issued by U.S. banks which at the date of the
investment have capital surplus and undivided profits of $1 billion as
of the date of their most recently published financial statements; and

(5) repurchase agreements secured by U.S. government securities, provided
that no more than 15% of the Fund's net assets will be invested in
illiquid securities including repurchase agreements with maturities in
excess of seven days.

26
<PAGE>
To the extent income dividends include income from taxable sources, a portion of
a shareholder's dividend income may be taxable. (See "Dividends, Distributions,
and Taxes"). In addition, Congress could enact tax legislation such as a flat
tax rate that would make tax-free bonds less desirable to investors seeking ways
to reduce taxable income. If that were to occur, it could cause the value of the
securities to drop.

MUNICIPAL SECURITIES--The term "municipal securities," as used in this
Prospectus means obligations issued by or on behalf of states, territories, and
possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is exempt
from federal income tax. An opinion as to the tax-exempt status of a municipal
security generally is rendered to the issuer by the issuer's counsel at the time
of issuance of the security. Neither the funds nor SM&R will review the
proceedings relating to the issuance of municipal obligations or the basis for
opinions of counsel.

Municipal securities are used to raise money for various public purposes such as
constructing public facilities and making loans to public institutions. Certain
types of municipal bonds are issued to obtain funding for privately operated
facilities. Further information on the maturity and funding classifications of
municipal securities is included in the Statement of Additional Information.

27
<PAGE>
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Like other interest-bearing
securities, the value of municipal securities changes as interest rates
fluctuate. For example, if interest rates increase from the time a security is
purchased, the security's value and sales price generally will be less than its
purchase cost. Conversely, if interest rates decline from the time a security is
purchased, the security's value and sales price may be greater than its purchase
cost. Generally, municipal securities of longer maturities produce higher
current yields than municipal securities with shorter maturities but are subject
to greater price fluctuation due to changes in interest rates, tax laws and
other general market factors. Lower-rated municipal securities generally produce
a higher yield with shorter maturities than higher-rated municipal securities
due to the perception of a greater degree of risk as to the ability of the
issuer to pay principal and interest.

The Tax Free Fund may purchase municipal bonds for which the payments of
principal and interest are secured by an escrow account of securities backed by
the full faith and credit of the U.S. government ("defeased") and municipal
securities whose principal and interest payments are insured by a commercial
insurance company as long as the underlying credit is investment grade (BBB or
better by S&P and Fitch and Baa or better by Moody's) ("insured"). The Tax Free
Fund may also purchase unrated securities of issuers which SM&R believes would
have been rated BBB or Baa had the issuer requested a rating from S&P, Fitch or
Moody's. Such implied investment grade rating will be determined by SM&R upon
its performance of a credit analysis of the issue and the issuer. Such credit
analysis may consist of a review of such items as the issuer's debt
characteristics, financial information, structure of the issue, liquidity of the
issue, quality of the issuer, current economic climate, financial adviser, and
underwriter. Insured and defeased bonds are further described in the Statement
of Additional Information. In general, these types of municipal securities will
not be treated as an obligation of the original municipality for purposes of
determining industry concentration.

28
<PAGE>
PRIMARY FUND (FORMERLY NAMED AMERICAN NATIONAL PRIMARY FUND SERIES)

OTHER INVESTMENTS--The Primary Fund may invest in (i) U.S. Government
Obligations (See the "Government Bond Fund" above for an explanation of U.S.
Government Obligations); (ii) other corporate obligations, such as bonds,
debentures or notes maturing in five (5) years or less at the time of purchase
which at the date of the investment are rated "A" or higher by an NRSRO; and
(iii) negotiable certificates of deposit of banks (including U.S. dollar
denominated obligations of foreign branches of U.S. banks and U.S. branches of
foreign banks and savings and loan associations and banker's acceptances of U.S.
banks which banks and savings and loan associations have total assets at the
date of investment (as of the date of their most recent published financial
statements) of at least $1 billion (See "INVESTMENT OBJECTIVES AND
POLICIES--Certificates of Deposit and Banker's Acceptance" in the Statement of
Additional Information for a description of the securities) and (iv) repurchase
agreements with respect to any type of instrument in which the Primary Fund is
authorized to invest even though the underlying instrument may mature in more
than two (2) years.

29
<PAGE>
MONEY MARKET FUND

(1) U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations consist of
marketable securities issued or guaranteed as to both principal and interest
by the United States Government or by its agencies and instrumentalities.
(See "Government Bond Fund" above for an explanation of U.S. Government
Obligations).

(3) BANKER'S ACCEPTANCES. Banker's acceptances are short-term instruments
issued by banks, generally for the purpose of financing imports or exports.
An acceptance is a time draft drawn on a bank by the importer or exporter to
obtain a stated amount of funds to pay for specific merchandise. The draft
is then "accepted" and is an irrevocable obligation of the issuing bank.

(4) COMMERCIAL PAPER. As discussed above under "Primary Fund," commercial
paper is short-term unsecured promissory notes issued by corporations to
finance short-term credit needs.

(5) BONDS AND NOTES. The Money Market Fund may invest in corporate bonds or
notes with a remaining maturity of one year or less.

(6) COLLATERALIZED MORTGAGE OBLIGATIONS. As discussed above under
"Government Bond Fund," CMOs are debt obligations collateralized by a
portfolio or pool of mortgages, mortgage-backed securities, or U.S.
Government securities.

30
<PAGE>
The Money Market Fund limits its investments to those short-term securities that
the Board determines present minimal credit risk and that are "Eligible
Securities" when acquired by the Fund. As used in this Prospectus, "Eligible
Securities" means securities that are:

(a) rated in one of the two highest short-term rating categories, or

(b) whose issuer has another class of debt obligations rated in one of the
two highest short-term rating categories.

The Money Market Fund generally limits its investments in securities, as
follows:

- It will not invest in securities issued by any one issuer, other than
the U.S. Government, its agencies, or instrumentalities, in an amount
that exceeds 5% of its total assets.

- It will not invest more than 5% of its total assets in securities
relying on ratings in the second highest rating category.

- It will not invest more than 1% of its total assets in securities of any
one issuer that rely on ratings in the second highest rating category.

31
<PAGE>
RISK FACTORS
- -------------------------------------------------------------------

The following discussion relates to all four funds. The risk/return summary
located at the beginning of this prospectus identifies some specific risks
applicable to each individual fund.

GENERAL. There is no assurance that a fund will achieve its goals. Generally, if
the securities owned by a fund increase in value, the value of the shares of the
fund which you own will increase. Similarly, if the securities owned by a fund
decrease in value, the value of your shares will also go down. In this way, you
participate in any change in the value of the securities owned by a fund.

The risk inherent in investing in any fund is a risk common to any security.
That is, the value of a fund's shares will fluctuate in response to changes in
economic conditions, interest rates and the market's perception of the
underlying portfolio securities held by that fund. Each fund's share value
depends on general economic and securities market conditions, the investment
decisions of its management, and numerous other factors. All of these factors
are inherently uncertain and, in some cases, unforeseeable.

Any of the funds could lose money if the stock markets in general go down or if
the particular debt obligations purchased by a fund go down in value. In
addition, the funds could lose money if prevailing interest rates increase or if
the debt securities purchased by a fund are downgraded or defaulted upon.

DEBT SECURITIES RISKS. Debt securities are subject to change in their values due
to changes in prevailing interest rates. The magnitude of these fluctuations
will often be greater for longer-term debt securities than shorter-term debt
securities. When prevailing interest rates fall, the values of already-issued
debt securities generally rise. Accordingly, if interest rates go down after a
security is purchased, such security might be valued and/or sold at a price
greater than its cost. If interest rates were to drop dramatically, some of the
securities could be called and/or prepaid, requiring reinvesting in securities
at much lower yields.

32
<PAGE>
the value of existing bonds decrease because the interest payments from existing
bonds are less attractive than new issues with higher interest rates and
investors would lose money if they liquidate holdings.

The funds could lose money if any bonds they own are downgraded in credit rating
or go into default. A moratorium, default, or other non-payment of interest or
principal when due could, in addition to affecting the market value and
liquidity of the particular security, affect the market value and liquidity of
other securities. A change in credit rating of an issuer can also affect the
bond's value, thus affecting the market value of the funds. However, the funds
invest predominately in investment grade bonds in order to minimize credit risk.
(See "Investment Objectives and Policies" for more information about the ratings
required for investments by each specific fund.) Moreover, substantial
redemptions of fund shares could require a fund to sell portfolio securities at
a time when a sale might not be favorable.

U.S. GOVERNMENT OBLIGATIONS. Investments in U.S. Government Obligations are not
all backed by the "full faith and credit" of the United States Government. Some
are backed only by the rights of the issuer to borrow from the U.S. Treasury and
others are supported only by the credit of the issuing instrumentality. No
assurance can be given that the U.S. Government would lend money to or otherwise
provide financial support to U.S. Government sponsored instrumentalities.

MARKET RISKS. Because the funds may invest in debt obligations which are traded
on securities exchanges, the value of each fund's portfolio will be affected by
changes in the stock markets. At times, the stock markets can be volatile and
stock prices can change substantially. This market risk will affect each fund's
net asset value per share, which will fluctuate as the values of each fund's
portfolio securities change. Prices do not always change uniformly or at the
same time and the various stock markets do not always move in the same direction
at the same time. Other factors specific to a particular company also affect the
price of that company's debt obligations (for example, poor earnings, loss of
major customers, or major litigation). The funds cannot always predict the
factors that will affect a security's price. The funds, however, do attempt to
limit market risk by diversifying their investments. The funds diversify their
investments by generally investing only a small percentage of their assets in
the debt

33
<PAGE>
obligations of any one company and by not holding a substantial amount of the
debt obligations of any one company.

REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a security and
simultaneously sells it to the vendor for delivery at a future date. These
agreements are used primarily for cash purposes. A fund entering into a
repurchase agreement may lose money if the other party to the transaction fails
to pay the resale price on the delivery date. Such a default may delay or
prevent the fund from disposing of the underlying securities. The value of the
underlying securities may go down during the period in which the fund seeks to
dispose of them. Also, the fund may incur expenses while trying to sell the
underlying securities. Finally, the fund risks losing all or a part of the
income from the agreement.

YEAR 2000 RISKS. Many services provided to the funds and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated, referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. Like other mutual funds, financial and business organizations, and
individuals around the world, the funds could be adversely affected if the
computer systems used by SM&R (which acts as their investment adviser,
underwriter, custodian, and transfer agent) do not properly process and
calculate date-related information and data from and after January 1, 2000. SM&R
is taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
funds and their shareholders.

34
<PAGE>
PURCHASES AND REDEMPTIONS
- -------------------------------------------------------------------
PURCHASING SHARES

You may purchase shares of a fund from registered representatives of SM&R, from
authorized broker-dealers, or directly from SM&R. WE RESTRICT PURCHASES OF CLASS
T SHARES. FOR MORE INFORMATION ABOUT THESE RESTRICTIONS, SEE "ELIGIBLE
PURCHASERS OF CLASS T SHARES" UNDER "SHARES OF THE FUNDS."

Such purchases will be at the offering price for such shares determined as and
when provided below (See "Pricing of Fund Shares"). You should carefully review
all account statements and promptly report any discrepancies to SM&R. You may
make initial and subsequent purchases directly through SM&R at the following
address:

Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969

OPENING AN ACCOUNT: To purchase shares, you must submit a completed account
application which includes the purchaser suitability form. The application and
suitability form are to be mailed directly to SM&R at the above address. If you
would like to take advantage of the electronic services available, please
complete the applicable Special Investor Services section of the account
application. Special forms are required when establishing an IRA/SEP or 403(b)
plan. Please call Investor Services at (800) 231-4639 and request special forms
when establishing retirement plans.

MINIMUM PURCHASE REQUIREMENT: For Class T shares of the Government Bond and Tax
Free Funds, your initial investment must be at least $100 and all subsequent
investments must be at least $20. For the Primary and the Money Market Fund,
your initial investment must be at least $1,000 and all subsequent investments
must be at least $100. We waive these initial investment minimums when

35
<PAGE>
purchases are part of certain systematic investment programs (See "Special
Purchase Plans and Services" for additional information on reduction of the
minimums). We reserve the right to reject any purchase.

PURCHASES BY MAIL: Make your check(s) payable to SM&R and send the check(s) to
the address indicated above. Please note that third party checks will not be
accepted to open a new account, except for IRA rollover checks that are properly
endorsed. If you make subsequent investments by mail, you must indicate your
name, account number, and the name of the class and the fund being purchased.
You may use the remittance slip attached to the confirmation statement.

PURCHASES BY WIRE: TO ENSURE PROPER CREDITING OF A WIRE INVESTMENT, YOU MUST
HAVE AN EXECUTED ACCOUNT APPLICATION AND PURCHASER SUITABILITY FORM ON FILE WITH
THE TRANSFER AGENT. You may then wire your investment to The Moody National Bank
of Galveston ("Moody National Bank") by providing the following instructions to
your bank:

The Moody National Bank of Galveston ABA #113100091
Securities Management and Research, Inc. #035 868 9
Name of Class and Fund (E.G., Class T of the Government Bond Fund)
Fund Account Number (number appears on your confirmation statement)
Your Name (E.G., Mary Smith)

PURCHASES BY EXCHANGE: Call Investor Services if you have established telephone
exchange privileges on your account. See "Special Purchase Plans and
Services--Exchange Privilege" for procedures and additional information relating
to telephone exchanges. For limitations on exchanges, see "Excessive Trading"
also under "Special Purchase Plans and Services."

PRICING OF FUND SHARES

GENERAL (HOW SHARES ARE PRICED). We determine each fund's offering price once
each day the New York Stock Exchange ("the Exchange") is open for regular
trading. The offering price equals a fund's net asset value plus the sales
charge, if any, computed at the rate set forth in the applicable table for the
class. (See "Shares of the Funds--Sales Charges.") You may purchase shares of
the Primary

36
<PAGE>
and Money Market Funds without a sales charge. Accordingly, the offering price
for shares of those funds is net asset value.

EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS (WHEN SHARES ARE PRICED). We
calculate net asset value once each day the Exchange is open at the close of
regular trading on the Exchange (currently 3:00 p.m. Central Time). In the event
the Exchange closes early on a particular day, we will determine the net asset
value of each fund as of the close of the Exchange that day. The price you pay
or receive for shares of a fund depends, in part, on the day and time you make
your purchase or redemption. On any day the Exchange is open for regular
trading, we will execute purchases and redemptions at the next applicable price
determined that day if:

- SM&R receives your order in proper form prior to the close of the
Exchange;

- a securities dealer having a dealer contract with SM&R receives your order
prior to the close of the Exchange and reports your order to SM&R prior to
SM&R's close of business (currently 4:30 p.m. Central Time) on the same
day; or

- for purchases, Moody National Bank receives your purchase payment by bank
wire and reports it to SM&R prior to the close of the Exchange.

If we receive your order after the close of the Exchange or on any day that the
Exchange is closed, we will execute your purchase or redemption at the price
determined on the next business day. In unusual circumstances, any fund may
temporarily suspend the processing of sell requests, or may postpone payment of
proceeds for up to three business days or longer, as allowed by federal
securities laws.

SPECIAL PURCHASE PLANS AND SERVICES

In addition to the special plans described above that permit you to reduce the
initial sales charge assessed on Class T shares, the Company offers other
services and plans that are designed to facilitate investment in the funds. At
this time, there is no charge to you for these services. The Company may impose
fees for such services in the future. Be aware, however, that if you elect to
participate in the ACH plan described below, you should check with your
financial institution for any additional charges imposed for this service. For

37
<PAGE>
additional information contact your registered representative, broker-dealer or
SM&R. A shareholder considering any of the plans or services described below
should consult a tax advisor before beginning a plan.

ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your account(s) and your bank, savings and loan, or credit union
account using the Automated Clearing House ("ACH") network. To arrange for
electronic transfers, complete the relevant Special Investor Services section of
the account application at the time you open your account and specify the type
of service or services desired. Attach a voided, pre-printed check or deposit
slip from your checking, savings and loan, or credit union account. PASSBOOK
SAVINGS ACCOUNTS ARE NOT ELIGIBLE FOR THE ELECTRONIC TRANSFER OPTION.
ADDITIONALLY, YOUR BANK MUST BE A MEMBER OF THE AUTOMATED CLEARING HOUSE (ACH)
NETWORK FOR YOU TO TAKE ADVANTAGE OF THIS SERVICE. You will receive a
confirmation verifying initialization of the electronic transfer option and may
begin conducting transactions in your account(s) under this option approximately
20 calendar days after receipt of the verification notice from SM&R. If you
elect this option after your account is established, it may be necessary for you
to obtain a signature guarantee for all individuals named on the account(s).

TELEPHONE SERVICES. You can only use telephone services for transaction amounts
of $500 or more. You can take advantage of this service by completing the
appropriate Special Investor Services sections of the account application when
opening your account. Through this service, you will be able to purchase
additional shares for an existing SM&R mutual fund account by ACH. You may also
use the telephone services to redeem and exchange shares on those accounts for
which you have an executed account application on file, and have received
written verification from SM&R that the service has been initialized as
explained under Electronic Transfers above. If this option is elected after your
account is established, it may be necessary for you to obtain a signature
guarantee for all individuals named on the account(s). We permit transfers by
telephone from a joint account only to another joint account registered in the
identical names. There may be additional restrictions on telephone transactions
by joint account owners. Contact your registered representative or SM&R for more
information. PLEASE NOTE THAT THE TELEPHONE REDEMPTION OPTION IS NOT AVAILABLE
TO RETIREMENT PLANS.

38
<PAGE>
The funds have implemented the following security procedures intended to protect
your account from losses resulting from unauthorized or fraudulent telephone
instructions: The caller must know:

Additionally, we record all telephone transactions for your protection.

Neither the funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, you should
bear the risk of any losses resulting from unauthorized or fraudulent telephone
transactions on your account(s).

During times of economic turmoil or market volatility or as a result of severe
weather or a natural disaster, it may be difficult to contact SM&R by telephone
to institute a redemption or exchange.

AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via ACH) from your bank account and invested
monthly, bi-monthly, quarterly, or annually into the designated fund(s) at the
applicable offering price determined on the date of the electronic transfer.

WE MAY TERMINATE OR CHANGE THE TERMS OF ANY EXCHANGE OFFER AT ANY TIME.

39
<PAGE>
GOVERNMENT BOND FUND AND TAX FREE FUND. You may exchange Class T shares that you
own in the Government Bond or Tax Free Fund, without an exchange fee or sales
charge, for corresponding Class T shares of another fund managed by SM&R. You
also may exchange your Class T shares for shares of the Primary or Money Market
Fund, provided that you meet any minimum investment requirement for the shares
you wish to acquire.

PRIMARY FUND AND MONEY MARKET FUND. You may exchange shares you own in the
Primary Fund for shares of the Money Market Fund, and vise versa. You may
exchange shares you own in the Primary or Money Market Fund for Class A, T, J,
or Y shares of another fund managed by SM&R, provided you meet any eligibility
requirements and pay any sales charge applicable to the acquired shares. You
CANNOT exchange shares of the Money Market Fund or Primary Fund for Class B or C
shares of another fund.

We waive any sales charges on Class A and Class T shares acquired through an
exchange if you previously paid a sales charge on amounts invested in those
shares. For example, assume you purchase Class T shares of the Government Bond
Fund. You then exchange your Class T shares for shares of the Money Market Fund.
Later, you re-exchange those shares of the Money Market Fund for Class T shares
of the Tax Free Fund. We would not impose any sales charge upon the re-exchange
into Class T shares because you previously paid a sales charge on amounts
invested in those shares. In other words, we will never impose a front-end sales
charge on the same investment TWICE.

Shares of any fund managed by SM&R held in escrow under a Letter of Intent are
not eligible for the exchange privilege. Such shares will not be released from
escrow until the balance invested during the period specified in the Letter of
Intent equals or exceeds the amount required to be invested under the Letter of
Intent or the shareholder requests, in writing, that the Letter of Intent be
canceled and pays any adjustments in sales charge. After release from escrow,
shares may be exchanged, provided all other applicable conditions are met.

You may request an exchange by telephone or in writing. In order to exchange
shares, the following requirements must be met:

40
<PAGE>
(a) the exchange must be made between accounts that are registered in the
same name, address and, if applicable, taxpayer identification number;

(b) the shares of the fund acquired through exchange must be qualified for
sale in the state in which you reside;

(c) the dollar amount of a written exchange must meet the minimum investment
requirement applicable to the shares of the fund that you would acquire
through the exchange;

(d) the minimum dollar amount of a telephone exchange is $500;

(e) SM&R must have received full payment for the shares being exchanged;

(f) your account must have been coded to reflect your certified taxpayer
identification number, or, if applicable, an appropriate Internal
Revenue Service Form W-8 (certificate of foreign status) or Form W-9
(certifying exempt status);

(g) any shares that you wish to exchange must have been held for at least
ten (10) business days;

(h) certificates representing shares, if any, are returned before such
shares are exchanged; and

(i) you have received a prospectus for the shares you receive in the
exchange.

The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by the participating funds or by SM&R at any time. ANY
GAIN OR LOSS REALIZED ON AN EXCHANGE OR RE-EXCHANGE MAY BE RECOGNIZED FOR
FEDERAL AND STATE INCOME TAX PURPOSES. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR
THE TAX TREATMENT AND EFFECT OF EXCHANGES.

EXCESSIVE TRADING. Frequent trades, involving either substantial fund assets or
a substantial portion of your account or accounts controlled by you, can disrupt
management of the Company and raise the Company's expenses. We currently define
"excessive trading" as exceeding one purchase and sale involving the same fund
within any 120-day period.

41
<PAGE>
For example, you are in Fund X. You can move substantial assets from Fund X to
Fund Y and, within the next 120 days, sell your shares in Fund Y to return to
Fund X or move to Fund Z. If you exceed the number of trades described above,
you may be barred indefinitely from further transactions between the
participating funds.

There are two types of transactions exempted from the excessive trading
guidelines. They are (1) redemptions that are not part of exchanges and (2)
systematic purchases or redemptions.

RETIREMENT PLANS

The following retirement plans may invest in Class T shares of the Government
Bond Fund, or with shares of the Primary and Money Market Funds:

- Individual Retirement Accounts (IRAs), which include traditional IRAs,
Roth IRAs, Education IRAs, and SIMPLE IRAs,

- Simplified Employee Pension Plans (SEPs),

- 403(b) Custodial Accounts (TSAs), and

- corporate retirement plans.

These plans allow you to shelter investment income from federal income tax while
saving for retirement. Information concerning IRAs and TSAs, and the forms
necessary to adopt such plans, can be obtained by contacting your registered
representative or calling SM&R. A regular fund application should be used when
establishing a corporate retirement plan. (See "Purchasing Shares" for the
minimum initial and subsequent purchase requirements.) SM&R acts as trustee or
custodian for IRAs, SEPs, and TSAs for the Company. An annual custodial fee of
$7.50 per account will be charged for any part of a calendar year in which an
investor has an IRA, SEP, or TSA in the Company and will be automatically
deducted from each account. An individual considering a retirement plan may wish
to consult with an attorney or tax adviser.

Because IRAs, SEPs, TSAs, and other qualified plans are exempt from federal
income tax, they will be unable to benefit from the general tax-exempt nature of
the Tax Free Fund. Accordingly, the Tax Free Fund is not generally considered to
be suited for such plans or persons.

42
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES

DIVIDENDS.

GOVERNMENT BOND AND TAX FREE FUNDS. The Government Bond and Tax Free Funds
generally will declare and pay dividends from net investment income monthly and
net realized short-term or long-term capital gains, if any, annually. In order
to be entitled to a dividend, an investor must have acquired shares of a fund
prior to the close of business on the record date. A shareholder should be
cautioned, however, before purchasing shares of a fund immediately prior to a
distribution. Dividends and distributions paid by the funds have the effect of
reducing net asset value per share on the record date by the amount of the
payment. Therefore, a dividend or distribution of record shortly after the
purchase of shares by an investor represents, in substance, a return of capital.

PRIMARY AND MONEY MARKET FUNDS. At 3:00 p.m. Central Time, on each day that the
Exchange is open for trading, the Primary and Money Market Funds each will
declare a dividend of all of its net investment income to shareholders of record
on that date. Such dividends will be paid monthly.

DIVIDEND REINVESTMENTS. Dividends and capital gains will be automatically
reinvested at net asset value in additional shares of the fund making such
distribution unless SM&R is instructed otherwise in writing. Distributions not
reinvested are paid by check or transmitted to your bank account through an ACH
transaction, if elected. If the Postal Service cannot deliver your check, or if
your check remains uncashed for six months, the funds reserve the right to
reinvest your distribution check in your account at the net asset value on the
business day of the reinvestment and to reinvest all future distributions in
shares of the applicable fund(s). Dividends and capital gains declared in
December to shareholders of record in December and paid the following January
will be taxable to shareholders as if received in December. This is a convenient
way to accumulate additional shares and maintain or increase the shareholder's
earning base. Of course, any shares so acquired remain at market risk.

Shareholders have the right to change their election with respect to the receipt
of distributions by notifying SM&R in writing, but any such change will be
effective only as to distributions for which the record date is seven or more
business days after SM&R has received the shareholder's written request.

43
<PAGE>
TAXABILITY OF DIVIDENDS. Dividends you receive from the Government Bond,
Primary, and Money Market Funds, whether reinvested or taken as cash, are
generally considered taxable. A fund's long-term capital gains distributions are
taxable as capital gains; dividends from other sources are generally taxable as
ordinary income. Some dividends paid in January may be taxable as if they had
been paid the previous December. The Form 1099 that is mailed to you every
January details your dividends and their federal tax category, although you
should verify your tax liability with your tax professional.

BACKUP WITHHOLDING. Backup withholding of federal income tax may be applied at
the rate of 31% from taxable dividends, distributions, and redemption proceeds
(including exchanges) if you fail to furnish the Company with a correct and
properly certified Social Security or Employer Identification Number when you
sign your application, or if you underreport your income to the Internal Revenue
Service.

TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions. You should consult with a tax advisor concerning the tax reporting
requirements in effect on the redemption or exchange of such shares.

REDEEMING SHARES

You can redeem fund shares at net asset value determined on the date the request
is received by SM&R in proper form. A redemption request must be addressed to
Securities Management and Research, Inc., P.O. Box 58969, Houston, Texas
77258-8969.

If uncertain of the redemption requirements, investors should call Investor
Services or write SM&R. Payment will be made as soon as

44
<PAGE>
practicable and normally within seven days after receipt of a redemption request
in proper form. We currently charge a fee in the amount of $8.00 for redemptions
by wire under $5,000.

If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by a personal check or ACH transfer, SM&R will process your redemption but will
generally delay sending you the proceeds for up to ten (10) business days to
allow the check or transfer to clear.

(a) the redemption proceeds are to be mailed to the address of record or
wired to the pre-authorized bank account indicated on the account
application;

(b) there has been no change of address of record or pre-authorized bank
account within the preceding 30 business days;

(d) the proceeds of the redemption are $500 or more and do not exceed
$25,000; and

(e) the security procedures discussed under "Special Purchase Plans And
Services--Exchange Privilege" have been met.

These instructions may be changed only in writing, accompanied by a signature
guarantee and additional documentation may be required for corporations.

FAX REDEMPTIONS. You may request redemptions by fax as long as they meet the
requirements stated in (a)-(d) under Telephone Redemptions above.

45
<PAGE>
Account may elect to have the withdrawal proceeds automatically deposited in
their pre-authorized bank account via an ACH transaction. This is accomplished
by completing the relevant section of the account application and returning it
to SM&R. See "Special Purchase Plans and Services--Electronic Transfers" for
additional information. It may not be advisable for shareholders to maintain a
Withdrawal Account while concurrently purchasing shares of the Government Bond
Fund or the Tax Free Fund because of the sales charge involved in additional
purchases. You should carefully consider such purchases and contact your
financial adviser regarding their advisability. Dividends and capital gains
distributions will automatically be reinvested in additional shares at net asset
value. As with other redemptions, a withdrawal is a sale for federal income tax
purposes. The Systematic Withdrawal Plan will automatically terminate if all
shares are liquidated or withdrawn from the account. No account covered by a
Letter of Intent can be changed to a Systematic Withdrawal Plan until such time
as the Letter of Intent is fulfilled or terminated, nor can an account under a
Systematic Withdrawal Plan be placed under a Letter of Intent.

REINVESTMENT PRIVILEGE. Within ninety (90) days of a redemption of Class T
shares of a fund, a shareholder may reinvest all or part of the proceeds in
Class T shares of that same fund at the net asset value next computed after
receipt of the proceeds to be reinvested by SM&R. The shareholder must ask the
transfer agent for this privilege at the time of reinvestment. Prior to
reinvestment of redemption proceeds, a shareholder is encouraged to consult with
his or her accountant or tax advisor to determine any possible tax ramifications
of such a transaction. Each fund managed by SM&R may amend, suspend, or cease
offering this privilege at any time as to shares redeemed after the date of the
amendment, suspension, or cessation.

For further information about the "Systematic Withdrawal Plan" and "Reinvestment
Privilege," contact a registered representative or SM&R.

"PROPER FORM" means the request for redemption must include:

(1) your share certificates, if issued;

(2) your letter of instruction or a stock assignment specifying the fund,
account number, and number of shares or dollar amount to be redeemed.
Both share certificates and stock powers, if any, must be endorsed and
executed exactly as

46
<PAGE>
the fund shares are registered. It is suggested that certificates be
returned by certified mail for your protection;

(3) any required signature guarantees (see "Signature Guarantees" below);
and

(4) other supporting legal documents, if required in the case of estates,
trusts, guardianships, divorce, custodianships, corporations,
partnerships, pension or profit sharing plans, retirement plans, and
other organizations.

Please keep in mind that as a shareholder, it is your responsibility to ensure
that all requests are submitted to the Company's transfer agent in proper form
for processing.

SIGNATURE GUARANTEES. A signature guarantee verifies the authenticity of your
signature. Signature guarantees are required when:

(1) the proceeds of the redemption exceed $25,000;

(2) the proceeds (in any amount) are to be paid to someone OTHER THAN the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any address OTHER THAN
the shareholder's address of record, pre-authorized bank account or
exchanged to one of the other funds managed by SM&R; or

(4) the Company or its transfer agent believes a signature guarantee would
protect against potential claims based on the transfer instructions,
including, when the authority of a representative of a corporation,
partnership, association, or other entity has not been established to
the satisfaction of the Company or transfer agent.

TEXAS OPTIONAL RETIREMENT PROGRAM. You may not redeem shares of the Government
Bond Fund, Primary Fund, and Money Market Fund in any account established under
the Texas Optional Retirement Program, unless SM&R receives satisfactory
evidence from the state that one of the following conditions exist:

47
<PAGE>
(1) death of the employee;

(2) termination of service with the employer; or

(3) retirement of employee.

CHECK WRITING OPTION. Check writing is available in the Money Market Fund to
investors having an account value of $1,000 or more. $250 is the minimum check
amount under the check writing option. This option is not available on IRAs or
TSAs. Shareholders wishing to avail themselves of this option must complete the
check writing option signature card in the Prospectus. After obtaining specimen
signatures and the fully executed card, SM&R will order checks and arrange for
the shareholder's checks to be honored by a bank. Investments made by personal
check or third party check will be held for fifteen (15) business days following
the investment during which time checks may not be drawn on the amount of such
investment. This service may be terminated or suspended or additional charges
may be imposed for this service. Shareholders will be provided the initial
checkbook free of charge. There will be a $5 fee for re-orders. Shareholders
will be allowed to write ten (10) checks free each calendar quarter.

When a check is presented for payment, SM&R, as the shareholder's agent, will
cause each fund to redeem a sufficient number of full and fractional shares to
cover the amount of the check. Shareholders will continue to be entitled to
dividends on their shares up to the time the check is presented to SM&R for
payment. If the amount of the check is greater than the value of the shares held
in the shareholder's account for more than fifteen (15) business days at the
time the check is presented for payment, the check will be returned to the payee
as not being covered by sufficient funds, and the shareholder will be subject to
extra charges as a result.

Primary Fund shareholders that had check writing privileges prior to December
31, 1998 will be permitted to continue writing checks on the Primary Fund
subject to the terms applicable to the Money Market Fund described above.
SHAREHOLDERS USING THE PRIMARY FUND CHECK WRITING OPTION SHOULD BE AWARE THAT
WRITING A CHECK IS A REDEMPTION OF SHARES. THOSE SHARES MAY BE WORTH LESS WHEN
THE CHECK IS PRESENTED FOR PAYMENT THAN WHEN THE CHECK WAS WRITTEN.

REDEMPTION OF SMALL ACCOUNTS. The Company reserves the right to redeem shares in
any account (which will be promptly paid to the

48
<PAGE>
shareholder) if, due to your redemptions, the value of the account falls below
$500 in the case of the Government Bond and Tax Free Funds or $1,000 in the case
of the Primary and Money Market Funds. You will be notified that the value of
your account is less than the required minimum indicated above and allowed at
least 60 days to make an additional investment to increase the value of your
account above the required minimum. The funds may, from time to time, change
such required minimum investment.

RIGHTS RESERVED BY THE COMPANY. The Company, acting through its transfer agent,
reserves the right:

- to waive or lower investment minimums;

- to accept initial purchases by telephone from a registered representative;

- to refuse any purchase order;

- to cancel or rescind any purchase or exchange at any time prior to receipt
by the shareholder of written confirmation or, if later, within five (5)
business days of the transaction;

- to restrict or refuse the use of faxed redemptions where there is a
question as to the validity of the request or proper documents have not
been received;

- to otherwise modify the conditions of purchase and any services at any
time;

- to act on instructions not believed to be genuine; or

- to eliminate duplicate mailings of fund material to shareholders who
reside at the same address.

49
<PAGE>
THE FUNDS AND MANAGEMENT
- -------------------------------------------------------------------

INVESTMENT ADVISOR

<TABLE>
<CAPTION>
ON THE PORTION OF EACH FUND'S INVESTMENT ADVISORY
AVERAGE DAILY NET ASSETS FEE ANNUAL RATE
- ------------------------------------------------- ---------------------
<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>

50
<PAGE>
advisory fees for the Tax Free Fund for the fiscal year ended August 31, 1998.
The Money Market Fund was not in operation during the fiscal year ended August
31, 1998.

ADMINISTRATIVE SERVICES

Pursuant to an Administrative Service Agreement with the Company, SM&R provides
all non-investment related management, executive, administrative, transfer
agent, and operational services to the funds. Under the agreement, SM&R receives
an administrative service fee from each fund at the annual rate of average daily
net asset values as follows:

<TABLE>
<CAPTION>
ON THE PORTION OF THE FUND'S ADMINISTRATIVE SERVICE FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
- -------------------------------------------- --------------------------
<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>

REIMBURSEMENTS AND WAIVERS

51
<PAGE>
Funds to the extent that regular operating expenses exceed average daily net
assets as follows: 0.80% for the Primary Fund and 1.00% for the Government Bond
Fund.

PORTFOLIO MANAGEMENT

TERRY E. FRANK, VICE PRESIDENT, PORTFOLIO MANAGER OF THE GOVERNMENT BOND FUND,
TAX FREE FUND, PRIMARY FUND AND MONEY MARKET FUND. Ms. Frank has served as
Portfolio Manager of the Government Bond Fund since 1993 and the Tax Free
Fund since its inception. She joined SM&R's investment staff in 1991 and
prior to that time she held positions with American Capital Asset Management
and Gibraltar Savings Association as a securities analyst and Equitable
Investment Services as a research analyst.

She has served as Portfolio Manager of the Primary Fund since November 1998
and the Money Market Fund since its inception January 1, 1999. She also
serves as Portfolio Manager of the Money Market Portfolio of American
National Investment Accounts, Inc., a series mutual fund used exclusively
for variable contracts issued by American National.

JOHN S. MAIDLOW, ASSISTANT PORTFOLIO MANAGER OF THE PRIMARY FUND AND THE MONEY
MARKET FUND. Mr. Maidlow has served as the Assistant Portfolio Manager of the
Primary Fund since November, 1998 and the Money Market Fund since its
inception January 1, 1999. He also services as Assistant Portfolio Manager
of the Money Market Portfolio of American National Investment Accounts,
Inc., a series mutual fund used exclusively for variable contracts issued by
American National. He joined SM&R's staff in 1998 and prior to that time he
held positions with American Industries Trust Company as a trust officer,
Texas Department of Insurance and the Texas Department of Banking as an
examiner, Landmark Group as Vice President of Investments, MBank as a trust
officer and Rotan-Mosle, Inc. and Eppler, Guerin & Turner as an investment
broker.

52
<PAGE>
FINANCIAL HIGHLIGHTS GOVERNMENT BOND FUND
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.42 $ 10.14 $ 10.51 $ 10.07 $ 10.87
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.64 0.67 0.65 0.70 0.54
Net Realized and Unrealized Gain (Loss)
on Securities 0.20 0.26 (0.37) 0.44 (0.79)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.84 0.93 0.28 1.14 (0.25)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.66) (0.65) (0.65) (0.70) (0.55)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.66) (0.65) (0.65) (0.70) (0.55)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 10.60 $ 10.42 $ 10.14 $ 10.51 $ 10.07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN 8.31% 9.37% 2.63% 11.85% (2.41)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

RATIOS/SUPPLEMENTAL DATA

53
<PAGE>
FINANCIAL HIGHLIGHTS TAX FREE FUND
- -------------------------------------------------------------------

TOTAL DISTRIBUTIONS (0.49) (0.50) (0.53) (0.51) (0.24)
--------- --------- --------- --------- --------
Net Asset Value, End of Period $ 10.64 $ 10.27 $ 9.93 $ 9.95 $ 9.62
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL RETURN 8.58% 8.61% 5.18% 9.15% (1.49)%(1)
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
</TABLE>

RATIOS/SUPPLEMENTAL DATA

<TABLE>
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period (000's
omitted) $ 11,058 $ 10,700 $ 9,148 $ 8,399 $ 7,295
Ratio of Expenses to Average Net
Assets(3) 0.75% 0.54% -- -- 1.11%(2)
Ratio of Net Income to Average
Net Assets 4.60% 4.97% 5.27% 5.43% 2.50% (2)
Portfolio Turnover Rate 12.77% 22.15% 18.44% 12.63% 16.49%
</TABLE>

(1) Returns are not annualized.
(2) Ratios are annualized.
(3) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.25%, 1.27%, 1.18%, and
1.25% for the years ended August 31, 1998, 1997, 1996, and 1995,
respectively.

54
<PAGE>
FINANCIAL HIGHLIGHTS PRIMARY FUND
- -------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA

55
<PAGE>
- -------------------------------------------------------------------

APPENDIX

(Description of Ratings Used in Prospectus)
- -------------------------------------------------------------------

BOND RATINGS

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM BOND (BONDS THAT EXTEND
LONGER THAN ONE YEAR) RATING:

AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA An obligation rated "AA" differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.

DESCRIPTION OF MOODY'S INVESTOR'S SERVICE, INC.'S LONG-TERM BOND (BONDS THAT
EXTEND LONGER THAN ONE YEAR) RATINGS:

Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements

A-1
<PAGE>
present which make the long-term risks appear somewhat larger than the Aaa
securities.

Baa Bonds which are rated "Baa" are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

DESCRIPTION OF FITCH IBCA BOND RATINGS:

MUNICIPAL NOTE RATINGS

DESCRIPTION OF MOODY'S INVESTOR SERVICE INC.'S SHORT-TERM MUNICIPAL NOTE (NOTES
THAT MATURE IN LESS THAN ONE YEAR) RATINGS:

MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

A-2
<PAGE>
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

DESCRIPTION OF STANDARD AND POOR'S SHORT-TERM MUNICIPAL NOTE RATINGS:

SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.

SP-3 Speculative capacity to pay principal and interest.

COMMERCIAL PAPER RATINGS

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S THREE HIGHEST COMMERCIAL PAPER
RATINGS:

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S THREE HIGHEST COMMERCIAL PAPER
RATINGS:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

A-3
<PAGE>
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.

DESCRIPTION OF FITCH IBCA SHORT-TERM DEBT RATING (INCLUDING COMMERCIAL PAPER):

F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.

F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.

F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result
in a reduction to non-investment grade.

B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.

DESCRIPTION OF DUFF & PHELP'S HIGHEST COMMERCIAL RATINGS:

High Grade

D-1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.

D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.

Good Grade

DESCRIPTION OF THOMSON BANKWATCH, INC.'S TWO HIGHEST COMMERCIAL RATINGS:

TBW-1 The highest category; indicates a very high likelihood that principal and
interest will be paid on a timely basis.

TBW-2 The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.

A-4
<PAGE>
FEDERAL FUNDS

A-5
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS
- -------------------------------------------------------------------

SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
TELEPHONE: 1-800-231-4639 (TOLL FREE) OR
281-334-2469 (COLLECT)

Investment Company
File No. 811-6477
<PAGE>

SM&R EQUITY FUNDS

GROWTH
SM&R Growth Fund, Inc.

EQUITY INCOME
SM&R Equity Income Fund, Inc.

BALANCED
SM&R Balanced Fund, Inc.

SM&R INVESTMENTS, INC.

CURRENT INCOME AND HIGH DEGREE OF SAFETY
SM&R Government Bond Fund

CURRENT TAX FREE INCOME
SM&R Tax Free Fund

STABILITY, LIQUIDITY AND CURRENT INCOME
SM&R Primary Fund

STABILITY, LIQUIDITY AND CURRENT INCOME
SM&R Money Market Fund

HOW TO REACH US:

SHAREHOLDER SERVICES
(800) 231-4639

FUND QUOTES
(800) 526-8346 ext. 268

SALES AND MARKETING
(800) 526-8346

TO REQUEST A PROSPECTUS
(800) 231-4639

SM&R SECURITIES MANAGEMENT
AND RESEARCH, INC.
MANAGER & DISTRIBUTOR
---------------------
MEMBER NASD. SIPC

2450 South Shore Blvd. - League City, TX 77573
(281) 334-2469

Form 9096 - 1/99

NOT PART OF THE PROSPECTUS
<PAGE>

PROSPECTUS DATED JANUARY 1, 1999

SM&R
FIXED INCOME
"Class Y Shares" FUNDS
(Institutional Shares)

[LOGO]
SECURITIES MANAGEMENT AND RESEARCH, INC.
2450 South Shore Blvd.
Suite 400
League City, Texas 77573

member: NASD and SIPC

P.O. Box 58969
Houston, Texas 77258-8969

(877) SMR-FUND ext. 273
(877) 862-9859
(281) 538-4980 fax

SM&R INVESTMENTS INC. IS COMPRISED
OF THE FOLLOWING PORTFOLIOS:

- - SM&R Government Bond Fund

- - SM&R Tax Free Fund

- - SM&R Primary Fund

- - SM&R Money Market Fund

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------

<TABLE>
<S> <C>
RISK/RETURN SUMMARY.......................................... 1
SM&R Government Bond Fund.................................. 1
SM&R Tax Free Fund......................................... 3
SM&R Primary Fund.......................................... 5
SM&R Money Market Fund..................................... 7
Types of Investment Risk................................... 9
Bar Chart and Performance Table............................ 10
Fees and Expenses of the Funds............................. 14
SHARES OF THE FUNDS.......................................... 17
INVESTMENT OBJECTIVES AND POLICIES........................... 18
Government Bond Fund....................................... 18
Tax Free Fund.............................................. 22
Primary Fund............................................... 26
Money Market Fund.......................................... 27
RISK FACTORS................................................. 29
PURCHASES AND REDEMPTIONS.................................... 32
Purchasing Shares.......................................... 32
Pricing of Fund Shares..................................... 33
Special Purchase Plans and Services........................ 34
Retirement Plans........................................... 38
Dividends, Distributions, and Taxes........................ 39
Redeeming Shares........................................... 40
THE FUNDS AND MANAGEMENT..................................... 44
FINANCIAL HIGHLIGHTS......................................... 47
Government Bond Fund....................................... 47
Tax Free Fund.............................................. 48
Primary Fund............................................... 49
APPENDIX..................................................... A-1
</TABLE>