<PAGE> PAGE 1
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010 A00AA01 SECURITIES MANAGEMENT AND RESEARCH, INC.
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012 A00AA01 SECURITIES MANAGEMENT AND RESEARCH, INC.
012 B00AA01 84-00749
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<PAGE> PAGE 2
012 C02AA01 TX
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013 A00AA01 TAIT, WELLER & BAKER, CPA
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 15
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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SIGNATURE BRENDA T. KOELEMAY
TITLE VP/TREASURER
[ARTICLE] 6
[CIK] 0000881166
[NAME] SM&R CAPITAL FUNDS, INC.
[SERIES]
[NUMBER] 01
[NAME] GOVERNMENT INCOME FUND SERIES
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 23149512
[INVESTMENTS-AT-VALUE] 23990119
[RECEIVABLES] 211218
[ASSETS-OTHER] 2782
[OTHER-ITEMS-ASSETS] 6861
[TOTAL-ASSETS] 24210980
[PAYABLE-FOR-SECURITIES] 181023
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 48422
[TOTAL-LIABILITIES] 229445
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 23387783
[SHARES-COMMON-STOCK] 2262725
[SHARES-COMMON-PRIOR] 2272181
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (269482)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 840607
[NET-ASSETS] 23981535
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1696829
[OTHER-INCOME] 0
[EXPENSES-NET] 239646
[NET-INVESTMENT-INCOME] 1457183
[REALIZED-GAINS-CURRENT] 103599
[APPREC-INCREASE-CURRENT] 340609
[NET-CHANGE-FROM-OPS] 1901391
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1500708)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 107893
[NUMBER-OF-SHARES-REDEEMED] (265757)
[SHARES-REINVESTED] 148408
[NET-CHANGE-IN-ASSETS] 298234
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (373090)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 120397
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 239646
[AVERAGE-NET-ASSETS] 23984436
[PER-SHARE-NAV-BEGIN] 10.42
[PER-SHARE-NII] 0.64
[PER-SHARE-GAIN-APPREC] 0.20
[PER-SHARE-DIVIDEND] (0.66)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.60
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000881166
[NAME] SM&R CAPITAL FUNDS, INC.
[SERIES]
[NUMBER] 02
[NAME] PRIMARY FUND SERIES
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 34591101
[INVESTMENTS-AT-VALUE] 34591101
[RECEIVABLES] 110972
[ASSETS-OTHER] 11504
[OTHER-ITEMS-ASSETS] 524507
[TOTAL-ASSETS] 35238084
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 661202
[TOTAL-LIABILITIES] 661202
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 34236810
[SHARES-COMMON-STOCK] 34582655
[SHARES-COMMON-PRIOR] 33050648
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5755)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 34576882
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2049686
[OTHER-INCOME] 0
[EXPENSES-NET] 281878
[NET-INVESTMENT-INCOME] 1767808
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 1767808
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1767808
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 35251969
[NUMBER-OF-SHARES-REDEEMED] (35611884)
[SHARES-REINVESTED] 1891922
[NET-CHANGE-IN-ASSETS] 1532007
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5755)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 174328
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 345237
[AVERAGE-NET-ASSETS] 35232431
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] (0.05)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.80
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1>Expenses for the calculation are net from Securities Management & Research,
Inc. Without this reimbursement, the ratio of expenses to average net assets
would have been 0.98%, 1.01%, 1.15%, 1.21% and 1.20% for the years ended August
31, 1998, 1997, 1996, 1995 and 1994, respectively.
</FN>
</TABLE>
[ARTICLE] 6
[CIK] 0000881166
[NAME] SM&R CAPITAL FUNDS, INC.
[SERIES]
[NUMBER] 03
[NAME] TAX FREE FUND SERIES
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 10323626
[INVESTMENTS-AT-VALUE] 11026401
[RECEIVABLES] 149307
[ASSETS-OTHER] 8736
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 11184444
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 126780
[TOTAL-LIABILITIES] 126780
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 10365937
[SHARES-COMMON-STOCK] 1038994
[SHARES-COMMON-PRIOR] 1041640
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (21438)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 702775
[NET-ASSETS] 11057664
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 571797
[OTHER-INCOME] 0
[EXPENSES-NET] 80157
[NET-INVESTMENT-INCOME] 491640
[REALIZED-GAINS-CURRENT] 28603
[APPREC-INCREASE-CURRENT] 363642
[NET-CHANGE-FROM-OPS] 883885
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (499989)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 59089
[NUMBER-OF-SHARES-REDEEMED] (113023)
[SHARES-REINVESTED] 51288
[NET-CHANGE-IN-ASSETS] 357495
[ACCUMULATED-NII-PRIOR] 8346
[ACCUMULATED-GAINS-PRIOR] (50038)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 53102
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 133259
[AVERAGE-NET-ASSETS] 10696719
[PER-SHARE-NAV-BEGIN] 10.27
[PER-SHARE-NII] 0.49
[PER-SHARE-GAIN-APPREC] 0.37
[PER-SHARE-DIVIDEND] (0.49)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.64
[EXPENSE-RATIO] 0.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1>Expenses for the calculation are net of a reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would have been 1.25%, 1.27%, 1.18% and 1.25% for the
years ended August 31, 1998, 1997, 1996 and 1995, repectively.
</FN>
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON INTERNAL CONTROL STRUCTURE
The Board of Directors
SM&R Capital Funds, Inc.
Galveston, Texas
In planning and performing our audits of the financial statements of American
National Government Income Fund, American National Primary Fund and American Na
tional Tax Free Fund, each a series of shares of SM&R Capital Funds, Inc., for
the period ended August 31, 1998, we considered their internal control structur
e, including procedures for safeguarding securities, in order to determine our
auditing procedures for the purpose of expressing our opinion on the financial
statements and to comply with the requirements of Form N-SAR, not to provide
assurance on the internal control structure.
The management of the Funds is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and re
lated costs of internal control structure policies and procedures. Two of the
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against
loss from unauthorized use or disposition, and that transactions are executed
in accordance with management's authorization and recorded properly to permit
preparation of financial statements in conformity with generally accepted ac
counting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any evalua
tion of the structure to future periods is subject to the risk that it may be
come inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily dis
close all matters in the internal control structure that might be material weak
nesses under standards established by the American Institute of Certified Pub
lic Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses, as defined above, as of
August 31, 1998.
This report is intended solely for the information and use of management and
the Securities and Exchange Commission, and should not be used for any other
purpose.
Philadelphia, Pennsylvania
October 2, 1998
