TEXAS CAPITAL VALUE FUNDS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of Texas Capital Value
Funds (the "Fund") hereby constitutes and appoints
Brian T. Bares, proxy and attorney of the undersigned,
with full power of substitution to each, for and in the
name of the undersigned to vote and act upon all
matters (unless and except as expressly limited by
below) at the Special Meeting of Shareholders of the
Fund to be held on November 18, 1997 at the office of
the Fund, 1600 West 38th St. Ste 412, Austin, TX 78731
at 7 a.m. (CST) and at any and all adjournments
thereof, in respect to all shares of Common Stock of
the Fund held by the undersigned or in respect of which
the undersigned would be entitled to vote or act, with
all powers the undersigned would possess if personally
present. All proxies previously given by the
undersigned in respect to this meeting are hereby
revoked.
Specify desired action by check marks in the
appropriate spaces. This Proxy will be voted and voted
as specified. IF NO SPECIFICATION IS MADE, THE PROXY
WILL BE VOTED IN FAVOR OF ITEMS 1,2, AND 3. The person
named proxy has discretionary authority, which he
intends to exercise in favor of the proposals referred
to and according to his best judgment as to the other
matters which properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE
"FOR" EACH PROPOSAL
FOR AGAINST
ABSTAIN
ITEM 1. To approve a New Investment [ ] [ ]
[ ]
Advisory Contract
ITEM 2. To approve a revision in the [ ] [ ]
[ ]
Funds Investment Policy
ITEM 3. To approve a new 12b-1 Plan [ ] [ ]
[ ]
for the Fund
The signature(s) on this proxy should correspond
exactly to the shareholder(s) name hereon. In case of
joint tenacies, co-executors, or co-trustees, both
should sign. Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give their
full title.
_____________________________________
Dated:________________
Please sign, date, and return the proxy card promptly
using the enclosed envelope. Please mark boxes in blue
or black ink.
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TEXAS CAPITAL VALUE FUNDS
1600 W. 38TH STREET, STE. 412
AUSTIN, TX 78731
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF TEXAS
CAPITAL VALUE FUNDS
NOTICE IS HEREBY GIVEN that a Special Meeting of the
shareholders of Texas Capital Value Funds (the "Fund")
will be held via proxy on November 18th, 1997 for the
following purposes:
1. To approve or disapprove a new Investment Advisory
Contract with the Funds Investment Advisor, First
Austin Capital Management, Inc. with terms exactly the
same as the current Contract and which is to take
effect upon the sale of Guy Coffelts stock in the
Advisor to his son, Mark Coffelt, the President of the
Fund; and
2. To approve or disapprove changing a fundamental
investment restriction of the Fund to permit it to
increase borrowing from 5% to 33 1/3% of net asset
value; and
3. To approve or disapprove a 12b-1 Plan entitled
Distribution Assistance, Promotion, and Administrative
Service Plan to replace the present 12b-1 Plan, and
with terms substantially similar to the present 12b-1
Plan
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
APPROVE ALL OF THE ABOVE PROPOSALS
By order of the Board of Directors,
Eric Barden, Secretary
September 19, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE INDICATE YOUR VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN
IT, AND RETURN IT IN THE ACCOMPANYING POSTAGE PREPAID
ENVELOPE. IF YOU SIGN, DATE, AND RETURN THE PROXY CARD
BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE
VOTED IN FAVOR OF THE PROPOSALS ABOVE. BY PROMPTLY
MARKING, SIGNING, AND RETURNING THE PROXY, YOU WILL
SAVE THE ADDITIONAL EXPENSE OF FURTHER SOLICITATIONS.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
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Texas Capital Value FundsTM
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 18th, 1997
The enclosed proxy is solicited by the Board of
Directors of the Fund in connection with a Special
Meeting of Shareholders (hereinafter "Meeting") of the
Fund or any adjournment thereof. Proxies will be voted
in accordance with the instructions contained therein,
and as to proposals for which no instructions are
given, a proxy will be voted in favor of the particular
proposal. If a shareholder or his nominee does not
send in a proxy card, the shares will not be voted.
Proxies marked "abstain" will be counted for purposes
of determining a quorum, but not for purposes of
approving or disapproving that proposal. The proxy
confers discretionary authority on the person
designated therein to vote on other business not
currently contemplated, which may properly come before
the Meeting. A shareholder may revoke his proxy at any
time prior to use by written notice to the Fund, by
executing and filing a subsequently dated proxy. This
proxy statement and the accompanying form of proxy are
being sent to shareholders on approximately October 5,
1997.
At the close of business on September 18, 1997, the
record date fixed by the Board of Directors for the
determination of shareholders entitled to notice of and
to vote at the Meeting, 1,380,837.025 shares of the
capital stock of the Fund were outstanding. Each share
is entitled to one vote with respect to each of the
matters presented for action at the Meeting. Directors
and officers of the Fund, as a group, held beneficially
29383.884 shares, or 2.12% of the such outstanding
shares on September 18, 1997. First Austin Capital
Management, Inc., the Funds Investment Advisor
(hereinafter "FACM" or the "Advisor") does not own any
shares of the Fund. See "Principal Shareholders" for
details of other large shareholder holdings.
The affirmative vote of a majority of shares cast at
the Meeting is required to approve proposals regarding
the new Investment Advisor Contract, the change in the
borrowing restriction, the new 12b-1 Plan, and any
other business that may come before the Meeting.
"Majority" for this purpose under the Investment
Company Act of 1940 (hereinafter the "40 Act") means
the lesser of (a) 67% or more of the Funds voting
securities are present or represented by proxy or (b)
more than 50% of such outstanding shares.
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The cost of solicitation, including the printing and
mailing of proxies, will be born by FACM. FACM may, if
necessary to obtain the requisite representation of
shareholders, solicit proxies personally by its
employees. It is not anticipated that any additional
employees will be specially engaged for such purpose.
The cost of this solicitation, including any additional
solicitation, will be borne by FACM.
The Fund will request broker-dealer firms, custodians,
nominees, and fiduciaries to forward the proxy
materials to the beneficial owners of record of the
Fund. FACM has agreed to reimburse such entities for
their reasonable expenses incurred with such proxy
solicitation. In addition to the solicitation of
proxies by mail, officers of the Fund may solicit
proxies in person or by telephone.
Copies of the Funds most recent annual report and/or
quarterly report may be obtained from the Fund at no
charge by writing or telephoning the Fund at its
principal executive offices at 1600 W. 38th Street,
Suite 412, Austin, TX 78731. Telephone (800) 880-0324.
PROPOSAL 1. APPROVAL OR DISAPPROVAL OF A NEW
INVESTMENT ADVISORY CONTRACT WITH THE FUNDS ADVISOR,
FIRST AUSTIN CAPITAL MANAGEMENT, INC.
When the Advisor was organized, 50% of its capital
stock was purchased by Mark Coffelt and 50% was
purchased by his father, Guy Coffelt. Now that Guy
Coffelt has reached retirement age, it is his desire to
sell his 50% interest in FACM to Mark (hereinafter the
"Proposed Sale") so that Mark will own 100% of the
stock. The Proposed Sale will result in the sale of a
controlling block of stock in the Adviser and according
to the 40 Act, any such sale would constitute an
assignment of the Advisory Contract and result in its
automatic termination. Consequently, for FACM to
continue to act as the adviser, it is necessary for
shareholders to approve a new Investment Advisory
Contract between FACM and the Fund, to take effect upon
consumation of the Proposed Sale. Except for the
starting date, the terms of the new contract are
exactly the same as the terms of the current one.
FACM currently serves as Investment Advisor for the
Fund under an Investment Advisory and Administrative
Contract (the "Existing Advisory Contract") dated
August 15, 1995 and which was amended on October 9,
1995 and March 20, 1996. The Board of Directors of the
Fund, including a majority of the "non-interested"
directors, recently approved the continuation of the
Existing Advisory Contract in the form of the new
contract to take effect upon shareholder approval and
the Proposed Sale. Under both the Existing Advisory
Contract, and the proposed contract, FACM is entitled
to receive from the Fund fees as follows:
(i) for Advisory Services a flat fee of one percent
(1%) of the net assets of the Fund; plus additional
amounts as follows:
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(ii)for Administrative Services a fee equal to the sum
of (i) seven-tenths percent (0.70%) of the amount of
assets in the Fund between one dollar ($1.00) and five
million dollars ($5,000,000), inclusive, plus (ii)
five-tenths percent (0.50%) of the amount of assets in
the Fund between five million and one dollars
($5,000,001) and thirty million dollars ($30,000,000),
inclusive, plus (c) twenty-eight hundredths percent
(0.28%) of the amount of assets in the Fund between
thirty million and one dollars ($30,000,001) and one
hundred million dollars ($100,000,000), inclusive, plus
(d) twenty-five hundredths percent (0.25%) of the
amount of assets in the Fund between one hundred
million and one dollars ($100,000,001) and two hundred
million dollars ($200,000,000), inclusive, plus (e)
twenty hundredths percent (0.20%) of the amount of
assets in the Fund in excess of two hundred and one
million dollars ($200,000,001), inclusive (all assets
in the Fund for the purposes of this Paragraph to be
rounded to the nearest dollar prior to the computation
of any fee owed).
Such fees shall be accrued daily and be payable monthly
in arrears on the first day of each calendar month.
New Advisory and Administrative Contract.
Except for different effective and termination
dates, the terms of the New Advisory and Administrative
Contract (the "New Advisory Contract") are identical in
all aspects to the terms of the Existing Advisory
Contract. A form of the New Advisory Contract is
attached to this Proxy Statement, as Exhibit A, and the
description set forth in this Proxy Statement of the
New Advisory Contract is qualified in its entirety by
reference to Exhibit A.
Under the New Advisory Contract, the Adviser will
provide certain investment advisory services to the
Fund, including deciding which securities will be
purchased and sold by the Fund, when such purchases and
sales are to be made, and arranging for such purchases
and sales, all in accordance with the provisions of 40
Act and any rules thereunder, the governing documents
of the Fund, the fundamental policies of the Fund, as
reflected in its registration statement, and any
policies and determinations of the Board of Directors
of the Fund.
As compensation for its services to the Fund under
the New Advisory Contract, the Adviser will be entitled
to receive from the Fund fees calculated at the same
rate as those charged under the Existing Advisory
Contract described above. The New Advisory Contract
will continue in effect for one year from its effective
date, and will continue in effect thereafter for
successive annual periods, provided its continuance is
specifically approved at least annually by (1) a vote
of the holders of a majority of the outstanding voting
securities (as defined in the 40 Act and the rules
thereunder) of the Fund, or (2) a majority of the
Directors who are not parties to the New Advisory
Contract or interested persons of the Fund or any such
party. The New Advisory Contract provides that it may
be terminated at any time, without penalty, by either
party upon 60 days written notice, provided that such
termination by the Fund shall be directed or approved
by a majority vote of the Board of Directors of the
Fund or by a vote of holders of a majority of the
shares of the Fund.
The Adviser will provide, at its expense, personnel
to serve as officers of the Fund who are affiliated
persons of the Adviser, and office space, facilities
and equipment for carrying out its duties under the New
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Advisory Contract. The Adviser will continue to be
responsible for the following expenses incurred by the
Fund: (i) the compensation of any of the Fund's
directors, officers and employees who are interested
persons of the Investment Adviser or its affiliates
(other than by reason of being directors, officers or
employees of the Fund), and (ii) expenses of printing
and distributing the Fund's Prospectus, Statement of
Additional Information and periodic financial reports
to persons other than current shareholders of the Fund,
and sales and advertising materials, (iii) compensation
of any of the Fund's directors, officers or employees
who are not interested persons of the Adviser or its
affiliates (other than by reason of being directors,
officers or employees of the Fund), (iv) charges and
expenses of the Fund's custodian, transfer agent and
registrar, except custodial transaction fees, (v) all
costs associated with shareholders meetings and the
preparation and dissemination of proxy solicitation
materials, (vi) legal and auditing expenses, (vii)
insurance premiums on the Fund's property and
personnel, including the fidelity bond and liability
insurance for officers and directors, (viii) printing
and mailing of all reports, including semi-annual and
annual reports, prospectuses and statements of
additional information to existing shareholders, (ix)
fees and expenses of registering the Fund's shares
under the Federal securities laws and of qualifying its
shares under applicable state securities laws,
including expenses attendant upon renewing and
increasing such registrations and qualifications, (x)
accounting and bookkeeping costs and expenses necessary
to maintain the Fund's books and records as required by
the 40 Act, and (xi) organizational expenses.
The Fund is responsible for payment of all of its other
expenses including (i) brokerage and commission
expenses, (ii) Federal, state or local taxes, including
issue and transfer taxes, incurred by or levied on the
Fund, (iii) custodian transaction charges (iv) payment
of all investment advisory fees (including the fee
payable to the Adviser under this Contract), and (v)
any extraordinary and non-recurring expenses, except as
otherwise prescribed herein including interest charges
on borrowing.
Acquisition of Shares.
Mark A Coffelt has entered into an acquisition
agreement which contemplates that he will purchase all
of the shares of FACM stock owned by Guy D. Coffelt,
including all voting rights and privileges associated
with such shares. The acquisition agreement is subject
to certain pre-closing adjustments and conditions.
Section 15(f) of the 40 Act provides that when a
change in control of an investment adviser occurs, the
investment adviser or any of its affiliated persons may
receive any amount or benefit in connection therewith
provided two conditions are satisfied. First, no
"unfair burden" may be imposed on the investment
company as a result of the transaction relating to the
change of control, or any express or implied terms,
conditions or understandings applicable thereto. The
term "unfair burden," as defined in the 40 Act,
includes any arrangement during the two-year period
after the change in control whereby the investment
adviser (or predecessor or successor adviser), or any
interested person of any such adviser, receives or is
entitled to receive any compensation, directly or
indirectly, from the investment company or its security
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holders (other than fees for bona fide investment
advisory or other services) or from any person in
connection with the purchase or sale of securities or
other property to, from, or on behalf of the investment
company (other than fees for bona fide principal
underwriting services). No such compensation
arrangements are contemplated in the Proposed
Transaction. In the Acquisition Agreement, Mark A.
Coffelt has agreed to use his best efforts to ensure
that the Proposed Transaction will not cause the
imposition of an unfair burden on the Fund. The second
condition is that, during the three year period
immediately following the consummation of the
transaction, at least 75% of the investment company's
board of directors must not be "interested persons" of
the investment adviser or predecessor investment
adviser within the meaning of the 40 Act. Currently,
the Board of Directors meets this second requirement.
In the Acquisition Agreement, Mark A. Coffelt has
agreed to use his best efforts to ensure that the
second condition is met.
There are a number of conditions precedent to the
closing of the Proposed Transaction. Such conditions
include, among other things, that all regulatory
filings, applications and notifications and all third-
party consents will have been duly and properly made or
obtained, and that consents will have been obtained
from a specified percentage of FACM's current clients,
including the Fund among others, as required by
applicable law. If the conditions for the Proposed
Transaction are not met and the acquisition is not
completed, the Existing Advisory Contract will remain
in effect. In the event the acquisition is completed
but the New Advisory Contract is not approved by the
Fund's Shareholders, the Directors will promptly seek
to enter into a New Advisory Contract for the Fund,
subject to approval by the Fund's shareholders.
During the fiscal year ended September 30, 1996,
the Fund paid FACM $7588 in Advisory fees and $6606 in
Administration Fees under the Existing Advisory
Contract.
Additional Information.
FACM, a Delaware corporation, whose principal
executive offices are at 1600 West 38th Street, Suite
412, Austin, TX 78731 is registered as an investment
adviser with the Securities and Exchange Commission,
under the Investment Advisers Act of 1940 (the
"Advisers Act"). After the acquisition, FACM will be
registered as an investment adviser under the Adviser's
Act, have the same address as and employ the same the
same key personnel as it did previously.
FACM's principal executive officers and directors are
shown below. The address of each, as it relates to
their duties at FACM, is the same as that of FACM.
Name and Position with FACM Principal Occupation
- - ---------------------------- --------------------
- --
Mark A. Coffelt Chairman,
President, and CIO
Guy D. Coffelt Director
Brian T Bares Compliance Officer
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Directors' Consideration.
The Board of Directors of the Fund believes that
the terms of the New Advisory Contract are fair to, and
in the best interest of, the Fund and its shareholders.
The Board of Directors, including all of the non-
interested Directors, recommend approval by the
shareholders of the New Advisory Contract between FACM,
Inc. and the Fund. In making this recommendation, the
Directors carefully have evaluated the experience of
the Advisers key personnel in institutional investing,
the quality of services the Adviser is expected to
provide to the Fund, and the compensation proposed to
be paid to the Adviser, and have given careful
consideration to all factors deemed to be relevant to
the Fund, including, but not limited to: (1) the fee
and expense ratios of comparable mutual funds; (2) the
performance of the Fund since commencement of
operations; (3) the nature and quality of the services
expected to rendered to the Fund by the Adviser; (4)
the distinct investment objective and policies of the
Fund; (5) that the proposed New Advisory Contract will
be at the same rate as the compensation now payable by
such Fund to FACM under the Existing Advisory Contract;
(6) that the terms of the Existing Advisory Contract
will be unchanged under the New Advisory Contract
except for different effective and termination dates;
(7) the history, reputation, qualification and
background of the Adviser and FACM, as the
qualifications of their personnel and their respective
financial conditions; (8) the commitment of the parties
to the Acquisition Agreement to pay or reimburse the
Fund for expenses it incurred in connection with the
Proposed Transaction; (9) FACMs investment performance
record; and (10) other factors deemed relevant.
The following is a list of the names of the Officers
and Directors of the Fund and their compensations.
Only disinterested Directors are compensated by the
Fund, the officers and interested Directors are not
compensated by the Fund. The address of each of the
following is the same as the Funds.
Directors Position Annual
Compensation*
--------------------------------------------------
- -------------
Mark A. Coffelt Chairman and President
None
John Henry McDonald Independent Director
$3000
Edward Clark Independent Director
$3000
Janis Claflin Independent Director
$3000
Eric Barden Secretary
None
* the Directors receive no pension or retirement
benefits
The Adviser has advised the Board of Directors that
it expects that there will be no diminution in the
scope and quality of advisory services provided to the
Fund as a result of the Proposed Transaction.
Accordingly, the Board of Directors believe the
services under the New Advisory Contract will be equal
or superior to those it currently receives under the
Existing Advisory Contract, at the same fee levels.
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Additional Information on the Fund and FACM, Inc.
Mark A. Coffelt is the President and Chairman of
the Fund, and is the President and Chief Investment
Officer of FACM. Mr. Coffelt will hold the same
positions with the Adviser after the acquisition.
PRINCIPAL SHAREHOLDERS
The following is information known to the Fund
regarding shareholders who own beneficially five
percent or more of the outstanding shares of capital
stock of the Fund as of September 18, 1997:
Number of
Shares Owned
Percent
Name and Address of Record
of Class
---------------- --------------
- ------------
Charles Schwab & Co. Inc. 686,019.083
49.328%
Attention: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
A shareholder list is available for inspection by other
shareholders at the offices of the Fund or the Funds
transfer agent, Fund Services Inc., at 1500 Forest Ave.
Ste 111, Richmond, VA 23229.
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT
SHAREHOLDERS OF THE FUND APPROVE THE NEW ADVISORY
CONTRACT AND THAT FACM, INC. BE NAMED AS ADVISER.
- -----------------
Proposal 2. APPROVAL OR DISAPPROVAL OF CHANGE TO
FUNDAMENTAL INVESTMENT POLICIES
General.
The Meeting has also been called for the purpose of
considering a change to the Funds Fundamental
Investment Policies, i.e. changing borrowing
restrictions. This requires a shareholder approval.
Subject to approval by a majority of the Funds
shareholders, the proposed change would increase the
amount of money that the Fund could borrow to an amount
up to 33 1/3% of its net assets (including the amount
borrowed) less liabilities (not including the amount
borrowed) at the time of such borrowing, provided that
collateral arrangements with respect to permitted
instruments shall not be deemed to entail the issuance
of senior securities if appropriately covered. The
Fund will not make any investments while outstanding
borrowings exceed 5% of the value of its total assets.
Existing Investment Restrictions.
The Existing Investment Restrictions (the
"Existing Restrictions") pursuant to item (b) and (e)
under Investment Restrictions relating to borrowings
and issuance of senior securities dictates that the
Fund may not issue senior securities or borrow money
except in amounts up to 5% of its net assets (including
the amount borrowed) less liabilities (not including
the amount borrowed) at the time of such borrowing,
provided that collateral arrangements with respect to
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permitted instruments shall not be deemed to entail the
issuance of senior securities if appropriately covered.
New Investment Restrictions.
The Proposed Investment Restrictions (the "New
Restrictions") incorporates the changes subject to
approval of a majority of the Funds shareholders. The
changes are exclusively related to item (b) and (e)
under Investment Restrictions describing the issuance
of senior securities and borrowings of the Fund. The
New Restrictions will raise the allowable borrowing
limit to 33 1/3%. A comparison of the Existing and New
Investment Restrictions appear as exhibit B to this
proxy. The description set forth in this Proxy
Statement of the New Restrictions is qualified in its
entirety by reference to Exhibit B.
Background and Discussion of Proposal 2.
Under the New Restrictions, the Fund may make
borrowings of up to 33 1/3% of its net assets
(including the amount borrowed) less liabilities (not
including the amount borrowed) at the time of such
borrowing. The Fund anticipates the need for short
term borrowings to cover redemptions that settle "next-
day". The Fund makes Portfolio sales to cover
redemptions in the course of normal operations.
Portfolio sales are settled regular-way and the money
generated from such sales is not available for cash
needed to settle fund share redemptions. Increasing
borrowing allowances to 33 1/3% will give the Fund the
ability to settle next-day redemptions until portfolio
sales settle. Charles Schwab & Co., as described in
proposal 1 of this proxy under "principal shareholders"
holds a disproportionately large amount of the Funds
outstanding stock for Investment Advisors wishing to
hold shares in the Fund. Charles Schwab & Co.s
operations demand that the Funds redemptions be
settled next day. Normally, mutual funds with
borrowing limits above 10% use strategies that
incorporate hedging and shorting. The Fund does not
utilize hedging or shorting techniques and the purpose
for increasing the borrowing limit is to enhance its
ability to cover redemptions only.
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT
SHAREHOLDERS OF THE FUND APPROVE THE CHANGES TO THE
FUNDAMENTAL INVESTMENT POLICIES.
- ------------------
Proposal 3. APPROVAL OR DISAPPROVAL OF A 12B-1 PLAN
ENTITLED DISTRIBUTION ASSISTANCE, PROMOTION, AND
ADMINISTRATIVE SERVICE PLAN TO REPLACE THE PRESENT 12B-
1 PLAN
General.
The Meeting has also been called for the purpose
of considering a new 12b-1 Plan entitled Distribution
Assistance, Promotion, and Administrative Service Plan,
(the "New Plan") pursuant to rule 12b-1 under the 40
Act. The existing Distribution Assistance, Promotion,
and Administrative Service Plan (the "Existing Plan")
has been adopted by the Fund, Choice Investments, Inc.,
the Funds Distributor (the "Distributor"), and the
Advisor. Pursuant to the Existing and New 12b-1 Plans,
The Fund will contribute .25% of average daily net
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assets of the Fund during its fiscal year to the
Distributor for the purposes set forth in the Plans.
Subject to shareholder approval, the amount of money
charged to shareholders will not change as a percentage
of daily net assets from the Existing Plan.
Existing Plan.
The Existing Plan, as described in paragraph 4(A)
of the Distribution Agreement and as referenced in the
Prospectus, provides for Texas Capital Value Funds
assets to be used to help finance the distribution of
Fund shares. Under the Existing Plan, .25% of average
daily net assets are paid either monthly or quarterly,
in arrears, to the Distributor. Of the .25%, .15% of
average daily net assets should be considered a service
fee received by the selling broker on an annual basis
for providing the investor with continuing service as
set forth in the prospectus.
New Plan.
A form of the New Plan is attached to this Proxy
Statement, as Exhibit B, and the description set forth
in this Proxy Statement of the New Plan is qualified in
its entirety by reference to Exhibit B. Under the New
Plan, .25% of average daily net assets are paid either
monthly or quarterly, in arrears, to the Distributor.
In accordance with the new Distribution Agreement
signed between Choice Investments Inc. and Texas
Capital Value Funds, Inc., approved by the Funds Board
of Directors on September 18th, 1997, the .25% 12b-1
charge will be paid to the selling broker on an annual
basis for providing the investor with continuing
service as set forth in the prospectus.
Background and Discussion of Proposal 3
Rule 12b-1 of the General Rules and Regulations of the
40 Act permits a mutual fund to act as its own
distributor and to pay distribution expenses directly.
Prior to adoption of that rule, mutual funds were not
permitted to bear the cost of distribution expenses.
In general, Rule 12b-1 defines distribution expenses as
those expenses primarily intended to result in sale of
Fund shares.
Among other things, Rule 12b-1 requires that the
Directors, in the exercise of their reasonable business
judgment and in light of their fiduciary duties,
determine that there is a reasonable likelihood that
the Plan will benefit the Fund and its shareholders.
Rule 12b-1 also requires that the Plan be submitted to
shareholders for their approval and that continuance of
the Plan be approved at least annually by the Board of
Directors, including a majority of the Directors who
are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation
of the Plan or any related contracts, by vote cast in
person at a meeting called for that purpose. The
Advisor must prepare reports for the Board of Directors
on a quarterly basis showing the amounts paid for the
various distribution categories of expense, the purpose
of such payments, and the amount and purpose of any
payment made pursuant to the Plan in promoting the sale
of the Funds shares.
As required by 12b-1, implementation of the New Plan
requires approval by a majority of the Directors,
including a majority of Directors who are not
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interested persons of the Advisor and who have no
direct or indirect financial interest in the operation
of the Plan. The Funds "non-interested" directors
unanimously approved proposing this revised Plan at
their meeting held in person on September 18th, 1997.
Board of Directors Considerations
At the meeting held on September 18th, 1997, the Board
considered a number of factors in reviewing and
analyzing the new and existing Plans, including the
terms and payment levels contained in other 12b-1 plans
adopted by other mutual funds. It determined that the
terms of the New Plan were beneficial to shareholders
as its ongoing costs to the Fund were minimal. It
acknowledged that future competition may provoke the
Board to consider revising the Plan at some future date
to use more Fund assets to pay for distribution
expenses, but any such change would have to be
submitted to and approved by the shareholders before it
could be affected. Other non-material amendments to
the Plan may be adopted by majority vote of the Funds
Board of Directors, including a majority of Directors
who are not interested persons of the Fund and who have
no direct or indirect financial interest in the
operation of the Plan or any related contracts.
(Actually, the change between the New and Existing
Plans constitutes a non-material change, but management
chose to submit the New Plan to shareholders for their
approval, since it was already calling a special
meeting of shareholders to consider the new investment
advisory contract due to pending assignment of the
present contract.) Once adopted, the Plan may be
terminated at any time by a majority vote of the Board
of Directors, including a majority vote of its
Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest
in the Plan or any related agreements. It may also be
terminated by FACM or by a vote of the Funds
outstanding voting securities. All underlying
agreements relating to implementation of the Plan will
be subject to termination on 60 days notice without
penalty and any such agreement will automatically
terminate, as will the Plan itself, in the event of
assignment of the Investment Advisory Contract (as
"assignment" is defined in the 40 Act.)
The Board of Directors concluded that the New Plan, if
adopted by shareholders would benefit both present
shareholders and those who invest in the Fund in the
future since increasing the size of the Fund is likely
to increase the Funds available yield to the benefit
of all shareholders by spreading expenses over a larger
asset base.
Based on the foregoing, the Funds Directors have
determined that in exercise of their reasonable
business judgment and in light of their fiduciary
duties there is a reasonable likelihood that the
adoption of the New Plan under Rule 12b-1 will benefit
the Fund and its shareholders, although there can be no
assurance that such benefits will be realized.
Certainly, it will not cost the Fund more as a
percentage of assets than it presently costs under the
Existing Plan
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT
SHAREHOLDERS OF THE FUND APPROVE THE 12b-1 PLAN
ENTITLED DISTRIBUTION ASSISTANCE, PROMOTION, AND
ADMINISTRATIVE SERVICE PLAN TO REPLACE THE PRESENT 12B-
1 PLAN AT NO ADDITIONAL PERCENTAGE COST TO SHAREHOLDERS
- ----------------------
Shareholder Proposals
12
<PAGE>
The Meeting is a special meeting of shareholders. The
Fund is not required to, nor does it intend to, hold
regular annual meetings of its shareholders.
Shareholders who wish to submit proposals for inclusion
in a proxy statement for a subsequent shareholder
meeting should send a written proposal to Eric Barden,
secretary of the Fund, 1600 West 38th Street Ste. 412,
Austin, TX 78731.
Reports to Shareholders
The Fund will furnish, without charge, a copy of the
most recent Quarterly Report upon request. Requests
for such reports should be directed to the Fund at the
address and telephone shown on the first page of this
proxy statement or to FACM at (800) 880-0324
By order of the Board of Directors
Eric Barden, Secretary
September 19, 1997
A SIGNED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL
LISTED BELOW UNLESS YOU HAVE SPECIFIED OTHERWISE.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY. YOU
MAY VOTE ONLY IF YOU HELD SHARES IN THE FUND AT THE
CLOSE OF BUSINESS ON SEPTEMBER 18TH, 1997.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING
BE ASSURED, PROMPT EXECUTION AND RETURN OF THE ENCLOSED
PROXY IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
- ---------------------------------------------
EXHIBIT LIST
- ---------------------------------------------
Exhibit A Form of New Advisory Contract
Investment Advisory
and Administrative Contract
THIS AGREEMENT (this "Agreement") is made this ___day
of___, 1997, by and between Texas Capital Value Fund,
Inc., a Maryland corporation (the "Fund"), and First
Austin Capital Management, Inc., a Delaware corporation
(the "Investment Advisor").
WITNESSETH:
WHEREAS, the Fund engages in the business of investing
and reinvesting its assets and property in various
stocks and securities and the Investment Advisor
engages in the business of providing investment
advisory services; and
WHEREAS, the Fund has need for investment advisory
services.
12
<PAGE>
NOW THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Advisory Services. The Investment Advisor shall
render investment advisory services (the "Advisory
Services") to the Fund, subject to the supervision and
direction of the Board of Directors of the Fund, for
the period set forth in Paragraph 6 below on the terms
set forth herein. The Investment Advisor shall render
such Advisory Services and assume the obligations
herein set forth, for the compensation provided in
Paragraph 3(a) below. The Investment Advisor shall,
for the purposes herein, be deemed to be an independent
contractor, and shall, unless otherwise expressly
provided and authorized, have no authority to act for
or represent the Fund in any way, or in any way be
deemed an agent or employee of the Fund.
2. Administrative Services. In addition to the
Advisory Services, the Investment Advisor shall provide
certain administrative support services to the Fund
including establishing and maintaining shareholders'
accounts and records, processing purchase and
redemption transactions, answering routine client
inquiries regarding the Fund, preparing all
registration statements, prospectuses, tax returns and
proxy statements, valuing the Fund's portfolio daily
and calculating the daily net asset value per share,
and providing such other administrative services to the
Fund as the Fund may reasonably request (collectively,
the "Administrative Services"). The Investment Advisor
may contract with third parties to perform all or part
of the Administrative Services. Notwithstanding
anything contained in this Agreement to the contrary,
under no circumstances shall the execution of any such
third party contract be deemed an assignment by the
Investment Advisor of an interest in this Agreement.
3.(a) As compensation for the services to be rendered
to the Fund by the Investment Advisor under the
provisions of this Agreement, the Fund shall pay to the
Investment Advisor:
(i) for Advisory Services a flat fee of one percent
(1%) of the net assets of the Fund; plus additional
amounts as follows:
(ii)for Administrative Services a fee equal to the sum
of (i) nine-tenths percent (0.90%) of the amount of
assets in the Fund between one dollar ($1.00) and five
million dollars ($5,000,000), inclusive, plus (ii)
three-tenths percent (0.30%) of the amount of assets in
the Fund between five million and one dollars
($5,000,001.00) and thirty million dollars
($30,000,000), inclusive, plus (c) twenty-eight
hundredths percent (0.28%) of the amount of assets in
the Fund between thirty million and one dollars
($30,000,001) and one hundred million dollars
($100,000,000), inclusive, plus (d) twenty-five
hundredths percent (0.25%) of the amount of assets in
the Fund between one hundred million and one dollars
($100,000,001) and two hundred million dollars
($200,000,000), inclusive, plus (e) twenty hundredths
percent (0.20%) of the amount of assets in the Fund in
excess of two hundred and one million dollars
($200,000,001), inclusive (all assets in the Fund for
the purposes of this Paragraph to be rounded to the
nearest dollar prior to the computation of any fee
owed).
13
<PAGE>
Such fees shall be accrued daily and be payable monthly
in arrears on the first day of each calendar month.
Accruals of fees to the Investment Advisor shall begin
on the execution date of this Agreement.
(b) Costs. All Fund costs, with the exception of
extraordinary legal expenses (as determined by the
Board of Directors of the Fund), brokerage commissions,
custodial charges based upon transactions in the
portfolio of the Fund and marketing expenses, will be
borne by the Investment Advisor as part of this
Agreement. In addition, the Investment Advisor shall
absorb all the organization costs for the Fund as
determined by the Board of Directors of the Fund.
In the conduct of the respective businesses of the
parties hereto and in the performance of this
Agreement, the Fund and the Investment Advisor may
share common facilities and personnel common to each.
The entire cost to the Fund for the use of common
facilities and personnel will be borne by the Advisor
as part of this Agreement.
If any Fund costs which the Investment Advisor has
agreed to bear hereunder are incurred by the Fund
pursuant to separate agreements with third parties, the
Fund shall provide the Investment Advisor with copies
of such agreements and any amendments thereto and shall
either bill the Investment Advisor for the costs
insured by the Fund thereunder or direct the Investment
Advisor to pay any such costs incurred directly to the
third parties involved as provided by the applicable
agreements.
4. Non-Exclusive. The services to be rendered by the
Investment Advisor to the Fund under this Agreement are
not to be deemed to be exclusive, and the Investment
Advisor shall be free to render similar or different
services to others so long as its ability to render the
services provided for in this Agreement shall not be
impaired thereby. If its ability becomes so impaired,
as determined by the Fund in its sole and absolute
discretion, the Fund shall notify the Investment
Advisor of same and this Agreement shall automatically
terminate upon the receipt by the Investment Advisor of
such notice. Such automatic termination shall be upon
the same terms and conditions as provided for other
terminations pursuant to the last sentence of Paragraph
7 below.
5. Interested Parties. It is understood and agreed
that directors, officers, employees, agents and
shareholders of the Fund may be interested in the
Investment Advisor as directors, officers, employees,
agents and shareholders of the Investment Advisor.
Similarly, directors, officers, employees, agents and
shareholders of the Investment Advisor may be
interested in the Fund as directors, officers,
employees, agents and shareholders of the Fund.
Furthermore, the Investment Advisor itself may be
interested in the Fund as a shareholder or otherwise of
the Fund. It is understood and agreed that directors,
officers, employees, agents and shareholders of the
Investment Advisor may continue as directors, officers,
employees, agents and shareholders of the Fund and vice
versa; that the Investment Advisor, its directors,
officers, employees, agents and shareholders may engage
in other business, may render investment advisory
services to other investment companies, or to any other
corporation, association, firm or individual, and may
render underwriting services to the Fund, or to any
other investment company, corporation, association,
firm or individual, subject to the provisions of
Paragraph 4 above. The parties agree that the
14
<PAGE>
Investment Advisor has a proprietary interest in the
names "Texas Capital Value Funds, Inc." and "Value and
Growth Portfolio", and the Fund agrees to promptly take
any and all necessary action to remove the names "Texas
Capital Value Funds, Inc." and "Value and Growth
Portfolio" from its corporate name and from the name of
any of its funds upon receipt of written request
therefor from the Investment Advisor.
6. Term. Notwithstanding the date of this Agreement
first above written, the effective date of this
Agreement (the "Effective Date") shall be the effective
date of that certain Registration Statement on Form N-
1A of the Fund, filed by the Fund with the Securities
and Exchange Commission under the Securities Act of
1933, as amended, and the Investment Company Act of
1940, as amended. Thereafter, this Agreement shall
continue in effect for one year from the Effective
Date. Such term may be extended annually for
additional periods of one year provided that each such
extension is approved at least annually by a vote of
the Fund's Board of Directors. Such vote shall be cast
in person at a meeting called for the purpose of voting
on such approval, and shall include the votes of a
majority of the Directors who are not parties to this
Agreement or interested persons of any such party.
7. Termination. This Agreement may be terminated at
any time upon sixty (60) days prior written notice,
without the payment of any penalty, by the Fund's Board
of Directors or by vote of a majority of the
outstanding voting securities of the Fund. This
Agreement shall automatically terminate in the event of
its assignment by the Investment Advisor or the Fund
(within the meaning of the Investment Company Act of
1940 (the "1940 Act")), which shall be deemed to
include a transfer of control of the Investment Advisor
or the Fund, respectively, unless an exemption from
such automatic termination is granted by order or rule
of the Securities and Exchange Commission. Upon the
termination of this Agreement, the obligations of all
the parties hereunder shall cease and terminate as of
the date of such termination, except for (i) any
obligation to respond to a breach of this Agreement
committed prior to such termination, (ii) the
obligation of the Fund to pay to the Investment Advisor
the fee provided in Paragraph 3(a) above, prorated to
the date of termination, and (iii) the obligation of
the Investment Advisor to bear the costs provided for
in Paragraph 3(b) above, prorated to the date of
termination (if applicable).
8. Assignment. This Agreement shall terminate
automatically in the event of its whole or partial
assignment by the Investment Advisor or the Fund as
provided in Paragraph 7 above.
9. Fidelity Bond. As part of this Agreement, the
Investment Advisor shall bear the cost of the fidelity
bond required to be maintained by the Fund for
employees, officers, or directors of the Investment
Advisor who have access to the Fund's securities or
cash. Such bond must protect the Fund against loss
from larceny and embezzlement under the Act, and, in
compliance with Rule 17g-1 under the 1940 Act, must be
approved both in form and amount by a majority of the
independent directors of the Fund at least annually
with due consideration given to (a) the value of the
Investment Advisor's aggregate assets, (b) the type of
custody arrangements employed, and (c) the nature of
the securities owned. Additionally, the Investment
15
<PAGE>
Advisor shall bear the cost, if any, for Employee and
Officer/Director and Officer (E&O/D&O) liability
insurance covering the Investment Advisor in favor of
the Fund. Under the terms of this Agreement, there is
no initial requirement that E&O/D&O insurance be
purchased, but if the Board of Directors of the Fund
ever requires in its sole and absolute discretion that
it be carried, or if the Investment Advisor decides,
unilaterally, to carry it, then such cost shall be
borne by the Investment Advisor and such insurance, if
required to be carried by the Fund's Board of
Directors, shall be in such amount and for such a term
as the Board may reasonably require. The Investment
Advisor shall not be liable for any error of judgement
or of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement
relates, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part
of the Investment Advisor in the performance of its
obligations and duties or by reason of its reckless
disregard of its obligations and duties under this
Agreement.
10. Notices. Any notice required or permitted to be
given hereunder must be in writing and may be given by
personal delivery or by mail, and if given by mail
shall be deemed sufficiently given if sent by
registered or certified mail addressed to the party to
be notified at the following applicable address:
The Fund:
Texas Capital Value Funds, Inc.
1600 West 38th Street, Suite 412
Austin, Texas 78731
The Investment Advisor:
First Austin Capital Management, Inc.
1600 West 38th Street, Suite 412
Austin, Texas 78731
Either party may specify a different address for
notice purposes by written notice to the other.
11. Governing Law. This Agreement is executed and
delivered in the State of Texas and shall be governed
by the laws of Texas and the 1940 Act.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties and terminates and
supersedes all prior understandings or agreements on
the subject matter hereof. No conditions or warranties
shall be implied herefrom unless expressly set forth
herein. The Fund and the Investment Advisor each
acknowledge that the terms and conditions of this
Agreement, and each of them, are reasonable and fair
and equitable. This Agreement may be modified only by
a future writing that is duly executed by both parties.
13. Severability. If any term of this Agreement is
held by a court of competent jurisdiction to be invalid
or unenforceable, then this Agreement, including all of
the remaining terms, will remain in full force and
effect as if such invalid or unenforceable term had
never been included.
14. Waiver. Waiver by either party of any breach of
any term, covenant or condition in this Agreement shall
16
<PAGE>
not be deemed to be a waiver of any subsequent breach
of the same or any other term, covenant or condition
herein contained, nor shall any custom or practice
which may grow up between the parties in the
administration of the terms hereof be deemed a waiver
of or in any way affect the right of each party to
insist on the performance of the other party in strict
accordance with said terms.
15. Time Is of the Essence. Time is of the essence of
this Agreement.
16. Attorneys' Fees. In the event of any litigation
or arbitration between the parties with respect to this
Agreement, all costs and expenses, including, without
limitation, actual professional fees such as
accountants' and attorneys' fees, incurred by the
prevailing party, shall be paid by the other party,
which obligation on the part of the other party shall
be deemed to have accrued on the date of the
commencement of such action and shall be enforceable
whether or not the action is prosecuted to judgement.
17. Mandatory Arbitration. All disputes arising under
this Agreement shall be arbitrated pursuant to the
Commercial Arbitration Rules of the American
Arbitration Association.
18. Independent Counsel. The parties acknowledge that
they have had the opportunity to consult with
independent counsel of their own choosing in the
negotiation and execution of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the date and year first
above written.
Texas Capital Value Fund, Inc.,
a Maryland corporation
By______________________________
Mark A. Coffelt, President
First Austin Capital Management, Inc.,
a Delaware corporation
By_____________________________
Mark A. Coffelt, President
- ---------------------------------------------
Exhibit B - Comparison of Investment Policies
as described in the Statement of
Additional Information
Existing Investment Policies
TEXAS CAPITAL VALUE FUNDS, INC.
Statement of Additional Information
dated January 31, 1997
17
<PAGE>
1600 W 38th Avenue, Suite 412 Austin, TX 78731
(512) 458-8165
General Marketing: 888-839-4769
Shareholder Information: 800-628-4077
This Part B sets forth additional information about the
Value & Growth Portfolio, and the Growth & Income
Portfolio (each individually a "Fund", or collectively,
the "Funds" or "Fund(s)"). Each Fund is a non-
diversified, open-end investment series of the Texas
Capital Value Funds, Inc.
This Statement of Additional Information is not a
Prospectus, but should be read in conjunction with the
Prospectus dated January 31, 1997. To obtain a
Prospectus, please call the Fund(s) at (888) TEX-GROW.
Capitalized terms used herein but not defined have the
meanings assigned to them in the Prospectus.
Table of Contents/Cross Reference Page in Prospectus
INVESTMENT OBJECTIVE AND POLICIES 2/3
DIRECTORS & OFFICERS 8/5
BOARD OF DIRECTORS COMPENSATION TABLE 10
CONTROL PERSONS 11
INVESTMENT ADVISORS 11/5
PORTFOLIO TURNOVER 12/4
PORTFOLIO TRANSACTIONS AND BROKERAGE 12/
DISTRIBUTION OF THE FUND(S) 13/8
PERFORMANCE INFORMATION 13
TAX STATUS 15/12
NET ASSET VALUE 18/14
CAPITAL STRUCTURE 19/14
HOW TO REDEEM SHARES 20/10
RATINGS OF INVESTMENT SECURITIES 21
No dealer, salesman or other person has been authorized
to give any information or to make any representations,
other than those contained in this Statement of
Additional Information or in the Prospectus, and, if
given or made, such other information or
representations must not be relied upon as having been
authorized by the Company, the Fund(s), the Advisors,
or the Distributor. This Statement of Additional
Information and the Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any jurisdiction in
which such an offer to sell or solicitation of an offer
to buy may not lawfully be made.
INVESTMENT OBJECTIVE AND POLICIES
Each Fund has a unique investment objective although
there are some aspects common to all of the Fund(s).
Common Characteristics: For all the Fund(s), purchase
of issues will be primarily, but not exclusively,
listed issues and American Depository Receipts on the
on the New York, American and NASDAQ exchanges and may
include up to 33% foreign based companies.
18
<PAGE>
The Advisor does not use techniques such as borrowing,
hedging, or short sales in the management of the
Fund(s). The Fund(s) make no use of derivatives.
Under normal circumstances, each Fund will have
virtually all of its assets invested in equity
securities. However, for temporary defensive purposes,
each Fund may hold cash, money market instruments,
notes or bonds, or enter into repurchase agreements,
all of which will be of investment grade as determined
by Moodys Investors Service, Inc. or Standard &
Poors Corporation rating agencies.
Unique Characteristics of the Value & Growth Portfolio
and Growth & income Portfolio. Each Funds primary
investment objective is capital appreciation through
the investment in common stocks and securities
convertible into common stocks. For the Value & Growth
Portfolio no consideration is given to income of the
Fund(s) holdings.
For the Growth & Income Portfolio, the Advisor does
take into consideration the income of Fund holdings.
For both Funds, the Advisor will employ highly
structured, computer driven, quantitative strategies to
endeavor to find companies that are likely to perform
well. Such strategies are different than the
strategies most advisors use to select stocks in that
the Advisor will give little or no weight to
qualitative factors of securities considered for
purchase. Fundamental ratios such as the price of a
stocks relative to its earnings (price-to-earnings),
the price of a stock relative to its cashflow (price-
to-cashflow) and the price of a stock relative to its
bookvalue or net worth (price-to-book) weigh heavily in
the selection process.
For the Growth & Income Portfolio, the ratio of the
prices of a stocks relative to its dividend yield is
considered.
Most of the securities selected are likely to have much
lower ratios in at least one of the above categories
than the market in general. Academic research and
studies have shown that portfolios with the
characteristics of low price-to-earnings, low price-to-
cashflow and low price-to-book ratios may be associated
with higher investment rates of return over long
periods of time. Such an investment strategy may also
be subject to greater investment risk.
While the quantitative strategy the Advisor plans to
use does not specifically screen for small companies,
test results have shown a large percentage of companies
selected for the Value & Growth Portfolio had market
capitalizations of less than a billion dollars.
Smaller companies have historically performed better
than larger companies over long periods, but also have
historically shown higher volatility than larger
companies.
Non-diversification Policy. Each Fund is classified as
being non-diversified which means that it may invest a
relatively high percentage of its assets in the
obligations of a limited number of issuers. Each Fund,
therefore, may be more susceptible than a more widely
diversified fund to a single economic, political or
regulatory occurrence. Each Fund seeks only
diversification for adequate representation among what
it considers to be the best performing securities and
to maintain its federal non-taxable status under Sub-
Chapter M of the Internal Revenue Code.
19
<PAGE>
Investment Restrictions
The Fund(s) have adopted and will follow certain
investment policies set forth below, which are
fundamental and may not be changed without shareholder
approval.
(a) Each Fund may not invest more than 25% of its
total assets in the securities of issuers in any one
industry. This restriction does not apply to
investments by a Fund in securities of the U.S.
Government or its agencies or instrumentalities.
(b) Each Fund may not issue senior securities or
borrow money except for temporary purposes in amounts
up to 10% of its net assets (including the amount
borrowed) less liabilities (not including the amount
borrowed) at the time of such borrowing, provided that
collateral arrangements with respect to permitted
instruments shall not be deemed to entail the issuance
of senior securities if appropriately covered. Each
Fund will not make any investments while outstanding
borrowings exceed 5% of the value of its total assets.
(c) Each Fund may not make loans, although it may
invest in debt securities, enter into repurchase
agreements and lend its portfolio securities.
(d) Each Fund may not invest in securities or other
assets that the Board of Directors determines to be
illiquid if more than 15% of the Fund(s)s net assets
would be invested in such securities.
(e) Each Fund may not (i) purchase or sell commodities
or commodities contracts (including financial futures
and related options), (ii) invest in oil, gas, or
mineral exploration or development programs or leases,
or (iii) purchase securities on margin, except for such
short-term credit as may be necessary for the clearance
of transactions and except for borrowings in amounts
not exceeding 10% of its net assets.
(f) Each Fund may not purchase or sell real estate or
make real estate mortgage loans or invest in real
estate limited partnerships, except that each Fund may
purchase or sell securities issued by entities in the
real estate industry or instruments backed by real
estate such as, but not limited to, Real Estate
Investment Trusts (R.E.I.Ts).
(g) Each Fund may not act as an underwriter of
securities issued by others, except to the extent it
may be deemed to be an underwriter in connection with
the disposition of Fund securities of each Fund.
(h) The investment in warrants, valued at the lower of
cost or market, may not exceed 5.0% of the value of
each Funds net assets. Included within that amount,
but not to exceed 2.0% of the value of each Funds net
assets, may be warrants which are not listed on the New
York or American Stock Exchange. Warrants acquired by
each Fund in units or attached to securities may be
deemed to be without value.
The foregoing restrictions may not be changed for any
Fund without the approval of a majority of that Funds
outstanding voting securities. As used in this
Statement of Additional Information, a majority of the
Fund(s) outstanding voting securities means the lesser
of (a) more than 50% of its outstanding voting
securities, or (b) 67% or more of the voting
securities present at a meeting at which more than 50%
of the outstanding voting securities are present or
20
<PAGE>
represented by proxy. The Fund(s) investment
objectives, as well as those policies and restrictions
which are not fundamental, may be modified by the Board
of Directors without shareholder approval if, in the
reasonable exercise of the Board of Directors business
judgment, modification is determined to be necessary
or appropriate to carry out the Fund(s) objectives.
However, the Fund(s) will not change its investment
policies or restrictions without written notice to
shareholders.
In order to permit the sale of the Fund(s) shares in
certain states, the Fund(s) may make commitments with
respect to the Fund(s) which are more restrictive than
the investment policies listed above and in the
Prospectus. Should the Fund(s) determine that any
commitment made to permit the sale of the Fund(s)
shares in any state is no longer in the best interests
of the Fund(s), it will revoke the commitment by
terminating sales of the Fund(s) shares in the state
involved.
In order to meet the requirements of the State of
California, the Board has adopted and the shareholders
have approved the following additional restriction,
which shall be deemed fundamental from the date of this
Part B, for all the Fund(s).
(i) Each Fund shall not invest in other open ended
management investment companies.
Further Information on the Nature of the Fund(s)s
Investments:
General Characteristics of Convertible Securities. The
Fund(s) may invest only in high grade convertible
securities, that is, bonds, notes, debentures,
preferred stocks and other securities which are
convertible into common stocks. "High grade"
securities are those rated within the three highest
ratings categories of Standard & Poors Corporation
("S&P") or Moodys Investors Service, Inc. ("Moodys")
or that are determined by the investment advisor to be
of equivalent quality. Investments in convertible
securities may provide incidental income through
interest and dividend payments and/or an opportunity
for capital appreciation by virtue of their conversion
or exchange features.
Convertible debt securities and convertible preferred
stocks, until converted, have general characteristics
similar to both debt and equity securities. Although
to a lesser extent than with debt securities generally,
the market value of convertible securities tends to
decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In
addition, because of the conversion or exchange
feature, the market value of convertible securities
typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to
follow movements in the general market for equity
securities. As the market price of the underlying
common stock declines, convertible securities tend to
trade increasingly on a yield basis and so may not
experience market value declines to the same extent as
the underlying common stock. When the market price of
the underlying common stock increases, the prices of
the convertible securities tend to rise as a reflection
of the value of the underlying common stock, although
typically not as much as the underlying common stock.
While no securities investments are without risk,
investments in convertible securities generally entail
less risk than investments in common stock of the same
issuer.
As debt securities, convertible securities are
investments which provide for a stream of income (or in
the case of zero coupon securities, accretion of
income) with generally higher yields than common
21
<PAGE>
stocks. Convertible securities generally offer lower
yields than non-convertible securities of similar
quality because of their conversion or exchange
features.
Convertible securities are generally subordinated to
other similar but non-convertible securities of the
same issuer, although convertible bonds, as corporate
debt obligations, enjoy seniority in right of payment
to all equity securities, and convertible preferred
stock is senior to common stock of the same issuer.
However, because of the subordination feature,
convertible bonds and convertible preferred stock
typically have lower ratings than similar non-
convertible securities.
General Characteristics of Foreign Securities.
Foreign securities involve certain inherent risks that
are different from those of domestic issuers, including
political or economic instability of the issuer or the
country of issue, diplomatic developments which could
affect U.S. investments in those countries, changes in
foreign currency and exchange rates and the possibility
of adverse changes in investment or exchange control
regulations. As a result of these and other factors,
foreign securities purchased by the Fund(s)s may be
subject to greater price fluctuation than securities of
U.S. companies.
Most foreign stock markets are not as large or liquid
as in the United States. Furthermore, the fixed
commissions on foreign stock exchanges are generally
higher than the negotiated commissions on U.S.
exchanges and there is generally less government
supervision and regulation of foreign stock exchanges,
brokers and companies than in the United States.
Investors should recognize that foreign markets have
different clearance and settlement procedures and in
certain markets there have been times when settlements
have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result
in temporary periods when assets of the Fund(s) are
uninvested and no return is earned thereon. The
inability of the Fund(s) to make intended security
purchases due to settlement problems could cause the
Fund(s) to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to
settlement problems either could result in losses to
the Fund(s) due to subsequent declines in value of the
portfolio security or, if the Fund(s) have entered into
a contract to sell the security, could result in a
possible liability to the purchaser. Payment for
securities without delivery may be required in certain
foreign markets. Further, the Fund(s) may encounter
difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. Foreign
governments can also levy confiscatory taxes,
expropriate assets, and limit repatriations of assets.
Typically, there is less publicly available information
about a foreign company than about a U.S. company, and
foreign companies may be subject to less stringent
reserve, auditing and reporting requirements. It may
be more difficult for the Fund(s) agents to keep
currently informed about corporate actions such as
stock dividends or other matters which may affect the
prices of portfolio securities. Communications between
the United States and foreign countries may be less
reliable than within the United States thus increasing
the risk of delayed settlements of portfolio
transactions or loss of certificates portfolio
securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of
22
<PAGE>
inflation, capital reinvestment, resource self-
sufficiency and balance of payments position.
Because investments in foreign securities will usually
involve currencies of foreign countries and because the
Fund(s) may hold foreign currencies, the value of the
assets of the Fund(s) as measured in U.S. dollars may
be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control
regulations, and the Fund(s) may incur costs in
connection with conversions between various currencies.
Although the Fund(s) values its assets daily in terms
of U.S. dollars, the Fund(s) do not intend to convert
its holdings of foreign currencies into U.S. dollars on
a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the
prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund(s) at one rate, while offering a
lesser rate of exchange should the Fund(s) desire to
resell that currency to the dealer. The Fund(s) will
conduct its foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market.
General Characteristics of Securities Lending.
In compliance with Securities and Exchange Commission
guidelines, any loans by the Fund(s) of securities in
its portfolio would be required to be secured with
collateral (consisting of any combination of U.S.
currency, securities issued or guaranteed by the United
States Government or any agency thereof, or irrevocable
letters of credit or other debt securities issued by
entities rated within the two highest grades assigned
by S&P or Moodys or which are determined by the
investment advisor to be of equivalent quality).
The borrower must agree to add to such collateral to
cover increases in the market value of the loaned
securities and the Fund(s) must be entitled to
terminate any loan at any time, with the borrower
obligated to redeliver borrowed securities within five
trading days. The borrower must agree that the Fund(s)
will receive all dividends, interest or other
distributions on loaned securities and the Fund(s) must
be able to vote loaned securities whenever the right to
vote is material to the Fund(s)s performance.
Investment in Unseasoned Issuers.
The Fund(s) may invest in securities of issuers which
have a record of less than three (3) years of
continuous operation, including the operation of any
predecessor business of a company which came into
existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the
assets of such predecessor business, if such purchase
would not cause the value of the Fund(s)s investments
in all such companies to exceed 5% of the value of its
net assets.
- -----------------------
New Investment Policies
TEXAS CAPITAL VALUE FUNDS, INC.
Statement of Additional Information
24
<PAGE>
dated September 18, 1997
1600 W 38th Avenue, Suite 412 Austin, TX 78731
(512) 458-8165
General Marketing: 888-TEX-GROW
Shareholder Information: 800-628-4077
This Part B sets forth additional information about the
Value & Growth Portfolio, and the Growth & Income
Portfolio (each individually a "Fund", or collectively,
the "Funds" or "Fund(s)"). Each Fund is a non-
diversified, open-end investment series of the Texas
Capital Value Funds, Inc.
This Statement of Additional Information is not a
Prospectus, but should be read in conjunction with the
Prospectus dated January 31, 1997. To obtain a
Prospectus, please call the Fund(s) at (888) TEX-GROW.
Capitalized terms used herein but not defined have the
meanings assigned to them in the Prospectus.
Table of Contents/Cross Reference Page in Prospectus
INVESTMENT OBJECTIVE AND POLICIES 2/3
DIRECTORS & OFFICERS 8/5
BOARD OF DIRECTORS COMPENSATION TABLE 10
CONTROL PERSONS 11
INVESTMENT ADVISORS 11/5
PORTFOLIO TURNOVER 12/4
PORTFOLIO TRANSACTIONS AND BROKERAGE 12/
DISTRIBUTION OF THE FUND(S) 13/8
PERFORMANCE INFORMATION 13
TAX STATUS 15/12
NET ASSET VALUE 18/14
CAPITAL STRUCTURE 19/14
HOW TO REDEEM SHARES 20/10
RATINGS OF INVESTMENT SECURITIES 21
No dealer, salesman or other person has been authorized
to give any information or to make any representations,
other than those contained in this Statement of
Additional Information or in the Prospectus, and, if
given or made, such other information or
representations must not be relied upon as having been
authorized by the Company, the Fund(s), the Advisors,
or the Distributor. This Statement of Additional
Information and the Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any jurisdiction in
which such an offer to sell or solicitation of an offer
to buy may not lawfully be made.
INVESTMENT OBJECTIVE AND POLICIES
Each Fund has a unique investment objective although
there are some aspects common to all of the Fund(s).
Common Characteristics: For all the Fund(s), purchase
of issues will be primarily, but not exclusively,
listed issues and American Depository Receipts on the
on the New York, American and NASDAQ exchanges and may
include up to 33% foreign based companies.
25
<PAGE>
The Advisor does not use techniques such as borrowing,
hedging, or short sales in the management of the
Fund(s). The Fund(s) make no use of derivatives.
Under normal circumstances, each Fund will have
virtually all of its assets invested in equity
securities. However, for temporary defensive purposes,
each Fund may hold cash, money market instruments,
notes or bonds, or enter into repurchase agreements,
all of which will be of investment grade as determined
by Moodys Investors Service, Inc. or Standard &
Poors Corporation rating agencies.
Unique Characteristics of the Value & Growth Portfolio
and Growth & income Portfolio. Each Funds primary
investment objective is capital appreciation through
the investment in common stocks and securities
convertible into common stocks. For the Value & Growth
Portfolio no consideration is given to income of the
Fund(s) holdings.
For the Growth & Income Portfolio, the Advisor does
take into consideration the income of Fund holdings.
For both Funds, the Advisor will employ highly
structured, computer driven, quantitative strategies to
endeavor to find companies that are likely to perform
well. Such strategies are different than the
strategies most advisors use to select stocks in that
the Advisor will give little or no weight to
qualitative factors of securities considered for
purchase. Fundamental ratios such as the price of a
stocks relative to its earnings (price-to-earnings),
the price of a stock relative to its cashflow (price-
to-cashflow) and the price of a stock relative to its
bookvalue or net worth (price-to-book) weigh heavily in
the selection process.
For the Growth & Income Portfolio, the ratio of the
prices of a stocks relative to its dividend yield is
considered.
Most of the securities selected are likely to have much
lower ratios in at least one of the above categories
than the market in general. Academic research and
studies have shown that portfolios with the
characteristics of low price-to-earnings, low price-to-
cashflow and low price-to-book ratios may be associated
with higher investment rates of return over long
periods of time. Such an investment strategy may also
be subject to greater investment risk.
While the quantitative strategy the Advisor plans to
use does not specifically screen for small companies,
test results have shown a large percentage of companies
selected for the Value & Growth Portfolio had market
capitalizations of less than a billion dollars.
Smaller companies have historically performed better
than larger companies over long periods, but also have
historically shown higher volatility than larger
companies.
Non-diversification Policy. Each Fund is classified as
being non-diversified which means that it may invest a
relatively high percentage of its assets in the
obligations of a limited number of issuers. Each Fund,
therefore, may be more susceptible than a more widely
diversified fund to a single economic, political or
regulatory occurrence. Each Fund seeks only
diversification for adequate representation among what
it considers to be the best performing securities and
to maintain its federal non-taxable status under Sub-
Chapter M of the Internal Revenue Code.
26
<PAGE>
Investment Restrictions
The Fund(s) have adopted and will follow certain
investment policies set forth below, which are
fundamental and may not be changed without shareholder
approval.
(a) Each Fund may not invest more than 25% of its
total assets in the securities of issuers in any one
industry. This restriction does not apply to
investments by a Fund in securities of the U.S.
Government or its agencies or instrumentalities.
(b) Each Fund may not issue senior securities or
borrow money except for temporary purposes in amounts
up to 33 1/3% of its net assets (including the amount
borrowed) less liabilities (not including the amount
borrowed) at the time of such borrowing, provided that
collateral arrangements with respect to permitted
instruments shall not be deemed to entail the issuance
of senior securities if appropriately covered. Each
Fund will not make any investments while outstanding
borrowings exceed 5% of the value of its total assets.
(c) Each Fund may not make loans, although it may
invest in debt securities, enter into repurchase
agreements and lend its portfolio securities.
(d) Each Fund may not invest in securities or other
assets that the Board of Directors determines to be
illiquid if more than 15% of the Fund(s)s net assets
would be invested in such securities.
(e) Each Fund may not (i) purchase or sell commodities
or commodities contracts (including financial futures
and related options), (ii) invest in oil, gas, or
mineral exploration or development programs or leases,
or (iii) purchase securities on margin, except for such
short-term credit as may be necessary for the clearance
of transactions and except for borrowings in amounts
not exceeding 33 1/3% of its net assets.
(f) Each Fund may not purchase or sell real estate or
make real estate mortgage loans or invest in real
estate limited partnerships, except that each Fund may
purchase or sell securities issued by entities in the
real estate industry or instruments backed by real
estate such as, but not limited to, Real Estate
Investment Trusts (R.E.I.Ts).
(g) Each Fund may not act as an underwriter of
securities issued by others, except to the extent it
may be deemed to be an underwriter in connection with
the disposition of Fund securities of each Fund.
(h) The investment in warrants, valued at the lower of
cost or market, may not exceed 5.0% of the value of
each Funds net assets. Included within that amount,
but not to exceed 2.0% of the value of each Funds net
assets, may be warrants which are not listed on the New
York or American Stock Exchange. Warrants acquired by
each Fund in units or attached to securities may be
deemed to be without value.
The foregoing restrictions may not be changed for any
Fund without the approval of a majority of that Funds
outstanding voting securities. As used in this
Statement of Additional Information, a majority of the
Fund(s) outstanding voting securities means the lesser
of (a) more than 50% of its outstanding voting
securities, or (b) 67% or more of the voting
securities present at a meeting at which more than 50%
of the outstanding voting securities are present or
27
<PAGE>
represented by proxy. The Fund(s) investment
objectives, as well as those policies and restrictions
which are not fundamental, may be modified by the Board
of Directors without shareholder approval if, in the
reasonable exercise of the Board of Directors business
judgment, modification is determined to be necessary
or appropriate to carry out the Fund(s) objectives.
However, the Fund(s) will not change its investment
policies or restrictions without written notice to
shareholders.
In order to permit the sale of the Fund(s) shares in
certain states, the Fund(s) may make commitments with
respect to the Fund(s) which are more restrictive than
the investment policies listed above and in the
Prospectus. Should the Fund(s) determine that any
commitment made to permit the sale of the Fund(s)
shares in any state is no longer in the best interests
of the Fund(s), it will revoke the commitment by
terminating sales of the Fund(s) shares in the state
involved.
In order to meet the requirements of the State of
California, the Board has adopted and the shareholders
have approved the following additional restriction,
which shall be deemed fundamental from the date of this
Part B, for all the Fund(s).
(i) Each Fund shall not invest in other open ended
management investment companies.
Further Information on the Nature of the Fund(s)s
Investments:
General Characteristics of Convertible Securities. The
Fund(s) may invest only in high grade convertible
securities, that is, bonds, notes, debentures,
preferred stocks and other securities which are
convertible into common stocks. "High grade"
securities are those rated within the three highest
ratings categories of Standard & Poors Corporation
("S&P") or Moodys Investors Service, Inc. ("Moodys")
or that are determined by the investment advisor to be
of equivalent quality. Investments in convertible
securities may provide incidental income through
interest and dividend payments and/or an opportunity
for capital appreciation by virtue of their conversion
or exchange features.
Convertible debt securities and convertible preferred
stocks, until converted, have general characteristics
similar to both debt and equity securities. Although
to a lesser extent than with debt securities generally,
the market value of convertible securities tends to
decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In
addition, because of the conversion or exchange
feature, the market value of convertible securities
typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to
follow movements in the general market for equity
securities. As the market price of the underlying
common stock declines, convertible securities tend to
trade increasingly on a yield basis and so may not
experience market value declines to the same extent as
the underlying common stock. When the market price of
the underlying common stock increases, the prices of
the convertible securities tend to rise as a reflection
of the value of the underlying common stock, although
typically not as much as the underlying common stock.
While no securities investments are without risk,
investments in convertible securities generally entail
less risk than investments in common stock of the same
issuer.
As debt securities, convertible securities are
investments which provide for a stream of income (or in
the case of zero coupon securities, accretion of
income) with generally higher yields than common
28
<PAGE>
stocks. Convertible securities generally offer lower
yields than non-convertible securities of similar
quality because of their conversion or exchange
features.
Convertible securities are generally subordinated to
other similar but non-convertible securities of the
same issuer, although convertible bonds, as corporate
debt obligations, enjoy seniority in right of payment
to all equity securities, and convertible preferred
stock is senior to common stock of the same issuer.
However, because of the subordination feature,
convertible bonds and convertible preferred stock
typically have lower ratings than similar non-
convertible securities.
General Characteristics of Foreign Securities.
Foreign securities involve certain inherent risks that
are different from those of domestic issuers, including
political or economic instability of the issuer or the
country of issue, diplomatic developments which could
affect U.S. investments in those countries, changes in
foreign currency and exchange rates and the possibility
of adverse changes in investment or exchange control
regulations. As a result of these and other factors,
foreign securities purchased by the Fund(s)s may be
subject to greater price fluctuation than securities of
U.S. companies.
Most foreign stock markets are not as large or liquid
as in the United States. Furthermore, the fixed
commissions on foreign stock exchanges are generally
higher than the negotiated commissions on U.S.
exchanges and there is generally less government
supervision and regulation of foreign stock exchanges,
brokers and companies than in the United States.
Investors should recognize that foreign markets have
different clearance and settlement procedures and in
certain markets there have been times when settlements
have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result
in temporary periods when assets of the Fund(s) are
uninvested and no return is earned thereon. The
inability of the Fund(s) to make intended security
purchases due to settlement problems could cause the
Fund(s) to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to
settlement problems either could result in losses to
the Fund(s) due to subsequent declines in value of the
portfolio security or, if the Fund(s) have entered into
a contract to sell the security, could result in a
possible liability to the purchaser. Payment for
securities without delivery may be required in certain
foreign markets. Further, the Fund(s) may encounter
difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. Foreign
governments can also levy confiscatory taxes,
expropriate assets, and limit repatriations of assets.
Typically, there is less publicly available information
about a foreign company than about a U.S. company, and
foreign companies may be subject to less stringent
reserve, auditing and reporting requirements. It may
be more difficult for the Fund(s) agents to keep
currently informed about corporate actions such as
stock dividends or other matters which may affect the
prices of portfolio securities. Communications between
the United States and foreign countries may be less
reliable than within the United States thus increasing
the risk of delayed settlements of portfolio
transactions or loss of certificates portfolio
securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of
29
<PAGE>
inflation, capital reinvestment, resource self-
sufficiency and balance of payments position.
Because investments in foreign securities will usually
involve currencies of foreign countries and because the
Fund(s) may hold foreign currencies, the value of the
assets of the Fund(s) as measured in U.S. dollars may
be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control
regulations, and the Fund(s) may incur costs in
connection with conversions between various currencies.
Although the Fund(s) values its assets daily in terms
of U.S. dollars, the Fund(s) do not intend to convert
its holdings of foreign currencies into U.S. dollars on
a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the
prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund(s) at one rate, while offering a
lesser rate of exchange should the Fund(s) desire to
resell that currency to the dealer. The Fund(s) will
conduct its foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market.
General Characteristics of Securities Lending.
In compliance with Securities and Exchange Commission
guidelines, any loans by the Fund(s) of securities in
its portfolio would be required to be secured with
collateral (consisting of any combination of U.S.
currency, securities issued or guaranteed by the United
States Government or any agency thereof, or irrevocable
letters of credit or other debt securities issued by
entities rated within the two highest grades assigned
by S&P or Moodys or which are determined by the
investment advisor to be of equivalent quality).
The borrower must agree to add to such collateral to
cover increases in the market value of the loaned
securities and the Fund(s) must be entitled to
terminate any loan at any time, with the borrower
obligated to redeliver borrowed securities within five
trading days. The borrower must agree that the Fund(s)
will receive all dividends, interest or other
distributions on loaned securities and the Fund(s) must
be able to vote loaned securities whenever the right to
vote is material to the Fund(s)s performance.
Investment in Unseasoned Issuers.
The Fund(s) may invest in securities of issuers which
have a record of less than three (3) years of
continuous operation, including the operation of any
predecessor business of a company which came into
existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the
assets of such predecessor business, if such purchase
would not cause the value of the Fund(s)s investments
in all such companies to exceed 5% of the value of its
net assets.
- ---------------------------------------------
Exhibit C- The New 12b-1 Plan
Texas Capital Value Funds, Inc
Distribution Assistance, Promotion, and Administrative
Service Plan
30
<PAGE>
Pursuant to Rule 12b-1 Under the Investment Company Act
of 1940
This Distribution Assistance, Promotion, and
Administrative Service Plan (the "Plan") is designed to
conform to the requirements of Rules 12b-1 under
Investment Company Act of 1940 (the "Act") and has been
adopted by Texas Capital Value Funds, Inc. (the
"Fund"), Choice Investments, Inc., the Funds
Distributor (the "Distributor") and by First Austin
Capital Management, Inc., the Funds Investment Adviser
(the "Adviser").
The Fund, the Distributor, and the Adviser, all
desire to substantially increase the sale of the Funds
shares in order to (a) spread the cost of the Funds
operation over a larger shareholder base and (b) permit
the Fund to take advantage of certain economies of
scale that are available to a funds with a larger asset
base. The Directors of both the Fund and the
Distributor believe that the best way to achieve this
goal is for the Fund to adopt a Distribution Agreement
with the Distributor and utilize a portion of its
assets to pay for (1) advertising and promotion
expenses of all kinds (including cooperative ads placed
by brokers and dealers who have entered into written
agreements with the Distributor in the future), (2)
fulfillment expenses which include the cost of printing
and mailing prospectuses and sales literature to
prospective shareholders of the Fund, (3) sales
assistance payments to brokers and dealers who already
have entered or may enter into written agreements with
the Fund in the future relating to the sale of Fund
shares, and (4) for reimbursement and/or compensation
to brokers, dealers, and other financial intermediaries
such as banks and other institutions, for
administrative and accounting services rendered for the
accounts of Fund stockholders who purchase and redeem
their shares through such banks or other institutions.
Pursuant to this Plan, the Fund will contribute a
sum of money to the Distributor for the purposes set
forth above, which will equal .25% of average daily net
assets of the Fund during its fiscal year. These
payments will be made by the Fund from time to time,
but not more often than once a month. The Adviser will
be responsible for administering this Plan, providing
reports on its income and disbursements to the
Directors of the Fund on a continuing basis. The
Distributor will be responsible for entering into
written Sales Agreements with brokers and dealers as
contemplated by this Plan.
The level of Sales Assistance payments to be made
to each broker or dealer entering into a written Sales
Agreement will be set forth in the Funds prospectus.
It is contemplated that Sales Assistance payments will
be made quarterly and will vary directly with the
average level of Fund assets comprising the accounts of
Fund shareholders who are customers of that broker or
dealer.
It is understood by the Directors of the Fund and
by the Distributor that all Fund payments made to the
Distributor in accordance with this Plan will not
exceed (when added to other Fund operating expenses)
the permissible level of Fund operating expense that is
permitted pursuant to the terms of any expense
limitation arrangement or undertaking in effect from
time to time between the Fund and the Adviser.
31
<PAGE>
The Adviser will prepare and furnish to the Funds
Board of Directors at least quarterly a written report
complying with the requirements of Rule 12b-1 which
sets forth all amounts expended under the Plan and the
purposes for which such expenditures were made.
It is also understood by the Fund and the
Distributor that the Distributor may incur additional
expenses in carrying out its duties pursuant to the
Distribution Agreement between the Fund and the
Distributor that will be over and above the amount that
the Fund will contribute to the Distributor as
described in this Plan.
In addition, the Adviser to the Fund may at its
option, and only out of the net capital or net profits
of the Adviser (not out of the Funds management fee),
reimburse the Fund or the Distributor for any such
additional expenses used to promote, advertise, or take
any other action intended to increase the assets of the
Fund. The Board, in its annual review of the Advisory
and Administrative Agreement, shall disregard any such
marketing costs incurred by the Advisor to the Fund or
the Distributor in the evaluation of the reasonableness
of advisory and administrative fees incurred by the
Fund.
The Plan will become effective immediately upon
approval by a majority of the Board of Directors of the
Fund including a majority of the directors who are not
"interested persons" (as defined in the Act) of the
Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any
agreements entered into in connection with the Plan,
pursuant to a vote cast at a meeting called for the
purposes of voting on the approval of the Plan.
The Plan will remain in effect for one year from
the date it is approved by the Board of Directors of
the Fund, unless earlier terminated in accordance with
its terms, and thereafter may continue for successive
annual periods if the Plan is approved at least
annually by a majority of the Board of Directors of the
Fund, including a majority of the Directors who are not
"interested persons" (as defined in the Act) of the
Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any
agreements entered into in connection with the Plan,
pursuant to a vote cast at a meeting called for the
purpose of voting on the approval of the Plan.
The Plan may be amended at any time with the approval
of the Board of Directors of the Fund, provided that
(a) any material amendments of the terms of the Plan
will become effective only if approved by a majority of
the Board of Directors of the Fund including a majority
of the Board of Directors who are not "interested
persons" (as defined in the Act) of the Fund and who
have no direct or indirect financial interest in the
operation of the Plan or in any agreements entered into
in connection with the Plan and (b) any amendment to
increase materially the amount to be expended for
distribution assistance, administrative services, and
advertising and other expenses designed to promote the
sale of shares of the Fund pursuant to the Plan will be
effective only upon the additional approval by a vote
of a majority of the outstanding voting securities of
the Fund.
The Plan is terminable without penalty at any time
by (a) a vote of the majority of the Directors of the
Fund who are not "interested persons" (as defined in
32
<PAGE>
the Act) of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in
any agreements entered into in connection with the
Plan, (b) a vote of a majority of the outstanding
voting securities of the Fund, or (c) by the Adviser.
All agreements with any persons relating to the
implementation of the plan will be subject to
termination without penalty, pursuant to the provisions
of the paragraph above, and will automatically
terminate in the event of their assignment.
The Distributor is not obligated by the Plan to
execute agreements with any qualified broker or dealer
or financial intermediary and any termination of an
agreement with broker or dealer or financial
intermediary under the Plan will have no effect on
similar agreements between the fund and other
participating brokers or dealers or financial
intermediaries pursuant to the Plan.
While the Plan is in effect, the selection and
nomination of the Directors who are not "interested
persons" of the funds (as defined in the Act) will be
committed to the discretion of such "disinterested"
Directors.
