Securities Act File No. 33-96334
Investment Company Act File No. 811-09088
Securities And Exchange Commission
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 5
TEXAS CAPITAL VALUE FUNDS, INC
(Exact Name of Registrant as Specified in Charter)
1600 West 38th Street, Suite 412
Austin, TX 78731
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code:
(512)458-8166
Thomas Roberts
The Company Corporation, Inc.
17521 Shenandoah Court
Ashton, Maryland 20861
(Name and Address of Agent for Service)
____________________________________
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b) |_|
On ____ pursuant to paragraph (b) |_|
60 Days after filing pursuant to paragraph (a)(1) |x|
On (date) pursuant to paragraph (a) of rule 485 |_|
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares of beneficial
interest, par value of $.0001 per share, under the 1933 Securities Act.
Registrant paid $7083 on November 26, 1997 for shares issued in
the previous fiscal year.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of the Registrant General Description of
the Fund
Item 5. Management of the Fund Management of the Fund
Item 6. Capital Stock and Other Securities The Company
Item 7. Purchase of Securities Being Offered How to Purchase Shares
Item 8. Redemption or Repurchase How to Redeem Shares in
the Fund
Item 9. Pending Legal Proceedings Auditors & Litigation
Part B Information Required in a Statement of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives &
Policies
Item 14. Management of the Fund Directors & Officers
Item 15. Control Persons Principal Holders of
Securities
and Principal Holders of Securities
Item 16. Investment Advisory and Other ServicesInvestment Advisor
Item 17. Brokerage Allocation Portfolio Transactions
& Brokerage
Item 18. Capital Stock and Other Securities Capital Structure
Item 19. Purchase, Redemption, Pricing Net Asset Value, How to
Redeem Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distribution of the
Fund
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Annual Report
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement
<PAGE>
1600 W. 38th Street, Suite 412
Austin, Texas 78731
Existing Accounts: 800-628-4077
New Accounts & Information: 888-839-4769
or 512-302-6099
Value & Growth Portfolio
Growth & Income Portfolio
Prospectus November 30, 1997
This prospectus sets forth concisely the information about
the Value & Growth Portfolio, and the Growth & Income
Portfolio (each individually a "Fund", or collectively, the
"Funds") that a prospective investor should know before
investing. Each Fund is a non-diversified, open-end
investment series of the Texas Capital Value Funds, Inc.
(the "Company") commonly known as a "mutual fund." This
prospectus should be read and retained for future
reference.
If you require more detailed information, a Statement of
Additional Information, dated November 30, 1997
which has been filed with the Securities and Exchange
Commission and incorporated by reference into this
Prospectus, may be obtained without charge by writing the
above address or calling 1-800-880-0324.
This Prospectus is not a solicitation by the Company or any
Fund for the sale of shares in any state in which the
offering is not authorized. No person is authorized by the
Company to give any information or make any representation
other than those contained herein or in other printed or
written material issued by the Company or the Company's
distributor, and no person is entitled to rely upon any
other information or representation.
Table of Contents
PROSPECTUS SUMMARY 2
TABLE OF FUND EXPENSES 2
FINANCIAL HIGHLIGHTS 3
GENERAL DESCRIPTION OF FUNDS 3
CHARITABLE GIVING 3
INVESTMENT OBJECTIVE 4
RISKS 5
INVESTMENT RESTRICTIONS 5
MANAGEMENT OF THE FUNDS 6
HOW TO PURCHASE SHARES 8
HOW TO REDEEM (SELL) SHARES 10
DISTRIBUTIONS AND TAXES 12
DISTRIBUTION PLAN 13
RETIREMENT PLANS 13
EXCHANGE PRIVILEGES 13
THE COMPANY 13
SHAREHOLDER REPORTS 14
AUDITORS & LITIGATION 14
DETERMINING NET ASSET VALUE 14
FUND PERFORMANCE 14
INFORMATION FOR SHAREHOLDERS 15
Shares in each Fund are not deposits or obligations of, or
guaranteed or endorsed by any bank, and the shares are not
federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Summary
The following summary is qualified in its entirety by the
more detailed information appearing in the body of this
Prospectus.
Investment Objective: Value & Growth Portfolio: Capital
appreciation by investing in equity securities of large and
small domestic and foreign corporations.
Growth & Income Portfolio: Capital appreciation and
income by investing in equity securities of large-cap
domestic and foreign corporations paying dividends. See
"Investment Objective" on page 4, .
Investment Techniques: The Value & Growth Portfolio and
the Growth & Income Portfolio use highly quantitative
techniques in the selection of stocks. The Value & Growth
Portfolio seeks capital appreciation by investing in large
and small companies that appear to be undervalued with the
potential to substantially increase their earnings. The
Growth and Income Portfolio seeks capital appreciation by
investing primarily in large-cap companies that yield high
dividends. See "Investment Objective" and "Risks" on
pages 4 and 5 , respectively.
Risks: There can be no assurance that any Fund will achieve
its investment objectives. Factors which should be
considered by an investor include, but are not limited to,
higher than average volatility, and the Funds' non-
diversification policy. See "Risks" on page 5.
The Advisor: First Austin Capital Management, Inc. manages
the Value & Growth and the Growth & Income Portfolios (the
"Advisor" when such defined term is used in connection with
these Funds). See "Management of the Funds" on page 6.
Distributions/Dividends: Paid annually from available
capital gains and income. Distributions may be reinvested
automatically without a sales charge. See "Distributions
and Taxes" on page 12 .
Initial and Subsequent Purchases: Initially $1,000,
subsequently $100 minimums, although the Advisor may, at
its option, temporarily waive the minimums. For
shareholders signed up for the Autovest Plan, there is no
initial minimum. See "How to Purchase Shares in the Fund"
and "Autovest Plan" on pages 8 and 10 .
Net Asset Value: The net asset value of the Fund will be
available daily by calling (512) 302-6099 or 1-
888-839-4769 . See "Determining Net Asset Value" on
page 14 .
Charitable Giving: The Advisor of these Funds will donate
up to 10% of the Advisor's earned net proceeds from
advisory fees from the Fund to various charities each year.
Shareholders with at least $15,000 in either Fund will have
the opportunity to designate a charity to which the Adviser
will donate. See "Charitable Giving" on page 3.
Transfers From Other Mutual Funds. Will occur at net asset
value (without sales charges). See "How to Purchase Shares
in the Fund", page 9 .
<TABLE>
<CAPTION>
Table of Fund Expenses
The following table illustrates expenses and fees that a
shareholder of the Funds will incur.
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases 4.5%
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees (a)
Exchange Fees None
<CAPTION>
Annual Fund Operating Expenses
<S> <C>
Management Fees 1.00%
12b-1 Fees (b) . 0.25%
Other expenses 0.70%
Total Fund Operating Expenses 1.95%
</TABLE>
(a) Shareholders pay a $10 charge for redemptions
by fed wire and a $10 charge for redemptions by phone.
For accounts in excess of $1 million, there is no front-end
charge, but a sales charge of 1% is levied on redemptions
occurring within one year of initial investment.
(b) The level of distribution expenses is 0.25%
per annum of the Fund's average net assets, all of
which should be considered a service fee received by
the selling broker on an annual basis for providing the
investor with continuing service. The distribution expense
may result in long-term shareholders paying more than the
maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge.
The purpose of this table is to assist investors in
understanding the various costs and expenses that they will
bear directly or indirectly as a shareholder in the Fund.
The following examples illustrate the expenses that an
investor would pay on a $1,000 investment over various time
periods assuming (1) a 5% annual rate of return, and (2)
redemption at the end of each period.
1 Year: $62 3 Years: $100
5 Years: $142 10 Years: $265
These examples should not be considered a representation of
past or future expenses or performances. Actual expenses
may be greater or less than those shown. The advisory fee
is higher than that paid by most mutual funds. Each
advisor, at its option, may reduce its fee to the extent
required to limit total annual Fund operating expenses to
the maximum allowed by applicable state laws.
Financial Highlights
The following annual Financial Highlights for the Value
& Growth Portfolio has been audited by Tait, Weller & Baker
L.L.P., independent certified public accountants. Their
report for the fiscal year ended September 30, 1997 is
included in the Annual report of the Value & Growth
Portfolio that is contained in the Fund's Statement of
Additional Information. The Financial Highlights for the
Funds should be read in conjunction with the Financial
statements and related notes included in the Funds' Annual
Report. Additional information about the Fund's
performance is contained in the Fund's Annual Report, which
may be obtained without charge by calling or writing the
Texas Capital Value Funds. The following presents
information relating to a share of capital stock of the
Value & Growth Portfolio, outstanding for the entire
period.
<TABLE>
VALUE & GROWTH PORTFOLIO
(For a Fund Share Outstanding Throughout the Period)
Period Ended
09/30/97
<S> <C>
Net asset value, beginning of period $11.13
Income from investment operations:
Net investment income (loss) (.03)
Net Realized and unrealized gain
(loss) on investments 7.03
Total from investment operations $7.00
Less Distributions from net
Net capital gains (.47)
NAV end of period $17.66
Total Return (a) 64.9%
Ratios/ Supplemental Data
Net Assets - End of Period ($000) $27,799
Ratios to average net assets
Expenses 1.83%
Net investment income (loss) (0.86)%
Portfolio Turnover 103.3%
</TABLE>
(a) Total return represents aggregate total return for
the period indicated and does not reflect the maximum
front-end sales charge.
General Description of Funds
Each Fund is an open-ended, non-diversified series offered
by Texas Capital Value Funds, Inc., a Maryland corporation
incorporated on June 26, 1995, and registered as an open-
end management investment company under the Investment
Company Act of 1940 (the "1940 Act").
Charitable Giving
First Austin, the Advisor to the Value & Growth Portfolio
and the Growth & Income Portfolio, will donate up to 10% of
the Advisor's earned net proceeds from advisory fees from
the Funds to various charities each year. Shareholders who
have shares in either of these two Funds worth at least
$15,000 will have the opportunity to designate a charity
for the Advisor to donate to, although the amount of any
such donation to such designated charity shall be
determined by the Advisor. Any such charities must be non-
profit groups as defined by Section 501 (c)(3) of the
Internal Revenue Code. Since the Advisor is writing the
check, there will be no impact on the shareholder's
holdings in the Fund(s), nor will there be any tax
deductions to any such shareholder.
Investment Objective
Each Fund has a unique investment objective although there
are some aspects common to both of the Funds.
Common Characteristics: For all the Funds, 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.
The Advisor does not use techniques such as hedging or
short sales in the management of the Funds. The Funds 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 Moody's Investor's Service, Inc. or Standard
& Poor's Corporation rating agencies.
Unique Characteristics: The Value & Growth Portfolio's
primary investment objective is capital appreciation
through the investment in common stocks and securities
convertible into common stocks. The Advisor attempts to
invest in companies which appear to be undervalued and
possess an ability to increase their earnings. No
consideration is given to income of the portfolio holdings.
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.
For the Growth & Income Portfolio, the Advisor will
invest primarily in large-cap equity securities of
sufficient yield. The ratio of the price of a stock
relative to its dividend yield is considered. The
portfolio will generally be comprised of higher-yielding,
large-cap domestic and foreign companies.
For both portfolios, most of the securities selected
are likely to have much lower ratios in at least one of the
categories described in the next paragraph 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.
For the Value & Growth and the Growth & Income
Portfolios, 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. For the Value & Growth Portfolio,
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.
Portfolio Turnover Policy. The Advisor may make changes in
the Funds consistent with each Fund's policies when the
Advisor believes doing so is in the best interest of the
Fund it manages. Fund turnover is expected to be less than
150% per year, which is higher than average for most funds.
High turnover rates increase transaction costs and may
increase taxable capital gains. Each Advisor considers
these effects when evaluating the anticipated benefits of
short-term investing.
Non-diversification Policy. Each Fund is classified as
being non-diversified which means that each Fund may invest
no more than 25% of its total assets in any one issuer
other than U.S. government securities and at the close of
each quarter of the taxable year, at least 50% of the value
of each Fund must be represented by a) cash and cash items,
including U.S. government securities and b) other
securities of different issuers in which each Fund has
invested no more than 5% of its assets and with respect to
which it owns no more than 10% of the outstanding voting
securities of the issuer. 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.
Risks
Investment in any mutual fund has inherent risks. There
can be no assurance that the investment objectives of each
Fund will be realized or that a Fund will not decline in
value. Economic conditions change and stock markets are
volatile. Moreover, investors should be aware that certain
investment policies of the Funds, such as investing in
smaller capitalization companies, and the Funds' non-
diversification policy can entail greater than average
risk. Prior to each Fund's inception, the advisor had no
experience managing investment companies.
Each Fund may invest up to 33% of its assets in
foreign based companies. 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
each Fund may be subject to greater price fluctuation than
securities of U.S. companies.
Each Fund may also invest without limitation in fixed
income obligations including cash equivalents (such as
bankers' acceptances, certificates of deposit, commercial
paper, short-term government and corporate obligations and
repurchase agreements) for temporary defensive purposes
when the Fund's Advisor believes market conditions so
warrant and for liquidity. If the seller under a
repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted or delayed.
Lending of securities can result in a failure to deliver
the original securities by the borrower, and similar risks
with respect to disposition of collateral.
Investors should carefully consider such risks and the
Fund characteristics in light of their own financial
circumstances. A Fund is not designed to be a complete
investment program for investors. It must be realized, as
is true of almost all securities, there can be no assurance
that a Fund will obtain its ongoing objectives.
As with any investment strategy, there can be no
guarantee of success.
The Fund's advisor, transfer agent, custodian,
accountant, and others that have agreements to perform
various services for the Fund are taking measures to
minimize potential problems that may occur as a result of
the year 2000. Shareholders should be aware that vital
operations of the Fund rely heavily on computers, and the
turn of the century may adversely impact the Fund.
Investment Restrictions
The Funds 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) The Value and Growth Portfolio 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. For the Growth and Income Portfolio, this
restriction is limited to 33 1/3%. 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 Fund 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 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.T's).
(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
Fund's net assets. Included within that amount, but not to
exceed 2.0% of the value of each Fund's 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.
(i) Each Fund shall not invest in other open ended
management investment companies.
Management of the Funds
The business and affairs of the Funds are managed under
the direction of the Board of Directors of the Company.
The Company's officers (the "Officers") conduct and
supervise the daily business operations of the Funds.
Shareholders have one vote for each share held on matters
on which they are entitled to vote. The Company is not
required to and has no intention of holding annual
shareholder meetings, although special meetings may be
called for purposes such as electing or removing individual
members of the Company's Board of Directors (each
individually, a "Director", and collectively the
"Directors" or "Board of Directors") or changing
fundamental investment policies or for any other matter as
required by law.
Day-to Day Management. Mark A. Coffelt, Director of the
Company and Chief Investment Officer of the Value & Growth
and the Growth & Income Portfolios, manages the investment
program of these two Funds and is primarily responsible for
their day-to-day management. B. David Flora is a co-Portfolio
Manager of the Texas Capital Value Funds and an Investment
Advisor for First Austin Capital Management. Eric Barden is a
co-Portfolio Manager of the Texas Capital Value Funds and an
Investment Advisor for First Austin Capital Management.
Directors and Officers. The Directors and Officers are
listed below, together with their principal occupations
during at least the past five years.
Mark A. Coffelt, C.F.A., President of the Texas
Capital Value Funds, Inc. and (Interested) Director, Chief
Investment Officer of the Value & Growth Portfolio and
Growth & Income Portfolio and President of First Austin
Capital Management, Inc. Prior to founding First Austin
Capital Management, Inc., in 1987, Mr. Coffelt was
Controller of Racal-Milgo, a data communications company.
He is a graduate of Occidental College, B.A. in economics
and a graduate of the Wharton School, University of
Pennsylvania, M.B.A. Mr. Coffelt is a Chartered Financial
Analyst of the Association of Investment Management and
Research.
Janis A. Claflin, Director, is President and owner of
Claflin & Associates, a firm providing business consulting
and counseling services to banks, medical groups,
associations, foundations and individuals. She also serves
as Chairperson of the Trustee Program Committee on the
Board of Directors of the Fetzer Institute, a multi-million
dollar foundation which sponsored the Public Broadcasting
Series "Healing and the Mind" with Bill Moyers. She is a
licensed Marriage and Family Therapist and holds a B.A. in
English from the George Peabody College for Teachers and a
M.A. from Yale Divinity School in Religion.
Edward K. Clark, Attorney, CPA, Director, is a
practicing tax attorney with Kelly, Hart & Hallman, P.C.
of Fort Worth. He has been a partner in the law firms of
Clark & Clark of Austin, Texas, McGinnis, Lochridge &
Kilgore, L.L.P., and has also been associated with the
firms of Scofield & Clark, P.C., and Ford & Ferraro,
L.L.P., all of Austin. In addition, he has served as the
general counsel and chief financial officer of Jefferson
Service Company, Inc., of Shreveport, Louisiana. Mr. Clark
is Board Certified in Tax Law by the Texas Board of Legal
Specialization and is licensed as a Certified Public
Accountant in Texas. He holds a B.B.A. and a M.P.A.
(Master in Professional Accounting) degrees from the
University of Texas at Austin, and a J.D. from the
University of Houston College of Law.
John Henry McDonald, CFP, Director, is President and
founder of Austin Asset Management, a financial planning
firm. He holds a CFP from the College for Financial
Planning and is a member of the CFP Board of Standards for
the CFP item writing committee. He currently serves as
Chairman of the Austin Society of Institute of Certified
Financial Planners.
Brian T. Bares, is the Company's Secretary. He is
currently Compliance Officer for First Austin Capital
Management, Inc., an Advisor to two of the Funds. He is
also a registered representative with Choice Investments,
Inc., the Company's Distributor. He has served as co-
founder and vice-president of Convenience Design, Inc., and
was a Director of Bellevue Optical, Inc. He graduated from
the University of Nebraska, B.S. in Mathematics.
Investment Advisor. First Austin Capital Management, Inc.,
("First Austin") is the advisor to the Value & Growth
Portfolio and the Growth & Income Portfolio The Advisor is
a registered investment advisor with the Securities and
Exchange Commission , . First Austin is based in
Austin, Texas at the address of 1600 West 38th Street,
Suite 412, Austin, Texas 78731. Mark Coffelt is
the Chief Investment Officer of First Austin, Chairman of
the Board of Directors and President of the Company, and
the Fund manager for the Value & Growth Portfolio and the
Growth & Income Portfolio.
On November 18, 1997 the shareholders of the
Company approved an investment advisory and administrative
contract with First Austin which was unanimously approved
by the Board at their meeting held on September 18,
1997 to manage and administer the Value & Growth
Portfolio.
On June 28, 1996, the Board authorized the creation of
a new series called the Growth & Income Portfolio to be
managed and administered by First Austin.
All advisory agreements are for an original term of
one year. After the original term expires, each advisory
agreement will continue on a year to year basis provided
that approval is voted at least annually in advance by
either the Board of Directors or the holders of a majority
of the outstanding voting securities of the respective
Fund, but in either event, the extension of the term of an
advisory agreement must also be approved in advance by a
majority of the Directors who are neither parties to the
agreement nor interested persons as defined in the
Investment Company Act of 1940 (the "1940 Act") at a
meeting called for such purpose.
First Austin will also act as the administrator to
the Funds. The administrator provides support services to
each Fund including establishing and maintaining
shareholders' accounts and records, processing purchase and
redemption transactions, answering routine client inquiries
regarding the Fund, preparing registration statements,
prospectuses, tax returns and proxy statements, providing
daily valuation of each Fund, calculating the daily net
asset value per share, and providing such other services to
the Fund as the Company may reasonably request. First
Austin may assign administrative services to other groups
and providers without automatic termination of the
Agreement.
For such administrative services, the Company has
agreed to pay the Advisor additional fees of 0.70% per year
of the net assets of each Fund for the first $5 million of
net assets, declining to 0.20% per year of net assets in
excess of $200 million, and a 12(b)-1 fee of 0.25% to the
Distributor who passes through the entire amount to
the broker of record. All fees are computed on the average
daily closing net asset value of each Fund and are payable
monthly.
Advisory Agreement. Under the advisory agreement, the
Advisor will furnish investment advice to the Fund(s) it
manages on the basis of a continuous review of the
portfolio and recommend to the Company when and to what
extent securities should be purchased or disposed of. The
advisory agreement may be terminated at any time, without
the payment of any penalty, by the Board of Directors or by
vote of a majority of the outstanding voting securities of
the respective Fund on sixty (60) days' prior written
notice to the Advisor. In the event of an assignment by an
Advisor of the investment advisory services under an
advisory agreement, as defined in the 1940 Act, the
advisory agreement will terminate automatically. Ultimate
decisions regarding investment policy and individual
purchases and sales of securities are made not by the
Advisor but by the Company's Officers and Directors.
All Fund costs, with the exception of extraordinary
legal expenses as determined by the Board of Directors,
brokerage commissions, and custodial charges based upon
transactions in the Fund(s), will be borne by the Advisor
to the Fund(s) as part of fees charged. Marketing expenses
will be primarily borne by the "Distributor" (as defined
below). For advisory services, the Company has agreed to
pay the Advisor a flat fee of 1.00% per year. The advisory
fee paid to the Advisor is higher than that paid by most
investment companies.
On-going legal and auditing expenses, federal and
state registration fees, printing expenses for shareholder
statements and prospectuses, and the cost of fidelity bond
and other insurance will be borne by the Advisor as part of
its Agreement with the Company for its respective Fund(s).
From time to time, the Advisor may voluntarily waive a
portion of its fee otherwise payable to it to meet Fund
expense limits prescribed by any state in which the Fund's
shares are offered for sale. Currently, the Company
believes that limit is 2.5% of the first $30 million of the
Fund's average net assets, 2.0% of the next $70 million,
and 1.5% of average net assets in excess of $100 million.
Organization Costs. Under the Agreement, the Advisor
has absorbed all of the organization costs for its
respective Fund(s).
Accounting and Transfer Agent Services. The Company
has contracted with Fund Services, Inc. (the "Transfer
Agent") for transfer agent services and with Commonwealth
Fund Accounting, Inc. for fund accounting services. The
address of the accounting and transfer agent is 1500 Forest
Ave., Suite 111, Richmond, VA 23229. All shares are held
in non-certificated form registered on the books of the
Fund and the Transfer Agent for the account of the
shareholder.
Company Distributor. Choice Investments, Inc. is the
broker-dealer and the Fund's underwriter and distributor
(the "Distributor"). The address of the Distributor is
5900 Balcones, Suite 100, Austin, Texas 78731. The phone
number of the Distributor is (512) 302-6099 or toll free
(888) 839-7424.
Custodian. Bank of Boston, N.A., is each Fund's
custodian.
Brokerage. The Company requires all brokers to effect
transactions in Fund securities in such a manner as to get
prompt execution of the orders at the most favorable price.
Each Fund will place orders with brokers who provide
research services to the Advisor at commission rates
considered to be reasonable, although higher than the
lowest brokerage rates available, or to brokers who sell
shares in the Fund. No formula for such allocations
exists; thus, the respective Fund bears the cost of such
services.
The Advisor also places portfolio transactions for
other advisory accounts. Research services furnished by
broker-dealers which effect securities transactions for the
Fund may be used by the Advisor in servicing all of its
advisory accounts and not all such research services may be
used by the Advisor in the management of the Fund's
portfolio. Conversely, research services furnished by
broker-dealers which effect securities transactions for
other advisory accounts may be used by the Advisor in the
management of a Fund. In the opinion of the Advisor, it is
not possible to measure separately the benefits from
research services to each advisory account. Because the
volume and nature of the trading activities of the advisory
accounts are not uniform, the amount of commissions in
excess of the lowest available rate paid by each advisory
account for brokerage and research services will vary.
The Advisor seeks to allocate Fund transactions
equitably whenever concurrent decisions are made to
purchase or sell securities for a Fund and other advisory
accounts. In some cases, this procedure could have an
adverse effect on the price or the amount of securities
purchased or sold by the Fund. In making such allocations,
the main factors considered by the Advisor are the
respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of
investment commitments generally held and the opinions of
the persons responsible for recommending the investment.
How to Purchase Shares
Investors may reduce or eliminate sales charges in
various ways as follows: a) through the aggregation of
accounts as single investors (reduced sales charge); b) by
issuing a statement of intention to purchase more than
$50,000 over a thirteen month period (reduced sales
charge); or c) by being a charity or member of a group
exempt from the sales charge. Qualifications for reduced
or no sales charges are described in detail below.
The following table shows the sales charges as a
percentage of assets invested.
<TABLE>
SALES CHARGE AS A PERCENTAGE OF ASSETS INVESTED
<CAPTION>
DEALER
DISCOUNT
AMOUNT OF
AS A % OF
TRANSACTION PRICE VALUE PRICE
<C> <C> <C> <C>
Less than $50,000 4.5% 4.71% 4.0%
$50,000 but less than $100,000 4.0% 4.17% 3.5%
$100,00 but less than $250,000 3.5% 3.63% 3.0%
$250,000 but less than $500,000 2.5% 2.56% 2.25%
$500,000 but less than $1 million 2.0% 2.04% 1.75%
$1 Million* + 1.0%* 0% 0%
</TABLE>
*A contingent deferred sales charge of 1% is levied on
redemptions occurring within one year of initial
investment. For purchases of $1 million or greater, the
sales charge is the lesser of 1% or $15,000.
Aggregation of Accounts as Single Investors. Investors in
the following categories may combine their purchases into a
single transaction to qualify for a reduced sales charge:
1. an individual, his or her spouse and their children
under 21 purchasing for his, her or their own account;
2. a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
3. employee benefit plans of a single employer or of
affiliated employers.
Statement of Intention (Letter of Intent). An
investor may also obtain the reduced sales charges shown
above by expressing in writing to the Fund an intent to
invest $50,000 or more within a thirteen month period. A
form for this purpose can be obtained by writing or calling
the Fund or an investor can write their own letter of
intent.
While an investor is not obligated to fulfill a letter
of intent, if the goal is not met, the investor is required
to pay the difference between the sales charge actually
paid and the one that would otherwise have been due had no
letter of intent been signed.
Rights of Accumulation. An investor may also obtain a
cumulative quantity discount (known as a right of
accumulation) by adding his or her current purchase to the
net asset value (at the close of business on the previous
day) of all shares previously purchased and still owned in
the Fund. The applicable sales charge is then based on
this total. To benefit from any right of accumulation
("ROA"), an investor must identify any ROA links to other
accounts and communicate these links in writing to the
Fund's shareholder service staff.
Investors Exempt from Sales Charges. Certain
categories of people may invest in the Fund without paying
a sales charge. These categories include Charter
Shareholders, shareholders meeting the requirements of a
Board approved investment program, qualified pension or
profit sharing plans with ten or more employees, Directors,
Officers and employees of the Company, officers and
employees and clients of the Advisor, officers and
employees of the Distributor (including immediate family
members of the above groups and their retirement plans),
representatives registered with the National Association of
Securities Dealers buying for their own account,
discretionary accounts of bank trust departments,
registered investment advisors and their clients where the
registered investment advisor is buying on behalf of the
client, and charities and religious organizations as
defined by Section 501(c)(3) of the Internal Revenue Code.
The Value & Growth Portfolio originally opened
without a sales charge for a period set by the Board of
Directors. Applications received in good order by the
Transfer Agent or Distributor through December 31, 1995
were exempt from the front-end sales charge. Shareholders
buying during that period and buying at least $10,000 worth
of the Value & Growth Portfolio were deemed Charter
shareholders. Charter shareholders will never pay a sales
load on any future investments in the Value & Growth
Portfolio, or any other Funds of the Company.
Transfers From Other Mutual Funds. Transfers of
assets from any open-end investment company will occur at
net asset value.
Other Fees. Investors may be charged a transaction or
other fee by an investment adviser, a brokerage firm or
other financial institution in connection with purchases or
redemptions of Fund shares at net asset value (i.e.,
without a sales charge).
Direct Purchase of Shares. To purchase shares in the
Fund an investor should complete an application form and
send it to the Distributor along with a check payable to:
Texas Capital Value Funds, Inc.
P. O. Box 26305
Richmond, VA 23286-8172
Minimum Investments. A shareholder's initial
investment must be a minimum of $1,000, unless he/she is
participating in the Company's Autovest Plan (see below),
where the initial minimum is waived, or unless the Advisor,
at his discretion, temporarily waives the minimum. The
minimum for subsequent investments is at least $100.
Subsequent Investments. With subsequent investments,
shareholders should write the name and number of the
account on their check. Checks do not need to be
certified, but are accepted subject to collection and must
be drawn in United States dollars on United States banks.
The investment will be processed at the public offering
price next calculated after receipt of purchase request in
good order.
Autovest Plan. Under the Autovest Plan, there is no
initial minimum, but the shareholder must agree to
contribute a minimum of $1,200 the first year.
On a monthly or quarterly basis, the shareholder's
money will be automatically transferred from such
shareholder's bank account to the shareholder's Fund
account on or about the 15th day of each month. A
shareholder can elect this option by filling out the
Autovest section on the new account form. For further
information, call the Transfer Agent at 800-628-4077.
Purchases Through a Broker-Dealer. Shareholders may
purchase shares through their broker-dealer if that broker-
dealer has a signed agreement with the Distributor.
Broker-dealers may place orders on behalf of shareholders
by calling the Distributor. Orders will be processed at
the net asset value of the Fund next calculated after
receipt in good order. The broker-dealer is responsible
for placing purchase orders promptly with the Distributor
and for forwarding payment within three (3) business days.
By Wire. Before wiring funds, an investor must call
the Transfer Agent at 1-800-628-4077 to advise the Transfer
Agent that such investor intends to make an initial
investment by wire and to receive an account number. The
investor must then proceed as follows: (i) provide the
Transfer Agent with such investor's name and the dollar
amount to be invested, (ii) complete the Fund's account
application (included with this Prospectus), being sure to
include the date of the order and the confirmation number,
(iii) mail or deliver the completed application to the
appropriate address shown at the top of the application,
and (iv) request his or her bank to transmit immediately to
the Transfer Agent available funds by wire for the purchase
of shares in the Fund.
Subsequent Investments by Wire. An existing
shareholder may make a subsequent investment by instructing
his or her bank to wire funds as indicated above,
commencing with contacting the Transfer Agent to notify the
Transfer Agent of an incoming wire. It is essential that
complete information regarding the shareholder's account be
included in all wire instructions in order to facilitate
prompt and accurate handling of investments.
General. Investors will not be permitted to redeem
any shares purchased with an initial investment made by
wire until one (1) business day after the completed account
application is received by the Fund. All investments must
be made in U.S. dollars and drawn on U.S. banks. Third
party checks are not accepted. A charge may be imposed if
any check used for investment does not clear. The Fund
reserves the right to reject any purchase in whole or in
part.
If an order, together with payment in proper form, is
received by the Transfer Agent by the close of public
trading on the New York Stock Exchange (currently 4:00
p.m., New York City time), Fund shares will be purchased at
the offering price next determined after the close of such
trading.
How to Redeem (Sell) Shares
A shareholder has the right to have the Fund redeem all or
any portion of his outstanding shares at their current net
asset value on each day the New York Stock Exchange is open
for trading. The redemption price is the net asset value
per share next determined after the shares are validly
tendered for redemption. A shareholder may redeem their
shares by offering them for "repurchase" or "redemption"
directly to the Fund or through their dealer.
Direct Redemption. A written request for redemption
must be received by the Fund's Transfer Agent in order to
constitute a valid tender for redemption. For amounts in
excess of $5,000, the Fund requires that the signature(s)
on the written request be guaranteed as specified below.
All owners of the account must sign unless the account
application form states that only one signature is
necessary for redemptions. All redemption checks must be
sent to the address-of-record on the account. The Fund
usually requires additional documents when shares are
registered in the name of a corporation, agent or fiduciary
if the shareholder is a surviving joint owner. In the case
of a corporation, a corporate resolution signed by the
secretary will be needed. In the case of an agent or
fiduciary, a copy of the death certificate is usually
required. The Fund's Transfer Agent can be contacted at
(800) 628-4077 with any questions about requirements for
redeeming shares.
Telephone Redemption. A shareholder may redeem shares
by telephone if such shareholder requested this service at
the time the initial account application was completed. If
a shareholder did not request this service at that time,
such shareholder must request approval of telephone
redemption privileges in writing (sent to the Fund's
Transfer Agent) with signature guarantee before shares can
be redeemed by telephone. There is no charge for
establishing this service, but the Transfer Agent will
charge such shareholder's account a $10.00 service fee each
time a telephone redemption is made. Once telephone
authorization is in effect, the shareholder may redeem
shares by calling the Transfer Agent at 1-800-628-4077. By
establishing this service, the shareholder authorizes the
Transfer Agent to act upon any telephone instructions it
believes to be genuine to (1) redeem shares from the
shareholder's account and (2) mail or wire redemption
proceeds. If the shareholder requests that redemption
proceeds be wired to such shareholder, the Transfer Agent
will charge such shareholder's account with a wire service
charge, currently $10.00. This charge is in addition to
the $10.00 service fee for making a telephone redemption.
The amount of these service charges may be changed at any
time, without notice, by the Transfer Agent.
A shareholder cannot redeem shares by telephone if
such shareholder paid for his or her shares with a
personal, corporate, or government check and the payment
has been on the books of the Fund for less than fifteen
(15) business days.
If it should become difficult to reach the Transfer
Agent by telephone during periods when market or economic
conditions lead to an unusually large volume of telephone
requests, a shareholder may send a redemption request to
the Transfer Agent by overnight mail.
The Fund employs reasonable procedures designed to
confirm the authenticity of the instructions communicated
by telephone for, if it does not, it may be liable for any
losses due to unauthorized or fraudulent transactions. As
a result of this policy, a shareholder authorizing
telephone redemption bears the risk of loss which may
result from unauthorized or fraudulent transactions which
the Fund believes to be genuine. When a shareholder
requests a telephone redemption or transfer, he or she will
be asked to respond to certain questions designed to
confirm their identity as a shareholder of record.
Cooperation with these procedures will protect the
shareholder's account and the Fund from unauthorized
transactions.
Signature Guarantees. To protect each shareholder and
the Company from fraud, signature guarantees are required
for: (1) all redemptions ordered by mail if the shareholder
requires that the check be payable to another person or
that the check be mailed to an address other than the one
indicated on the account registration; (2) all requests to
transfer the registration of shares to another owner; and
(3) all authorizations to establish or change telephone
redemption service, other than through the shareholder's
initial account application.
In the case of redemption by mail, signature
guarantees must appear either: (1) on the written request
for redemption; or (2) on a separate instrument of
assignment (usually referred to as a "stock power")
specifying the total number of shares being redeemed. The
Company may waive these requirements in certain instances.
The following institutions are acceptable signature
guarantors: (a) participants in good standing of the
Securities Transfer Agents Medallion Program ("STAMP"); (b)
commercial banks which are members of the Federal Deposit
Insurance Corporation ("F.D.I.C."); (c) trust companies;
(d) firms which are members of a domestic stock exchange;
(e) eligible guarantor institutions qualifying under Rule
17Ad-15 of the Securities Exchange Act of 1934 that are
authorized by charter to provide signature guarantees; (f)
foreign branches of any of the above; (g) the Distributor
for the Fund. The Transfer Agent cannot honor guarantees
from notaries public, savings and loan associations, or
savings banks.
General. Payment of the redemption proceeds will be
made promptly, but not later than the seventh (7th) day
after the receipt of all documents in proper form,
including the appropriate signature guarantee.
The Fund may suspend the right of redemption under
certain extraordinary circumstances in accordance with the
Rules of the Securities and Exchange Commission. In the
case of shares purchased by check and redeemed shortly
after purchase, the Fund will not mail redemption proceeds
until it has been notified that the check used for purchase
has been collected, which may take up to fifteen (15)
business days from the purchase date. To minimize or avoid
such delay, investors may purchase shares by certified
check or federal funds wire. A redemption may result in
recognition of a gain or loss to the shareholder for
Federal income tax purposes.
Reinvestment Privileges. If a shareholder redeems
some or all of the shareholder's shares and then changes
his or her mind, such shareholder may re-invest them
without sales charges at the net asset value if such
shareholder does so within sixty (60) days of the date of
redemption. This privilege may be exercised only once by a
shareholder. However, a shareholder has not used up this
one-time privilege if the sole purpose of a prior
redemption was to invest the proceeds at net asset value in
an Individual Retirement Account or Simplified Employee
Pension Plan. If the shareholder realized a gain on the
redemption, the transaction is taxable and reinvestment
will not alter any capital gains tax payable. If there has
been a loss on the redemption, some or all of the loss may
not be allowed as a tax deduction depending on the amount
reinvested and the timing of reinvestment.
Redemption at the Option of the Fund. Due to the
relatively high cost of maintaining smaller accounts, the
Fund reserves the right to redeem shares in any account,
other than retirement plan or Uniform Gifts/Transfers to
Minors Act accounts, if at any time, due to redemptions by
the shareholder, the total value of a shareholder's account
does not equal at least $1000. Involuntary redemption will
only result when the shareholder account drops below the
minimum due to redemptions, rather than changes in the net
asset value of the Fund. If the Fund determines to make
such an involuntary redemption, the shareholder will first
be notified that the value of his or her account is less
than $1000 and will be allowed 30 days to make an
additional investment to bring the value of his or her
account to at least $1000 before the Company takes any
action. The Company reserves the right to raise minimums
at some future date, although it currently has no plans to
do so.
Distributions and Taxes
Under the provisions of Sub-Chapter M of the Internal
Revenue Code of 1986 as amended, each Fund, by paying out
substantially all of its investment income and realized
capital gains, intends to be relieved of federal income tax
on the amounts distributed to shareholders. In order to
qualify as a "regulated investment company" under Sub-
Chapter M, at least 90% of each Fund's profits must be
derived from dividends, interest and gains from security
transactions, no more than 30% of each Fund's profits may
be derived from sales of securities held less than three
months, and no more than 50% of each Fund's assets may be
in securities holdings that exceed 5% of the total assets
of the Fund at the time of purchase.
Dividends & Distributions. Distribution of any net
long term capital gains realized by each Fund in the Fund's
fiscal year and owned by a shareholder will be taxable to
the shareholder as long term capital gains, regardless of
the length of time Fund shares have been held by the
shareholder. All income realized by each Fund owned by a
shareholder including short term capital gains, will be
taxable to the shareholder as ordinary income. Dividends
from net income will be distributed annually or more
frequently at the discretion of the Company's Board of
Directors. Dividends received shortly after purchase of
shares by a shareholder will have the effect of reducing
the per share net asset value of such shareholder's shares
by the amount of such dividends or distributions and,
although in effect a return of capital, are subject to
federal income taxes.
Dividend Reinvestment. Since each Fund is structured
for long term shareholders, all fund distributions will be
reinvested back into the fund rather than paid out, unless
a shareholder requests otherwise. There is no sales charge
for reinvested dividends.
Backup Withholding. The Company is required by
Federal law to withhold 31% of reportable payments (which
may include dividends, capital gains, distributions and
redemptions) paid to shareholders who have not complied
with IRS regulations. In order to avoid this withholding
requirement, a shareholder must certify on a W-9 tax form
or other applicable documents supplied by the Company that
such shareholder's Social Security Number is correct and
either that such shareholder is not currently subject to
back-up withholding or that such shareholder is exempt from
back-up withholding.
Foreign Income Taxes. Investment income received by each
Fund from sources within foreign countries may be subject
to foreign income taxes withheld at the source. It is not
expected that any Fund will be able to "pass through" these
taxes to shareholders but such taxes generally will be
deductible by each Fund.
Distribution Plan
The Company has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act (the "Plan") under which
the Company contracts with registered broker-dealers and
their agents to distribute shares of each Fund.
Registered broker-dealers and their agents who have
previously signed service agreements with the Distributor
will be paid 0.25% of the average daily net assets
for those shareholders brought to a Fund for the period of
time those shareholders remain with the Fund. The
Distributor will not retain any of the total
0.25% Rule 12b-1 fee for such shareholders.
For accounts that come direct to a Fund without a
broker-dealer, the Distributor will, by default, be the
shareholder's broker-dealer. Amounts will be accrued daily
and paid monthly. The services provided by selected
broker-dealers pursuant to the Plan are primarily designed
to promote the sale of shares of each Fund and include the
furnishing of office space and equipment, telephone
facilities, personnel and assistance to the Fund in
servicing such shareholders.
Retirement Plans
Individual Retirement Accounts. The Company's minimum
initial investment for IRA retirement plans is $1000 with
minimum subsequent investments of $100. The Company offers
an Internal Revenue Service prototype Individual Retirement
Account ("IRA") plan and information is available from the
Company or from securities dealers. Investors should
consult a tax advisor before establishing any retirement
plan. The Company's IRA trustee charges an annual fee of
$10 for IRA accounts.
Simplified Employee Pension Plan (SEP/IRA). The
Company also offers a simplified employee pension ("SEP")
plan for employers, including self-employed individuals who
wish to purchase Fund shares with tax-deductible
contributions. Contributions to a SEP are generally
allowed to be much higher than an ordinary IRA.
Exchange Privileges
Shareholders may generally exchange shares of one Fund for
another offered by the Company without sales charges. For
information on the availability of any Fund exchange, call
the Transfer Agent at 800-628-4077.
Once an exchange request is made, either by telephone
or in writing, it may not be modified or canceled. The
Company reserves the right to restrict frequent exchanges.
Investors will be notified at least 60 days in advance of
any changes in restrictions on the frequency of exchanges.
Exchanges will be made at the net asset value of the
shares to be redeemed, and the per share net asset value of
the shares purchased, in both cases as next determined
after the exchange request is received.
For federal income tax purposes, an exchange of Fund
shares is a taxable event (unless the shares are held in a
tax-deferred IRA type account) and accordingly, the
investor may realize a capital gain or loss. Before making
an exchange request, the investor should determine the tax
consequences of a particular exchange.
The Company
The Company is organized as a series fund which permits it
to issue its authorized capital stock in one or more
series, each series representing a separate investment
Fund.
The Company's authorized capital stock consists of
100,000,000 (one hundred million) shares of common stock of
the par value of $.0001 each, of which there have been
initially allocated 25,000,000 (twenty five million) shares
to each Fund. The Board of Directors may, at its
discretion, classify and allocate shares to additional
series within the Company or classify and allocate
additional shares to each Fund without further action by
the shareholders. Each share outstanding entitles the
holder to one vote on matters relating to that Fund. There
will normally be no meetings of the shareholders for the
purpose of electing Directors unless and until such time as
less than a majority of the Directors holding office have
been elected by shareholders.
The Value & Growth Portfolio's fiscal year end is
September 30th. The Growth & Income Portfolio's fiscal
year is not yet determined.
Shareholder Reports
Each Fund sends all shareholders annual reports containing
certified financial statements and semiannual reports
containing unaudited financial statements.
Auditors & Litigation
Tait, Weller & Baker, Certified Public Accountants of
Philadelphia, Pennsylvania have been selected as the
independent accountants and auditors of each Fund. Tait,
Weller & Baker certify a significant portion of the mutual
funds in America and the auditing firm has no direct or
indirect interest in any Fund or the Advisors. As of the
date of this Prospectus, there was no pending or threatened
litigation involving any Fund in any capacity whatsoever.
Determining Net Asset Value
Pricing of Shares. The net asset value ("NAV") of each
Fund's shares is determined as of the close of business of
the New York Stock Exchange on each business day of which
that Exchange is open (presently 4:00 p.m. New York time)
Monday through Friday exclusive of holidays. The price is
determined by dividing the value of its securities, plus
any cash and other assets less all liabilities, excluding
capital and surplus, by the number of shares outstanding.
NAV = (Value of Fund Assets)-(Fund Liabilities)
Number of Outstanding Shares
Fund securities are valued using current market
values, if available. Securities for which market
quotations are not readily available are valued at fair
market values as determined in good faith by or under the
supervision of the Officers in accordance with methods
which are specifically authorized by the Board of
Directors.
Fund Performance
From time to time, each Fund may advertise its "average
annual total return" over various periods of time. This
total return figure shows the average percentage change in
value of an investment in each Fund from the beginning date
of the measurement period to the ending date of the
measurement period. The figure reflects changes in the
price of the Fund's shares including the payment of the
maximum sales load and assumes that any income dividends
and/or capital gains distributions made by the Fund during
the period are reinvested in shares of the Fund. Figures
will be given for recent one-, five- and ten-year periods
(when applicable), and may well be given for other periods
as well (such as from commencement of the Fund's
operations, or on a year-by-year basis). When considering
"average" total return figures for periods longer than one
year, investors should note that each Fund's annual total
return for any one year in the period might have been
greater or less than the average for the entire period.
Each Fund also may use "aggregate" total return figures for
various periods, representing the cumulative change in
value of an investment in the Fund for the specific period
(again reflecting changes in the Fund's share price and
assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by schedules, charts
or graphs, and may be broken down to indicate subtotals of
the various components of total return (that is, the change
in value of initial investment, income dividends, and
capital gains distributions).
Each Fund may quote the Fund's average annual total
and/or aggregate total return for various time periods in
advertisements or communications to shareholders. The Fund
may also compare its performance to that of other mutual
funds with similar investment objectives and to stock and
other relevant indices or to rankings prepared by
independent services or industry publications. For
example, a Fund's total return may be compared to data
prepared by Lipper Analytical Services, Inc., Morningstar,
Value Line Mutual Fund Survey and CDA Investment
Technologies, Inc. Total return data as reported in such
national financial publications as The Wall Street Journal,
The New York Times, Investor's Business Daily, USA Today,
Barron's, Money, and Forbes as well as publications of a
local or regional nature, may be used in comparing Fund
performance.
A Fund's total return may also be compared to such
indices as the Dow Jones Industrial Average, the Standard &
Poor's 500 Composite Stock Price Index, the NASDAQ
Composite OTC Index or NASDAQ Industries Index, the
Consumer Price Index, the Russell 2000 Index, or other
indices as the Advisors deem appropriate.
Further information on performance measurement may be
found in the Statement of Additional Information which may
be obtained from the Company as described above.
Information for Shareholders
The Company will provide the following statements and
reports to keep the investor current regarding the status
of his or her investment account:
Confirmation Statements. Provided after each transaction
that affects the account balance or account registration of
a shareholder.
Account Statements. Provided quarterly.
Financial Reports. Provided at least semiannually. Annual
reports will include audited financial statements. To
reduce expenses, one copy of each report will be mailed to
each taxpayer identification number even though the
investor may have more than one account in a particular
Fund.
TRANSFER AGENT
Fund Services, Inc.
1500 Forest Ave, Suite 111
Richmond, VA 23229
(800) 628-4077
Call for questions on your account.
DISTRIBUTOR
Choice Investments, Inc.
5900 Balcones Drive, Suite 100
Austin, Texas 78731
(888) 839-4769 (512) 302-6099
Call for Prospectus or other information.
MAILING ADDRESS
Texas Capital Value Funds, Inc.
P.O. Box 26305
Richmond, VA 23286-8172
INVESTMENT MANAGER
First Austin Capital Management, Inc.
1600 West 38th Street, Suite 412
Austin, Texas 78731
INDEPENDENT AUDITORS
Tait, Weller & Baker
8 Penn Center, Suite 800
Philadelphia, PA 19103-2108
COUNSEL
James H. Ellis, Esq.
36 Butler Road
Scarsdale, New York 10583
CUSTODIAN
Bank of Boston, N.A.
FUND IDENTIFICATION
Value & Growth Portfolio (TCVGX) CUSIP #882241102
Growth & Income Portfolio CUSIP # 882241300
Value & Growth
Portfolio
Growth & Income
Portfolio
Distributed by Choice Investments, Inc.
Austin, Texas
<PAGE>
TEXAS CAPITAL VALUE FUNDS, INC.
Statement of Additional Information
dated November 30, 1997
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 November 30, 1997. To obtain a
Prospectus, please call the Fund(s) at (888) 839-
4769, . 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 2/4
DIRECTORS & OFFICERS 8/6
BOARD OF DIRECTORS COMPENSATION TABLE 10
CONTROL PERSONS 11
INVESTMENT ADVISORS 11/7
PORTFOLIO TURNOVER 12/4
PORTFOLIO TRANSACTIONS AND BROKERAGE 12/8
DISTRIBUTION OF THE FUND(S) 13/8
PERFORMANCE INFORMATION 13
TAX STATUS 15/12
NET ASSET VALUE 18/14
CAPITAL STRUCTURE 19/13
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.
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 Moody's Investor's Service, Inc. or
Standard & Poor's Corporation rating agencies.
Unique Characteristics of the Value & Growth Portfolio and
Growth & Income Portfolio. Each Fund's 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 cash flow
(price-to-cash flow) and the price of a stock relative to
its book value 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.
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) The Value and Growth Portfolio 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. For the Growth and Income Portfolio, this
restriction is limited to 33 1/3%. 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 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.T's).
(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
Fund's net assets. Included within that amount, but not to
exceed 2.0% of the value of each Fund's 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.
(i) Each Fund shall not invest in other open ended
management investment companies.
The foregoing restrictions may not be changed for any Fund
without the approval of a majority of that Fund's
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 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 Director's 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.
Further Information on the Nature of the Fund(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 &
Poor's Corporation ("S&P") or Moody's Investors Service,
Inc. ("Moody's") 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 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) 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 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 Moody's 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.
DIRECTORS AND OFFICERS
The Directors and Officers of the Fund(s), their positions
held with the Fund(s) and their principal occupations
during the past five years are set forth below.
Mark A. Coffelt, C.F.A.
4201 Long Champ Drive
Austin, Texas 78746
Chairman and President of the Texas Capital Value Funds,
Inc. and (Interested) Director, Chief Investment Officer of
the Value & Growth Portfolio and Growth & Income Portfolio.
Principal Occupations During Past Five Years
President of First Austin Capital Management, Inc. (1988-
Present)
Occidental College, B.A. economics
Wharton School, University of Pennsylvania, MBA
Chartered Financial Analyst of the Association of
Investment Management and Research.
Janis A. Claflin,
2508 Timberline
Austin, Texas 78746
Director
Principal Occupations During Past Five Years
President and owner of Claflin & Associates (1985-Present)
Chairperson of the Trustee Program Committee on the Board
of Directors of the Fetzer Institute (1987-Present)
Licensed Marriage and Family Therapist
George Peabody College for Teachers, B.A. in English
Yale Divinity School in Religion, M.A. in Religion.
Edward K. Clark, Attorney, CPA
6905 Laurel Valley Dr.
Ft. Worth, TX 76132
Director
Principal Occupations During Past Five Years
Member-Kelly, Hart & Hallman (1997- Present)
Partner-Clark & Clark of Austin, Texas (1995-1997)
Sole Practitioner (1994-1995)
Shareholder-Scofield & Clark, P.C. (1993-1994)
Of Counsel-Ford & Ferraro, L.L.P. (1991-1992)
General Counsel/Chief Financial Officer of Jefferson
Service Company, Inc. (1990-1991)
Partner, McGinnis, Lockridge & Kilgore L.L.P. (1982-1990)
Board Certified in Tax Law by the Texas Board of Legal
Specialization
Certified Public Accountant
University of Texas, B.B.A. and M.P.A. (Master in
Professional Accounting) University of Houston College of
Law, J.D.
John Henry McDonald, CFP
4411 Spicewood, #603
Austin, TX 78759
Director
Principal Occupations During Past Five Years
President and founder of Austin Asset Management( 1990-
Present)
CFP from the College for Financial Planning
Member of the CFP Board of Standards
President of the Austin Society of Institute of Certified
Financial Planners.
Brian T Bares
3308-A Enfield Rd.
Austin, TX 78703
Secretary, Texas Capital Value Funds, Inc. (1997-Present)
Principal Occupations During Past Five Years
Compliance Officer of First Austin Capital Management, Inc.
(1997-Present)
Vice-President & Co-Founder of Convenience Design Inc.
(1995-1997)
Project Manager (1995) and Director (1995-Present) of
Bellevue Optical
University of Nebraksa, B.S. in Mathematics
Note: "Director (Interested)" denotes a Director of the
Company who is "interested person" of the Company, as
defined in the Investment Company Act of 1940 (the "1940
Act"). The Directors of the Fund who are officers or
employees of the investment advisors or the Distributor
receive no remuneration from the Fund(s). Each of the
other Directors is paid an annual retainer of $3,000 and is
reimbursed for expenses of attending meetings.
BOARD OF DIRECTORS COMPENSATION TABLE
COMPENSATION TABLE
NAME & AGGREGATE PENSION ESTIMATED
TOTAL
POSITION COMPENSATION BENEFITS RETIREMENT
COMP
BENEFITS
Mark A. Coffelt $0 $0 $0 $0
President &
Chief Investment
Officer
Edward D. Clark $3,000* $0 $0
$3,000
Director
John Henry McDonald $3,000* $0 $0
$3,000
Director
Janis Claflin $3,000* $0 $0
$3,000
Director
Such compensation is paid by the Adviser as part of the
administrative expense to the Fund.
PRINCIPAL HOLDERS OF SECURITIES
As of the end of the fiscal year, officers and directors of
the Texas Capital Value Funds, Inc., owned 2.9% of
all outstanding securities. To the knowledge of the Fund's
management, as of September 30, 1997 , the persons
owning beneficially more than 5% of the outstanding shares
of the Fund were as follows:
Charles Schwab & Co. 48.712%
INVESTMENT ADVISOR
First Austin Capital Management is controlled by Mark A.
Coffelt who owns 100% of the outstanding shares of
First Austin Capital Management. Mark A. Coffelt is the
President of Texas Capital Value Funds, Inc., Chief
Investment Officer of the Value & Growth Portfolio and the
Growth & Income Portfolio, as well as President and Chief
Investment Officer of First Austin Capital Management, Inc.
B. David Flora is a co-Portfolio Manager and
Institutional Marketing Director of the Texas Capital Value
Funds and an Investment Advisor for First Austin Capital
Management. Eric Barden is a co-Portfolio Manager and
Institutional Marketing Director of the Texas Capital Value
Funds and an Investment Advisor for First Austin Capital
Management. Brian T. Bares serves as Secretary of Texas
Capital Value Funds, Inc., as well as Compliance Officer
for First Austin Capital Management.
The Fund has an investment advisory agreement with the
Advisor, pursuant to which the Advisor receives a fee,
computed daily, at an annual rate of 1.0% of the average
daily net assets.
The Advisor provides continuous supervision of the
investment portfolio and pays the cost of compensation of
the officers of the Fund, occupancy and certain clerical
and administrative costs involved in the day to day
operations of the Fund.
Under the investment advisory agreement, if the aggregate
expenses of the Fund (including the fees to the Advisor but
excluding taxes, interest, brokerage fees and commissions,
distribution fee and extraordinary expenses) exceed the
limitations imposed by state securities administrators, the
Advisor, at its option, may reduce its fee by the amount of
such excess.
In addition, the Advisor is acting as the administrator to
the Fund. For these services, the Advisor receives a fee,
computed according to the following:
-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 ($5,000,001.00) 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).
Such fees shall be accrued daily and be payable monthly in
arrears on the first day of each calendar month. This fee
was reduced from .90% effective August 28, 1996.
For the year ended September 30, 1997 First Austin was paid
a management fee of $59,431, and $35,970 for administrative
expenses.
PORTFOLIO TURNOVER
While it is difficult to predict, the Advisor expects that
the annual portfolio turnover rate of the Fund(s) will not
exceed 150%. A greater rate may be experienced during
periods of marketplace volatility which necessitates more
active trading. A higher portfolio turnover rate involves
greater transaction costs to the Fund(s) and may result in
the realization of net capital gains which would be taxable
to shareholders when distributed.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Directors, decisions to
buy and sell securities for the Fund(s) and negotiation of
its brokerage commission rates are made by the investment
advisor. Transactions on United States stock exchanges
involve the payment by the Fund(s) of negotiated brokerage
commissions. There is generally no stated commission in
the case of securities traded in the over-the-counter
market but the price paid by the Fund(s) usually includes
an undisclosed dealer commission or mark-up. In certain
instances, the Fund(s) may make purchases of underwritten
issues at prices which include underwriting fees.
In selecting a broker to execute each particular
transaction, the investment advisor will take the following
into consideration: the best net price available; the
reliability, integrity and financial condition of the
broker; the size of and difficulty in executing the order;
the value of the expected contribution of the broker to the
investment performance of the Fund(s) on a continuing basis
as well as the expected contribution of the broker in
selling shares of the Fund(s). Accordingly, the cost of
the brokerage commissions to the Fund(s) in any transaction
may be greater than that available from other brokers if
the difference is reasonably justified by other aspects of
the portfolio execution services offered. For example, the
investment advisor will consider the research and
investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of the
Fund(s) or the investment advisor's other clients.
Such research and investment services include statistical
and economic data and research reports on particular
companies and industries as well as research software.
Subject to such policies and procedures as the Directors
may determine, the investment advisor shall not be deemed
to have acted unlawfully or to have breached any duty
solely by reason of its having caused the Fund(s) to pay a
broker that provides research services to the investment
advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount another
broker would have charged for effecting that transaction,
if the investment advisor determines in good faith that
such amount of commission was reasonable in relation to the
value of the research services provided by such broker
viewed in terms of either that particular transaction or
the investment advisor's ongoing responsibilities with
respect to the Fund(s).
Research and investment information is provided by these
and other brokers at no cost to the investment advisor and
is available for the benefit of other accounts advised by
the investment advisor and its affiliates, and not all of
the information will be used in connection with the
Fund(s). While this information may be useful in varying
degrees and may tend to reduce the investment advisor's
expenses, it is not possible to estimate its value and, in
the opinion of the investment advisor, it does not reduce
the investment advisor's expenses in a determinable amount.
The extent to which the investment advisor makes use of
statistical, research and other services furnished by
brokers is considered by the investment advisor in the
allocation of brokerage business but there is no formula by
which such business is allocated. The investment advisor
does so in accordance with its judgment of the best
interests of the Fund and its shareholders.
For the period from inception to the end of the fiscal year
(9/30/97), the Fund paid Choice Investments, the
distributor of the Fund, $4,140 in brokerage commissions
for securities bought and sold by the Fund. These
commissions comprise 4.46% of the aggregate brokerage
commissions paid by the Fund over this period. These
commissions purchased 5.25% of the aggregate dollar amount
of transactions involving the payment of commissions by the
Fund.
DISTRIBUTION OF THE FUND(S)
The Company has entered into a distribution agreement with
Choice Investments, Inc., to act as the principal
underwriter of the shares of the Fund(s). The Distributor
agrees to use its best efforts to promote, offer for sale
and sell the shares of the Fund(s) to the public on a
continuous basis whenever and wherever it is legally
authorized to do so. For the period from inception to
the end of the fiscal year (9/30/97), the distributor was
paid $24,173.08. Of this, $3,007.48 was retained as a
distributor commission.
The Fund has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act under which the Company contracts
with registered broker-dealers and their agents to
distribute shares of the Fund. For the period ending
September 30, 1997, the amount paid to the Distributor was
$14,858 . David Flora, Eric Barden and Brian T
Bares, the Secretary of the Company, all acting as
registered representatives of Choice Investments, received
a portion of the distribution fee as result of their
distribution of shares of the Fund.
Net Discounts Repurchase Brokerage Other
Underwriter and comm. Compensation Commission Comp.
Choice Invmts $5175 N/A $4140 N/A
PERFORMANCE INFORMATION
Value & Growth Portfolio Returns
Total Return* Annual Return*
Inception to 9-30-97 83.7% 37.7
*Returns assume the reinvestment of all distributions.
Including the cost of the maximum sales charge of 4.5%, the
total return would have been 75.4% and annual return would
have been 34.4%. Inception was 11-06-95.
From time to time, quotations of the Fund(s)'s performance
may be included in advertisements, sales literature or
reports to shareholders or prospective investors. These
performance figures are calculated in the following manner.
Average Annual Total Return
Average annual total return is the average annual compound
rate of return for periods of one year, five years and ten
years, all ending on the last day of a recent calendar
quarter. Average annual total return quotations reflect
changes in the price of the Fund(s)'s shares and assume
that all dividends and capital gains distributions during
the respective periods were reinvested in Fund shares.
Average annual total return is calculated by computing the
average annual compound rates of return of a hypothetical
investment over such periods, according to the following
formula (average annual total return is then expressed as a
percentage):
P(1 + T)n = ERV
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable period.
Performance, assuming the maximum sales load of 4.5% is
computed as follows:
$1,000(1+.344)^1.9 = $1,753.71
Where $1,000 is the initial amount invested, .344 is the
average annual total return since inception, after
deducting a front-end sales charge of 4.5%, and 1.9 is the
number of years for which the return is calculated.
$1,753.71 is the Period Ending Redeemable Value at the end
of the fiscal year. The fund was effective on November 6,
1995, and the period for which the return has been
calculated ended on September 30, 1997.
It should be noted that average annual total return is
based on historical earnings and is not intended to
indicate future performance. Average annual total return
for the Fund(s) will vary based on changes in market
conditions and the level of the Fund(s)'s expenses.
In connection with communicating its average annual total
return to current or prospective shareholders, the Fund(s)
may also compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of
dividends but generally do not reflect deductions for
administrative and management costs.
Comparison of the quoted non-standardized performance of
various investments is valid only if performance is
calculated in the same manner. Since there are different
methods of calculating performance, investors should
consider the effect of the methods used to calculate
performance when comparing performance of the Fund(s) with
performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current
or prospective shareholders, the Fund(s) may compare its
performance to the performance of unmanaged indices which
may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to
the Dow Jones Industrial Average, the Consumer Price Index,
Standard & Poor's 500 Composite Stock Price Index (S&P
500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, and the Russell 2000 Index.
From time to time, in advertising, marketing and other Fund
literature, the performance of the Fund(s) may be compared
to the performance of broad groups of mutual funds with
similar goals, as tracked by independent organizations such
as Investment Company Data, Inc., Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., Value Line Mutual Fund Survey and other
independent organizations. When these organizations'
tracking results are used, the Fund(s) will be compared to
the appropriate fund category, that is, by fund objective
and portfolio holdings or the appropriate volatility
grouping, where volatility is a measure of the Fund(s)'s
risk. From time to time, the average price-earnings ratio
and other attributes of the Fund(s)'s or the model
portfolio's securities may be compared to the average
price-earnings ratio and other attributes of the securities
that comprise the S&P 500.
Statistical and other information, as provided by the
Social Security Administration, may be used in marketing
materials pertaining to retirement planning in order to
estimate future payouts of social security benefits.
Estimates may be used of demographic and economic data.
Marketing and other Fund literature may include a
description of the potential risks and rewards associated
with an investment in the Fund(s). The description may
include a "risk/return spectrum" which compares the Fund(s)
to broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns.
Money Market funds are designed to maintain a constant
$1.00 share price and have a fluctuating yield. Share
price, yield and total return of a bond fund will
fluctuate. The share price and return of an equity fund
also will fluctuate. The description may also compare the
Fund(s) to bank products, such as certificates of deposit.
Unlike mutual funds, certificates of deposit are insured up
to $100,000 by the U.S. government and offer a fixed rate
of return. Risk/return spectrums also may depict funds
that invest in both domestic and foreign securities or a
combination of bond and equity securities.
TAX STATUS
The Fund(s) intends to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, the Fund(s)
generally must, among other things, (a) derive in each
taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain
securities loans, gains from the sale or other disposition
of stock, securities or foreign currencies, and other
income derived from its business of investing in such
stock, securities or currencies; (b) derive in each taxable
year less than 30% of its gross income from the sale or
other disposition of certain assets held less than three
months, namely: (i) stock or securities; (ii) options,
futures, or forward contracts (other than those on foreign
currencies); or (iii) foreign currencies (or options,
futures, or forward contracts on foreign currencies) that
are not directly related to the Fund(s)'s principal
business of investing in stock or securities (or options
and futures with respect to stock or securities) (the "30%
Limitation"); and diversify its holdings so that, at the
end of each fiscal quarter, (i) at least 50% of the market
value of the Fund(s)'s assets is represented by cash, U.S.
Government securities, the securities of other regulated
investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of the Fund(s)'s
total assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of
its total assets is invested in the securities of any one
issuer (other than U.S. Government securities and the
securities of other regulated investment companies).
As a regulated investment company, the Fund(s) generally
will not be subject to U.S. federal income tax on income
and gains that it distributes to shareholders, if at least
90% of the Fund(s)'s investment company taxable income
(which includes, among other items, dividends, interest and
the excess of any net short-term capital gains over net
long-term capital losses) for the taxable year is
distributed. The Fund(s) intends to distribute
substantially all of such income.
Amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject
to a nondeductible 4% excise tax at the Fund(s) level. To
avoid the tax, the Fund(s) must distribute during each
calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses) for a one-
year period generally ending on October 31 of the calendar
year, and (3) all ordinary income and capital gains for
previous years that were not distributed during such years.
To avoid application of the excise tax, the Fund(s) intends
to make distributions in accordance with the calendar
year distribution requirement. A distribution will be
treated as paid on December 31 of the current calendar year
if it is declared by the Fund(s) in October, November or
December of that year with a record date in such a month,
and paid by the Fund(s) during January of the following
year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are
declared rather than the calendar year in which the
distributions are received.
Currency Fluctuations-"Section 988" Gains or Losses
Gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund(s) accrues
income or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time
the Fund(s) actually collects such receivables or pays such
liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of some
investments, including debt securities, gains or losses
attributable to fluctuations in the value of the foreign
currency between the acquisition and disposition of the
position also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "section
988" gains or losses, increase or decrease the amount of
the Fund(s)'s investment company taxable income available
to be distributed to its shareholders as ordinary income.
If section 988 losses exceed other investment company
taxable income during a taxable year, the Fund(s) would not
be able to make any ordinary dividend distributions, or
distributions made before the losses were realized would be
re-characterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.
Distributions of investment company taxable income are
taxable to a U.S. shareholder as ordinary income, whether
paid in cash or shares. Dividends paid by the Fund(s) to a
corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations
by the Fund(s), may qualify for the dividends received
deduction. However, the revised alternative minimum tax
applicable to corporations may reduce the value of the
dividends received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net
short-term capital losses), if any, designated by the
Fund(s) as capital gain dividends, are taxable as long-
term capital gains, whether paid in cash or in shares,
regardless of how long the shareholder has held the
Fund(s)'s shares, and are not eligible for the dividends
received deduction. Shareholders will be notified annually
as to the U.S. federal tax status of distributions, and
shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset
value of the shares received.
If the net asset value of shares is reduced below a
shareholder's cost as a result of a distribution by the
Fund(s), such distribution generally will be taxable even
though it represents a return of invested capital.
Investors should be careful to consider the tax
implications of buying shares of the Fund(s) just prior to
a distribution. The price of shares purchased at this time
may reflect the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive
a distribution which generally will be taxable to them.
Upon a redemption, sale or exchange of a shareholder's
shares of the Fund(s), such shareholder will realize a
taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's
hands, and generally will be long-term or short-term
depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or
exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days, beginning 30 days
before and ending 30 days after the day the shares are
disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the disposition of
the Fund(s)'s shares held by the shareholder for six months
or less will be treated for tax purposes as a long-term
capital loss to the extent of any distributions of capital
gain dividends received or treated as having been received
by the shareholder with respect to such shares.
The Fund(s) will be required to report to the Internal
Revenue Service (the "IRS") all distributions and gross
proceeds from the redemption of the Fund(s)' shares, except
in the case of certain exempt shareholders. All
distributions and proceeds from the redemption of Fund
shares will be subject to withholding of federal income tax
at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to
furnish the Fund(s) with the shareholder's correct taxpayer
identification number or social security number and to
certify the same as correct, (2) the IRS notifies the
shareholder or the Fund(s) that the shareholder has failed
to report properly certain interest and dividend income to
the IRS and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. If
the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional
shares or taken in cash, will be reduced by the amounts
required to be withheld.
Distributions may also be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation. Non-U.S. shareholders may be subject
to U.S. tax rules that differ significantly from those
summarized above. This discussion does not purport to deal
with all of the tax consequences applicable to the Fund(s)
or shareholders. Shareholders are advised to consult their
own tax advisors with respect to the particular tax
consequences to them of an investment in a Fund.
NET ASSET VALUE
The Fund(s)' net asset value per share will be calculated
separately from the per share net asset value of any other
fund of the Company. "Assets belonging to" a fund consist
of the consideration received upon the issuance of shares
of the particular fund together with all net investment
income, earnings, profits, realized gains/losses and
proceeds derived from the investment thereof, including any
proceeds from the sale of such investments, any funds or
payments derived from any reinvestment of such proceeds,
and a portion of any general assets of the Company not
belonging to a particular series. Each fund of the Company
will be charged with the direct liabilities of that fund
and with a share of the general liabilities of the
Company's funds. Subject to the provisions of the Articles
of Incorporation and the Bylaws of the Company,
determinations by the Directors as to the direct and
allocable expenses and the allocable portion of any general
assets with respect to a particular fund are conclusive.
CAPITAL STRUCTURE
The Company is an open-end management investment company
organized as a Maryland corporation on June 26, 1995. The
Company's Articles of Incorporation authorize the Board of
Directors to issue shares of common stock, par value $.0001
per share. Twenty-Five million shares of the Company's
authorized common stock have been initially allocated to
each Fund. Each share of the Fund(s) has equal voting,
dividend, distribution and liquidation rights.
Shares of the Company have no preemptive rights and only
such conversion or exchange rights as the Board may grant
in its discretion. When issued for payment as described in
the Prospectus, the Company's shares will be fully paid and
non-assessable.
Shareholders are entitled to one vote for each full share
held, and fractional votes for fractional shares held, and
will vote in the aggregate and not by class or series
except as otherwise required by the 1940 Act or the
Maryland General Corporation Law.
Rule l8f-2 under the 1940 Act provides that any matter
required to be submitted to the holders of the outstanding
voting securities of an investment company such as the
Company shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding
shares of each fund of the Company affected by the matter.
A fund is affected by a matter unless it is clear that the
interests of each fund in the matter are substantially
identical or that the matter does not affect any interest
of such fund. Under Rule l8f-2, the approval of an
investment advisory agreement or 12b-1 distribution plan or
any change in a fundamental investment policy would be
effectively acted upon with respect to a fund only if
approved by a majority of the outstanding shares of such
fund. However, the Rule also provides that the
ratification of independent public accountants, the
approval of principal underwriting contracts and the
election of Directors may be effectively acted upon by
shareholders of the Company voting without regard to
particular funds.
Notwithstanding any provision of the Maryland General
Corporation Law requiring for any purpose the concurrence
of a proportion greater than a majority of all votes
entitled to be cast at a meeting at which a quorum is
present, the affirmative vote of the holders of a majority
of the total number of shares of the Company outstanding
(or of a class or series of the Company, as applicable)
will be effective, except to the extent otherwise required
by the 1940 Act and rules thereunder. In addition, the
Articles of Incorporation provide that, to the extent
consistent with the General Corporation Law of Maryland and
other applicable law, the Bylaws of the Company may provide
for authorization to be given by the affirmative vote of
the holders of less than a majority of the total number of
shares of the Company outstanding (or of a class or
series).
HOW TO REDEEM SHARES
The right of redemption may be suspended by the Fund(s), or
the date of payment postponed by the Fund(s), beyond the
normal seven-day period, under the following conditions
authorized by the 1940 Act: (1) for any period (a) during
which the New York Stock Exchange is closed, other than
customary weekend or holiday closings, or (b) during which
trading on the New York Stock Exchange is restricted; (2)
for any period during which an emergency exists as a result
of which (a) disposal by the Fund(s) of securities owned by
it is not reasonably practical, or (b) it is not reasonably
practical for the Fund(s) to determine the fair value of
its net assets; and (3) for such other periods as the
Securities and Exchange Commission may by order permit for
the protection of the Fund(s)' shareholders.
The value of shares of the Fund(s) on redemption may be
more or less than the shareholder's cost, depending upon
the market value of the Fund(s)' assets at the time.
Shareholders should note that if a loss has been realized
on the sale of shares of the Fund(s), the loss may be
disallowed for tax purposes if shares of the same Fund are
purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future
which would, in the opinion of the Board of Directors, make
it undesirable for the Fund(s) to pay for redemptions in
cash. In such cases the Board may authorize payment to be
made in portfolio securities of the Fund(s). However, the
Fund(s) has obligated itself under the 1940 Act to redeem
for cash all shares presented for redemption by any one
shareholder up to $250,000 (or 1% of the Fund(s)'s net
assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions are valued at the same
value assigned to them in computing the net asset value per
share. Shareholders receiving such securities generally
will incur brokerage costs on their sales.
RATINGS OF INVESTMENT SECURITIES
A rating of a rating service represents the service's
opinion as to the credit quality of the security being
rated. However, the ratings are general and are not
absolute standards of quality or guarantees as to the
creditworthiness of an issuer. Consequently, the Fund(s)'
investment advisor believes that the quality of debt
securities in which the Fund(s) invests should be
continuously reviewed. A rating is not a recommendation to
purchase, sell or hold a security, because it does not take
into account market value or suitability for a particular
investor. When a security has received a rating from more
than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the ratings services
from other sources which they consider reliable. Ratings
may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for
other reasons.
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. and
Standard & Poor's Corporation.
Moody's Investors Service, Inc. Ratings
Aaa: Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge". Interest payments
are protected by a large or by an exceptionally stable
margin and principal is secure. Although the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
Fund(s)amentally strong position of such bonds.
Aa: Bonds rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa bonds or fluctuation of
protective elements may be of greater amplitude or there
may be other elements present which make the long term risk
appear somewhat larger than in Aaa bonds.
A: Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be uncharacteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such bonds may
be in default or there may be present elements of danger
with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are
speculative in a high degree. Such bonds are often in
default or have other marked shortcomings.
Standard & Poor's Corporation Rating
AAA: Bonds rated AAA have the highest rating. Capacity to
pay principal and interest is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay
principal and interest and differ from AAA bonds only in
small degree.
A: Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they
normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity to pay principal and interest
for bonds in this capacity than for bonds in higher rated
categories.
BB-B-CCC-CC: Bonds rated BB, B, CCC and CC are regarded on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates
the lowest degree of speculation among such bonds and CC
the highest degree of speculation. Although such bonds
will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
Fund Facts
Your Charity Input. Every year the Advisor to the Fund
donates up to 10% of the management fee profits to various
charities. If you have more than $15,000 in the Fund,
please send us a letter (Texas Capital Value Funds, Inc.,
1600 W. 38th Street, Suite 412, Austin, TX 78731) with the
following information prior to December 25:
Charity Name Your Name Charity
Address Your Address
Charity Phone # Your Account # Your
Account Balance
Remember, the group must be a valid charity under the IRS
rules, Section 501 ( c )(3).
4 For 1996, shareholders designated the following
charities:
For the Love of Christi
Boy Scouts of America
Alzheimer's Association of Austin
Texas Baptist Children's Home
Children's Hospital of Austin
at Brackenridge
St. Vincent De Paul Society
Austin Community Foundation
Westbank Library
Valley View Elementary
Austin Smiles
4 How to Pay No Sales Charges? Transfer assets from
another mutual fund. Transfers are always at NAV, meaning
you never pay a sales charge for a transfer from another
mutual fund.
4 Who is one of the largest individual shareholders? Your
manager, Mark Coffelt.
4 Need a prospectus and other information for a friend?
Call 1-888-839-7424.
4 Have questions about your account? Call the Transfer
Agent at 1-800-628-4077.
4 Have a question for your portfolio manager?
Call (512) 458-8165, or (800) 880-0324. Ask for Mark or
Eric.
4 Daily NAV. Call (512) 302-6099.
1
<PAGE>
Fellow Shareholders,
The Net Asset Value of the Value & Growth Portfolio for the
period ending September 30th, 1997 was $17.66, resulting in
the following performance:
<TABLE>
Period The Fund Russell 2000 S&P
500
<S> <C> <C> <C>
Last Quarter 20.5% 14.5% 7.5%
Last 6 Months 43.3% 32.5% 26.2%
Year-to-date 46.4% 25.2% 29.6%
Last 12 Months 64.9% 31.0% 40.4%
Since Inception
(annualized) 37.7% 23.7% 27.7%
</TABLE>
For the 12 months ended October 2nd, Lipper Analytical
ranks
your fund as the 4th best performing Growth Fund out of a
total of 775 funds, and the 16th highest performing fund
out
of all funds monitored by Lipper. We're pleased with our
progress so far. We hope you are too. As always, please
keep in mind that past performance may not be indicative of
future results.
Commentary
The following is an interview between Mark Coffelt and
Jerry
Breitner, host of The Mutual Fund Report of WGBB, a New
York
radio station. We thought Jerry asked particularly good
questions and we think you will find the interview
illuminating.
1. Why don't we start by your explaining the investment
philosophy of the Texas Capital Value and Growth Fund?
Well, we're looking for growth stocks at value prices, with
the emphasis on value. In essence, we are trying to get
the
best of both the growth and value worlds.
In the growth world, investors typically look for quality
companies that are growing rapidly. The mistake growth
investors make is that they pay too much for growing
earnings.
At the other end of the spectrum are the value investors.
Value investors focus on price. They want to buy a cheap
company, and by cheap, I mean companies that are selling
for
low prices to earnings, low prices to cashflow, and low
prices to bookvalue. The mistake typically made by the
Value Investor is that some companies deserve to be cheap,
because they are in poor businesses or are not very well
managed.
What we try to do at the Texas Capital Value & Growth Fund
is take the best of both growth and value, and minimize the
mistakes of each. We want quality, growing, companies
selling at value prices. That's not GARP, or Growth At a
Reasonable Price, but growth companies at value prices.
Our bias to value is for one very simple reason--Every
piece
of academic research we can find gives the nod to value
investing. Over time, value investing has produced
superior
results. Since value investing is difficult to do, my
guess
is that it will continue to produce superior results.
2. You use a highly structured, quantitative approach to
stock selection within your fund. Can you discuss this
process now as well as the advantages to this strategy?
There are lots of ways to invest. In the decision making
process, most investors and most funds use a combination of
brokerage ideas, intuition, quantitative screens, company
visits, expensive research, and so forth.
2
<PAGE>
How well has all this research served them? If you look at
the statistics, not well at all. Vanguard's S&P 500 Index
fund has beaten most managers over the last decade,
managers
with the best research money can buy.
So we believe that to be successful, you have to be removed
from the Wall Street herd. You have to have a well thought
out strategy, and most importantly, that strategy has to be
executed with rigorous discipline, which is exactly what
the
quantitative strategy provides.
There's a professor at the University of Minnesota, by the
name of Paul Meehl. Professor Meehl has spent a lifetime
showing that in any complex decision, be it reading
radiology charts, making a diagnosis of mental disorders,
or
the college admissions process, if the decision maker will
predetermine what's important and then follow his own
criteria rigorously, about 98% of the time the outcome will
be better than just using judgment.
Now, why is it necessary to predetermine what's important,
and then follow it rigorously?
What Meehl's research shows is that decision makers are
good
at determining what is important, but not so good at
following through. You see that in investing. If you ask
most fund managers what it takes to beat the market, I
believe they would tell you to invest in stocks with low
prices to earnings (P/E's) and other value characteristics.
There's no mystery about this. But how do they invest?
They have portfolios full of glamour stocks, or "feel-good"
stocks.
The Glamour stocks are the ones every one wants to own-and
you guessed it, where demand is high, so too are prices.
What our quantitative strategy does is allow us to tune in
to those companies having robust value characteristics,
without getting pulled off course by all the noise of Wall
Street.
3
<PAGE>
3. Everyone knows about past performance not being an
indicator of future results. You have a somewhat different
take on this. Please explain.
Well, first of all, the reason the phrase "past performance
may not be indicative of future results," is used is that
frequently it's true. Past performance may not be
indicative of future performance for us. But let's step
back for a moment and ask why past performance frequently
doesn't repeat.
I think there are three reasons:
1. Reason one is that the manager who created the
performance is no longer there. I'm always amused when I
read about some fund with a long, hot track record and a
manager who has only been there 6 months. So the first
question an investor should ask is "Is the manager who
created the record still there?"
2. Reason two is that the manager had no valid strategy,
he
was just lucky. In essence, he managed to flip ten heads
in
a row, and was crowned a master coin flipper. So, the
second question an investor should ask is, "Is the strategy
sound; is it based upon valid research such as low P/E's
and
other value characteristics?" The unfortunate experience
of
a number of investors in high growth funds, which blew up
in
the last year, would be an example of an invalid strategy
that was lucky for a short period.
3. Reason three is that even good managers with valid
strategies drift off course. This is sometimes called
style
drift. So the third question an investor should ask is "Is
the manager doing what he said he was going to do?"--
because
as a manager I can tell you that with all the variables in
investing, it's easy to drift off course and not even know
it. That's why the approach we take is so rigorously
disciplined. We don't want to drift off course.
Will our performance continue to be outstanding? Time
will tell, but our focus on value strategies which we have
extensively tested in the last few years, as have other
researchers over the last fifty years,
4
<PAGE>
combined with a rigorous implementation of those
strategies, I think, gives
us a pretty good shot at continuing to perform well.
4. You focus on Small Cap-Value Stocks with low P/E
ratio's, low P/CF and low P/BV. Is it difficult finding
stocks that meet your criteria and can this strategy help
reduce risk?
No, we are finding plenty of stocks that meet our criteria,
but that's primarily because we are looking in the small
cap
area. Personally, I would not want any of my money
invested
today in the S&P Index, for the simple reason that the S&P
500 is at least fully priced, if not over priced.
Additionally, I think large companies are going to have
difficulty producing earnings gains. Many of the larger
companies have produced such gains through cost cutting. I
am doubtful that monetary gains through cost cutting going
forward will continue to add to large company earnings.
There is a limit to how much earnings gains can be the
result of cost cutting. Finally, big companies like Coke
and IBM and so forth have huge foreign operations. When
the
dollar goes up, those operations produce less dollar
earnings. So, it's becoming harder for big companies to
produce positive earnings gains.
Smaller companies, on the other hand, don't have exposure
to
foreign sales, and haven't produced earnings gains through
cost cutting. Smaller companies have real sales growth.
But I think most significantly, small companies are much
cheaper. So, your question, "Will smaller companies help
reduce risk?" I would answer with "It sure looks that way
to
us." And small companies may well have the greatest return
potential going forward.
5. The expenses of your fund are high relative to your
peers. Can you comment on this.
Our expenses are higher, but that is really a function of
our size. As the assets of the fund grow, our expenses
will
decline. We have actually targeted our expense levels to
be
average across various fund
5
<PAGE>
sizes. So, relative to other
smaller funds, we are quite comparable. However, there is
a
flip side. As a small fund we are able to buy into a lot
of
small companies that large funds can only dream about. The
evidence, so far, I believe is that our higher expenses
have
been more than offset by our flexibility.
6. How can your fund be used as a tool to help
diversification?
My guess is that for most investors, the most under-
represented area in their portfolios are small value funds,
simply because that area of the market has done so poorly
in
the last few years. Ironically though, small-cap value
stocks, over the long run, have been where the highest
returns have been. We don't buy what other funds buy and,
as such, would probably be a good diversification choice
for
a part of most investors' portfolios. As for myself, this
is the only place my money goes.
7. Finally, small cap stocks, after badly lagging Large
Caps over the previous 2 years have recently been doing
much better. --Looking into your crystal ball, how do you
see this playing out in the future?
I don't know how small caps will do in the next few years,
but given the number of low valuations we are finding
relative to large stocks, I think small value has a long
way
to go. So, you could say, I'm really bullish on small
stocks going forward and more specifically, on our
strategy.
Respectfully submitted,
Mark A. Coffelt, CFA
6
<PAGE>
<TABLE>
S T O C
K
P R I C E S R E L A T I V E TO
<CAPTION>
Earnings Cash flow
Book value
<C> <C>
<C>
Value & Growth Portfolio 18.1x
10.2x 2.5x
Avg Small Value Fund 21.6x 13.8x
3.0x
Avg Small Growth Fund 34.0x 25.4x
5.9x
S&P 500 Index 25.8x
16.6x 5.9x
</TABLE>
All Ratios from Morningstar Mutual Funds October, 1997.
This chart compares a hypothetical investment of $10,000
between the Value & Growth Portfolio and two indices
considered representative of the market. The maximum 4.5%
sales charge is applied to the Fund as are management fees
and transaction costs. Neither index has any costs
associated with it, nor is it possible to invest in the
indices as shown. The S&P 500 Index represents primarily
large capitalization companies, while the Russell 2000
represents primarily smaller companies. The Advisor
believes the Fund profile is currently closer to the
Russell
2000 than the S&P 500. The performance shown represents
past performance and is not a guarantee of future results.
The Fund's share price and investment return will vary with
market conditions, and the principal value of shares, when
redeemed, may be more or less than original cost.
7
<PAGE>
<TABLE>
<CAPTION>
Short-Term 0.4% Principal Issues
Market As % of
Investments Amount/Shares
Value Net Assets
<S> <C> <C> <C> <C>
<C>
$128,607 Bank of Boston
Repurchase Agreement
$128,607 0.4
(5.00% due 2/15/99 & 5.50% due
12/31/00
Collateralized by U.S. Treasury Notes)
Common Stocks 99.5%
Agriculture 18,800 Universal Corp.
681,500 2.5
Automobile Parts 2,200 Borg-Warner
125,125 0.5
55,000 Standard Products
1,447,187 5.2
13,500 Superior Industries
373,781 1.3
1,946,093 7.0
Building Materials 39,900 LaFarge Corp.
1,286,775 4.6
29,900 Medusa Corp.
1,423,988 5.1
2,710,763 9.7
Computer Products 12,900 Sequent Computer*
320,081 1.2
19,000 Storage Technology*
914,375 3.3
3,800 Stratus Computer*
183,825 0.7
27,300 Western Digital*
1,095,413 3.9
2,513,694 9.1
Diversified 50,100 Katy Industries
901,800 3.2
3,300 Raychem Corp.
278,850 1.0
1,180,650 4.2
8
<PAGE>
Electronics 16,800 Dynatech Corp.*
688,800 2.5
Financial Services 23,000 Countrywide Credit
838,063 3.0
8,500 Green Tree
399,500 1.4
1,237,563 4.4
Furniture 33,500 La-Z-Boy
1,239,500 4.5
Homebuilding 116,500 Standard Pacific
Corp. 1,223,250 4.4
Insurance 26,500 Nac Re Corp.
1,358,125 4.9
Machinery 39,000 Gleason Corp.
1,072,500 3.9
Maritime 53,100 Sea Containers
1,506,712 5.4
Metal Fabricating 51,400 Oregon Metallurg.*
1,288,212 4.7
Oilfield Services 2,500 Tidewater Inc.
148,125 0.5
Precision Instrument 2,000 Coherent Inc.*
110,750 0.4
Recreation 13,700 Callaway Golf
477,788 1.7
Restaurant 15,300 Bob Evans Farms
290,700 1.0
68,600 Brinker
International* 1,217,650 4.4
21,800 Outback Steakhouse*
602,225 2.2
2,110,575 7.6
9
<PAGE>
Retail 9,900 Dress Barn*
237,600 0.9
34,500 Ross Stores
1,177,312 4.2
1,414,912 5.1
Security Brokerage 32,200 Advest Group
847,263 3.0
28,000 Lehman Bros.
1,492,750 5.4
2,340,013 8.4
Thrift 58,200 Dime Savings NY
1,218,563 4.4
Trucking 48,700 Werner Enterprises
1,180,975 4.2
Total Common
Stocks 27,649,063 99.5
(Cost $25,210,946)
Total Investment
Portfolio 27,777,670 99.9
Other Assets
Less Liabilities
21,590 0.1
Net Assets - 100%
$27,799,260 100.0
<FN>
*Non-Income Producing Security
<CAPTION>
At September 30, 1997, the net unrealized appreciation
based
on the cost of investments for income tax purposes of
$25,210,946
was as follows:
<S>
<C>
Gross unrealized appreciation
$2,493,009
Gross unrealized depreciation
(54,892)
Net unrealized appreciation
$2,438,117
10
<PAGE>
<CAPTION>
ASSETS
<S>
<C>
Investments at Market Value,
(Identified Cost $25,210,946) (Note 1-A)
$27,649,063
Cash & Equivalents
128,607
Dividends and Interest Receivable
9,862
Receivable for Securities Sold
45,386
Receivable for Shares Sold
627,450
Total Assets
28,460,368
<CAPTION>
LIABILITIES
<S>
<C>
Administration Fee (Note 2)
11,086
Management Fee (Note 2)
18,624
12B-1 Fees
7,287
Payable for Securities Purchased
623,783
Other Liabilities
328
Total Liabilities
661,108
<CAPTION>
<S>
<C>
NET ASSETS
$27,799,260
(Applicable to 1,574,023 shares outstanding,
$.001 par value, 25 million shares authorized)
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
$17.66
MAXIMUM OFFERING PRICE PER SHARE
$18.49
(100/95.5 of net asset value)
<CAPTION>
NET ASSETS
At September 30, 1997, net assets consisted of:
<S>
<C>
Paid-in Capital
$24,491,946
Accumulated Net Realized Gain on Investments
869,197
Net Unrealized Appreciation on Investments
2,438,117
$27,799,260
11
<PAGE>
<CAPTION>
<S> <C>
<C>
INVESTMENT INCOME
Dividends
$49,290
Interest
9,367
TOTAL INVESTMENT INCOME
58,657
EXPENSES
Administrative Fee (Note 2)
35,970
Management Fee (Note 2)
59,431
12B-1 Fees (Note 2)
14,858
TOTAL EXPENSES
110,259
NET INVESTMENT LOSS
(51,602)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Security Transactions
959,264
Increase in Unrealized Appreciation of Investments
2,318,009
NET GAIN ON INVESTMENTS
3,277,273
NET INCREASE IN NET ASSETS FROM OPERATIONS
$3,225,671
12
<PAGE>
<CAPTION>
<S> <C>
<C>
Year ended
Nov. 6, 1995*
INCREASE (DECREASE) IN NET ASSETS FROM: Sept. 30, 1997
to Sept. 30, 1996
OPERATIONS
Net Investment Loss $(51,602)
$(3,890)
Net Realized Gain on Investments 959,264
28,969
Increase in Unrealized
Appreciation on Investments 2,318,009
120,108
INCREASE IN NET ASSETS FROM OPERATIONS 3,225,671
145,187
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gains (63,343)
(202)
CAPITAL SHARE TRANSACTONS: (a)
Shares Sold 23,834,857
1,143,762
Shares Redeemed (510,028)
(136,568)
Distributions Reinvested 59,722
202
INCREASE FROM CAPITAL SHARE TRANSACTIONS23,384,551
1,007,396
TOTAL INCREASE IN NET ASSETS 26,546,879
1,152,381
NET ASSETS
Beginning of Period 1,252,381
100,000
End of Period $27,799,260
$1,252,381
(a) CAPITAL SHARE TRANSACTIONS
Shares Sold 1,487,704
115,274
Shares Redeemed (31,203)
(12,766)
Distributions Reinvested 4,994
20
TOTAL INCREASE IN SHARES 1,461,495
102,528
13
<PAGE>
<CAPTION>
Year
ended Nov. 6, 1995*
Sept. 30, 1997
to Sept. 30, 1996
PER SHARE OPERATING PERFORMANCE
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD
$11.13 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss
(.03) (.03)
Net Realized and Unrealized Gain on Investments
7.03 1.17
TOTAL FROM INVESTMENT OPERATIONS
7.00 1.14
LESS DISTRIBUTIONS
Net Capital Gains
(.47) (.01)
NET ASSET VALUE, END OF PERIOD $17.66
$11.13
TOTAL RETURN FOR FISCAL YEAR 64.9%
11.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets -- End of Period ($000s) $27,799
$1,252
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83%
2.20%
Net Investment Loss
(0.86)% (0.51)%
Portfolio Turnover Rate
103.3% 148.0%
Average Commissions Per Share
$.06 $.08
<FN>
* Commencement of Operations, all ratios for the period,
except
total return, have been annualized
14
<PAGE>
To the Shareholders and Board of Directors
Texas Capital Value Funds, Inc.
Value & Growth Portfolio
We have audited the accompanying statement of assets and
liabilities of the Value & Growth Portfolio (the "Fund"), a
series of shares of the Texas Capital Value Funds, Inc.,
including the portfolio of investments, as of September 30,
1997, and the related statements of operations, changes in
net assets, and the financial highlights for the periods
indicated thereon. These financial statements are the
responsibility of the Fund's management. Our
responsibility
is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally
accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our
procedures
included confirmation of securities owned as of September
30, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material
respects, the financial position of Value & Growth
Portfolio
of the Texas Capital Value Funds, Inc. as of September 30,
1997, the results of its operations, the changes in its net
assets and the financial highlights for each of the periods
indicated thereon, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 10, 1997
15
<PAGE>
SEPTEMBER 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Texas Capital Value Funds, Inc. was incorporated on June
26,
1995 as a Maryland Corporation and is registered under the
Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The Value & Growth
Portfolio (the "Fund"), a series of the Texas Capital Value
Funds, Inc., began investment operations on November 6,
1995. The Fund's investment objective is capital
appreciation, with income a secondary consideration. The
following is a summary of significant accounting policies
followed by the Fund in the preparation of the financial
statements. The policies are in conformity with generally
accepted accounting principles.
A. Security Valuation - Portfolio securities that are
listed on national securities exchanges or the NASDAQ
National Market System are valued as of the close of
business of the exchange on each business day which that
exchange is open (presently 4:00pm Eastern time). Unlisted
securities that are not included in such System are valued
at the mean of the quoted bid and asked prices in the over-
the-counter-market. Securities and other assets for which
market quotations are not readily available are valued at
fair value as determined in good faith by the Advisor under
procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-
term investments are valued at amortized cost, if their
original maturity was 60 days or less, or by amortizing the
values as of the 61st day prior to maturity, if their
original term to maturity exceeded 60 days.
B. Federal Income Taxes - It is the Fund's policy to meet
the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its
taxable net income to its shareholders. In addition, the
Fund intends to pay distributions as required to avoid
imposition of excise tax. Therefore, no federal income tax
provision is required.
16
<PAGE>
C. Securities Transactions, Investment Income and Other -
Securities transactions are recorded on the next business
date after trade date. Realized gains and losses on sales
of investments are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
D. Accounting Estimates - The preparation of financial
statements in accordance with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
amounts of income and expense during the reporting period.
Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
Investment Advisory and Administrative Agreements
The Fund has an investment advisory agreement with the
Advisor, pursuant to which the Advisor receives a fee,
computed daily, at an annual rate of 1.0% of the average
daily net assets.
The Advisor provides continuous supervision of the
investment portfolio and pays the cost of compensation of
the officers of the Fund, occupancy and certain clerical
and
administrative costs involved in the day to day operations
of the Fund.
In addition, the Advisor is acting as the administrator to
the Fund. For these services, the Advisor receives a fee,
computed daily based on the average daily net assets at an
annual rate of .70% on the 1st $5 million, .50% on the next
$25 million, .28% on the next $70 million, .25% on the next
$100 million, and .20% for over $200 million.
Transactions with the Distributor
Choice Investments, Inc., the Company's Distributor and
clearing through Southwest Securities, was paid $4,140 in
commissions for executing portfolio transactions.
17
<PAGE>
Distribution Agreement and Plan
The Fund has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act under which the Company contracts
with registered broker-dealers and their agents to
distribute shares of the Fund. The Distributor received a
fee, computed daily at an annual rate of .25% of the
average
daily net assets. For the period ending September 30,
1997,
the amount paid to the Distributor was $14,858 plus sales
charges.
3. PURCHASES AND SALES OF SECURITIES
For the period ended September 30, 1997 the cost of
purchases and the proceeds from sales of securities,
excluding short-term securities, were $29,916,473 and
$6,791,080 respectively.
18
Texas Capital Value Funds, Inc.
Form N-1A
Part C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Filed as part of this registration statement:
Portfolio of Investments
Statement of Assets & Liabilities
Statement of Operations
Financial Highlights
(b) Exhibits:
(1) Agreement and Declaration of Trust - 1
(2) By-Laws - 1
(3) Voting Trust Agreement - Not Applicable
(4) Specimen Share Certificate - Not Applicable
(5) Form of Investment Advisory Agreement - Included
(6) Form of Distribution and Sales Agreement - Included
(7) Benefit Plan - Not Applicable
(8) Form of Custodian Agreement - 2
(9) Other material contracts; Transfer Agent Agreement and
Accounting Services Agreement - 1
(10) Consent and Opinion of Counsel as to legality of shares -
Included
(11) Consent of Accountants - Included
(12) All Financial Statements omitted from Item 23 -- Not Applicable
(13) Letter of Understanding relating to initial capital - 1
(14) Model retirement Plan Documents - 2
(15) Form of Plan pursuant to Rule 12b-1 - Included
(16) Schedule for Computation of Performance Quotations:
Performance, assuming the maximum sales load of 4.5% is computed as
follows:
$1,000(1+.344)^1.9 = $1,753.71
Where $1,000 is the initial amount invested, .344 is the average
annual total return since inception, after deducting a front-end sales
charge of 4.5%, and 1.9 is the number of years for which the return is
calculated. $1,753.71 is the Period Ending Redeemable Value at the end
of the fiscal year. The fund was effective on November 6, 1995, and
the period for which the return has been calculated ended on September
30, 1997.
(17) Financial Data Schedule Meeting the requirements of rule 483
under the Securities Act of 1933.
3
<PAGE>
1. Incorporated by reference from Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A, filed on August 22nd,
1995.
2. Incorporated by reference from Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A, filed on August 1st, 1996.
3. Incorporated by reference from Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A, filed on February 3rd,
1997.
Item 25. Persons Controlled by or under Common Control with
Registrant.
As of the date of this Amendment to the Registration
Statement, there are no persons controlled or under common control
with the Registrant.
Item 26. Number of Holders of Securities.
Shares of Beneficial Interest, par value: $.0001
Value & Growth Portfolio 1155 as of Sept 30
Item 27. Indemnification
The information on indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement.
Item 28. Business and Other Connections of Investment Adviser.
With respect to Investment Advisors, the response to this item
is incorporated by reference to their Form ADV's as amended:
First Austin Capital Management, Inc. File No. 801-31075
Item 29. Principal Underwriters - N/A
Item 30. Location of Accounts and Records
The information on the location of accounts and records is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
Item 31. Management Services: Discussed in Part A and B
Item 32. Undertakings
The registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
</TABLE>
Exhibit 5
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.
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) 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 ($5,000,001.00) 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).
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 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 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 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
/s/ Mark A Coffelt
By______________________________
Mark A. Coffelt, President
First Austin Capital Management, Inc.,
a Delaware corporation
/s/ Mark A Coffelt
By_____________________________
Mark A. Coffelt, President
Exhibit 6
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is made this ____
day of __________, 1997, between Texas Capital Value Funds, Inc., a
Maryland corporation (the "Company"), and Choice Investments, Inc., a
Texas corporation (the "Distributor"). This Agreement amends, restates
and supersedes in its entirety that certain Distribution Agreement
dated August 10, 1995, between the parties hereto, as amended by (i)
that certain 1st Amendment to the Distribution Agreement dated June 5,
1996, and (ii) that certain 2nd Amendment to the Distribution Agreement
dated August 28, 1996.
WITNESSETH:
WHEREAS, the Distributor is a broker-dealer registered with the
Securities and Exchange Commission ("SEC") under the Securities
Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company is an open-end non-diversified management
investment company registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, the Company operates as a "series company" as
contemplated by Rule 18f-2 under the 1940 Act and is authorized to
issue shares of beneficial interest in various investment series
representing interests in separate portfolios of securities and other
assets; and
WHEREAS, as of the date of this Agreement, the Company is
offering for public sale two distinct series of shares of beneficial
interest corresponding to distinct portfolios to be commonly known as
the Value and Growth Portfolio and the Growth & Income Portfolio (each
individually, a "Fund" and collectively, the "Funds"); and
WHEREAS, the Company desires the Distributor to act as
distributor, on a principal basis, in offering the shares of the Funds
for sale to the public and the Distributor desires to so act;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein and for other good and valuable
consideration, receipt and adequacy of which is acknowledged, the
Company and the Distributor mutually agree that the Distributor will
provide distribution services for the Funds as follows:
1. Right to Distribute. The Distributor shall have the exclusive
right, on the terms and conditions contained herein, to purchase,
promote, and resell shares of the Funds within any state in the United
States of America in which the Funds are properly registered (the
"Territory").
2. Distributing the Fund.
A. The Distributor shall use its best efforts to promote, offer
for sale and sell the shares of the Funds to the public on a continuous
basis within the Territory. In so doing, the Distributor shall conduct
its affairs in accordance with the Rules of Fair Practice of the NASD,
the 1940 Act and all laws and regulations promulgated thereunder, and
all state and local regulations. The Distributor is authorized to
enter into written agreements for the sale of shares of the Funds
("Sales Agreements") with registered broker-dealers who are members of
NASD, on forms previously approved in writing by the Company for this
purpose. Some of such broker-dealers may be contracted with by the
Distributor to wholesale the Funds to other broker-dealers (the
"Wholesaler" ). The Distributor may also distribute
shares of the Funds directly through its own registered
representatives. In either event, the Distributor shall be responsible
for the payment of any and all fees or commissions to such broker-
dealers or representatives (individually a "Dealer"; collectively the
"Dealers") out of the total fees paid by the Funds to the Distributor,
in the amounts and as provided in Paragraph 4(A) below.
B. Prior to entering into any Sales Agreement with a third
party, or any amendment thereto, the Distributor shall deliver a copy
of the Sales Agreement or amendment to the Company and the Company
shall have ten (10) business days within which to approve or disapprove
same by written notice to the Distributor. If no such notice is sent,
such Sales Agreement or amendment shall be deemed approved. The
Company may grant or withhold any such approval in its sole and
absolute discretion. If the Company disapproves and notifies the
Distributor of same as required herein, the Distributor will not enter
into such Sales Agreement or amendment.
C. Any Sales Agreement entered into between the
Distributor and the Wholesaler with respect to the Funds (the
"Associate Agreement" ) shall provide that the Distributor may
terminate the Associate Agreement without cause or penalty by
giving written notice of same (the "Termination Notice") to a
Wholesaler at any time. The Distributor shall exercise its
termination rights contained in the Associate Agreement
immediately upon receiving written notice from the Company requesting
same.
D. The Company may suspend sales of shares of any or all of the
Funds for any reason whatsoever within its sole and absolute
discretion. Any such suspension shall be effective upon the receipt by
the Distributor of written notice of same. The provisions of this
Agreement shall remain in full force and effect during the period of
any such suspension. Any subsequent decision by the Company to renew
sales may also be made by the Company in its sole and absolute
discretion and such sales shall resume upon the receipt of written
notice by the Distributor. Upon receipt of any such notice to suspend
or resume sales, the Distributor shall notify all Dealers immediately
of such suspension or resumption and shall be responsible to enforce
same.
3. Pricing Policies. The price at which the shares of each Fund may
be sold to the public shall be the net asset value per share as
determined in accordance with the provisions of the 1940 Act, less any
sales commissions as set forth in the Prospectus.
4. Distributor Compensation.
A. The Board of Directors has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Section 12(b) of the 1940 Act and
Rule 12b-1 (the "Rule") thereunder after having concluded that there
is a reasonable likelihood that the Distribution Plan would benefit the
Funds and their shareholders. Pursuant to such Distribution Plan, and
as compensation for the services performed and the expenses incurred by
the Distributor under this Agreement (including the commissions and
other fees and expenses paid by the Distributor for the sale of shares
of the Funds), the Company shall pay to the Distributor: (i) on a
monthly or quarterly basis, in arrears, a distribution fee, accrued
daily, as set forth in the Prospectus; (ii) for shares of the Funds
sold with a sales charge, the underwriting discount applicable thereto
determined in accordance with the payment schedule set forth in the
Prospectus. ; and (iii) 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 Fund's management fee), reimburse 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 Distributor shall pay monthly the
entire amount of any compensation the Distributor receives for the
purpose of compensating the Wholesaler, to the applicable
Wholesaler with no holdbacks.
B. If the Distributor has sufficient evidence that the load
structure of shares of the Funds is not appropriate to address the
Dealer market, the Distributor shall request that the Company consider
changes to such load structure. Such request shall be made by the
Distributor to the Company in writing. The Company may determine, in
its sole and absolute discretion, upon the receipt of such a request
whether such change or even the discussion of same is necessary.
5. Costs.
A. The Distributor shall be responsible for all its costs and
expenses, incurred in the performance of its obligations hereunder,
including, without limitation, advertising costs and a service fee to
each Dealer.
B. Notwithstanding the foregoing, the Company shall be
responsible for administrative expenses.
C. The Distributor agrees to make available to its
Wholesaler(s), any information generated by the transfer agent
for the Funds related to commissions, fees or other compensation which
may be due to the Distributor or its Wholesaler(s).
6. Exclusions From Compensation.
A. Nothing herein shall prevent the Company from issuing
directly, without payment of any sales fee or commission to the
Distributor, shares of the Funds as a dividend or distribution to its
shareholders or in a reorganization.
B. Notwithstanding anything contained in this Agreement to the
contrary, the Company may contract directly with securities broker-
dealers to distribute shares in the Funds to investors or shareholders
which are not subject to sales charges as set forth in the Prospectus.
Any fees due such broker-dealers will be paid by the Company through
the Distributor, with the Distributor retaining no part of such fees
whatsoever.
7. Advertising Policies. The Company will cooperate with the
Distributor and its Dealers in providing for continuous and effective
advertising and promotion of the Funds' shares throughout the
Territory. Nothing herein shall prevent the Distributor from
independently advertising and marketing the Funds' shares within the
Territory, provided, however, that any such advertising or marketing,
in whatever form, shall be reviewed and approved by the Company in
writing prior to its use by the Distributor.
8. Indemnification. The Distributor agrees to indemnify the Company
against and hold the Company harmless from any claims, liabilities,
losses, damages, costs and expenses, including, but not limited to,
actual attorneys' and accountants' fees and expenses, arising out of or
relating to any act or omission of the Distributor, Distributor's
agents, employees, independent contractors or representatives, in
connection with the distribution of the Funds' shares, including,
without limitation, (i) the advertising, sale or servicing of the
Funds' shares, (ii) any representations or warranties made by the
Distributor, its agents, employees, independent contractors or
representatives with respect to the Funds' shares and (iii) any
signature guarantees made by the Distributor in accordance with the
provisions of Paragraph 20 below. Further, in the event that any of
the Distributor's Wholesalers or Dealers shall, with respect to any
Fund's shares purchased from the Distributor, fail to discharge the
Dealer's obligations to the original consumer pursuant to the terms and
conditions of the Prospectus, the Distributor agrees to discharge
promptly such unfulfilled obligations.
9. Financial Policies. The Distributor acknowledges the importance to
the Company of the Distributor's sound financial operation. The
Distributor shall maintain and employ in connection with the
Distributor's business and operations under this Agreement such working
capital and net worth as may be required to enable the Distributor
properly and fully to carry out and perform all of the Distributor's
duties, obligations and responsibilities under this Agreement.
10. Use of the Company's Name. The Distributor will not use,
authorize or permit the use of, the name "Texas Capital Value Funds,
Inc.", "Value and Growth Portfolio", or "Growth and Income
Portfolio", or any other trademark or trade name owned by the Company
as part of its firm, corporate, or business name without the prior
approval of the Company's legal counsel and Chairman/President of the
Board of Directors. The Distributor shall not contest the right of
the Company to exclusive use of any trademark or trade name used or
claimed by the Company. The Distributor may, subject to the Company's
policies regarding reproduction of same and the prior approval
provisions of Paragraph 7 above, utilize the Company's name, trademarks
or logos in advertising and marketing materials.
11. Relationship of the Parties. The relationship between the Company
and the Distributor is that of vendor and vendee. The Distributor, its
agents, employees, representatives, independent contractors,
Wholesalers and Dealers shall under no circumstances, be deemed
employees, agents, representatives, independent contractors,
wholesalers or dealers of the Company. Neither the Distributor nor the
Company shall have any right to enter into any contract or commitment
in the name of, or on behalf of the other, or to bind the other in any
respect whatsoever.
12. Term and Termination.
A. This Agreement shall take effect upon its execution.
Thereafter, this Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, for one year periods so long as its
continuance is approved annually in advance by a majority vote of the
Board of Directors including the vote of a majority of the Directors
who are not parties to this Agreement or interested persons of any such
party. Such votes shall be cast in person at a meeting called for the
purpose of voting on such approval in accordance with the procedures
and requirements of the 1940 Act.
B. The terms and provisions of this Agreement shall be modified
automatically to conform with the requirements imposed by the 1940 Act
and by the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder.
C. This Agreement shall automatically terminate in the event of
its whole or partial assignment by either party, as provided by the
1940 Act.
D. Either party hereto shall have the right to terminate this
Agreement without payment of a penalty upon sixty (60) days' prior
written notice to the other party, which notice may be waived by such
other party; termination by the Company shall be effected by vote of a
majority of the Directors including a majority of the Directors who are
not parties to this Agreement or interested persons of any such party.
E. Notwithstanding the foregoing, the Company may terminate this
Agreement effective immediately upon notice to the Distributor upon the
occurrence of any of the following events: (1) failure of the
Distributor to fulfill or perform any one of the duties, obligations or
responsibilities of the Distributor under this Agreement; (2) any
attempted assignment by the Distributor of any interest in this
Agreement or delegation of the Distributor's obligations hereunder
without the Company's prior written consent; (3) any sale, transfer, or
relinquishment, voluntary or involuntary, by operation of law or
otherwise, of any material interest in the direct or indirect ownership
or any change in the management of the Distributor; (4) failure for any
reason of the Distributor to function in the ordinary course of
business; (5) conviction in a court of competent jurisdiction of the
Distributor, or a manager, partner, principal officer or major
stockholder of the Distributor for any violation of law tending, in the
Company's sole discretion, to affect adversely the operation or
business of the Distributor or the good name, goodwill, or reputation
of the Company, the Funds, or the Distributor; or (6) submission by the
Distributor to the Company of false or fraudulent reports or
statements. The determination that any of the foregoing listed events
have occurred shall be made by the Company in good faith in its sole
and absolute discretion.
F. The Distributor shall be deemed to be an independent
contractor and shall be free to render to others similar or dissimilar
services as those rendered under this Agreement.
13. Obligations on Termination. On termination of this Agreement, the
Distributor shall cease to be an authorized distributor of the Funds'
shares, and neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account of
the loss of prospective profits or anticipated sales, or on account of
expenditures, investments, or commitments in connection with the
business or goodwill of the Company or the Distributor or for any other
reason whatsoever growing out of such termination. Within five (5)
business days after any such termination, the Distributor shall
promptly deliver to the Company all original documents and other
written materials relating to the distribution of the Funds' necessary
for the Company to continue such distribution, including, without
limitation, any written agreements with Dealers and Wholesalers.
14. Interested Persons. Absent law or regulation to the contrary,
neither this Agreement nor any transaction entered into pursuant
hereto, shall be invalidated or in any way affected by the fact that
directors, officers, or stockholders of the Company are or may be
interested persons of the Distributor as directors, officers, or
stockholders or otherwise; or that directors, officers or stockholders
of the Distributor are or may be interested persons of the Company as
directors, officers, shareholders, or otherwise.
15. Reports. Unless otherwise provided herein, the Distributor shall
prepare reports for the Board of Directors of the Company showing such
information concerning expenditures related to this Agreement as from
time to time shall be reasonably requested by such Board of Directors
but in no event less frequently than quarterly.
16. 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 Company:
Texas Capital Value Funds, Inc.
1600 West 38th Street, Suite 412
Austin, Texas 78731
The Distributor:
Choice Investments, Inc.
5900 Balcones Drive, Suite 100
Austin, Texas 78731
Either party may specify a different address for notice purposes
by written notice to the other.
17. 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.
18. 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 Distributor and the Company 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.
19. Assignment. Neither this Agreement nor any interest in this
Agreement may be assigned by the Distributor or the Company.
20. Signature Guarantees. The Distributor is authorized by the
Company to make signature guarantees which may be relied upon by the
Company as factual and genuine. As provided by the provisions of
Paragraph 8 above, in the event of fraud, or any problem which may
arise out of a signature guarantee made by the Distributor causing the
Company to incur some loss or expense, the Distributor shall reimburse
the Company for any and all such losses or expenses.
21. 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.
22. Waiver. Waiver by either party of any breach of any term,
covenant or condition in this Agreement shall 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.
23. Time Is of the Essence. Time is of the essence of this Agreement.
24. 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 judgment .
25. Mandatory Arbitration. All disputes arising under this Agreement
shall be arbitrated pursuant to the Commercial Arbitration Rules of the
American Arbitration Association.
26. 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 have executed this Agreement on
the date first above written.
Distributor:
Choice Investments, Inc., a Texas corporation
By:__________________________________________
Its:_________________________________________
Company:
Texas Capital Value Funds, Inc., a Maryland corporation
By:_________________________________________
Mark A. Coffelt, President
4
<PAGE>
Exhibit 11
Opinion and Consent of Counsel:
November 26th, 1997
Texas Capital Value Funds, Inc.
1600 W. 38th St Ste. 412
Austin, TX 78731
Re: 33-96334
811-09088
Ladies and Gentlemen,
This opinion is being delivered to you in connection with the above
registration statement of Texas Capital Value Funds (the "Fund") filed
on Form N-1A under the Securities Act of 1933, as amended, under which
you have registered an indefinite number of shares of beneficial
interest, pursuant to the General Rules and Regulations of the
Investment Company Act of 1940, as amended. In particular, this
opinion relates to what you reported in the notice which you filed
under rule 24f-2 (the "Rule 24f-2 Notice) which makes definite in
number an additional 1,452,600.104 shares of beneficial interest of the
Fund, par value $.0001 per share, which were sold in the fiscal year
ended September 30, 1997 (the "shares").
We have made such inquiry of your officers, directors, and auditors and
have examined such corporate documents, records and certificates and
other documents and which questions of law as we have deemed necessary
for the purposes of this opinion including the Maryland General
Corporation Law. In rendering this opinion we have relied, with your
approval as to all questions of fact material to this opinion, upon
certificates of public officials in the possession of the Fund and of
your officers, and have assumed, with yourapproval, that the signatures
on all documents examined by us are genuine, which facts we have not
independently verified. I am a member of the bar of the State of New
York, and have not consulted Maryland counsel in connection with this
opinion.
Based upon and subject to the foregoing, we are of the opinion that the
shares were legally and validly issued, fully paid and nonassessable.
We hereby consent to your including a copy of this opinion in the
forthcoming filing of the Fund's Post Effective Amendment No. 5, and
the inclusion of my name therein as counsel to the Fund. In
giving such consent, we do not admit that we come within the category
of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities
and Exchange Commission thereunder.
Sincerely Yours,
/s/ Jim H Ellis
Jim H. Ellis
JHE/ms
Exhibit 12 - Letter from Certified Public Accountant:
To the Shareholders and Board of Directors
Texas Capital Value Funds, Inc.
Value & Growth Portfolio
We have audited the accompanying statement of assets and liabilities of
Value & Growth Portfolio (the "Fund"), a series of shares of Texas
Capital Value Funds, Inc., including the portfolio of investments, as
of September 30, 1997, and the related statements of operations,
changes in net assets, and the financial highlights for the period
indicated thereon. These financial statements are the responsibility
of the Fund's management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1997, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Value & Growth Portfolio of the Texas Capital
Value Funds, Inc. as of September 30, 1997, the results of its
operations, the changes in its net assets and the financial highlights
for each of the periods indicated thereon, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 10, 1997
1
<PAGE>
Exhibit 15
Texas Capital Value Funds, Inc
Distribution Assistance, Promotion, and Administrative Service Plan
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 Fund's Distributor (the "Distributor") and by
First Austin Capital Management, Inc., the Fund's Investment Adviser
(the "Adviser").
The Fund, the Distributor, and the Adviser, all desire to
substantially increase the sale of the Fund's shares in order to (a)
spread the cost of the Fund's 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 Fund's 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.
The Adviser will prepare and furnish to the Fund's 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
Fund's 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 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.
Signatures
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 the Registrant has duly
caused this amendment to this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Austin the in State of Texas on November 26th, 1997.
TEXAS CAPITAL VALUE FUNDS, INC.
by: Mark A. Coffelt
Mark A Coffelt
President
Mark A. Coffelt President, Chief Investment Officer and Director
Mark A Coffelt Nov 26, 1997
Edward Clark Director Nov 26, 1997
Edward D. Clark
John Henry McDonald Director Nov 26, 1997
John Henry McDonald
Janis Claflin Director Nov 26, 1997
Janis Claflin
Eric Barden Secretary Nov 26, 1997
Eric Barden
