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<PAGE> PAGE 2
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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SIGNATURE ERIC BARDEN
TITLE SECRETARY
Report of Independent Certified Public Accountants
On Internal Control Structure
Shareholders and Board of Trustees
Texas Capital Value Funds, Inc.
Value & Growth Portfolio
Austin, Texas
In planning and performing our audit of the financial statements
of Texas Capital Value and Growth Portfolio for the year ended
September 30, 1997, we considered its internal control structure,
including procedures for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing
opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on the internal
control structure.
The management of the Fund is responsible for establishing and maintaining
an internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are
to provide management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or disposition,
and that transactions are executed in accordance with managements
authorization and recorded properly to permit preparation of financial
statements in conformity with generally accepted accounting principals.
Because of inherent limitations in any internal control structure, errors
or irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that
it may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be
material weaknesses under standards established by the American Institute
of Certified
Public Accountants. A material weakness is a condition in which the design
or operation of the specific internal control structure elements does not
reduce to a relatively low level the risk that errors or irregularities in
amounts
that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees
in the course of performing their assigned functions. However, we noted no
matters involving the internal control structure, including procedures for
safeguarding securities, that we consider to be material weaknesses, as
defined above, as of September 30, 1997.
This report is intended solely for the information and use of management
and the Securities and Exchange Commission, and should not be used for any
other purpose.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 10, 1997
TEXAS CAPITAL VALUE FUNDS
1600 W. 38TH STREET, STE. 412
AUSTIN, TX 78731
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
TEXAS CAPITAL VALUE FUNDS
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of Texas
Capital Value Funds (the Fund) will be held via proxy on November 18th,
1997 for the following purposes:
1. To approve or disapprove a new Investment Advisory Contract with the
Funds Investment Advisor, First Austin Capital Management, Inc. with terms
exactly the same as the current Contract and which is to take effect upon
the sale of Guy Coffelts stock in the Advisor to his son, Mark Coffelt, the
President of the Fund; and
2. To approve or disapprove changing a fundamental investment
restriction of the Fund to permit it to increase borrowing from 5% to 33
1/3% of net asset
value; and
3. To approve or disapprove a 12b-1 Plan entitled Distribution
Assistance, Promotion, and Administrative Service Plan to replace the
present 12b-1 Plan, and with terms substantially similar to the present
12b-1 Plan
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
APPROVE ALL OF THE ABOVE PROPOSALS
By order of the Board of Directors,
Eric Barden, Secretary
September 19, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE
AND SIGN IT, AND RETURN IT IN THE ACCOMPANYING POSTAGE PREPAID ENVELOPE.
IF YOU SIGN, DATE, AND RETURN THE PROXY CARD BUT GIVE NO VOTING
INSTRUCTIONS, YOUR SHARES WILL BE VOTED IN FAVOR OF THE PROPOSALS ABOVE.
BY PROMPTLY MARKING, SIGNING, AND RETURNING THE PROXY, YOU WILL SAVE THE
ADDITIONAL EXPENSE OF FURTHER SOLICITATIONS. THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS.
Texas Capital Value FundsTM
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 18th, 1997
The enclosed proxy is solicited by the Board of Directors of the Fund in
connection with a Special Meeting of Shareholders (hereinafter Meeting) of
the Fund or any adjournment thereof. Proxies will be voted in accordance
with the instructions contained therein, and as to proposals for which no
instructions are given, a proxy will be voted in favor of the particular
proposal. If a shareholder or his nominee does not send in a proxy card,
the shares will not be voted. Proxies marked abstain will be counted for
purposes of determining a quorum, but not for purposes of approving or
disapproving that proposal. The proxy confers discretionary authority on
the person designated therein to vote on other business not currently
contemplated, which may properly come before the Meeting. A shareholder
may revoke his proxy at any time prior to use by written
notice to the Fund, by executing and filing a subsequently dated proxy.
This proxy statement and the accompanying form of proxy are being sent to
shareholders on approximately October 5, 1997.
At the close of business on September 18, 1997, the record date fixed by
the Board of Directors for the determination of shareholders entitled to
notice of and to vote at the Meeting, 1,380,837.025 shares of the capital
stock of the Fund were outstanding. Each share is entitled to one vote
with respect to each of the matters presented for action at the Meeting.
Directors and officers of the Fund, as a group, held beneficially
29383.884 shares, or 2.12% of the such outstanding shares on September 18,
1997. First Austin Capital Management, Inc., the Funds Investment Advisor
(hereinafter FACM or the Advisor) does not own any shares of the Fund. See
Principal Shareholders for details of other large shareholder holdings.
The affirmative vote of a majority of shares cast at the Meeting is
required to approve proposals regarding the new Investment Advisor
Contract, the change in the borrowing restriction, the new 12b-1 Plan, and
any other business that may come before the Meeting. Majority for this
purpose under the Investment Company Act of 1940 (hereinafter the 40 Act)
means the lesser of (a) 67% or more of the Funds voting securities are
present or represented by proxy or (b) more than 50% of such outstanding
shares.
The cost of solicitation, including the printing and mailing of proxies,
will be born by FACM. FACM may, if necessary to obtain the requisite
representation of shareholders, solicit proxies personally by its
employees. It is not anticipated that any additional employees will be
specially engaged for such purpose. The cost of this solicitation,
including any additional solicitation, will be borne by FACM.
The Fund will request broker-dealer firms, custodians, nominees, and
fiduciaries to forward the proxy materials to the beneficial owners of
record of the Fund. FACM has agreed to reimburse such entities for their
reasonable expenses incurred with such proxy solicitation. In addition to
the solicitation of proxies by mail, officers of the Fund may solicit
proxies in person or by telephone.
Copies of the Funds most recent annual report and/or quarterly report may
be obtained from the Fund at no charge by writing or telephoning the Fund
at its principal executive offices at 1600 W. 38th Street, Suite 412,
Austin, TX 78731. Telephone (800) 880-0324.
PROPOSAL 1. APPROVAL OR DISAPPROVAL OF A NEW INVESTMENT ADVISORY
CONTRACT
WITH THE FUNDS ADVISOR, FIRST AUSTIN CAPITAL MANAGEMENT, INC.
When the Advisor was organized, 50% of its capital stock was purchased by
Mark Coffelt and 50% was purchased by his father, Guy Coffelt. Now that
Guy Coffelt has reached retirement age, it is his desire to sell his 50%
interest in FACM to Mark (hereinafter the Proposed Sale) so that Mark will
own 100% of the stock. The Proposed Sale will result in the sale of a
controlling block of stock in the Adviser and according to the 40 Act, any
such sale would constitute an
assignment of the Advisory Contract and result in its automatic
termination. Consequently, for FACM to continue to act as the adviser, it
is necessary for shareholders to approve a new Investment Advisory Contract
between FACM and the Fund, to take effect upon consumation of the Proposed
Sale. Except for the starting date, the terms of the new contract are
exactly the same as the terms of the current one.
FACM currently serves as Investment Advisor for the Fund under an
Investment Advisory and Administrative Contract (the Existing Advisory
Contract) dated August 15, 1995 and which was amended on October 9, 1995
and March 20, 1996. The Board of Directors of the Fund, including a
majority of the non-interested directors, recently approved the
continuation of the Existing Advisory Contract
in the form of the new contract to take effect upon shareholder approval
and the Proposed Sale. Under both the Existing Advisory Contract, and the
proposed contract, FACM is entitled to receive from the Fund fees as
follows:
(i) for Advisory Services a flat fee of one percent (1%) of the net assets
of the Fund; plus additional amounts as follows:
(ii)for Administrative Services a fee equal to the sum of (i) seven-tenths
percent (0.70%) of the amount of assets in the Fund between one dollar
($1.00) and five million dollars ($5,000,000), inclusive, plus (ii) five-
tenths percent (0.50%) of the amount of assets in the Fund between five
million and one dollars ($5,000,001) and thirty million dollars
($30,000,000), inclusive, plus (c) twenty-eight hundredths percent (0.28%)
of the amount of assets in the Fund between thirty million and one dollars
($30,000,001) and one hundred million dollars ($100,000,000), inclusive,
plus (d) twenty-five hundredths percent (0.25%) of the amount of assets in
the Fund between one hundred million and one dollars ($100,000,001) and two
hundred million dollars ($200,000,000), inclusive, plus (e) twenty
hundredths percent (0.20%) of the amount of assets in the Fund in excess of
two hundred and one million dollars ($200,000,001), inclusive (all assets
in the Fund for the purposes of this Paragraph to be rounded to the nearest
dollar prior to the computation of any fee owed).
Such fees shall be accrued daily and be payable monthly in arrears on the
first day of each calendar month.
New Advisory and Administrative Contract.
Except for different effective and termination dates, the terms of the
New Advisory and Administrative Contract (the New Advisory Contract) are
identical in all aspects to the terms of the Existing Advisory Contract. A
form of the New Advisory Contract is attached to this Proxy Statement, as
Exhibit A, and the description set forth in this Proxy Statement of the New
Advisory Contract is qualified in its entirety by reference to Exhibit A.
Under the New Advisory Contract, the Adviser will provide certain
investment advisory services to the Fund, including deciding which
securities will be purchased and sold by the Fund, when such purchases and
sales are to be made, and arranging for such purchases and sales, all in
accordance with the provisions of 40 Act and any rules thereunder, the
governing documents of the Fund, the fundamental policies of the Fund, as
reflected in its registration statement, and any policies and
determinations of the Board of Directors of the
Fund.
As compensation for its services to the Fund under the New Advisory
Contract, the Adviser will be entitled to receive from the Fund fees
calculated at the same rate as those charged under the Existing Advisory
Contract described above. The New Advisory Contract will continue in effect
for one year from its effective date, and will continue in effect
thereafter for successive annual periods, provided its continuance is
specifically approved at least annually by (1) a vote of the holders of a
majority of the outstanding voting securities (as defined in the 40 Act and
the rules thereunder) of the Fund, or (2) a majority of the Directors who
are not parties to the New Advisory Contract or interested persons of the
Fund or any such party. The New Advisory Contract provides that it may be
terminated at any time, without penalty, by either party upon 60 days
written notice, provided that such termination by the Fund shall be
directed or approved by a majority vote of the Board of Directors of the
Fund or by a vote of holders of a majority of the shares of the Fund.
The Adviser will provide, at its expense, personnel to serve as
officers of the Fund who are affiliated persons of the Adviser, and office
space, facilities and equipment for carrying out its duties under the New
Advisory Contract. The Adviser will continue to be responsible for the
following expenses incurred by the Fund: (i) the compensation of any of the
Funds directors, officers and employees who are interested persons of the
Investment Adviser or its affiliates (other than by reason of being
directors, officers or employees of the Fund), and (ii) expenses of
printing and distributing the Funds Prospectus, Statement
of Additional Information and periodic financial reports to persons other
than current shareholders of the Fund, and sales and advertising materials,
(iii) compensation of any of the Funds directors, officers or employees who
are not interested persons of the Adviser or its affiliates (other than by
reason of being directors, officers or employees of the Fund), (iv) charges
and expenses of the Funds custodian, transfer agent and registrar, except
custodial transaction fees, (v) all costs associated with shareholders
meetings and the preparation and dissemination of proxy solicitation
materials, (vi) legal and auditing expenses, (vii) insurance premiums on
the Funds property and personnel, including the fidelity bond and liability
insurance for officers and directors, (viii) printing and mailing of all
reports, including semi-annual and annual reports, prospectuses and
statements of additional information to existing shareholders, (ix) fees
and expenses of registering the Funds shares
under the Federal securities laws and of qualifying its shares under
applicable state securities laws, including expenses attendant upon
renewing and increasing such registrations and qualifications, (x)
accounting and bookkeeping costs and expenses necessary to maintain the
Funds books and records as required by the 40 Act, and (xi) organizational
expenses.
The Fund is responsible for payment of all of its other expenses including
(i) brokerage and commission expenses, (ii) Federal, state or local taxes,
including issue and transfer taxes, incurred by or levied on the Fund,
(iii) custodian transaction charges (iv) payment of all investment advisory
fees (including the fee payable to the Adviser under this Contract), and
(v) any extraordinary and non-recurring expenses, except as otherwise
prescribed herein including interest
charges on borrowing.
Acquisition of Shares.
Mark A Coffelt has entered into an acquisition agreement which contemplates
that he will purchase all of the shares of FACM stock owned by Guy D.
Coffelt, including all voting rights and privileges associated with such
shares. The acquisition agreement is subject to certain pre-closing
adjustments and conditions.
Section 15(f) of the 40 Act provides that when a change in control of
an investment adviser occurs, the investment adviser or any of its
affiliated persons may receive any amount or benefit in connection
therewith provided two conditions are satisfied. First, no unfair burden
may be imposed on the investment company as a result of the transaction
relating to the change of control, or any express or implied terms,
conditions or understandings applicable thereto. The term unfair burden, as
defined in the 40 Act, includes any arrangement during the two-year period
after the change in control whereby the investment adviser (or predecessor
or successor adviser), or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services) or
from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the investment company (other than
fees for bona fide principal underwriting services). No such compensation
arrangements are contemplated in the Proposed Transaction. In the
Acquisition Agreement, Mark A. Coffelt has agreed to use his best efforts
to ensure that the Proposed Transaction will not cause the imposition of an
unfair burden on the Fund. The second condition is that, during the three
year period immediately following the consummation of the transaction, at
least 75% of the investment company s board of directors must not be
interested persons of the investment adviser or predecessor investment
adviser within the meaning of the 40 Act. Currently, the
Board of Directors meets this second requirement. In the Acquisition
Agreement, Mark A. Coffelt has agreed to use his best efforts to ensure
that the second condition is met.
There are a number of conditions precedent to the closing of the
Proposed Transaction. Such conditions include, among other things, that all
regulatory filings, applications and notifications and all third-party
consents will have been duly and properly made or obtained, and that
consents will have been obtained from a specified percentage of FACMs
current clients, including the Fund among others, as required by applicable
law. If the conditions for the Proposed Transaction are not met and the
acquisition is not completed, the Existing Advisory Contract will remain in
effect. In the event the acquisition is completed but the New Advisory
Contract is not approved by the Funds Shareholders, the Directors will
promptly seek to enter into a New Advisory Contract for the Fund, subject
to approval by the Funds shareholders.
During the fiscal year ended September 30, 1996, the Fund paid FACM
$7588 in Advisory fees and $6606 in Administration Fees under the Existing
Advisory Contract.
Additional Information.
FACM, a Delaware corporation, whose principal executive offices are at
1600 West 38th Street, Suite 412, Austin, TX 78731 is registered as an
investment adviser with the Securities and Exchange Commission, under the
Investment Advisers Act of 1940 (the Advisers Act). After the acquisition,
FACM will be registered as an investment adviser under the Advisers Act,
have the same address as and employ the same the same key personnel as it
did previously.
FACMs principal executive officers and directors are shown below. The
address of each, as it relates to their duties at FACM, is the same as that
of FACM.
Name and Position with FACM Principal Occupation
- - ---------------------------- ----------------------
Mark A. Coffelt Chairman, President, and CIO
Guy D. Coffelt Director
Brian T Bares Compliance Officer
Directors Consideration.
The Board of Directors of the Fund believes that the terms of the New
Advisory Contract are fair to, and in the best interest of, the Fund and
its shareholders. The Board of Directors, including all of the non-
interested Directors, recommend approval by the shareholders of the New
Advisory Contract between FACM, Inc. and the Fund. In making this
recommendation, the Directors carefully have evaluated the experience of
the Advisers key personnel in institutional investing, the quality of
services the Adviser is expected to provide to the Fund, and the
compensation proposed to be paid to the Adviser,
and have given careful consideration to all factors deemed to be relevant
to the Fund, including, but not limited to: (1) the fee and expense ratios
of comparable mutual funds; (2) the performance of the Fund since
commencement of operations; (3) the nature and quality of the services
expected to rendered to the Fund by the Adviser; (4) the distinct
investment objective and policies of the Fund; (5) that the proposed New
Advisory Contract will be at the same rate as the compensation now payable
by such Fund to FACM under the Existing Advisory Contract; (6) that the
terms of the Existing Advisory Contract will be unchanged under the New
Advisory Contract except for different effective and termination
dates; (7) the history, reputation, qualification and background of the
Adviser and FACM, as the qualifications of their personnel and their
respective financial conditions; (8) the commitment of the parties to the
Acquisition Agreement to pay or reimburse the Fund for expenses it incurred
in connection with the Proposed Transaction; (9) FACMs investment
performance record; and (10) other factors deemed relevant.
The following is a list of the names of the Officers and Directors of the
Fund and their compensations. Only disinterested Directors are compensated
by the Fund, the officers and interested Directors are not compensated by
the Fund. The address of each of the following is the same as the Funds.
Directors Position Annual Compensation*
---------------------------------------------------------------
Mark A. Coffelt Chairman and President None
John Henry McDonald Independent Director $3000
Edward Clark Independent Director $3000
Janis Claflin Independent Director $3000
Eric Barden Secretary None
* the Directors receive no pension or retirement benefits
The Adviser has advised the Board of Directors that it expects that
there will be no diminution in the scope and quality of advisory services
provided to the Fund as a result of the Proposed Transactioon. Accordingly,
the Board of Directors believe the services under the New Advisory Contract
will be equal or superior to those it currently receives under the Existing
Advisory Contract, at the same fee levels.
Additional Information on the Fund and FACM, Inc.
Mark A. Coffelt is the President and Chairman of the Fund, and is the
President and Chief Investment Officer of FACM. Mr. Coffelt will hold the
same positions with the Adviser after the acquisition.
PRINCIPAL SHAREHOLDERS
The following is information known to the Fund regarding shareholders who
own beneficially five percent or more of the outstanding shares of capital
stock of the Fund as of September 18, 1997:
Number of
Shares Owned Percent
Name and Address of Record of Class
---------------- -------------- ----------
Charles Schwab & Co. Inc. 686,019.083 49.328%
Attention: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
A shareholder list is available for inspection by other shareholders at the
offices of the Fund or the Funds transfer agent, Fund Services Inc., at
1500 Forest Ave. Ste 111, Richmond, VA 23229.
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT SHAREHOLDERS OF THE FUND
APPROVE THE NEW ADVISORY CONTRACT AND THAT FACM, INC. BE NAMED AS ADVISER.
- -----------------
Proposal 2. APPROVAL OR DISAPPROVAL OF CHANGE TO FUNDAMENTAL
INVESTMENT
POLICIES
General.
The Meeting has also been called for the purpose of considering a change to
the Funds Fundamental Investment Policies, i.e. changing borrowing
restrictions. This requires a shareholder approval. Subject to approval
by a majority of the Funds shareholders, the proposed change would increase
the amount of money that the Fund could borrow to an amount up to 33 1/3%
of its net assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time of such borrowing, provided that
collateral arrangements with respect to permitted instruments shall not be
deemed to entail the issuance of senior securities if appropriately
covered. The Fund will not make any investments while outstanding
borrowings exceed 5% of the value of its total assets.
Existing Investment Restrictions.
The Existing Investment Restrictions (the Existing Restrictions)
pursuant to item (b) and (e) under Investment Restrictions relating to
borrowings and issuance of senior securities dictates that the Fund may not
issue senior securities or borrow money except in amounts up to 5% of its
net assets (including the amount borrowed) less liabilities (not including
the amount borrowed) at the time of such borrowing, provided that
collateral arrangements with respect to permitted instruments shall not be
deemed to entail the issuance of senior securities if appropriately
covered.
New Investment Restrictions.
The Proposed Investment Restrictions (the New Restrictions)
incorporates the changes subject to approval of a majority of the Funds
shareholders. The changes are exclusively related to item (b) and (e)
under Investment Restrictions describing the issuance of senior securities
and borrowings of the Fund. The New Restrictions will raise the allowable
borrowing limit to 33 1/3%. A comparison of the Existing and New
Investment Restrictions appear as exhibit B to this proxy. The description
set forth in this Proxy Statement of the New Restrictions is qualified in
its entirety by reference to Exhibit B.
Background and Discussion of Proposal 2.
Under the New Restrictions, the Fund may make borrowings of up to 33
1/3% of its net assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time of such borrowing. The
Fund anticipates the need for short term borrowings to cover redemptions
that settle next-day. The Fund makes Portfolio sales to cover redemptions
in the course of normal operations. Portfolio sales are settled regular-
way and the money generated from such sales is not available for cash
needed to settle fund share redemptions. Increasing borrowing allowances
to 33 1/3% will give the Fund the ability to settle next-day redemptions
until portfolio sales settle. Charles Schwab & Co., as described in
proposal 1 of this proxy under principal shareholders holds a
disproportionately large amount of the Funds outstanding stock for
Investment Advisors wishing to hold shares in the Fund. Charles
Schwab & Co.s operations demand that the Funds redemptions be settled next
day. Normally, mutual funds with borrowing limits above 10% use strategies
that incorporate hedging and shorting. The Fund does not utilize hedging
or shorting
techniques and the purpose for increasing the borrowing limit is to enhance
its ability to cover redemptions only.
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT SHAREHOLDERS OF THE FUND
APPROVE THE CHANGES TO THE FUNDAMENTAL INVESTMENT POLICIES.
- ------------------
Proposal 3. APPROVAL OR DISAPPROVAL OF A 12B-1 PLAN ENTITLED DISTRIBUTION
ASSISTANCE, PROMOTION, AND ADMINISTRATIVE SERVICE PLAN TO REPLACE THE
PRESENT
12B-1 PLAN
General.
The Meeting has also been called for the purpose of considering a new
12b-1 Plan entitled Distribution Assistance, Promotion, and Administrative
Service Plan, (the New Plan) pursuant to rule 12b-1 under the 40 Act. The
existing Distribution Assistance, Promotion, and Administrative Service
Plan (the Existing Plan) has been adopted by the Fund, Choice Investments,
Inc., the Funds Distributor (the Distributor), and the Advisor. Pursuant
to the Existing and New 12b-1 Plans, The Fund will contribute .25% of
average daily net assets of the Fund during its fiscal year to the
Distributor for the purposes set forth in the Plans. Subject to
shareholder approval, the amount of money charged to shareholders will not
change as a percentage of daily net assets from
the Existing Plan.
Existing Plan.
The Existing Plan, as described in paragraph 4(A) of the Distribution
Agreement and as referenced in the Prospectus, provides for Texas Capital
Value Funds assets to be used to help finance the distribution of Fund
shares. Under the Existing Plan, .25% of average daily net assets are paid
either monthly or quarterly, in arrears, to the Distributor. Of the .25%,
.15% of average daily net assets should be considered a service fee
received by the selling broker on an annual basis for providing the
investor with continuing service as set forth in the prospectus.
New Plan.
A form of the New Plan is attached to this Proxy Statement, as
Exhibit B, and the description set forth in this Proxy Statement of the New
Plan is qualified in its entirety by reference to Exhibit B. Under the New
Plan, .25% of average daily net assets are paid either monthly or
quarterly, in arrears, to the Distributor. In accordance with the new
Distribution Agreement signed between Choice Investments Inc. and Texas
Capital Value Funds, Inc., approved by the Funds Board of Directors on
September 18th, 1997, the .25% 12b-1 charge will be paid to the selling
broker on an annual basis for providing the investor with continuing
service as set forth in the prospectus.
Background and Discussion of Proposal 3
Rule 12b-1 of the General Rules and Regulations of the 40 Act permits a
mutual
fund to act as its own distributor and to pay distribution expenses
directly. Prior to adoption of that rule, mutual funds were not permitted
to bear the cost of distribution expenses. In general, Rule 12b-1 defines
distribution expenses as those expenses primarily intended to result in
sale of Fund shares.
Among other things, Rule 12b-1 requires that the Directors, in the exercise
of their reasonable business judgment and in light of their fiduciary
duties, determine that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. Rule 12b-1 also requires that the
Plan be submitted to shareholders for their approval and that continuance
of the Plan be approved at least annually by the Board of Directors,
including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Plan or any related contracts, by vote cast in person at a
meeting called for that purpose. The Advisor must prepare reports for the
Board of Directors on a quarterly basis showing the amounts paid for the
various distribution categories of expense, the purpose of such payments,
and the amount and purpose of any payment made pursuant to the Plan in
promoting the sale of the Funds shares.
As required by 12b-1, implementation of the New Plan requires approval by a
majority of the Directors, including a majority of Directors who are not
interested persons of the Advisor and who have no direct or indirect
financial interest in the operation of the Plan. The Funds non-interested
directors unanimously approved proposing this revised Plan at their meeting
held in person on September 18th, 1997.
Board of Directors Considerations
At the meeting held on September 18th, 1997, the Board considered a number
of factors in reviewing and analyzing the new and existing Plans, including
the terms and payment levels contained in other 12b-1 plans adopted by
other mutual funds. It determined that the terms of the New Plan were
beneficial to shareholders as its ongoing costs to the Fund were minimal.
It acknowledged that future competition may provoke the Board to consider
revising the Plan at some future date to use more Fund assets to pay for
distribution expenses, but any such change would have to be submitted to
and approved by the shareholders before it could be affected. Other non-
material amendments to the Plan may be adopted by majority vote of the
Funds Board of Directors, including a majority of Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or any related contracts. (Actually,
the change between the New and Existing Plans constitutes a non-material
change, but management chose to submit the New Plan to shareholders for
their approval, since it was already calling a special meeting of
shareholders to consider the new investment advisory contract due to
pending assignment of the present contract.) Once adopted, the Plan may be
terminated at any time by a majority vote of the Board of Directors,
including a majority vote of its Directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
Plan or any related agreements. It may also be terminated by FACM or by a
vote of the Funds outstanding voting securities. All underlying
agreements relating to implementation of the Plan will be subject to
termination on 60 days notice without penalty and any such agreement will
automatically terminate, as will the Plan itself, in the event of
assignment of the Investment Advisory Contract (as assignment is defined in
the 40 Act.)
The Board of Directors concluded that the New Plan, if adopted by
shareholders would benefit both present shareholders and those who invest
in the Fund in the future since increasing the size of the Fund is likely
to increase the Funds available yield to the benefit of all shareholders by
spreading expenses over a larger asset base.
Based on the foregoing, the Funds Directors have determined that in
exercise of their reasonable business judgment and in light of their
fiduciary duties there is a reasonable likelihood that the adoption of the
New Plan under Rule 12b-1 will benefit the Fund and its shareholders,
although there can be no assurance that such benefits will be realized.
Certainly, it will not cost the Fund more as a percentage of assets than it
presently costs under the Existing Plan
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT SHAREHOLDERS OF THE FUND
APPROVE THE 12b-1 PLAN ENTITLED DISTRIBUTION ASSISTANCE, PROMOTION, AND
ADMINISTRATIVE SERVICE PLAN TO REPLACE THE PRESENT 12B-1 PLAN AT NO
ADDITIONAL
PERCENTAGE COST TO SHAREHOLDERS
- ----------------------
Shareholder Proposals
The Meeting is a special meeting of shareholders. The Fund is not required
to, nor does it intend to, hold regular annual meetings of its
shareholders. Shareholders who wish to submit proposals for inclusion in a
proxy statement for a subsequent shareholder meeting should send a written
proposal to Eric Barden, secretary of the Fund, 1600 West 38th Street Ste.
412, Austin, TX 78731.
Reports to Shareholders
The Fund will furnish, without charge, a copy of the most recent Quarterly
Report upon request. Requests for such reports should be directed to the
Fund at the address and telephone shown on the first page of this proxy
statement or to FACM at (800) 880-0324
By order of the Board of Directors
Eric Barden, Secretary
September 19, 1997
A SIGNED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED BELOW UNLESS
YOU HAVE SPECIFIED OTHERWISE. PLEASE SIGN, DATE AND RETURN THIS PROXY
PROMPTLY. YOU MAY VOTE ONLY IF YOU HELD SHARES IN THE FUND AT THE CLOSE OF
BUSINESS ON SEPTEMBER 18TH, 1997.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING BE ASSURED, PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
- ---------------------------------------------
EXHIBIT LIST
- ---------------------------------------------
Exhibit A Form of New Advisory Contract
Investment Advisory and Administrative Contract
THIS AGREEMENT (this Agreement) is made this ___day of___, 1997, by and
between Texas Capital Value Fund, Inc., a Maryland corporation (the Fund),
and First Austin Capital Management, Inc., a Delaware corporation (the
Investment Advisor).
WITNESSETH:
WHEREAS, the Fund engages in the business of investing and reinvesting its
assets and property in various stocks and securities and the Investment
Advisor engages in the business of providing investment advisory services;
and
WHEREAS, the Fund has need for investment advisory services.
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 Funds portfolio
daily and calculating the daily net asset value per share, and providing
such other administrative services to the Fund as the Fund may reasonably
request (collectively, the Administrative Services). The Investment
Advisor may contract with third parties to perform all or part of the
Administrative Services. Notwithstanding anything contained in this
Agreement to the contrary, under no circumstances shall the execution of
any such third party contract be deemed an assignment by the Investment
Advisor of an interest in this Agreement.
3.(a) As compensation for the services to be rendered to the Fund by the
Investment Advisor under the provisions of this Agreement, the Fund shall
pay to
the Investment Advisor:
(i) for Advisory Services a flat fee of one percent (1%) of the net assets
of the Fund; plus additional amounts as follows:
(ii)for Administrative Services a fee equal to the sum of (i) nine-tenths
percent (0.90%) of the amount of assets in the Fund between one dollar
($1.00) and five million dollars ($5,000,000), inclusive, plus (ii) three-
tenths percent (0.30%) of the amount of assets in the Fund between five
million and one dollars ($5,000,001.00) and thirty million dollars
($30,000,000), inclusive, plus (c) twenty-eight hundredths percent (0.28%)
of the amount of assets in the Fund between thirty million and one dollars
($30,000,001) and one hundred million dollars ($100,000,000), inclusive,
plus (d) twenty-five hundredths percent (0.25%) of the amount of assets in
the Fund between one hundred million and one dollars ($100,000,001) and two
hundred million dollars ($200,000,000), inclusive, plus (e) twenty
hundredths percent (0.20%) of the amount of assets in the Fund in excess of
two hundred and one million dollars ($200,000,001), inclusive (all assets
in the Fund for the purposes of this Paragraph to be rounded to the nearest
dollar prior to the computation of any fee owed).
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 Funds 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
Funds 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 Funds 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 Advisors 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 Funds 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
By______________________________
Mark A. Coffelt, President
First Austin Capital Management, Inc.,
a Delaware corporation
By_____________________________
Mark A. Coffelt, President
- ---------------------------------------------
Exhibit B - Comparison of Investment Policies
as described in the Statement of
Additional Information
Existing Investment Policies
TEXAS CAPITAL VALUE FUNDS, INC.
Statement of Additional Information
dated January 31, 1997
1600 W 38th Avenue, Suite 412 Austin, TX 78731
(512) 458-8165
General Marketing: 888-839-4769
Shareholder Information: 800-628-4077
This Part B sets forth additional information about the Value & Growth
Portfolio, and the Growth & Income Portfolio (each individually a Fund, or
collectively, the Funds or Fund(s)). Each Fund is a non-diversified, open-
end investment series of the Texas Capital Value Funds, Inc.
This Statement of Additional Information is not a Prospectus, but should be
read
in conjunction with the Prospectus dated January 31, 1997. To obtain a
Prospectus, please call the Fund(s) at (888) TEX-GROW. Capitalized terms
used
herein but not defined have the meanings assigned to them in the
Prospectus.
Table of Contents/Cross Reference Page in Prospectus
INVESTMENT OBJECTIVE AND POLICIES 2/3
DIRECTORS & OFFICERS 8/5
BOARD OF DIRECTORS COMPENSATION TABLE 10
CONTROL PERSONS 11
INVESTMENT ADVISORS 11/5
PORTFOLIO TURNOVER 12/4
PORTFOLIO TRANSACTIONS AND BROKERAGE 12/
DISTRIBUTION OF THE FUND(S) 13/8
PERFORMANCE INFORMATION 13
TAX STATUS 15/12
NET ASSET VALUE 18/14
CAPITAL STRUCTURE 19/14
HOW TO REDEEM SHARES 20/10
RATINGS OF INVESTMENT SECURITIES 21
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in
this Statement of Additional Information or in the Prospectus, and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Company, the Fund(s), the Advisors,
or the Distributor. This Statement of Additional Information and the
Prospectus do not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction in which
such an offer to sell or solicitation of an offer to buy may not lawfully
be made.
INVESTMENT OBJECTIVE AND POLICIES
Each Fund has a unique investment objective although there are some aspects
common to all of the Fund(s). Common Characteristics: For all the Fund(s),
purchase of issues will be primarily, but not exclusively, listed issues
and American Depository Receipts on the on the New York, American and
NASDAQ exchanges and may include up to 33% foreign based companies.
The Advisor does not use techniques such as borrowing, hedging, or short
sales in the management of the Fund(s). The Fund(s) make no use of
derivatives.Under normal circumstances, each Fund will have virtually all
of its assets invested in equity securities. However, for temporary
defensive purposes, each Fund may hold cash, money market instruments,
notes or bonds, or enter into repurchase agreements, all of which will be
of investment grade as determined by Moodys Investors Service, Inc. or
Standard & Poors Corporation rating agencies. Unique Characteristics of the
Value & Growth Portfolio and Growth & income Portfolio. Each Funds primary
investment objective is capital appreciation through the investment in
common stocks and securities convertible into common stocks. For the Value
& Growth Portfolio no consideration is given to income of the Fund(s)
holdings. For the Growth & Income Portfolio, the Advisor does take into
consideration the income of Fund holdings. For both Funds, the Advisor
will employ highly structured, computer driven, quantitative strategies to
endeavor to find companies that are likely to perform well. Such
strategies are different than the strategies most advisors use to
select stocks in that the Advisor will give little or no weight to
qualitative factors of securities considered for purchase. Fundamental
ratios such as the price of a stocks relative to its earnings (price-to-
earnings), the price of a stock relative to its cashflow (price-to-
cashflow) and the price of a stock relative to its bookvalue or net worth
(price-to-book) weigh heavily in the selection process. For the Growth &
Income Portfolio, the ratio of the prices of a stocks relative
to its dividend yield is considered. Most of the securities selected are
likely to have much lower ratios in at least one of the above categories
than the market in general. Academic research and studies have shown that
portfolios with the characteristics of low price-to-earnings, low price-to-
cashflow and low price-to-book ratios may be associated with higher
investment rates of return over long periods of time. Such an investment
strategy may also be subject to greater investment risk.
While the quantitative strategy the Advisor plans to use does not
specifically screen for small companies, test results have shown a large
percentage of companies selected for the Value & Growth Portfolio had
market capitalizations of less than a billion dollars. Smaller companies
have historically performed better than larger companies over long periods,
but also have historically shown higher volatility than larger companies.
Non-diversification Policy. Each Fund is classified as being non-
diversified which means that it may invest a relatively high percentage of
its assets in the obligations of a limited number of issuers. Each Fund,
therefore, may be more susceptible than a more widely diversified fund to a
single economic, political or regulatory occurrence. Each Fund seeks only
diversification for adequate representation among what it considers to be
the best performing securities and
to maintain its federal non-taxable status under Sub-Chapter M of the
Internal Revenue Code.
Investment Restrictions
The Fund(s) have adopted and will follow certain investment policies set
forth below, which are fundamental and may not be changed without
shareholder
approval.
(a) Each Fund may not invest more than 25% of its total assets in the
securities of issuers in any one industry. This restriction does not apply
to investments by a Fund in securities of the U.S. Government or its
agencies or instrumentalities.
(b) Each Fund may not issue senior securities or borrow money except for
temporary purposes in amounts up to 10% of its net assets (including the
amount borrowed) less liabilities (not including the amount borrowed) at
the time of such borrowing, provided that collateral arrangements with
respect to permitted instruments shall not be deemed to entail the issuance
of senior securities if appropriately covered. Each Fund will not make any
investments while outstanding borrowings exceed 5% of the value of its
total assets.
(c) Each Fund may not make loans, although it may invest in debt
securities, enter into repurchase agreements and lend its portfolio
securities.
(d) Each Fund may not invest in securities or other assets that the Board
of Directors determines to be illiquid if more than 15% of the Fund(s)s net
assets would be invested in such securities.
(e) Each Fund may not (i) purchase or sell commodities or commodities
contracts (including financial futures and related options), (ii) invest in
oil, gas, or mineral exploration or development programs or leases, or
(iii) purchase
securities on margin, except for such short-term credit as may be necessary
for the clearance of transactions and except for borrowings in amounts not
exceeding 10% of its net assets.
(f) Each Fund may not purchase or sell real estate or make real estate
mortgage loans or invest in real estate limited partnerships, except that
each Fund may purchase or sell securities issued by entities in the real
estate industry or instruments backed by real estate such as, but not
limited to, Real Estate Investment Trusts (R.E.I.Ts).
(g) Each Fund may not act as an underwriter of securities issued by
others, except to the extent it may be deemed to be an underwriter in
connection with the disposition of Fund securities of each Fund.
(h) The investment in warrants, valued at the lower of cost or market,
may not exceed 5.0% of the value of each Funds net assets. Included within
that amount, but not to exceed 2.0% of the value of each Funds net assets,
may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by each Fund in units or attached to
securities may be deemed to be without value.
The foregoing restrictions may not be changed for any Fund without the
approval of a majority of that Funds outstanding voting securities. As
used in this Statement of Additional Information, a majority of the Fund(s)
outstanding voting securities means the lesser of (a) more than 50% of its
outstanding voting securities, or (b) 67% or more of the voting securities
present at a meeting at which more than 50% of the outstanding voting
securities are present or represented by proxy. The Fund(s) investment
objectives, as well as those policies and restrictions which are not
fundamental, may be modified by the Board of Directors without shareholder
approval if, in the reasonable exercise of the Board of Directors business
judgment, modification is determined to be necessary or appropriate to
carry out the Fund(s) objectives. However, the Fund(s) will not change its
investment policies or restrictions without written notice to shareholders.
In order to permit the sale of the Fund(s) shares in certain states, the
Fund(s) may make commitments with respect to the Fund(s) which are more
restrictive than the investment policies listed above and in the
Prospectus. Should the Fund(s) determine that any commitment made to
permit the sale of the Fund(s) shares in any state is no longer in the best
interests of the Fund(s), it will revoke the commitment by terminating
sales of the Fund(s) shares in the state involved. In order to meet the
requirements of the State of California, the Board has adopted and the
shareholders have approved the following additional restriction, which
shall be deemed fundamental from the date of this Part B, for all the
Fund(s).
(i) Each Fund shall not invest in other open ended management investment
companies. Further Information on the Nature of the Fund(s)s Investments:
General Characteristics of Convertible Securities. The Fund(s) may invest
only in high grade convertible securities, that is, bonds, notes,
debentures, preferred stocks and other securities which are convertible
into common stocks. High grade securities are those rated within the three
highest ratings categories of Standard & Poors Corporation (S&P) or Moodys
Investors Service, Inc. (Moodys) or that are determined by the investment
advisor to be of equivalent quality. Investments in convertible
securities may provide incidental income through interest and dividend
payments and/or an opportunity for capital appreciation by virtue of their
conversion or exchange features. Convertible debt securities and
convertible preferred stocks, until converted,
have general characteristics similar to both debt and equity securities.
Although to a lesser extent than with debt securities generally, the market
value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value
of convertible securities typically changes as the market value of the
underlying common stocks changes, and, therefore, also tends to follow
movements in the general market for equity securities. As the market price
of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis and so may not experience market value
declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases,
the prices of the convertible securities tend to rise as a reflection of
the value of the underlying common stock, although typically not as much as
the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than
investments in common stock of the same issuer. As debt securities,
convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Convertible
securities generally offer lower yields than non-convertible securities of
similar quality because of their conversion or exchange features.
Convertible securities are generally subordinated to other similar but non-
convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common
stock of the same issuer. However, because of the subordination feature,
convertible bonds and convertible preferred stock typically have lower
ratings than similar non-convertible securities.
General Characteristics of Foreign Securities.
Foreign securities involve certain inherent risks that are different from
those of domestic issuers, including political or economic instability of
the issuer or the country of issue, diplomatic developments which could
affect U.S. investments in those countries, changes in foreign currency and
exchange rates and the possibility of adverse changes in investment or
exchange control regulations. As a result of these and other factors,
foreign securities purchased by the Fund(s)s may be subject to greater
price fluctuation than securities of U.S. companies.
Most foreign stock markets are not as large or liquid as in the United
States. Furthermore, the fixed commissions on foreign stock exchanges are
generally higher than the negotiated commissions on U.S. exchanges and
there is generally less government supervision and regulation of foreign
stock exchanges, brokers and companies than in the United States.
Investors should recognize that foreign markets have different clearance
and settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund(s) are
uninvested and no return is earned thereon. The inability of the Fund(s)
to make intended security purchases due to settlement problems could cause
the Fund(s) to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems either could
result in losses to the Fund(s) due to subsequent declines in value of the
portfolio security or, if the Fund(s) have entered into a contract to sell
the security, could result in a possible liability to the purchaser.
Payment for securities without delivery may be required in certain foreign
markets. Further, the Fund(s) may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. Foreign
governments can also levy confiscatory taxes, expropriate assets, and limit
repatriations of assets. Typically, there is less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may be subject to less stringent reserve, auditing and reporting
requirements. It may be more difficult for the Fund(s) agents to keep
currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the United States and foreign countries may be less reliable than
within the United States thus increasing the risk of delayed settlements of
portfolio transactions or loss of certificates portfolio securities.
Individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Because investments in foreign securities will
usually involve currencies of foreign countries and because the Fund(s) may
hold foreign currencies, the value of the assets of the Fund(s) as measured
in U.S. dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the
Fund(s) may incur costs in connection with conversions between various
currencies. Although the Fund(s) values its assets daily in terms of U.S.
dollars, the Fund(s) do not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do
so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (the
spread) between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund(s) at one rate, while offering a lesser rate of exchange should the
Fund(s) desire to resell that currency to the dealer. The Fund(s) will
conduct its foreign currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market.
General Characteristics of Securities Lending. In compliance with
Securities and Exchange Commission guidelines, any loans by
the Fund(s) of securities in its portfolio would be required to be secured
with collateral (consisting of any combination of U.S. currency, securities
issued or guaranteed by the United States Government or any agency thereof,
or irrevocable letters of credit or other debt securities issued by
entities rated within the two highest grades assigned by S&P or Moodys or
which are determined by the investment advisor to be of equivalent
quality). The borrower must agree to add to such collateral to cover
increases in the market value of the loaned securities and the Fund(s) must
be entitled to terminate any loan at any time, with the borrower obligated
to redeliver borrowed securities within five trading days. The borrower
must agree that the Fund(s) will receive all dividends, interest or other
distributions on loaned securities and the Fund(s) must be able to vote
loaned securities whenever the right to vote is material to the Fund(s)s
performance. Investment in Unseasoned Issuers.
The Fund(s) may invest in securities of issuers which have a record of less
than three (3) years of continuous operation, including the operation of
any predecessor business of a company which came into existence as a result
of a merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business, if such purchase would not
cause the value of the Fund(s)s investments in all such companies to exceed
5% of the value of its net assets.
- -----------------------
New Investment Policies
TEXAS CAPITAL VALUE FUNDS, INC.
Statement of Additional Information
dated September 18, 1997
1600 W 38th Avenue, Suite 412 Austin, TX 78731
(512) 458-8165
General Marketing: 888-TEX-GROW
Shareholder Information: 800-628-4077
This Part B sets forth additional information about the Value & Growth
Portfolio, and the Growth & Income Portfolio (each individually a Fund, or
collectively, the Funds or Fund(s)). Each Fund is a non-diversified, open-
end investment series of the Texas Capital Value Funds, Inc.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus dated January 31, 1997. To obtain
a Prospectus, please call the Fund(s) at (888) TEX-GROW. Capitalized terms
used herein but not defined have the meanings assigned to them in the
Prospectus.
Table of Contents/Cross Reference Page in Prospectus
INVESTMENT OBJECTIVE AND POLICIES 2/3
DIRECTORS & OFFICERS 8/5
BOARD OF DIRECTORS COMPENSATION TABLE 10
CONTROL PERSONS 11
INVESTMENT ADVISORS 11/5
PORTFOLIO TURNOVER 12/4
PORTFOLIO TRANSACTIONS AND BROKERAGE 12/
DISTRIBUTION OF THE FUND(S) 13/8
PERFORMANCE INFORMATION 13
TAX STATUS 15/12
NET ASSET VALUE 18/14
CAPITAL STRUCTURE 19/14
HOW TO REDEEM SHARES 20/10
RATINGS OF INVESTMENT SECURITIES 21
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in
this Statement of Additional Information or in the Prospectus, and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Company, the Fund(s), the Advisors,
or the Distributor. This Statement of Additional Information and the
Prospectus do not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction in which
such an offer to sell or solicitation of an offer to buy may not lawfully
be made.
INVESTMENT OBJECTIVE AND POLICIES
Each Fund has a unique investment objective although there are some aspects
common to all of the Fund(s).
Common Characteristics: For all the Fund(s), purchase of issues will be
primarily, but not exclusively, listed issues and American Depository
Receipts on the on the New York, American and NASDAQ exchanges and may
include up to 33% foreign based companies.
The Advisor does not use techniques such as borrowing, hedging, or short
sales in the management of the Fund(s). The Fund(s) make no use of
derivatives.Under normal circumstances, each Fund will have virtually all
of its assets invested in equity securities. However, for temporary
defensive purposes, each Fund may hold cash, money market instruments,
notes or bonds, or enter into repurchase agreements, all of which will be
of investment grade as determined by Moodys Investors Service, Inc. or
Standard & Poors Corporation rating agencies.
Unique Characteristics of the Value & Growth Portfolio and Growth & income
Portfolio. Each Funds primary investment objective is capital appreciation
through the investment in common stocks and securities convertible into
common stocks. For the Value & Growth Portfolio no consideration is given
to income of the Fund(s) holdings.For the Growth & Income Portfolio, the
Advisor does take into consideration the income of Fund holdings.
For both Funds, the Advisor will employ highly structured, computer driven,
quantitative strategies to endeavor to find companies that are likely to
perform well. Such strategies are different than the strategies most
advisors use to select stocks in that the Advisor will give little or no
weight to qualitative factors of securities considered for purchase.
Fundamental ratios such as the price of a stocks relative to its earnings
(price-to-earnings), the price of a stock relative to its cashflow (price-
to-cashflow) and the price of a stock relative to its bookvalue or net
worth (price-to-book) weigh heavily in the selection process.
For the Growth & Income Portfolio, the ratio of the prices of a stocks
relative to its dividend yield is considered. Most of the securities
selected are likely to have much lower ratios in at least one of the above
categories than the market in general. Academic research and studies have
shown that portfolios with the characteristics of low price-to-earnings,
low price-to-cashflow and low price-to-book ratios may be associated
with higher investment rates of return over long periods of time. Such an
investment strategy may also be subject to greater investment risk.
While the quantitative strategy the Advisor plans to use does not
specifically screen for small companies, test results have shown a large
percentage of companies selected for the Value & Growth Portfolio had
market capitalizations of less than a billion dollars. Smaller companies
have historically performed better than larger companies over long periods,
but also have historically shown higher volatility than larger companies.
Non-diversification Policy. Each Fund is classified as being non-
diversified which means that it may invest a relatively high percentage of
its assets in the obligations of a limited number of issuers. Each Fund,
therefore, may be more susceptible than a more widely diversified fund to a
single economic, political or regulatory occurrence. Each Fund seeks only
diversification for adequate representation among what it considers to be
the best performing securities and to maintain its federal non-taxable
status under Sub-Chapter M of the Internal Revenue Code.
Investment Restrictions
The Fund(s) have adopted and will follow certain investment policies set
forth below, which are fundamental and may not be changed without
shareholder approval.
(a) Each Fund may not invest more than 25% of its total assets in the
securities of issuers in any one industry. This restriction does not apply
to investments by a Fund in securities of the U.S. Government or its
agencies or instrumentalities.
(b) Each Fund may not issue senior securities or borrow money except for
temporary purposes in amounts up to 33 1/3% of its net assets (including
the amount borrowed) less liabilities (not including the amount borrowed)
at the time of such borrowing, provided that collateral arrangements with
respect to permitted instruments shall not be deemed to entail the issuance
of senior securities if appropriately covered. Each Fund will not make any
investments while outstanding borrowings exceed 5% of the value of its
total assets.
(c) Each Fund may not make loans, although it may invest in debt
securities, enter into repurchase agreements and lend its portfolio
securities.
(d) Each Fund may not invest in securities or other assets that the Board
of Directors determines to be illiquid if more than 15% of the Fund(s)s net
assets would be invested in such securities.
(e) Each Fund may not (i) purchase or sell commodities or commodities
contracts (including financial futures and related options), (ii) invest in
oil, gas, or mineral exploration or development programs or leases, or
(iii) purchase securities on margin, except for such short-term credit as
may be necessary for the clearance of transactions and except for
borrowings in amounts not exceeding 33 1/3% of its net assets.
(f) Each Fund may not purchase or sell real estate or make real estate
mortgage loans or invest in real estate limited partnerships, except that
each Fund may purchase or sell securities issued by entities in the real
estate industry or instruments backed by real estate such as, but not
limited to, Real Estate Investment Trusts (R.E.I.Ts).
(g) Each Fund may not act as an underwriter of securities issued by
others, except to the extent it may be deemed to be an underwriter in
connection with
the disposition of Fund securities of each Fund.
(h) The investment in warrants, valued at the lower of cost or market,
may not exceed 5.0% of the value of each Funds net assets. Included within
that amount, but not to exceed 2.0% of the value of each Funds net assets,
may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by each Fund in units or attached to
securities may be deemed to be without value.
The foregoing restrictions may not be changed for any Fund without the
approval
of a majority of that Funds outstanding voting securities. As used in this
Statement of Additional Information, a majority of the Fund(s) outstanding
voting securities means the lesser of (a) more than 50% of its outstanding
voting securities, or (b) 67% or more of the voting securities present at
a meeting at which more than 50% of the outstanding voting securities are
present or represented by proxy. The Fund(s) investment objectives, as
well as those policies and restrictions which are not fundamental, may be
modified by the Board of Directors without shareholder approval if, in the
reasonable exercise of the Board of Directors business judgment,
modification is determined to be necessary or appropriate to carry out the
Fund(s) objectives. However, the Fund(s) will not change its investment
policies or restrictions without written notice to shareholders.
In order to permit the sale of the Fund(s) shares in certain states, the
Fund(s) may make commitments with respect to the Fund(s) which are more
restrictive than the investment policies listed above and in the
Prospectus. Should the Fund(s) determine that any commitment made to
permit the sale of the Fund(s) shares in any state is no longer in the best
interests of the Fund(s), it will revoke the commitment by terminating
sales of the Fund(s) shares in the state involved. In order to meet the
requirements of the State of California, the Board has
adopted and the shareholders have approved the following additional
restriction, which shall be deemed fundamental from the date of this Part
B, for all the Fund(s).
(i) Each Fund shall not invest in other open ended management investment
companies. Further Information on the Nature of the Fund(s)s Investments:
General Characteristics of Convertible Securities. The Fund(s) may invest
only in high grade convertible securities, that is, bonds, notes,
debentures, preferred stocks and other securities which are convertible
into common stocks. High grade securities are those rated withhin the
three highest ratingscategories of Standard & Poors Corporation (S&P) or
Moodys Investors Service, Inc. (Moodys) or that are determined by the
investment advisor to be of equivalent quality. Investments in
convertible securities may provide incidental income through interest and
dividend payments and/or an opportunity for capital appreciation by virtue
of their conversion or exchange features. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent
than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In addition, because of the
conversion or exchange feature, the market value of convertible securities
typically changes as the market value of the underlying common stocks
changes, and, therefore, also tends to follow movvements in the general
marketfor 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)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
Moodys or which are determined by the investment advisor to be of
equivalent quality). The borrower must agree to add to such collateral to
cover increases in the market value of the loaned securities and the
Fund(s) must be entitled to terminate any loan at any time, with the
borrower obligated to redeliver borrowed securities within five trading
days. The borrower must agree that the Fund(s) will receive all dividends,
interest or other distributions on loaned securities and the Fund(s) must
be able to vote loaned securities whenever the right to vote is material to
the Fund(s)s performance.
Investment in Unseasoned Issuers.
The Fund(s) may invest in securities of issuers which have a record of less
than three (3) years of continuous operation, including the operation of
any predecessor business of a company which came into existence as a result
of a merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business, if such purchase would not
cause the value of the Fund(s)s investments in all such companies to exceed
5% of the value of its net assets.
- ---------------------------------------------
Exhibit C- The New 12b-1 Plan
Texas Capital Value Funds, Inc
Distribution Assistance, Promotion, and Administrative Service Plan
Pursuant to Rule 12b-1 Under the Investment Company Act of 1940
This Distribution Assistance, Promotion, and Administrative Service
Plan (the Plan) is designed to conform to the requirements of Rules 12b-1
under Investment Company Act of 1940 (the Act) and has been adopted by
Texas Capital Value Funds, Inc. (the Fund), Choice Investments, Inc., the
Funds Distributor (the Distributor) and by First Austin Capital Management,
Inc., the Funds Investment Adviser (the Adviser).
The Fund, the Distributor, and the Adviser, all desire to
substantially increase the sale of the Funds shares in order to (a) spread
the cost of the Funds operation over a larger shareholder base and (b)
permit the Fund to take advantage of certain economies of scale that are
available to a funds with a larger asset base. The Directors of both the
Fund and the Distributor believe that the best way to achieve this goal is
for the Fund to adopt a Distribution Agreement with the Distributor and
utilize a portion of its assets to pay for
(1) advertising and promotion expenses of all kinds (including cooperative
ads placed by brokers and dealers who have entered into written agreements
with the Distributor in the future), (2) fulfillment expenses which include
the cost of printing and mailing prospectuses and sales literature to
prospective shareholders of the Fund, (3) sales assistance payments to
brokers and dealers who already have entered or may enter into written
agreements with the Fund in the future relating to the sale of Fund shares,
and (4) for reimbursement and/or compensation to brokers, dealers, and
other financial intermediaries such as banks and other institutions, for
administrative and accounting services rendered for the accounts of Fund
stockholders who purchase and redeem their shares through such banks or
other institutions.
Pursuant to this Plan, the Fund will contribute a sum of money to the
Distributor for the purposes set forth above, which will equal .25% of
average daily net assets of the Fund during its fiscal year. These
payments will be made by the Fund from time to time, but not more often
than once a month. The Adviser will be responsible for administering this
Plan, providing reports on its income and disbursements to the Directors of
the Fund on a continuing basis. The Distributor will be responsible for
entering into written Sales Agreements with brokers and dealers as
contemplated by this Plan.
The level of Sales Assistance payments to be made to each broker or
dealer entering into a written Sales Agreement will be set forth in the
Funds prospectus. It is contemplated that Sales Assistance payments will
be made quarterly and will vary directly with the average level of Fund
assets comprising the accounts of Fund shareholders who are customers of
that broker or dealer.
It is understood by the Directors of the Fund and by the Distributor
that all Fund payments made to the Distributor in accordance with this Plan
will not exceed (when added to other Fund operating expenses) the
permissible level of Fund operating expense that is permitted pursuant to
the terms of any expense limitation arrangement or undertaking in effect
from time to time between the Fund and the Adviser.
The Adviser will prepare and furnish to the Funds Board of Directors
at least quarterly a written report complying with the requirements of Rule
12b-1 which sets forth all amounts expended under the Plan and the purposes
for which such expenditures were made.
It is also understood by the Fund and the Distributor that the
Distributor may incur additional expenses in carrying out its duties
pursuant to the Distribution Agreement between the Fund and the Distributor
that will be over and above the amount that the Fund will contribute to the
Distributor as described in this Plan.
In addition, the Adviser to the Fund may at its option, and only out
of the net capital or net profits of the Adviser (not out of the Funds
management
fee), reimburse the Fund or the Distributor for any such additional
expenses used to promote, advertise, or take any other action intended to
increase the assets of the Fund. The Board, in its annual review of the
Advisory and Administrative Agreement, shall disregard any such marketing
costs incurred by the Advisor to the Fund or the Distributor in the
evaluation of the reasonableness of advisory and administrative fees
incurred by the Fund.
The Plan will become effective immediately upon approval by a majority of
the Board of Directors of the Fund including a majority of the directors
who are not interested persons (as defined in the Act) of the Fund and who
have no direct or indirect financial interest in the operation of the Plan
or in any agreements entered into in connection with the Plan, pursuant to
a vote cast at a meeting called for the purposes of voting on the approval
of the Plan.
The Plan will remain in effect for one year from the date it is
approved by the Board of Directors of the Fund, unless earlier terminated
in accordance with its terms, and thereafter may continue for successive
annual periods if the Plan is approved at least annually by a majority of
the Board of Directors of the Fund, including a majority of the Directors
who are not interested persons (as defined in the Act) of the Fund and who
have no direct or indirect financial interest in the operation of the Plan
or in any agreements entered into in connection with the Plan, pursuant to
a vote cast at a meeting called for the purpose of voting on the approval
of the Plan.
The Plan may be amended at any time with the approval of the Board of
Directors of the Fund, provided that (a) any material amendments of the
terms of the Plan will become effective only if approved by a majority of
the Board of Directors of the Fund including a majority of the Board of
Directors who are not interested persons (as defined in the Act) of the
Fund and who have no direct or indirect financial interest in the operation
of the Plan or in any agreements entered into in connection with the Plan
and (b) any amendment to increase materially the amount to be expended for
distribution assistance, administrative services, and advertising and other
expenses designed to promote the sale of shares of the Fund pursuant to the
Plan will be effective only upon the additional approval by a vote of a
majority of the outstanding voting securities of the Fund.
The Plan is terminable without penalty at any time by (a) a vote of
the majority of the Directors of the Fund who are not interested persons
(as defined in 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.
Pursuant to Sub-Item 77H, section (b) of Form N-SAR,
Texas Capital Value Funds has had a change in control
as a result of a buyout of the advisor First Austin
Capital Management, Inc. Guy D. Coffelt willingly sold
his 50% interest in the Advisor to his son, Mark A Coffelt,
president of the Advisor and owner of the remaining 50%.
The terms of the new Investment Advisory and Administrative
Contract are exactly the same, except for the dates, as
the old. The shareholders approved the new contract and
a copy is attached in EX-2 of this complete form N-SAR.
Pursuant to Sub-Item 77Q1, section (e) of Form N-SAR,
Texas Capital Value Funds has had a change in control
as a result of a buyout of the advisor First Austin
Capital Management, Inc. A new Investment Advisory and
Administrative Contract was signed with First Austin.
The terms of the new Investment Advisory and Administrative
Contract are exactly the same, except for the dates, as
the old. The shareholders approved the new contract and
a copy is attached in EX-2 of this complete form N-SAR.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> VALUE & GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 25210946<F1>
<INVESTMENTS-AT-VALUE> 27649063
<RECEIVABLES> 682698
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28460368
<PAYABLE-FOR-SECURITIES> 623783
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37325
<TOTAL-LIABILITIES> 661108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24491946
<SHARES-COMMON-STOCK> 1574023
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 869197
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2438117
<NET-ASSETS> 27799260
<DIVIDEND-INCOME> 49290
<INTEREST-INCOME> 9367
<OTHER-INCOME> 0
<EXPENSES-NET> 110259
<NET-INVESTMENT-INCOME> (51602)
<REALIZED-GAINS-CURRENT> 959264
<APPREC-INCREASE-CURRENT> 2318009
<NET-CHANGE-FROM-OPS> 3225671
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (63343)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23834857
<NUMBER-OF-SHARES-REDEEMED> (510028)
<SHARES-REINVESTED> 59722
<NET-CHANGE-IN-ASSETS> 26546879
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59431
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110259
<AVERAGE-NET-ASSETS> 6683283
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 7.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.66
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>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 Funds 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 tern to maturity exceeded 60 days.
</FN>
</TABLE>
