Eric Barden
Secretary
Texas Capital Value Funds
1600 West 38th Street
Austin, TX 78731
(512) 458-8166
RE: Securities Act File No. 33-96334
Investment Company Act File No. 811-09088
February 6, 1997
Securities and Exchange Commission
Washington DC 20549
Attached is a Post-Effective Amendment to make material changes to
the Form N-1A Registration Statement of the Value & Growth
Portfolio of the Texas Capital Value Funds, Inc., for your
consideration.
I would like to highlight the primary material changes to the currently
effective Registration Statement.
1. The Texas Opportunity Fund, a series of the Texas Capital Value
Funds will no longer be offered to shareholders. At this time all
shareholders have either redeemed their shares, or exchanged their
shares into the surviving Value & Growth Portfolio. All references to
the Texas Opportunity Fund have been deleted from the registration
statement.
2. The load has been increased from 3.0% to 4.5%. The appropriate
adjustments have been made in the breakpoints. Please see page 8 of
the prospectus.
Additionally, we have recently filed a Post-Effective Amendment to
update financial statements, which is incorporated by reference into
this document.
Please address your comments to myself and I will coordinate your
comments with counsel.
Thank you for your efforts.
Sincerely yours,
Eric Barden
Eric Barden
Secretary
Texas Capital Value Funds
<PAGE>
Securities Act File No. 33-96334
Investment Company Act File No. 811-09088
Securities And Exchange Commission
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 4
TEXAS CAPITAL VALUE FUNDS, INC
(Exact Name of Registrant as Specified in Charter)
1600 West 38th Street, Suite 412
Austin, TX 78731
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code:
(512)458-8166
Thomas Roberts
The Company Corporation, Inc.
17521 Shenandoah Court
Ashton, Maryland 20861
(Name and Address of Agent for Service)
____________________________________
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b) |_|
On ____ pursuant to paragraph (b) |_|
60 Days after filing pursuant to paragraph (a)(1) |x|
On (date) pursuant to paragraph (a) of rule 485 |_|
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares of beneficial
interest, par value of $.0001 per share, under the 1933 Securities Act.
Registrant paid $437.24 on November 29, 1996 for shares issued in
the previous fiscal year.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of the Registrant General Description of the Fund
Item 5. Management of the Fund Management of the Fund
Item 6. Capital Stock and Other Securities The Company
Item 7. Purchase of Securities Being Offered How to Purchase Shares
Item 8. Redemption or Repurchase How to Redeem Shares in the Fund
Item 9. Pending Legal Proceedings Auditors & Litigation
Part B Information Required in a Statement of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives & Policies
Item 14. Management of the Fund Directors & Officers
Item 15. Control Persons Principal Holders of Securities
and Principal Holders of Securities
Item 16. Investment Advisory and Other Services Investment Advisor
Item 17. Brokerage Allocation Portfolio Transactions
& Brokerage
Item 18. Capital Stock and Other Securities Capital Structure
Item 19. Purchase, Redemption, Pricing Net Asset Value,
How to Redeem Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distribution of the Fund
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Annual Report
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement
<PAGE>
Texas Capital Value Funds, Inc.
1600 W. 38th Street, Suite 412
Austin, Texas 78731
Existing Accounts: 800-628-4077
New Accounts & Information: 888-TEX-GROW
or 512-328-9321
Value & Growth Portfolio
Growth & Income Portfolio
Prospectus April 1, 1997
This prospectus sets forth concisely the information about the
Value & Growth Portfolio, and the Growth & Income
Portfolio (each individually a "Fund", or collectively, the "Funds") that
a prospective investor should know before investing. Each Fund is a
non-diversified, open-end investment series of the Texas Capital Value
Funds, Inc. (the "Company") commonly known as a "mutual fund."
This prospectus should be read and retained for future reference.
If you require more detailed information, a Statement of Additional
Information, dated Jan. 31st, 1997 which has been filed with the
Securities and Exchange Commission and incorporated by reference
into this Prospectus, may be obtained without charge by writing the
above address or calling 1-800-880-0324 .
This Prospectus is not a solicitation by the Company or any Fund for
the sale of shares in any state in which the offering is not authorized.
No person is authorized by the Company to give any information or
make any representation other than those contained herein or in other
printed or written material issued by the Company or the Company's
distributor, and no person is entitled to rely upon any other
information or representation.
Table of Contents
PROSPECTUS SUMMARY 2
TABLE OF FUND EXPENSES 2
FINANCIAL HIGHLIGHTS 3
GENERAL DESCRIPTION OF FUNDS 3
CHARITABLE GIVING 3
INVESTMENT OBJECTIVE 4
RISKS 4
INVESTMENT RESTRICTIONS 5
MANAGEMENT OF THE FUNDS 6
HOW TO PURCHASE SHARES 8
HOW TO REDEEM (SELL) SHARES 9
DISTRIBUTIONS AND TAXES 11
DISTRIBUTION PLAN 11
RETIREMENT PLANS 12
EXCHANGE PRIVILEGES 12
THE COMPANY 12
SHAREHOLDER REPORTS 12
AUDITORS & LITIGATION 12
DETERMINING NET ASSET VALUE 13
FUND PERFORMANCE 13
INFORMATION FOR SHAREHOLDERS 13
Shares in each Fund are not deposits or obligations of, or guaranteed
or endorsed by any bank, and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
1
<PAGE>
Prospectus Summary
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus.
Investment Objective: Value & Growth Portfolio: Capital
appreciation by investing in equity securities of large and small
domestic and foreign corporations.
Growth & Income Portfolio: Capital appreciation and income by
investing in equity securities of large-cap domestic and foreign
corporations paying dividends. See "Investment Objective" on page 3.
Investment Techniques: The Value & Growth Portfolio and the
Growth & Income Portfolio use highly quantitative techniques in the
selection of stocks. The Value & Growth Portfolio seeks capital
appreciation by investing in large and small companies that appear to
be undervalued with the potential to substantially increase their
earnings. The Growth and Income Portfolio seeks capital appreciation
by investing primarily in large-cap companies that yield high
dividends. See "Investment Objective" and "Risks" on pages
3 and 4, respectively.
Risks: There can be no assurance that any Fund will achieve its
investment objectives. Factors which should be considered by an
investor include, but are not limited to, higher than average volatility,
and the Funds' non-diversification policy. See "Risks" on
page 5.
The Advisor: First Austin Capital Management, Inc. manages the
Value & Growth and the Growth & Income Portfolios (the "Advisor"
when such defined term is used in connection with these
Funds). See "Management of the Funds" on page 5.
Distributions/Dividends: Paid annually from available capital gains
and income. Distributions may be reinvested automatically without a
sales charge. See "Distributions and Taxes" on page 11.
Initial and Subsequent Purchases: Initially $1,000, subsequently $100
minimums, although the Advisor may, at its option, temporarily
waive the minimums . For shareholders signed up for the
Autovest Plan, there is no initial minimum. See "How to Purchase
Shares in the Fund" and "Autovest Plan" on pages 8 and 9.
Net Asset Value: The net asset value of the Fund will be available
daily by calling (512) 328-9321 or 1-888-TEX-GROW . See
"Determining Net Asset Value" on page 12.
Charitable Giving: The Advisor of these Funds will donate
up to 10% of the Advisor's earned net proceeds from advisory fees
from the Fund to various charities each year. Shareholders with at
least $15,000 in either Fund will have the opportunity to designate a
charity to which the Adviser will donate. See "Charitable Giving" on
page 3.
Transfers From Other Mutual Funds. Will occur at net asset value
(without sales charges). See "How to Purchase Shares in the Fund",
page 8.
<TABLE>
Table of Fund Expenses
The following table illustrates expenses and fees that a shareholder of
the Funds will incur.
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases 4.5%
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees (a)
Exchange Fees None
<CAPTION>
Annual Fund Operating Expenses
<S> <C>
Management Fees 1.00%
12b-1 Fees (b) . 0.25%
Other expenses 0.70%
Total Fund Operating Expenses 1.95%
</TABLE>
(a) Shareholders pay a $10 charge for redemptions by fed wire
and a $10 charge for redemptions by phone. There are no other
redemption charges.
(b) The level of distribution expenses is 0.25% per annum of the
Fund's average net assets, of which 0.15% of the fee should be
considered a service fee received by the selling broker on an annual
basis for providing the investor with continuing service. The
distribution expense may result in long-term shareholders paying more
than the maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge.
The purpose of this table is to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly as a
shareholder in the Fund.
2
<PAGE>
The following examples illustrate the expenses that an investor
would pay on a $1,000 investment over various time periods assuming
(1) a 5% annual rate of return, and (2) redemption at the end of each
period. As noted in the table above the Funds charge no redemption
fees.
1 Year: $64 3 Years: $104 5 Years: $148 10 Years: $279
These examples should not be considered a representation of past or
future expenses or performances. Actual expenses may be greater or
less than those shown. The advisory fee is higher than that paid by
most mutual funds. Each advisor, at its option, may reduce its fee to
the extent required to limit total annual Fund operating expenses to
the maximum allowed by applicable state laws.
Financial Highlights
The following annual Financial Highlights for the Value &
Growth Portfolio has been audited by Tait, Weller & Baker L.L.P.,
independent certified public accountants. Their report for the fiscal
year ended September 30, 1996 is included in the Annual report of the
Value & Growth Portfolio that is contained in the Fund's Statement of
Additional Information. The Financial Highlights for the Funds
should be read in conjunction with the Financial statements and
related notes included in the Funds' Annual Report. Additional
information about the Fund's performance is contained in the Fund's
Annual Report, which may be obtained without charge by calling or
writing the Texas Capital Value Funds. The following presents
information relating to a share of capital stock of the Value & Growth
Portfolio, outstanding for the entire period.
<TABLE>
VALUE & GROWTH PORTFOLIO
(For a Fund Share Outstanding Throughout the Period)
Period Ended 09/30/96
<S> <C>
Net asset value, beginning of period 10.00
Income from investment operations
Net investment income (loss) (.03)
Net Realized and unrealized gain
(loss) on investments 1.17
Total from investment operations 1.14
Less Distributions from
Net capital gains (.01)
NAV end of period 11.13
Total Return (b) 11.40%
Ratios/ Supplemental Data
Net Assets - End of Period ($000) $1,252
Ratios to average net assets
Expenses 2.20%
Net investment income (loss) (.51)%
Portfolio Turnover 148%
</TABLE>
(a) The Value & Growth Portfolio commenced operations on
November 6, 1995. Total return is not annualized.
(b) Total return represents aggregate total return for the period
indicated and does not reflect the maximum front-end sales
charge.
General Description of Funds
Each Fund is an open-ended, non-diversified series offered by Texas
Capital Value Funds, Inc., a Maryland corporation incorporated on
June 26, 1995, and registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940
Act").
Charitable Giving
First Austin, the Advisor to the Value & Growth Portfolio and the
Growth & Income Portfolio, will donate up to 10% of the Advisor's
earned net proceeds from advisory fees from the Funds to various
charities each year. Shareholders who have shares in either of these
two Funds worth at least $15,000 will have the opportunity to
designate a charity for the Advisor to donate to, although the amount
of any such donation to such designated charity shall be determined by
the Advisor. Any such charities must be non-profit groups as defined
by Section 501 ( c )(3) of the Internal Revenue Code.
Since the Advisor is writing the check, there will be no impact on the
shareholder's holdings in the Fund(s), nor will there be any tax
deductions to any such shareholder.
Investment Objective
Each Fund has a unique investment objective although there are some
aspects common to both of the Funds.
Common Characteristics: For all the Funds, purchase of issues will be
primarily, but not exclusively, listed issues and American Depository
Receipts on the on the New York,
3
<PAGE>
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 Funds. The Funds make no
use of derivatives.
Under normal circumstances, each Fund will have virtually all of its
assets invested in equity securities. However, for temporary defensive
purposes, each Fund may hold cash, money market instruments, notes
or bonds, or enter into repurchase agreements, all of which will be of
investment grade as determined by Moody's Investor's Service, Inc. or
Standard & Poor's Corporation rating agencies.
Unique Characteristics: The Value & Growth Portfolio's primary
investment objective is capital appreciation through the investment in
common stocks and securities convertible into common stocks. The
Advisor attempts to invest in companies which appear to be
undervalued and possess an ability to increase their earnings. No
consideration is given to income of the portfolio holdings. While the
quantitative strategy the Advisor plans to use does not specifically
screen for small companies, test results have shown a large percentage
of companies selected for the Value & Growth Portfolio had market
capitalizations of less than a billion dollars. Smaller companies have
historically performed better than larger companies over long periods,
but also have historically shown higher volatility than larger
companies.
For the Growth & Income Portfolio, the Advisor will invest
primarily in large-cap equity securities of sufficient yield. The ratio of
the price of a stock relative to its dividend yield is considered. The
portfolio will generally be comprised of higher-yielding, large-cap
domestic and foreign companies.
For both portfolios, most of the securities selected are likely to
have much lower ratios in at least one of the categories described in
the next paragraph than the market in general. Academic research
and studies have shown that portfolios with the characteristics of low
price-to-earnings, low price-to-cashflow and low price-to-book ratios
may be associated with higher investment rates of return over long
periods of time. Such an investment strategy may also be subject to
greater investment risk.
For the Value & Growth and the Growth & Income Portfolios, the
Advisor will employ highly structured, computer driven, quantitative
strategies to endeavor to find companies that are likely to perform
well. Such strategies are different than the strategies most advisors
use to select stocks in that the Advisor will give little or no weight to
qualitative factors of securities considered for purchase. For the Value
& Growth Portfolio, fundamental ratios such as the price of a stocks
relative to its earnings (price-to-earnings), the price of a stock relative
to its cashflow (price-to-cashflow) and the price of a stock relative to
its bookvalue or net worth (price-to-book) weigh heavily in the
selection process .
Portfolio Turnover Policy. The Advisor may make changes in the
Funds consistent with each Fund's policies when the Advisor believes
doing so is in the best interest of the Fund it manages. Fund turnover
is expected to be less than 150% per year, which is higher than
average for most funds. High turnover rates increase transaction costs
and may increase taxable capital gains. Each Advisor considers these
effects when evaluating the anticipated benefits of short-term
investing.
Non-diversification Policy. Each Fund is classified as being non-
diversified which means that each Fund may invest no more than 25%
of its total assets in any one issuer other than U.S. government
securities and at the close of each quarter of the taxable year, at least
50% of the value of each Fund must be represented by a) cash and
cash items, including U.S. government securities and b) other
securities of different issuers in which each Fund has invested no more
than 5% of its assets and with respect to which it owns no more than
10% of the outstanding voting securities of the issuer. Each Fund,
therefore, may be more susceptible than a more widely diversified fund
to a single economic, political or regulatory occurrence. Each Fund
seeks only diversification for adequate representation among what it
considers to be the best performing securities and to maintain its
federal non-taxable status under Sub-Chapter M of the Internal
Revenue Code.
Risks
Investment in any mutual fund has inherent risks. There can be no
assurance that the investment objectives of each Fund will be realized
or that the Fund will not decline in value. Economic conditions
change and stock markets are volatile. Moreover, investors should be
aware that certain investment policies of the Funds, such as investing
in smaller capitalization companies, and the Funds' non-diversification
policy can entail greater than average risk. Prior to each Fund's
inception, the advisor had no experience managing investment
companies.
Each Fund may invest up to 33% of its assets in foreign based
companies. Foreign Securities involve certain inherent risks that are
different from those of domestic issuers,
4
<PAGE>
including political or economic instability of the issuer or the country
of issue, diplomatic developments which could affect U.S. investments
in those countries, changes in foreign currency and exchange rates and
the possibility of adverse changes in investment or exchange control
regulations. As a result of these and other factors, foreign securities
purchased by each Fund may be subject to greater price fluctuation
than securities of U.S. companies.
Each Fund may also invest without limitation in fixed income
obligations including cash equivalents (such as bankers' acceptances,
certificates of deposit, commercial paper, short-term government and
corporate obligations and repurchase agreements) for temporary
defensive purposes when the Fund's Advisor believes market
conditions so warrant and for liquidity. If the seller under a
repurchase agreement becomes insolvent, the Fund's right to dispose of
the securities may be restricted or delayed. Lending of securities can
result in a failure to deliver the original securities by the borrower, and
similar risks with respect to disposition of collateral.
Investors should carefully consider such risks and the Fund
characteristics in light of their own financial circumstances. A Fund
is not designed to be a complete investment program for investors. It
must be realized, as is true of almost all securities, there can be no
assurance that a Fund will obtain its ongoing objective of capital
appreciation.
As with any investment strategy, there can be no guarantee of
success.
Investment Restrictions
The Funds have adopted and will follow certain investment policies set
forth below, which are fundamental and may not be changed without
shareholder approval.
(a) Each Fund may not invest more than 25% of its total assets in
the securities of issuers in any one industry. This restriction does not
apply to investments by a Fund in securities of the U.S. Government or
its agencies or instrumentalities.
(b) 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 Fund
securities.
(d) Each Fund may not invest in securities or other assets that the
Board of Directors determines to be illiquid if more than 15% of the
Fund's net assets would be invested in such securities.
(e) Each Fund may not (i) purchase or sell commodities or
commodities contracts (including financial futures and related
options), (ii) invest in oil, gas, or mineral exploration or development
programs or leases, or (iii) purchase securities on margin, except for
such short-term credit as may be necessary for the clearance of
transactions and except for borrowings in amounts not exceeding 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.T's).
(g) Each Fund may not act as an underwriter of securities issued by
others, except to the extent it may be deemed to be an underwriter in
connection with the disposition of Fund securities of each Fund.
(h) The investment in warrants, valued at the lower of cost or
market, may not exceed 5.0% of the value of each Fund's net assets.
Included within that amount, but not to exceed 2.0% of the value of
each Fund's net assets, may be warrants which are not listed on the
New York or American Stock Exchange. Warrants acquired by each
Fund in units or attached to securities may be deemed to be without
value.
(i) Each Fund shall not invest in other open ended management
investment companies.
Management of the Funds
The business and affairs of the Funds are managed under the direction
of the Board of Directors of the Company. The Company's officers
(the "Officers") conduct and supervise the daily business operations of
the Funds. Shareholders have one vote for each share held on matters
on which they are entitled to vote. The Company is not required to
and has no intention of holding annual shareholder meetings, although
special meetings may be called for purposes such as electing or
removing individual members of the Company's Board of Directors
(each individually, a "Director", and collectively the "Directors" or
"Board of Directors") or changing fundamental investment policies or
for any other matter as required by law.
5
<PAGE>
Day-to Day Management. Mark A. Coffelt, Director of the Company
and Chief Investment Officer of the Value & Growth and the Growth
& Income Portfolios, manages the investment program of these two
Funds and is primarily responsible for their day-to-day management.
Directors and Officers. The Directors and Officers are listed below,
together with their principal occupations during at least the past five
years.
Mark A. Coffelt, C.F.A., President of the Texas Capital Value
Funds, Inc. and (Interested) Director, Chief Investment Officer of the
Value & Growth Portfolio and Growth & Income Portfolio and
President of First Austin Capital Management, Inc. Prior to founding
First Austin Capital Management, Inc., in 1987, Mr. Coffelt was
Controller of Racal-Milgo, a data communications company. He is a
graduate of Occidental College, B.A. in economics and a graduate of
the Wharton School, University of Pennsylvania, M.B.A. Mr. Coffelt
is a Chartered Financial Analyst of the Association of Investment
Management and Research.
Janis A. Claflin, Director, is President and owner of Claflin &
Associates, a firm providing business consulting and counseling
services to banks, medical groups, associations, foundations and
individuals. She also serves as Chairperson of the Trustee Program
Committee on the Board of Directors of the Fetzer Institute, a multi-
million dollar foundation which sponsored the Public Broadcasting
Series "Healing and the Mind" with Bill Moyers. She is a licensed
Marriage and Family Therapist and holds a B.A. in English from the
George Peabody College for Teachers and a M.A. from Yale Divinity
School in Religion.
Edward K. Clark, Attorney, CPA, Director, is a practicing tax
attorney with Clark & Clark of Austin, Texas. He has been a partner
in the law firm of McGinnis, Lochridge & Kilgore, L.L.P., and has
also been associated with the firms of Scofield & Clark, P.C., and Ford
& Ferraro, L.L.P., all of Austin. In addition, he has served as the
general counsel and chief financial officer of Jefferson Service
Company, Inc., of Shreveport, Louisiana. Mr. Clark is Board
Certified in Tax Law by the Texas Board of Legal Specialization and
is licensed as a Certified Public Accountant in Texas. He holds a
B.B.A. and a M.P.A. (Master in Professional Accounting) degrees
from the University of Texas at Austin, and a J.D. from the University
of Houston College of Law.
John Henry McDonald, CFP, Director, is President and founder of
Austin Asset Management, a financial planning firm. He holds a CFP
from the College for Financial Planning and is a member of the CFP
Board of Standards for the CFP item writing committee. He currently
serves as President of the Austin Society of Institute of Certified
Financial Planners.
Eric Barden, is the Company's Secretary. He is currently an
investment advisor and Compliance Officer for First Austin Capital
Management, Inc., an Advisor to two of the Funds. He is also a
registered representative with Choice Investments, Inc., the Company's
Distributor. He graduated from the University of Texas, B.A. in
economics and government.
Investment Advisor. First Austin Capital Management, Inc.,
("First Austin") is the advisor to the Value & Growth Portfolio and the
Growth & Income Portfolio The</> Advisor is a
registered investment advisor with the Securities and Exchange
Commission and the State of Texas. First Austin is based in Austin,
Texas at the address of 1600 West 38th Street, Suite 412, Austin,
Texas 78731.
First Austin is owned by Mark A. Coffelt and
Guy D. Coffelt. Mark Coffelt is the Chief Investment Officer of First
Austin, Chairman of the Board of Directors and President of the
Company, and the Fund manager for the Value & Growth Portfolio
and the Growth & Income Portfolio.
On October 24, 1995 the shareholders of the Company approved an
investment advisory and administrative contract with First Austin
which was unanimously approved by the Board at their first meeting
held on July 25, 1995 to manage and administer the Value & Growth
Portfolio.
On June 28, 1996, the Board authorized the creation of a
new series called the Growth & Income Portfolio to be managed and
administered by First Austin.
All advisory agreements are for an original term of one year. After
the original term expires, each advisory agreement will continue on a
year to year basis provided that approval is voted at least annually in
advance by either the Board of Directors or the holders of a majority of
the outstanding voting securities of the respective Fund, but in either
event, the extension of the term of an advisory agreement must also be
approved in advance by a majority of the Directors who are neither
parties to the agreement nor interested persons as defined in the
Investment Company Act of 1940 (the "1940 Act") at a meeting called
for such purpose.
First Austin will also act as the administrator to the Funds. The
administrator provides support services to each Fund including
establishing and maintaining shareholders' accounts and records,
processing purchase and redemption transactions, answering routine
client inquiries regarding the Fund, preparing registration statements,
prospectuses, tax
6
<PAGE>
returns and proxy statements, providing daily valuation of each Fund,
calculating the daily net asset value per share, and providing such
other services to the Fund as the Company may reasonably request.
First Austin may assign administrative services to other groups and
providers without automatic termination of the Agreement.
For such administrative services, the Company has agreed to pay
the Advisor additional fees of 0.70% per year of the net assets of each
Fund for the first $5 million of net assets, declining to 0.20% per year
of net assets in excess of $200 million, and a 12(b)-1 fee of 0.25% to
the Distributor who passes through 0.15% to the broker of record. All
fees are computed on the average daily closing net asset value of each
Fund and are payable monthly.
Advisory Agreement. Under the advisory agreement, the Advisor
will furnish investment advice to the Fund(s) it manages on the basis
of a continuous review of the portfolio and recommend to the
Company when and to what extent securities should be purchased or
disposed of. The advisory agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors or by
vote of a majority of the outstanding voting securities of the respective
Fund on sixty (60) days' prior written notice to the Advisor. In the
event of an assignment by an Advisor of the investment advisory
services under an advisory agreement, as defined in the 1940 Act, the
advisory agreement will terminate automatically. Ultimate decisions
regarding investment policy and individual purchases and sales of
securities are made not by the Advisor but by the Company's Officers
and Directors.
All Fund costs, with the exception of extraordinary legal expenses
as determined by the Board of Directors, brokerage commissions, and
custodial charges based upon transactions in the Fund(s), will be borne
by the Advisor to the Fund(s) as part of fees charged. Marketing
expenses will be primarily borne by the "Distributor" (as defined
below). For advisory services, the Company has agreed to pay the
Advisor a flat fee of 1.00% per year. The advisory fee paid to the
Advisor is higher than that paid by most investment companies.
On-going legal and auditing expenses, federal and state registration
fees, printing expenses for shareholder statements and prospectuses,
and the cost of fidelity bond and other insurance will be borne by the
Advisor as part of its Agreement with the Company for its respective
Fund(s).
From time to time, the Advisor may voluntarily waive a portion of
its fee otherwise payable to it to meet Fund expense limits prescribed
by any state in which the Fund's shares are offered for sale. Currently,
the Company believes that limit is 2.5% of the first $30 million of the
Fund's average net assets, 2.0% of the next $70 million, and 1.5% of
average net assets in excess of $100 million.
Organization Costs. Under the Agreement, the Advisor has
absorbed all of the organization costs for its respective Fund(s).
Accounting and Transfer Agent Services. The Company has
contracted with Fund Services, Inc. (the "Transfer Agent") for transfer
agent services and with Commonwealth Fund Accounting, Inc. for
fund accounting services. The address of the accounting and transfer
agent is 1500 Forest Ave., Suite 111, Richmond, VA 23229. All
shares are held in non-certificated form registered on the books of the
Fund and the Transfer Agent for the account of the shareholder.
Company Distributor. Choice Investments, Inc. is the broker-
dealer and the Fund's underwriter and distributor (the "Distributor").
The address of the Distributor is 5900 Balcones, Suite 100, Austin,
Texas 78731. The phone number of the Distributor is (512) 302-
6099 or toll free (888) TEX-GROW .
Custodian. Bank of Boston, N.A., is each Fund's custodian.
Brokerage. The Company requires all brokers to effect transactions
in Fund securities in such a manner as to get prompt execution of the
orders at the most favorable price. Each Fund will place orders with
brokers who provide research services to the Advisor at commission
rates considered to be reasonable, although higher than the lowest
brokerage rates available, or to brokers who sell shares in the Fund.
No formula for such allocations exists; thus, the respective Fund bears
the cost of such services.
The Advisor also places portfolio transactions for other
advisory accounts. Research services furnished by broker-dealers
which effect securities transactions for the Fund may be used by the
Advisor in servicing all of its advisory accounts and not all such
research services may be used by the Advisor in the management of
the Fund's portfolio. Conversely, research services furnished by
broker-dealers which effect securities transactions for other advisory
accounts may be used by the Advisor in the management of a Fund. In
the opinion of the Advisor, it is not possible to measure separately the
benefits from research services to each advisory account. Because the
volume and nature of the trading activities of the advisory accounts are
not uniform, the amount of commissions in excess of the lowest
available rate paid by each advisory account for brokerage and
research services will vary.
The Advisor seeks to allocate Fund transactions equitably
whenever concurrent decisions are made to purchase or sell
7
<PAGE>
securities for a Fund and other advisory accounts. In some cases, this
procedure could have an adverse effect on the price or the amount of
securities purchased or sold by the Fund. In making such allocations,
the main factors considered by the Advisor are the respective
investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held and the opinions of
the persons responsible for recommending the investment.
How to Purchase Shares
Investors may reduce or eliminate sales charges in various ways as
follows: a) through the aggregation of accounts as single investors
(reduced sales charge); b) by issuing a statement of intention to
purchase more than $50,000 over a thirteen month period (reduced
sales charge); or c) by being a charity or member of a group exempt
from the sales charge. Qualifications for reduced or no sales charges
are described in detail below.
The table below shows the sales charges as a percentage of assets
invested.
<TABLE>
SALES CHARGE AS A PERCENTAGE OF ASSETS INVESTED
<CAPTION>
DEALER
DISCOUNT
AMOUNT OF AS A % OF
TRANSACTION PRICE VALUE PRICE
<S> <C> <C> <C>
Less than $50,000 4.5% 4.71% 4.0%
$50,000 but less than $100,000 4.0% 4.17% 3.5%
$100,00 but less than $250,000 3.5% 3.63% 3.0%
$250,000 but less than $500,000 2.5% 2.56% 2.0%
$500,000 but less than $1 million 2.0% 2.04% 1.5%
$1 Million* + 0% 0% 0.5
</TABLE> *A contingent deferred sales charge of 1% is levied on
redemptions occurring within one year of initial investment. For
purchases of $1 million or greater, the dealer receives an up front
commission of 0.5%.
Aggregation of Accounts as Single Investors. Investors in the
following categories may combine their purchases into a single
transaction to qualify for a reduced sales charge:
1. an individual, his or her spouse and their children under 21
purchasing for his, her or their own account;
2. a trustee or other fiduciary purchasing for a single trust estate or
single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code);
3. employee benefit plans of a single employer or of affiliated
employers.
Statement of Intention (Letter of Intent). An investor may also
obtain the reduced sales charges shown above by expressing in writing
to the Fund an intent to invest $50,000 or more within a thirteen
month period. A form for this purpose can be obtained by writing or
calling the Fund or an investor can write their own letter of intent.
While an investor is not obligated to fulfill a letter of intent, if the
goal is not met, the investor is required to pay the difference between
the sales charge actually paid and the one that would otherwise have
been due had no letter of intent been signed.
Rights of Accumulation. An investor may also obtain a cumulative
quantity discount (known as a right of accumulation) by adding his or
her current purchase to the net asset value (at the close of business on
the previous day) of all shares previously purchased and still owned in
the Fund. The applicable sales charge is then based on this total. To
benefit from any right of accumulation ("ROA"), an investor must
identify any ROA links to other accounts and communicate these links
in writing to the Fund's shareholder service staff.
Investors Exempt from Sales Charges. Certain categories of people
may invest in the Fund without paying a sales charge. These
categories include Charter Shareholders, shareholders meeting the
requirements of a Board approved investment program, qualified
pension or profit sharing plans with ten or more employees, Directors,
Officers and employees of the Company, officers and employees and
clients of the Advisor, officers and employees of the Distributor
(including immediate family members of the above groups and their
retirement plans), representatives registered with the National
Association of Securities Dealers buying for their own account,
discretionary accounts of bank trust departments, registered
investment advisors and their clients where the registered investment
advisor is buying on behalf of the client, and charities and religious
organizations as defined by Section 501(c)(3) of the Internal Revenue
Code.
The Value & Growth Portfolio originally opened without a sales
charge for a period set by the Board of Directors. Applications
received in good order by the Transfer Agent or Distributor through
December 31, 1995 were exempt from the front-end sales charge.
Shareholders buying during that period and buying at least $10,000
worth of the Value & Growth Portfolio were deemed Charter
shareholders.
8
<PAGE>
Charter shareholders will never pay a sales load on any future
investments in the Value & Growth Portfolio, or any other Funds of
the Company.
Transfers From Other Mutual Funds. Transfers of assets from any
open-end investment company will occur at net asset value.
Other Fees. Investors may be charged a transaction or other fee by
an investment adviser, a brokerage firm or other financial institution
in connection with purchases or redemptions of Fund shares at net
asset value (i.e., without a sales charge).
Direct Purchase of Shares. To purchase shares in the Fund an
investor should complete an application form and send it to the
Distributor along with a check payable to:
Texas Capital Value Funds, Inc.
P. O. Box 26305
Richmond, VA 23286-8172
Minimum Investments. A shareholder's initial investment must be
a minimum of $1,000, unless he/she is participating in the Company's
Autovest Plan (see below), where the initial minimum is waived, or
unless the Advisor, at his discretion, temporarily waives the minimum.
The minimum for subsequent investments is at least $100.
Subsequent Investments. With subsequent investments,
shareholders should write the name and number of the account on
their check. Checks do not need to be certified, but are accepted
subject to collection and must be drawn in United States dollars on
United States banks. The investment will be processed at the public
offering price next calculated after receipt of purchase request in good
order.
Autovest Plan. Under the Autovest Plan, there is no initial
minimum, but the shareholder must agree to contribute a minimum of
$1,200 the first year.
On a monthly or quarterly basis, the shareholder's money will be
automatically transferred from such shareholder's bank account to the
shareholder's Fund account on or about the 15th day of each month. A
shareholder can elect this option by filling out the Autovest section on
the new account form. For further information, call the Transfer
Agent at 800-628-4077.
Purchases Through a Broker-Dealer. Shareholders may purchase
shares through their broker-dealer if that broker-dealer has a signed
agreement with the Distributor. Broker-dealers may place orders on
behalf of shareholders by calling the Distributor. Orders will be
processed at the net asset value of the Fund next calculated after
receipt in good order. The broker-dealer is responsible for placing
purchase orders promptly with the Distributor and for forwarding
payment within three (3) business days.
By Wire. Before wiring funds, an investor must call the Transfer
Agent at 1-800-628-4077 to advise the Transfer Agent that such
investor intends to make an initial investment by wire and to receive
an account number. The investor must then proceed as follows: (i)
provide the Transfer Agent with such investor's name and the dollar
amount to be invested, (ii) complete the Fund's account application
(included with this Prospectus), being sure to include the date of the
order and the confirmation number, (iii) mail or deliver the completed
application to the appropriate address shown at the top of the
application, and (iv) request his or her bank to transmit immediately
to the Transfer Agent available funds by wire for the purchase of
shares in the Fund.
Subsequent Investments by Wire. An existing shareholder may
make a subsequent investment by instructing his or her bank to wire
funds as indicated above, commencing with contacting the Transfer
Agent to notify the Transfer Agent of an incoming wire. It is essential
that complete information regarding the shareholder's account be
included in all wire instructions in order to facilitate prompt and
accurate handling of investments.
General. Investors will not be permitted to redeem any shares
purchased with an initial investment made by wire until one (1)
business day after the completed account application is received by the
Fund. All investments must be made in U.S. dollars and drawn on
U.S. banks. Third party checks are not accepted. A charge may be
imposed if any check used for investment does not clear. The Fund
reserves the right to reject any purchase in whole or in part.
If an order, together with payment in proper form, is received by
the Transfer Agent by the close of public trading on the New York
Stock Exchange (currently 4:00 p.m., New York City time), Fund
shares will be purchased at the offering price next determined after the
close of such trading.
How to Redeem (Sell) Shares
A shareholder has the right to have the Fund redeem all or any portion
of his outstanding shares at their current net asset value on each day
the New York Stock Exchange is open for trading. The redemption
price is the net asset value per share next determined after the shares
are validly tendered for redemption. A shareholder may redeem their
shares by offering them for "repurchase" or "redemption" directly to
the Fund or through their dealer.
9
<PAGE>
Direct Redemption. A written request for redemption must be
received by the Fund's Transfer Agent in order to constitute a valid
tender for redemption. For amounts in excess of $5,000, the Fund
requires that the signature(s) on the written request be guaranteed as
specified below. All owners of the account must sign unless the
account application form states that only one signature is necessary for
redemptions. All redemption checks must be sent to the address-of-
record on the account. The Fund usually requires additional
documents when shares are registered in the name of a corporation,
agent or fiduciary if the shareholder is a surviving joint owner. In the
case of a corporation, a corporate resolution signed by the secretary
will be needed. In the case of an agent or fiduciary, a copy of the
death certificate is usually required. The Fund's Transfer Agent can
be contacted at (800) 628-4077 with any questions about requirements
for redeeming shares.
Telephone Redemption. A shareholder may redeem shares by
telephone if such shareholder requested this service at the time the
initial account application was completed. If a shareholder did not
request this service at that time, such shareholder must request
approval of telephone redemption privileges in writing (sent to the
Fund's Transfer Agent) with signature guarantee before shares can be
redeemed by telephone. There is no charge for establishing this
service, but the Transfer Agent will charge such shareholder's account
a $10.00 service fee each time a telephone redemption is made. Once
telephone authorization is in effect, the shareholder may redeem
shares by calling the Transfer Agent at 1-800-628-4077. By
establishing this service, the shareholder authorizes the Transfer
Agent to act upon any telephone instructions it believes to be genuine
to (1) redeem shares from the shareholder's account and (2) mail or
wire redemption proceeds. If the shareholder requests that redemption
proceeds be wired to such shareholder, the Transfer Agent will charge
such shareholder's account with a wire service charge, currently
$10.00. This charge is in addition to the $10.00 service fee for
making a telephone redemption. The amount of these service charges
may be changed at any time, without notice, by the Transfer Agent.
A shareholder cannot redeem shares by telephone if such
shareholder paid for his or her shares with a personal, corporate, or
government check and the payment has been on the books of the Fund
for less than fifteen (15) business days.
If it should become difficult to reach the Transfer Agent by
telephone during periods when market or economic conditions lead to
an unusually large volume of telephone requests, a shareholder may
send a redemption request to the Transfer Agent by overnight mail.
The Fund employs reasonable procedures designed to confirm the
authenticity of the instructions communicated by telephone for, if it
does not, it may be liable for any losses due to unauthorized or
fraudulent transactions. As a result of this policy, a shareholder
authorizing telephone redemption bears the risk of loss which may
result from unauthorized or fraudulent transactions which the Fund
believes to be genuine. When a shareholder requests a telephone
redemption or transfer, he or she will be asked to respond to certain
questions designed to confirm their identity as a shareholder of record.
Cooperation with these procedures will protect the shareholder's
account and the Fund from unauthorized transactions.
Signature Guarantees. To protect each shareholder and the
Company from fraud, signature guarantees are required for: (1) all
redemptions ordered by mail if the shareholder requires that the check
be payable to another person or that the check be mailed to an address
other than the one indicated on the account registration; (2) all
requests to transfer the registration of shares to another owner; and (3)
all authorizations to establish or change telephone redemption service,
other than through the shareholder's initial account application.
In the case of redemption by mail, signature guarantees must
appear either: (1) on the written request for redemption; or (2) on a
separate instrument of assignment (usually referred to as a "stock
power") specifying the total number of shares being redeemed. The
Company may waive these requirements in certain instances.
The following institutions are acceptable signature guarantors: (a)
participants in good standing of the Securities Transfer Agents
Medallion Program ("STAMP"); (b) commercial banks which are
members of the Federal Deposit Insurance Corporation ("F.D.I.C.");
(c) trust companies; (d) firms which are members of a domestic stock
exchange; (e) eligible guarantor institutions qualifying under Rule
17Ad-15 of the Securities Exchange Act of 1934 that are authorized by
charter to provide signature guarantees; (f) foreign branches of any of
the above; (g) the Distributor for the Fund. The Transfer Agent
cannot honor guarantees from notaries public, savings and loan
associations, or savings banks.
General. Payment of the redemption proceeds will be made
promptly, but not later than the seventh (7th) day after the receipt of
all documents in proper form, including the appropriate signature
guarantee.
The Fund may suspend the right of redemption under certain
extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. In the case of shares purchased
by check and redeemed shortly after
10
<PAGE>
purchase, the Fund will not mail redemption proceeds until it has
been notified that the check used for purchase has been collected,
which may take up to fifteen (15) business days from the purchase
date. To minimize or avoid such delay, investors may purchase shares
by certified check or federal funds wire. A redemption may result in
recognition of a gain or loss to the shareholder for Federal income tax
purposes.
Reinvestment Privileges. If a shareholder redeems some or all of
the shareholder's shares and then changes his or her mind, such
shareholder may re-invest them without sales charges at the net asset
value if such shareholder does so within sixty (60) days of the date of
redemption. This privilege may be exercised only once by a
shareholder. However, a shareholder has not used up this one-time
privilege if the sole purpose of a prior redemption was to invest the
proceeds at net asset value in an Individual Retirement Account or
Simplified Employee Pension Plan. If the shareholder realized a gain
on the redemption, the transaction is taxable and reinvestment will not
alter any capital gains tax payable. If there has been a loss on the
redemption, some or all of the loss may not be allowed as a tax
deduction depending on the amount reinvested and the timing of
reinvestment.
Redemption at the Option of the Fund. Due to the relatively high
cost of maintaining smaller accounts, the Fund reserves the right to
redeem shares in any account, other than retirement plan or Uniform
Gifts/Transfers to Minors Act accounts, if at any time, due to
redemptions by the shareholder, the total value of a shareholder's
account does not equal at least $1000. Involuntary redemption will
only result when the shareholder account drops below the minimum
due to redemptions, rather than changes in the net asset value of the
Fund. If the Fund determines to make such an involuntary
redemption, the shareholder will first be notified that the value of his
or her account is less than $1000 and will be allowed 30 days to make
an additional investment to bring the value of his or her account to at
least $1000 before the Company takes any action. The Company
reserves the right to raise minimums at some future date, although it
currently has no plans to do so.
Distributions and Taxes
Under the provisions of Sub-Chapter M of the Internal Revenue Code
of 1986 as amended, each Fund, by paying out substantially all of its
investment income and realized capital gains, intends to be relieved of
federal income tax on the amounts distributed to shareholders. In
order to qualify as a "regulated investment company" under Sub-
Chapter M, at least 90% of each Fund's must be derived from
dividends, interest and gains from security transactions, no more than
30% of each Fund's profits may be derived from sales of securities held
less than three months, and no more than 50% of each Fund's assets
may be in securities holdings that exceed 5% of the total assets of the
Fund at the time of purchase.
Dividends & Distributions. Distribution of any net long term
capital gains realized by each Fund in the Fund's fiscal year and
owned by a shareholder will be taxable to the shareholder as long term
capital gains, regardless of the length of time Fund shares have been
held by the shareholder. All income realized by each Fund owned by a
shareholder including short term capital gains, will be taxable to the
shareholder as ordinary income. Dividends from net income will be
distributed annually or more frequently at the discretion of the
Company's Board of Directors. Dividends received shortly after
purchase of shares by a shareholder will have the effect of reducing the
per share net asset value of such shareholder's shares by the amount of
such dividends or distributions and, although in effect a return of
capital, are subject to federal income taxes.
Dividend Reinvestment. Since each Fund is structured for long
term shareholders, all fund distributions will be reinvested back into
the fund rather than paid out, unless a shareholder requests otherwise.
There is no sales charge for reinvested dividends.
Backup Withholding. The Company is required by Federal law to
withhold 31% of reportable payments (which may include dividends,
capital gains, distributions and redemptions) paid to shareholders who
have not complied with IRS regulations. In order to avoid this
withholding requirement, a shareholder must certify on a W-9 tax
form or other applicable documents supplied by the Company that
such shareholder's Social Security Number is correct and either that
such shareholder is not currently subject to back-up withholding or
that such shareholder is exempt from back-up withholding.
Foreign Income Taxes. Investment income received by each Fund
from sources within foreign countries may be subject to foreign income
taxes withheld at the source. It is not expected that any Fund will be
able to "pass through" these taxes to shareholders but such taxes
generally will be deductible by each Fund.
Distribution Plan
The Company has adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") under which the
11
<PAGE>
Company contracts with registered broker-dealers and their agents to
distribute shares of each Fund.
Registered broker-dealers and their agents who have previously
signed service agreements with the Distributor will be paid 0.15% of
the average daily net assets for those shareholders brought to a Fund
for the period of time those shareholders remain with the Fund. The
Distributor will retain 0.10% of the total 0.25% Rule 12b-1 fee for
such shareholders.
For accounts that come direct to a Fund without a broker-dealer,
the Distributor will, by default, be the shareholder's broker-dealer.
Amounts will be accrued daily and paid monthly. The services
provided by selected broker-dealers pursuant to the Plan are primarily
designed to promote the sale of shares of each Fund and include the
furnishing of office space and equipment, telephone facilities,
personnel and assistance to the Fund in servicing such shareholders.
Retirement Plans
Individual Retirement Accounts. The Company's minimum initial
investment for IRA retirement plans is $1000 with minimum
subsequent investments of $100. The Company offers an Internal
Revenue Service prototype Individual Retirement Account ("IRA")
plan and information is available from the Company or from securities
dealers. Investors should consult a tax advisor before establishing any
retirement plan. The Company's IRA trustee charges an annual fee of
$10 for IRA accounts.
Simplified Employee Pension Plan (SEP/IRA). The Company also
offers a simplified employee pension ("SEP") plan for employers,
including self-employed individuals who wish to purchase Fund shares
with tax-deductible contributions. Contributions to a SEP are
generally allowed to be much higher than an ordinary IRA.
Exchange Privileges
Shareholders may generally exchange shares of one Fund for another
offered by the Company without sales charges. For information on the
availability of any Fund exchange, call the Transfer Agent at 800-628-
4077.
Once an exchange request is made, either by telephone or in
writing, it may not be modified or canceled. The Company reserves
the right to restrict frequent exchanges. Investors will be notified at
least 60 days in advance of any changes in restrictions on the
frequency of exchanges.
Exchanges will be made at the net asset value of the shares to be
redeemed, and the per share net asset value of the shares purchased, in
both cases as next determined after the exchange request is received.
For federal income tax purposes, an exchange of Fund shares is a
taxable event (unless the shares are held in a tax-deferred IRA type
account) and accordingly, the investor may realize a capital gain or
loss. Before making an exchange request, the investor should
determine the tax consequences of a particular exchange.
The Company
The Company is organized as a series fund which permits it to issue
its authorized capital stock in one or more series, each series
representing a separate investment Fund.
The Company's authorized capital stock consists of 100,000,000
(one hundred million) shares of common stock of the par value of
$.0001 each, of which there have been initially allocated 25,000,000
(twenty five million) shares to each Fund. The Board of Directors
may, at its discretion, classify and allocate shares to additional series
within the Company or classify and allocate additional shares to each
Fund without further action by the shareholders. Each share
outstanding entitles the holder to one vote on matters relating to that
Fund. There will normally be no meetings of the shareholders for the
purpose of electing Directors unless and until such time as less than a
majority of the Directors holding office have been elected by
shareholders.
The Value & Growth Portfolio's fiscal year end is September 30th.
The Growth & Income Portfolio's fiscal year is not yet
determined.
Shareholder Reports
Each Fund sends all shareholders annual reports containing certified
financial statements and semiannual reports containing unaudited
financial statements.
Auditors & Litigation
Tait, Weller & Baker, Certified Public Accountants of Philadelphia,
Pennsylvania have been selected as the independent accountants and
auditors of each Fund. Tait, Weller & Baker certify a significant
portion of the mutual funds in America and the auditing firm has no
direct or indirect interest in any Fund or the Advisors. As of the date
of this Prospectus, there was no pending or threatened litigation
involving any Fund in any capacity whatsoever.
12
<PAGE>
Determining Net Asset Value
Pricing of Shares. The net asset value ("NAV") of each Fund's shares
is determined as of the close of business of the New York Stock
Exchange on each business day of which that Exchange is open
(presently 4:00 p.m. New York time) Monday through Friday
exclusive of holidays. The price is determined by dividing the value of
its securities, plus any cash and other assets less all liabilities,
excluding capital and surplus, by the number of shares outstanding.
NAV = (Value of Fund Assets)-(Fund Liabilities)
Number of Outstanding Shares
Fund securities are valued using current market values, if available.
Securities for which market quotations are not readily available are
valued at fair market values as determined in good faith by or under
the supervision of the Officers in accordance with methods which are
specifically authorized by the Board of Directors.
Fund Performance
From time to time, each Fund may advertise its "average annual total
return" over various periods of time. This total return figure shows the
average percentage change in value of an investment in each Fund
from the beginning date of the measurement period to the ending date
of the measurement period. The figure reflects changes in the price of
the Fund's shares including the payment of the maximum sales load
and assumes that any income dividends and/or capital gains
distributions made by the Fund during the period are reinvested in
shares of the Fund. Figures will be given for recent one-, five- and
ten-year periods (when applicable), and may well be given for other
periods as well (such as from commencement of the Fund's operations,
or on a year-by-year basis). When considering "average" total return
figures for periods longer than one year, investors should note that
each Fund's annual total return for any one year in the period might
have been greater or less than the average for the entire period. Each
Fund also may use "aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in the
Fund for the specific period (again reflecting changes in the Fund's
share price and assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by schedules, charts or graphs,
and may be broken down to indicate subtotals of the various
components of total return (that is, the change in value of initial
investment, income dividends, and capital gains distributions).
Each Fund may quote the Fund's average annual total and/or
aggregate total return for various time periods in advertisements or
communications to shareholders. The Fund may also compare its
performance to that of other mutual funds with similar investment
objectives and to stock and other relevant indices or to rankings
prepared by independent services or industry publications. For
example, a Fund's total return may be compared to data prepared by
Lipper Analytical Services, Inc., Morningstar, Value Line Mutual
Fund Survey and CDA Investment Technologies, Inc. Total return
data as reported in such national financial publications as The Wall
Street Journal, The New York Times, Investor's Business Daily, USA
Today, Barron's, Money, and Forbes as well as publications of a local
or regional nature, may be used in comparing Fund performance.
A Fund's total return may also be compared to such indices as the
Dow Jones Industrial Average, the Standard & Poor's 500 Composite
Stock Price Index, the NASDAQ Composite OTC Index or NASDAQ
Industries Index, the Consumer Price Index, the Russell 2000 Index,
or other indices as the Advisors deem appropriate.
Further information on performance measurement may be found in the
Statement of Additional Information which may be obtained from the
Company as described above.
Information for Shareholders
The Company will provide the following statements and reports to
keep the investor current regarding the status of his or her investment
account:
Confirmation Statements. Provided after each transaction that affects
the account balance or account registration of a shareholder.
Account Statements. Provided quarterly.
Financial Reports. Provided at least semiannually. Annual reports
will include audited financial statements. To reduce expenses, one
copy of each report will be mailed to each taxpayer identification
number even though the investor may have more than one account in a
particular Fund.
13a
<PAGE>
TRANSFER AGENT
Fund Services, Inc.
1500 Forest Ave, Suite 111
Richmond, VA 23229
(800) 628-4077-
Call for questions on your account.
DISTRIBUTOR
Choice Investments, Inc.
5900 Balcones Drive, Suite 100
Austin, Texas 78731
(888) TEX-GROW (512) 321-9321
Call for Prospectus or other information.
MAILING ADDRESS
Texas Capital Value Funds, Inc.
P.O. Box 26305
Richmond, VA 23286-8172
INVESTMENT MANAGER
First Austin Capital Management, Inc.
1600 West 38th Street, Suite 412
Austin, Texas 78731
INDEPENDENT AUDITORS
Tait, Weller & Baker
2 Penn Center, Suite 700
Philadelphia, PA 19102-1707
COUNSEL
Law Offices of Susan Braun Rice
27 New Haven
Laguna Niguel, California 92677
CUSTODIAN
Bank of Boston, N.A.
FUND IDENTIFICATION
Value & Growth Portfolio (TCVGX) CUSIP #882241102
Growth & Income Portfolio CUSIP # 882241300
13b
<PAGE>
TEXAS CAPITAL VALUE FUNDS, INC.
Statement of Additional Information
dated April 1, 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 7/5
BOARD OF DIRECTORS COMPENSATION TABLE 8
CONTROL PERSONS N/A
PRINCIPAL HOLDERS OF SECURITIES 9
INVESTMENT ADVISORS 9/6
PORTFOLIO TURNOVER 10/4
PORTFOLIO TRANSACTIONS AND BROKERAGE 10/7
DISTRIBUTION OF THE FUND(S) 11/8&11
PERFORMANCE INFORMATION 12/3
TAX STATUS 14/11
NET ASSET VALUE 16/13
CAPITAL STRUCTURE 17/12
HOW TO REDEEM SHARES 18/9
RATINGS OF INVESTMENT SECURITIES 18
LATEST ANNUAL REPORT 20
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.
1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Each Fund has a unique investment objective although there are some
aspects common to all of the Fund(s).
Common Characteristics: For all the Fund(s), purchase of issues will
be primarily, but not exclusively, listed issues and American
Depository Receipts on the on the New York, American and NASDAQ
exchanges and may include up to 33% foreign based companies.
The Advisor does not use techniques such as borrowing, hedging, or
short sales in the management of the Fund(s). The Fund(s) make no
use of derivatives.
Under normal circumstances, each Fund will have virtually all of its
assets invested in equity securities. However, for temporary defensive
purposes, each Fund may hold cash, money market instruments, notes
or bonds, or enter into repurchase agreements, all of which will be of
investment grade as determined by Moody's Investor's Service, Inc. or
Standard & Poor's Corporation rating agencies.
Unique Characteristics of the Value & Growth Portfolio and Growth &
income Portfolio. Each Fund's primary investment objective is capital
appreciation through the investment in common stocks and securities
convertible into common stocks. For the Value & Growth Portfolio no
consideration is given to income of the Fund(s) holdings.
For the Growth & Income Portfolio, the Advisor does take into
consideration the income of Fund holdings.
For both Funds, the Advisor will employ highly structured, computer
driven, quantitative strategies to endeavor to find companies that are
likely to perform well. Such strategies are different than the strategies
most advisors use to select stocks in that the Advisor will give little or
no weight to qualitative factors of securities considered for purchase.
Fundamental ratios such as the price of a stocks relative to its earnings
(price-to-earnings), the price of a stock relative to its 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.
2
<PAGE>
Investment Restrictions
The Fund(s) have adopted and will follow certain investment policies
set forth below, which are fundamental and may not be changed
without shareholder approval.
(a) Each Fund may not invest more than 25% of its total assets in
the securities of issuers in any one industry. This restriction does not
apply to investments by a Fund in securities of the U.S. Government or
its agencies or instrumentalities.
(b) Each Fund may not issue senior securities or borrow money
except for temporary purposes in amounts up to 10% of its net assets
(including the amount borrowed) less liabilities (not including the
amount borrowed) at the time of such borrowing, provided that
collateral arrangements with respect to permitted instruments shall not
be deemed to entail the issuance of senior securities if appropriately
covered. Each Fund will not make any investments while outstanding
borrowings exceed 5% of the value of its total assets.
(c) Each Fund may not make loans, although it may invest in
debt securities, enter into repurchase agreements and lend its portfolio
securities.
(d) Each Fund may not invest in securities or other assets that the
Board of Directors determines to be illiquid if more than 15% of the
Fund(s)'s net assets would be invested in such securities.
(e) Each Fund may not (i) purchase or sell commodities or
commodities contracts (including financial futures and related
options), (ii) invest in oil, gas, or mineral exploration or development
programs or leases, or (iii) purchase securities on margin, except for
such short-term credit as may be necessary for the clearance of
transactions and except for borrowings in amounts not exceeding 10%
of its net assets.
(f) Each Fund may not purchase or sell real estate or make real
estate mortgage loans or invest in real estate limited partnerships,
except that each Fund may purchase or sell securities issued by entities
in the real estate industry or instruments backed by real estate such as,
but not limited to, Real Estate Investment Trusts (R.E.I.T's).
(g) Each Fund may not act as an underwriter of securities issued
by others, except to the extent it may be deemed to be an underwriter
in connection with the disposition of Fund securities of each Fund.
(h) The investment in warrants, valued at the lower of cost or
market, may not exceed 5.0% of the value of each Fund's net assets.
Included within that amount, but not to exceed 2.0% of the value of
each Fund's net assets, may be warrants which are not listed on the
New York or American Stock Exchange. Warrants acquired by each
Fund in units or attached to securities may be deemed to be without
value.
The foregoing restrictions may not be changed for any Fund without
the approval of a majority of that Fund's outstanding voting securities.
As used in this Statement of Additional Information, a majority of the
Fund(s)' outstanding voting securities means the lesser of (a) more
3
<PAGE>
than 50% of its outstanding voting securities, or (b) 67% or more of
the voting securities present at a meeting at which more than 50% of
the outstanding voting securities are present or represented by proxy.
The Fund(s)' investment objectives, as well as those policies and
restrictions which are not fundamental, may be modified by the Board
of Directors without shareholder approval if, in the reasonable exercise
of the Board of Director's business judgment, modification is
determined to be necessary or appropriate to carry out the Fund(s)'
objectives. However, the Fund(s) will not change its investment
policies or restrictions without written notice to shareholders.
In order to permit the sale of the Fund(s)' shares in certain states, the
Fund(s) may make commitments with respect to the Fund(s) which are
more restrictive than the investment policies listed above and in the
Prospectus. Should the Fund(s) determine that any commitment made
to permit the sale of the Fund(s)' shares in any state is no longer in the
best interests of the Fund(s), it will revoke the commitment by
terminating sales of the Fund(s)' shares in the state involved.
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 & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's") or that are
determined by the investment advisor to be of equivalent quality.
Investments in convertible securities may provide incidental income
through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
Convertible debt securities and convertible preferred stocks, until
converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest
rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as
the market value of the underlying common stocks changes, and,
therefore, also tends to follow movements in the general market for
equity securities. As the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same
extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying
common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
4
<PAGE>
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
5
<PAGE>
foreign countries may be less reliable than within the United States
thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates portfolio securities. Individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments
position.
Because investments in foreign securities will usually involve
currencies of foreign countries and because the Fund(s) may hold
foreign currencies, the value of the assets of the Fund(s) as measured
in U.S. dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and
the Fund(s) may incur costs in connection with conversions between
various currencies. Although the Fund(s) values its assets daily in
terms of U.S. dollars, the Fund(s) do not intend to convert its holdings
of foreign currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund(s) at one rate, while offering a lesser rate
of exchange should the Fund(s) desire to resell that currency to the
dealer. The Fund(s) will conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market.
General Characteristics of Securities Lending.
In compliance with Securities and Exchange Commission guidelines,
any loans by the Fund(s) of securities in its portfolio would be required
to be secured with collateral (consisting of any combination of U.S.
currency, securities issued or guaranteed by the United States
Government or any agency thereof, or irrevocable letters of credit or
other debt securities issued by entities rated within the two highest
grades assigned by S&P or Moody's or which are determined by the
investment advisor to be of equivalent quality).
The borrower must agree to add to such collateral to cover increases in
the market value of the loaned securities and the Fund(s) must be
entitled to terminate any loan at any time, with the borrower obligated
to redeliver borrowed securities within five trading days. The
borrower must agree that the Fund(s) will receive all dividends,
interest or other distributions on loaned securities and the Fund(s)
must be able to vote loaned securities whenever the right to vote is
material to the Fund(s)'s performance.
Investment in Unseasoned Issuers.
The Fund(s) may invest in securities of issuers which have a record of
less than three (3) years of continuous operation, including the
operation of any predecessor business of a company which came into
existence as a result of a merger, consolidation, reorganization or
purchase of substantially all of the assets of such predecessor business,
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.
6
<PAGE>
DIRECTORS AND OFFICERS
The Directors and Officers of the Fund(s), their positions held with the
Fund(s) and their principal occupations during the past five years are
set forth below.
Mark A. Coffelt, C.F.A.
4201 Long Champ Drive
Austin, Texas 78746
Chairman and President of the Texas Capital Value Funds, Inc. and
(Interested) Director, Chief Investment Officer of the Value & Growth
Portfolio and Growth & Income Portfolio.
Principal Occupations During Past Five Years
President of First Austin Capital Management, Inc. (1988-Present)
Occidental College, B.A. economics
Wharton School, University of Pennsylvania, MBA
Chartered Financial Analyst of the Association of Investment
Management and Research.
Janis A. Claflin,
2508 Timberline
Austin, Texas 78746
Director
Principal Occupations During Past Five Years
President and owner of Claflin & Associates (1985-Present)
Chairperson of the Trustee Program Committee on the Board of
Directors of the Fetzer Institute (1987-Present)
Licensed Marriage and Family Therapist
George Peabody College for Teachers, B.A. in English
Yale Divinity School in Religion, M.A. in Religion.
Edward K. Clark, Attorney, CPA
605 Coquina Lane
Austin, Texas 78746
Director
Principal Occupations During Past Five Years
Clark & Clark of Austin, Texas (1995-Present)
Sole Practitioner (1994-1995)
Partner, McGinnis, Lockridge & Kilgore L.L.P. (1993-1994)
Scofield & Clark, P.C. (1991-1992)
Ford & Ferraro, L.L.P. (1991-1992)
General Counsel/Chief Financial Officer of Jefferson Service
Company, Inc. Board Certified in Tax Law by the Texas Board of
Legal Specialization
Certified Public Accountant
University of Texas, B.B.A. and M.P.A. (Master in Professional
Accounting) University of Houston College of Law, J.D.
John Henry McDonald, CFP
4411 Spicewood, #603
Austin, TX 78759
7
<PAGE>
Director
Principal Occupations During Past Five Years
President and founder of Austin Asset Management( 1990-Present)
CFP from the College for Financial Planning
Member of the CFP Board of Standards
President of the Austin Society of Institute of Certified Financial
Planners.
Eric Barden
4605 Ave. A, Apt 111
Austin, TX 78751
Secretary, Texas Capital Value Funds, Inc. (1996-Present)
Principal Occupations During Past Five Years
Compliance Officer of First Austin Capital Management, Inc. (1995-
Present)
University of Texas, B.A. in economics and government
Note: "Director (Interested)" denotes a Director of the Company who
is "interested person" of the Company, as defined in the Investment
Company Act of 1940 (the "1940 Act"). The Directors of the Fund
who are officers or employees of the investment advisors or the
Distributor receive no remuneration from the Fund(s). Each of the
other Directors is paid an annual retainer of $3,000 and is
reimbursed for expenses of attending meetings.
<TABLE>
BOARD OF DIRECTORS COMPENSATION TABLE
COMPENSATION TABLE
<CAPTION>
NAME & AGGREGATE PENSION ESTIMATED TOTAL
POSITION COMPENSATION BENEFITS RETIREMENT COMP
BENEFITS
<S> <C> <C> <C> <C>
Mark A. Coffelt $0 $0 $0 $0
President &
Chief Investment
Officer
Edward D. Clark $3,000* $0 $0 $3,000
Director
John Henry McDonald $3,000* $0 $0 $3,000
Director
Janis Claflin $3,000* $0 $0 $3,000
Director
</TABLE>
Such compensation is paid by the Adviser as part of the administrative
expense to the Fund.
8
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of the end of the fiscal year, officers and directors of the Texas
Capital Value Funds, Inc., owned 16.6% of all outstanding securities.
7To the knowledge of the Fund's management, as of September 30,
1996, the persons owning beneficially more than 5% of the
outstanding shares of the Fund were as follows:
Mr. Mark Coffelt 12.8%
1600 West 38th Street Suite 412
Austin, TX 78731
Mr. Jim Kaighin, 11.7%
5900 Balcones Drive, Suite 100
Austin, TX 78731
Coffelt Family L.P. 8.9%
1600 West 38th Street Suite 412
Austin, TX 78731
INVESTMENT ADVISOR
First Austin Capital Management is controlled by Mark A. Coffelt and
Guy D. Coffelt who each own 50% of the outstanding shares of First
Austin Capital Management. Mark A. Coffelt is the President of
Texas Capital Value Funds, Inc., Chief Investment Officer of the
Value & Growth Portfolio and the Growth & Income Portfolio, as well
as President and Chief Investment Officer of First Austin Capital
Management, Inc. Guy D. Coffelt is retired from First Austin Capital
Management, Inc. Eric D Barden serves as Secretary of Texas
Capital Value Funds, Inc., and is an assistant portfolio manager for
the Value & Growth Portfolio and the Growth & Income Portfolio, as
well as Compliance Officer and investment adviser for First Austin
Capital Management.
The Fund has an investment advisory agreement with the Advisor,
pursuant to which the Advisor receives a fee, computed daily, at an
annual rate of 1.0% of the average daily net assets.
The Advisor provides continuous supervision of the investment
portfolio and pays the cost of compensation of the officers of the Fund,
occupancy and certain clerical and administrative costs involved in the
day to day operations of the Fund.
Under the investment advisory agreement, if the aggregate expenses of
the Fund (including the fees to the Advisor but excluding taxes,
interest, brokerage fees and commissions, distribution fee and
extraordinary expenses) exceed the limitations imposed by state
securities administrators, the Advisor, at its option, may reduce its fee
by the amount of such excess.
In addition, the Advisor is acting as the administrator to the Fund.
For these services, the Advisor receives a fee, computed daily at an
annual rate of .70% of the average daily net assets. The
administrator's fee was reduced from .90% to .70%, effective August
28, 1996.
9
<PAGE>
For the year ended September 30th, 1996 First Austin was paid a
management fee of $7,588, and $6,605.87 for administrative
expenses.
PORTFOLIO TURNOVER
While it is difficult to predict, the Advisor expects that the annual
portfolio turnover rate of the Fund(s) will not exceed 150%. A greater
rate may be experienced during periods of marketplace volatility
which necessitates more active trading. A higher portfolio turnover
rate involves greater transaction costs to the Fund(s) and may result in
the realization of net capital gains which would be taxable to
shareholders when distributed.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund(s) and negotiation of its brokerage commission
rates are made by the investment advisor. Transactions on United
States stock exchanges involve the payment by the Fund(s) of
negotiated brokerage commissions. There is generally no stated
commission in the case of securities traded in the over-the-counter
market but the price paid by the Fund(s) usually includes an
undisclosed dealer commission or mark-up. In certain instances, the
Fund(s) may make purchases of underwritten issues at prices which
include underwriting fees.
In selecting a broker to execute each particular transaction, the
investment advisor will take the following into consideration: the best
net price available; the reliability, integrity and financial condition of
the broker; the size of and difficulty in executing the order; the value
of the expected contribution of the broker to the investment
performance of the Fund(s) on a continuing basis as well as the
expected contribution of the broker in selling shares of the Fund(s).
Accordingly, the cost of the brokerage commissions to the Fund(s) in
any transaction may be greater than that available from other brokers
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. For example, the investment advisor will
consider the research and investment services provided by brokers or
dealers who effect or are parties to portfolio transactions of the Fund(s)
or the investment advisor's other clients.
Such research and investment services include statistical and economic
data and research reports on particular companies and industries as
well as research software. Subject to such policies and procedures as
the Directors may determine, the investment advisor shall not be
deemed to have acted unlawfully or to have breached any duty solely
by reason of its having caused the Fund(s) to pay a broker that
provides research services to the investment advisor an amount of
commission for effecting a portfolio investment transaction in excess
of the amount another broker would have charged for effecting that
transaction, if the investment advisor determines in good faith that
such amount of commission was reasonable in relation to the value of
the research services provided by such broker viewed in terms of either
that particular transaction or the investment advisor's ongoing
responsibilities with respect to the Fund(s).
10
<PAGE>
Research and investment information is provided by these and other
brokers at no cost to the investment advisor and is available for the
benefit of other accounts advised by the investment advisor and its
affiliates, and not all of the information will be used in connection
with the Fund(s). While this information may be useful in varying
degrees and may tend to reduce the investment advisor's expenses, it is
not possible to estimate its value and, in the opinion of the investment
advisor, it does not reduce the investment advisor's expenses in a
determinable amount. The extent to which the investment advisor
makes use of statistical, research and other services furnished by
brokers is considered by the investment advisor in the allocation of
brokerage business but there is no formula by which such business is
allocated. The investment advisor does so in accordance with its
judgment of the best interests of the Fund and its shareholders.
For the period from inception to the end of the fiscal year
(9/30/96), the Fund paid Choice Investments, the distributor of the
Fund, $4,111 in brokerage commissions for securities bought and sold
by the Fund. These commissions comprise 31% of the aggregate
brokerage commissions paid by the Fund over this period. These
commissions purchased 29% of the aggregate dollar amount of
transactions involving the payment of commissions by the Fund.
DISTRIBUTION OF THE FUND(S)
The Company has entered into a distribution agreement with Choice
Investments, Inc., to act as the principal underwriter of the shares of
the Fund(s). The Distributor agrees to use its best efforts to promote,
offer for sale and sell the shares of the Fund(s) to the public on a
continuous basis whenever and wherever it is legally authorized to do
so. For the period from inception to the end of the fiscal year
(9/30/96), the distributor was paid $2,351. Of this, $315 was retained
as a distributor commission.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act under which the Company contracts with
registered broker-dealers and their agents to distribute shares of the
Fund. The distribution fee was reduced from .35% to .25%, effective
August 28, 1996. For the period ending September 30, 1996, the
amount paid to the Distributor was $2,544. Eric Barden, the Secretary
of the Company, and a registered representative with Choice
Investments, received a portion of the distribution fee as result of his
distribution of shares of the Fund.
<TABLE>
<CAPTION>
Net Discounts Repurchase Brokerage Other
Underwriter and comm Comp Commission Comp.
<S> <C> <C> <C> <C>
Choice Invsts $2,351 N/A $4,111 N/A
</TABLE>
11
<PAGE>
<TABLE>
PERFORMANCE INFORMATION
<CAPTION>
Value & Growth Portfolio Returns
Total Return* Annual Return
<S> <C> <C>
Inception to 9-30-96 11.40% N/A
</TABLE>
*Returns assume the reinvestment of all distributions. Including the
cost of the maximum sales charge of 4.5%, the total return would have
been 6.6%. Inception was 11-06-95.
From time to time, quotations of the Fund(s)'s performance may be
included in advertisements, sales literature or reports to shareholders
or prospective investors. These performance figures are calculated in
the following manner.
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for periods of one year, five years and ten years, all ending on
the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund(s)'s shares and
assume that all dividends and capital gains distributions during the
respective periods were reinvested in Fund shares. Average annual
total return is calculated by computing the average annual compound
rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
P(1 + T)n = ERV
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
Performance, assuming the maximum sales load of 4.5% is
computed as follows:
$1,000(1+.066).8877 = $1,058.38
Where $1,000 is the initial amount invested, .066 is the total return
since inception, after deducting a front-end sales charge of 4.5%, and
.8877 is the number of years for which the return is calculated.
$1,058.38 is the Period Ending Redeemable Value at the end of the
fiscal year. The fund was effective on November 6, 1995, and the
period for which the return has been calculated ended on September
30th, 1996.
12
<PAGE>
It should be noted that average annual total return is based on
historical earnings and is not intended to indicate future performance.
Average annual total return for the Fund(s) will vary based on changes
in market conditions and the level of the Fund(s)'s expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund(s) may also compare
these figures to the performance of other mutual funds tracked by
mutual fund rating services or to unmanaged indices which may
assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same
manner. Since there are different methods of calculating performance,
investors should consider the effect of the methods used to calculate
performance when comparing performance of the Fund(s) with
performance quoted with respect to other investment companies or
types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund(s) may compare its performance to
the performance of unmanaged indices which may assume
reinvestment of dividends or interest but generally do not reflect
deductions for administrative and management costs. Examples
include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, Standard & Poor's 500 Composite Stock Price
Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, and the Russell 2000 Index.
From time to time, in advertising, marketing and other Fund
literature, the performance of the Fund(s) may be compared to the
performance of broad groups of mutual funds with similar goals, as
tracked by independent organizations such as Investment Company
Data, Inc., Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Morningstar, Inc., Value Line Mutual Fund Survey
and other independent organizations. When these organizations'
tracking results are used, the Fund(s) will be compared to the
appropriate fund category, that is, by fund objective and portfolio
holdings or the appropriate volatility grouping, where volatility is a
measure of the Fund(s)'s risk. From time to time, the average price-
earnings ratio and other attributes of the Fund(s)'s or the model
portfolio's securities may be compared to the average price-earnings
ratio and other attributes of the securities that comprise the S&P 500.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to
retirement planning in order to estimate future payouts of social
security benefits. Estimates may be used of demographic and
economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the
Fund(s). The description may include a "risk/return spectrum" which
compares the Fund(s) to broad categories of funds, such as money
market, bond or equity funds, in terms of potential risks and returns.
Money Market funds are designed to maintain a constant $1.00 share
price and have a fluctuating yield. Share price, yield and total return
13
<PAGE>
of a bond fund will fluctuate. The share price and return of an equity
fund also will fluctuate. The description may also compare the
Fund(s) to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the
U.S. government and offer a fixed rate of return. Risk/return
spectrums also may depict funds that invest in both domestic and
foreign securities or a combination of bond and equity securities.
TAX STATUS
The Fund(s) intends to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Fund(s) generally must,
among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale or other disposition of
stock, securities or foreign currencies, and other income derived from
its business of investing in such stock, securities or currencies; (b)
derive in each taxable year less than 30% of its gross income from the
sale or other disposition of certain assets held less than three months,
namely: (i) stock or securities; (ii) options, futures, or forward
contracts (other than those on foreign currencies); or (iii) foreign
currencies (or options, futures, or forward contracts on foreign
currencies) that are not directly related to the Fund(s)'s principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) (the "30% Limitation"); and diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of
the market value of the Fund(s)'s assets is represented by cash, U.S.
Government securities, the securities of other regulated investment
companies and other securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than 5% of the
value of the Fund(s)'s total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than
U.S. Government securities and the securities of other regulated
investment companies).
As a regulated investment company, the Fund(s) generally will not be
subject to U.S. federal income tax on income and gains that it
distributes to shareholders, if at least 90% of the Fund(s)'s investment
company taxable income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains
over net long-term capital losses) for the taxable year is distributed.
The Fund(s) intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible
4% excise tax at the Fund(s) level. To avoid the tax, the Fund(s) must
distribute during each calendar year an amount equal to the sum of (1)
at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for
14
<PAGE>
previous years that were not distributed during such years. To avoid
application of the excise tax, the Fund(s) intends to make
distributions in accordance with the calendar year distribution
requirement. A distribution will be treated as paid on December 31 of
the current calendar year if it is declared by the Fund(s) in October,
November or December of that year with a record date in such a
month, and paid by the Fund(s) during January of the following year.
Such distributions will be taxable to shareholders in the calendar year
in which the distributions are declared rather than the calendar year in
which the distributions are received.
Currency Fluctuations-"Section 988" Gains or Losses
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund(s) accrues income or other
receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund(s) actually collects such
receivables or pays such liabilities generally are treated as ordinary
income or ordinary loss. Similarly, on disposition of some
investments, including debt securities, gains or losses attributable to
fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary
gain or loss. These gains and losses, referred to under the Code as
"section 988" gains or losses, increase or decrease the amount of the
Fund(s)'s investment company taxable income available to be
distributed to its shareholders as ordinary income. If section 988
losses exceed other investment company taxable income during a
taxable year, the Fund(s) would not be able to make any ordinary
dividend distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares.
Dividends paid by the Fund(s) to a corporate shareholder, to the extent
such dividends are attributable to dividends received from U.S.
corporations by the Fund(s), may qualify for the dividends received
deduction. However, the revised alternative minimum tax applicable
to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-
term capital gains over net short-term capital losses), if any,
designated by the Fund(s) as capital gain dividends, are taxable as
long-term capital gains, whether paid in cash or in shares, regardless
of how long the shareholder has held the Fund(s)'s shares, and are not
eligible for the dividends received deduction. Shareholders will be
notified annually as to the U.S. federal tax status of distributions, and
shareholders receiving distributions in the form of newly issued shares
will receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by the Fund(s), such distribution generally
will be taxable even though it represents a return of invested capital.
Investors should be careful to consider the tax implications of buying
shares of the Fund(s) just prior to a distribution. The price of shares
purchased at this time may reflect the amount of the forthcoming
15
<PAGE>
distribution. Those purchasing just prior to a distribution will receive
a distribution which generally will be taxable to them.
Upon a redemption, sale or exchange of a shareholder's shares of the
Fund(s), such shareholder will realize a taxable gain or loss depending
upon his or her basis in the shares. A gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and generally will be long-term or short-term depending upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the
shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days, beginning 30 days before and
ending 30 days after the day the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the disposition
of the Fund(s)'s shares held by the shareholder for six months or less
will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as
having been received by the shareholder with respect to such shares.
The Fund(s) will be required to report to the Internal Revenue Service
(the "IRS") all distributions and gross proceeds from the redemption of
the Fund(s)' shares, except in the case of certain exempt shareholders.
All distributions and proceeds from the redemption of Fund shares will
be subject to withholding of federal income tax at a rate of 31%
("backup withholding") in the case of non-exempt shareholders if (1)
the shareholder fails to furnish the Fund(s) with the shareholder's
correct taxpayer identification number or social security number and to
certify the same as correct, (2) the IRS notifies the shareholder or the
Fund(s) that the shareholder has failed to report properly certain
interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. If the
withholding provisions are applicable, any such distributions or
proceeds, whether reinvested in additional shares or taken in cash, will
be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly
from those summarized above. This discussion does not purport to
deal with all of the tax consequences applicable to the Fund(s) or
shareholders. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in a Fund.
NET ASSET VALUE
The Fund(s)' net asset value per share will be calculated separately
from the per share net asset value of any other fund of the Company.
"Assets belonging to" a fund consist of the consideration received upon
the issuance of shares of the particular fund together with all net
investment income, earnings, profits, realized gains/losses and
proceeds derived from the investment thereof, including any proceeds
from the sale of such investments, any funds or payments derived from
any reinvestment of such proceeds, and a portion of any general assets
16
<PAGE>
of the Company not belonging to a particular series. Each fund of the
Company will be charged with the direct liabilities of that fund and
with a share of the general liabilities of the Company's funds. Subject
to the provisions of the Articles of Incorporation and the Bylaws of the
Company, determinations by the Directors as to the direct and
allocable expenses and the allocable portion of any general assets with
respect to a particular fund are conclusive.
CAPITAL STRUCTURE
The Company is an open-end management investment company
organized as a Maryland corporation on June 26th, 1995. The
Company's Articles of Incorporation authorize the Board of Directors
to issue shares of common stock, par value $.0001 per share. Twenty-
Five million shares of the Company's authorized common stock have
been initially allocated to each Fund. Each share of the Fund(s) has
equal voting, dividend, distribution and liquidation rights.
Shares of the Company have no preemptive rights and only such
conversion or exchange rights as the Board may grant in its discretion.
When issued for payment as described in the Prospectus, the
Company's shares will be fully paid and non-assessable.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the
aggregate and not by class or series except as otherwise required by the
1940 Act or the Maryland General Corporation Law.
Rule l8f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an
investment company such as the Company shall not be deemed to have
been effectively acted upon unless approved by a majority of the
outstanding shares of each fund of the Company affected by the
matter. A fund is affected by a matter unless it is clear that the
interests of each fund in the matter are substantially identical or that
the matter does not affect any interest of such fund. Under Rule l8f-2,
the approval of an investment advisory agreement or 12b-1
distribution plan or any change in a fundamental investment policy
would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, the
Rule also provides that the ratification of independent public
accountants, the approval of principal underwriting contracts and the
election of Directors may be effectively acted upon by shareholders of
the Company voting without regard to particular funds.
Notwithstanding any provision of the Maryland General Corporation
Law requiring for any purpose the concurrence of a proportion greater
than a majority of all votes entitled to be cast at a meeting at which a
quorum is present, the affirmative vote of the holders of a majority of
the total number of shares of the Company outstanding (or of a class or
series of the Company, as applicable) will be effective, except to the
extent otherwise required by the 1940 Act and rules thereunder. In
addition, the Articles of Incorporation provide that, to the extent
consistent with the General Corporation Law of Maryland and other
applicable law, the Bylaws of the Company may provide for
authorization to be given by the affirmative vote of the holders of less
17
<PAGE>
than a majority of the total number of shares of the Company
outstanding (or of a class or series).
HOW TO REDEEM SHARES
The right of redemption may be suspended by the Fund(s), or the date
of payment postponed by the Fund(s), beyond the normal seven-day
period, under the following conditions authorized by the 1940 Act: (1)
for any period (a) during which the New York Stock Exchange is
closed, other than customary weekend or holiday closings, or (b)
during which trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund(s) of securities owned by it is not
reasonably practical, or (b) it is not reasonably practical for the
Fund(s) to determine the fair value of its net assets; and (3) for such
other periods as the Securities and Exchange Commission may by
order permit for the protection of the Fund(s)' shareholders.
The value of shares of the Fund(s) on redemption may be more or less
than the shareholder's cost, depending upon the market value of the
Fund(s)' assets at the time. Shareholders should note that if a loss has
been realized on the sale of shares of the Fund(s), the loss may be
disallowed for tax purposes if shares of the same Fund are purchased
within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in
the opinion of the Board of Directors, make it undesirable for the
Fund(s) to pay for redemptions in cash. In such cases the Board may
authorize payment to be made in portfolio securities of the Fund(s).
However, the Fund(s) has obligated itself under the 1940 Act to
redeem for cash all shares presented for redemption by any one
shareholder up to $250,000 (or 1% of the Fund(s)'s net assets if that is
less) in any 90-day period. Securities delivered in payment of
redemptions are valued at the same value assigned to them in
computing the net asset value per share. Shareholders receiving such
securities generally will incur brokerage costs on their sales.
RATINGS OF INVESTMENT SECURITIES
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are
general and are not absolute standards of quality or guarantees as to
the creditworthiness of an issuer. Consequently, the Fund(s)'
investment advisor believes that the quality of debt securities in which
the Fund(s) invests should be continuously reviewed. A rating is not a
recommendation to purchase, sell or hold a security, because it does
not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the
ratings services from other sources which they consider reliable.
Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other reasons.
18
<PAGE>
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. and Standard & Poor's Corporation.
Moody's Investors Service, Inc. Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. Although the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the Fund(s)amentally strong
position of such bonds.
Aa: Bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa bonds or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risk appear
somewhat larger than in Aaa bonds.
A: Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
uncharacteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa: Bonds rated Caa are of poor standing. Such bonds may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a
high degree. Such bonds are often in default or have other marked
shortcomings.
Standard & Poor's Corporation Rating
19
<PAGE>
AAA: Bonds rated AAA have the highest rating. Capacity to pay
principal and interest is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay principal and
interest for bonds in this capacity than for bonds in higher rated
categories.
BB-B-CCC-CC: Bonds rated BB, B, CCC and CC are regarded on
balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation
among such bonds and CC the highest degree of speculation.
Although such bonds
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
ANNUAL REPORT FOR PERIOD ENDING SEPTEMBER 30, 1996
Fund Facts
Did you know?
* Transfers are always at NAV, meaning you never pay a sales charge
for a transfer from another mutual fund.
* The largest shareholder of the Value & Growth Portfolio is its
manager.
* Every year the Advisor to the Fund donates up to 10% of the
management fee profits to various charities. If you have more than
$15,000 in the Fund, we would like to know what charity is important
to you. For 1996, shareholders designated the following charities:
For the Love of Christi
Boy Scouts of America
Alzheimer's Association of Austin
Texas Baptist Children's Home
Children's Hospital of Austin
at Brackenridge
St. Vincent De Paul Society
Christian Center - A.G.
Austin Community Foundation
Westbank Library
Valley View Elementary
Austin Smiles
Morningstar reports that "there's a powerful connection between a
portfolio's aggregate P/E (price-to-earnings) and its overall risk."
According to Morningstar: High P/E portfolios tend to correlate with
20
<PAGE>
higher risk, while lower P/E portfolios tend to have lower risk-i.e. a
lower P/E portfolio should go down less in a bad market. Take a look
at your own Fund and the statistics we provide each quarter. We doubt
there are many funds with a lower aggregate P/E. Will we go down
less in the next bad market? We hope so, but, as in any investment,
there are no guarantees.
What's the best way to plan for college expenses? Check out our
LIFEQUEST College Planner. We make it simple.
Need a prospectus and other information for a friend?
Call 1-888-839-7424.
Have questions about your account?
Call the Transfer Agent at 1-800-628-4077.
Have question for your portfolio manager?
Call (512) 458-8165, or (800) 880-0324.
Fellow Shareholders,
The Net Asset Value of the Value & Growth Portfolio for the period
ending September 30th , 1996 was $11.13. For the quarter, your fund
was up 5.8% compared to 3.1% for the S&P 500 Index and a slight
loss for the Russell 2000 Index of small companies. For the nine
months of 1996, your fund was up 12.1% compared with the S&P 500
Index which was up 13.5% and the Russell 2000 which was up 9.6%.
Between September 30th and today (November 20th), we've "caught
some wind" and your fund is up 24.0% year to date. After a slow start,
we expect to finish 1996 with outstanding returns.
<TABLE>
<CAPTION>
11/06/95 Dec-95 Mar-96 Jun-96 Sep-96 Nov 19-96
<S> <C> <C> <C> <C> <C> <C>
V&G Portfolio $9700 $9641 $9486 $10215 $10807 $11952
S&P 500 $10000 $10465 $11029 $11517 $11877 $12944
Russell 2000 $10000 $10430 $10919 $11442 $11434 $11472
</TABLE>
This chart compares a hypothetical investment of $10,000 between the
Value & Growth Portfolio and two indices considered representative of
the market. The maximum 3% sales charge is applied to the Fund as
are management fees and transaction costs. Neither index has any
costs associated with it, nor is it possible to invest in the indices as
shown. The S&P 500 Index represents primarily large capitalization
companies, while the Russell 2000 represents primarily smaller
companies. The Advisor believes the Fund profile is currently closer
to the Russell 2000 than the S&P 500. The performance shown
represents past performance and is not a guarantee of future results.
The Fund's share price and investment return will vary with market
conditions, and the principal value of shares, when redeemed, may be
more or less than original cost.
<TABLE>
QUARTERLY RETURN COMPARISONS
<CAPTION>
11/06/95 Dec - 95 Mar - 96 Jun - 96 Sep - 96 Nov 20 - 96
<S>
V&G Port. <C> <C> <C> <C> <C>
(.7%) (1.6%) 7.7% 5.8% 10.6%
Russell 2000 4.3% 4.7% 4.8% (0.1%) 1.0%
S&P 500 5.0% 5.4% 4.4% 3.1% 8.6%
</TABLE>
Please keep in mind that the performance comparisons are hardly
relevant, as the time period of comparison is far too short to be
meaningful. In the investment business, we are now about five miles
into a twenty-six mile marathon.
Commentary
A perceptive client recently called with a simple question: "You look
and talk like value managers, but all the quarterly reports I get show
the companies vigorously growing-Are you a value manager or a
growth manager?" A good question. And not an easy one to answer.
Value or growth? We're a little of both with a bias to value. A better
definition of the way we invest would be "margin-of-safety" investors.
By that we mean we spend our time trying to exploit the differences
between the real or intrinsic value of a company and the way it's priced
in the market.
Everyday, stocks are priced on the stock exchanges. Sometimes prices
are appropriate, other times they're not. The essence of a "margin-of-
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<PAGE>
safety" investor is to look for those few instances when the price of a
stock is substantially less than its intrinsic value. Our success and the
growth of your portfolio is directly attributable to how well we identify
and arbitrage the differences. In fact, we think that exploiting the
differences between price and intrinsic value is the essence of any
investor's return whether he is classified as a growth or value investor.
So how do the frequently used terms "value" and "growth" fit into the
picture?
A fisherman embarks on a fishing trip. He has a choice between two
ponds to fish. The Growth Pond is very attractive, easily accessible
and well known. Many fishermen fish in the Growth Pond. To get to
the Value Pond, he must go through underbrush and wade through a
swamp. The pond itself is not as attractive as the Growth Pond. Few
seek out the Value Pond.
If our fisherman wants to eat well where does he go? Unless he has
unusual talents-like billionaire investor Warren Buffett-he should
probably go to the Value pond.
Can one find discrepancies between price and intrinsic value in the
Growth pond? Of course, it's just likely to be more difficult if
everyone is trying to fish in the same pond.
Do we want growth? You bet. But the course we adhere to is buying
with a margin-of-safety.
Value and Growth Distinctions
Here are some of the distinctions between growth and value:
Value investors typically look for companies with low prices to
earnings, bookvalues, cashflow and sales. To the value investor, each
of these characteristics is a clue to a potentially good stock. By buying
cheap stocks, the value investor is really increasing his odds of getting
stocks selling below their intrinsic value, i.e. he is getting stocks with
a margin-of-safety.
Value investors tend to look at what is rather than what will be.
Growth investors are intuitive while value investors are more
quantitative.
The value investor wants "hard" data-ratios, measurements and the
like, while the growth investor tends to rely on "soft" data-estimates,
qualitative data.
The byword of value investing is cheap. For growth investing it's
quality.
Their shortcomings
As you might expect, each method introduces different decision
mistakes. Value investors with their emphasis on "cheap" sometimes
get what they pay for-a cheap, lousy company going nowhere fast.
Growth investors with their emphasis on "quality" frequently pay too
much. If the quality falls short of expectations, prices get hammered.
However, with their focus on "cheap" the evidence suggests that value
investors are more likely than growth investors to buy with a margin
of safety. That's why value investing has historically produced higher
returns. We can identify 50 to 60 studies which indicate some form of
value investing is more likely to lead to superior returns than some
form of growth investing. We have seen no study that shows that
22
<PAGE>
growth investing will lead to higher returns. Generally, the premium
of value over growth runs at least 3% and, depending how rigorous the
definitions, can run in excess of 8%.
Those are big, big differences.
So, why isn't everyone doing it?
The logical question-if value is so good, why doesn't everyone invest
that way?
Maybe, we think, because it's too difficult, too uncomfortable. Perhaps
too, investors have embraced the falsehoods that high growth equals
high profits, and high quality equals high profits.
You've seen and perhaps read the book, In Search of Excellence:
Lessons from America's Best Run Companies.
The authors identify six financial measures to rate each company:
compound asset growth; compound equity growth; average return on
sales, total capital and equity.
Any financial analyst will tell you these measures clearly identify
excellent companies. Where most investors err is to assume excellent
companies make excellent investments. They don't.
Barry Bannister in a follow up study of the 62 companies cited in In
Search of Excellence found that the stock performance of the excellent
companies underperformed the S&P 500 over the next 10 years. But
what most investors find remarkable is that the "unexcellent"
companies-the companies that scored the worst on all measures of
excellence-significantly outperformed the S&P 500 Index. In fact, the
unexcellent companies exceeded the returns of the excellent companies
in 8 out of 10 periods.
In short, the value phenomenon persists because it's counterintuitive.
It requires patience in a non-patient world. It requires an ability to
accept apparent uncertainty in a world that craves certainty. Value
investing is uncomfortable investing. And that is why value investing
will likely work for another fifty years.
Is That Where My Money is Going?
Are we investing your funds in unexcellent companies? No. It's not
the unexcellent companies that produced the return, but the fact that
their savorless nature causes them to sell in the marketplace with a big
margin of safety. The real source of return in unexcellent companies
is the big discrepancy between their intrinsic value and their prices.
Abandon Growth?
If value investing is so compelling, do we abandon growth altogether?
We don't think so. Billionaire Warren Buffett was a value investor.
Now he is a growth investor. Says Buffett: "In our opinion, the two
approaches are joined at the hip: Growth is always a component in the
calculation of value". The bottom line for Buffett and any good
investor is getting much more than you give, or getting that margin-of-
safety.
Our Strategy
Successful investors make the fewest errors. Growth is good, not bad.
Excellence is good, not bad. But it's not just what you get, but what
you give that makes an investment. Generally, but not always, high
23
<PAGE>
growth, excellent companies sell with little to no margin-of-safety.
That's why we almost always do our fishing in the Value pond.
Our approach to making fewer errors can be described as testing,
testing, testing. We try not to assume, but test, and then adhere to a
highly structured, quantitative strategy. We want a combination of
growth, profitability, and balance sheet that, when combined with
price, produces a high return stock. The result is often growth stocks
few have ever heard of selling at value prices.
In Greek mythology, the story is told of the Sirens. They sang so
beautifully that sailors who sailed near their shores were pulled off
course to shipwreck and death.
Investing has many Siren songs. The Siren songs of growth and
excellence are but two of many. The father of Value Investing,
Benjamin Graham, had it right so many years ago. It's not value or
growth, but margin-of-safety and the discipline to stay the course that
makes for investment success.
Investment Policy. We're frequently asked what the market will do.
We wish we knew, but don't have a clue. Nor does anyone else really.
Rather than worry about "the market", we believe we can add the most
value to our fund by constantly searching for undervalued stocks.
Interestingly, we do not feel that we must "reach" to find good
investments. In other words, the margin-of-safety in the stocks we are
buying look little different than they did in 1989. We don't know what
implication that has for the market, but it strikes us as having
favorable implications for your wealth.
Respectfully submitted,
Mark A. Coffelt, CFA
Chief Investment Officer
24
<PAGE>
<TABLE>
<CAPTION>
Price/Earnings* Price/Bookvalue*
<S> <C> <C>
Value & Growth Portfolio 11.5x 2.4x
Average Growth Fund 25.8x 4.7x
Average Aggressive Growth Fund 34.1x 6.2x
Average Small Company Fund 28.2x 4.5x
</TABLE>
Ratios for average funds from latest Morningstar and may not be
exactly comparable to the Value & Growth Portfolio.
<TABLE>
PORTFOLIO OF INVESTMENTS
<CAPTION>
Principal Issues Value ($) % net
Amount assets
<S> <C> <C> <C> <C>
Short-Term 15,854 Bank of Boston - 15,854 1.3%
Investments Repurchase Agreement
(Collateralizrd by U.S.
Treasury Notes,
First Boston)
Total Cash &
Cash Equivalents 15,854 1.3
Common Stocks - Shares
98.7%
Aerospace/Defense 3000 United Industrial 17,250 1.4
Auto Parts 900 Borg-Warner 31,950 2.5
1,300 Excel 21,613 1.7
53,563 4.2
Banks 300 Citicorp 27,188 2.2
772 Bank of New York 22,678 1.8
1,000 City National 18,125 1.4
67,991 5.4
Banks: Canadian 5,000 National
Bank of Canada 45,000 3.6
1,700 Hees International 20,468 1.6
65,468 5.2
Building Materials 3,000 Jannock Ltd. 34,219 2.7
Cement & Aggregates 600 Medusa 18,450 1.5
Computer & Peripherals 500 Compaq* 32,063 2.5
400 Adaptec* 24,000 1.9
500 Western Digital* 20,062 1.6
900 Gateway 2000* 43,087 3.4
1,270 Stratus Computer* 25,083 2.0
144,295 11.4
Diversified Company 3,697 Gilbert 44,826 3.6
400 Raychem 30,000 2.4
74,826 6.0
25
<PAGE>
Electronics 1,700 Cubic 33,150 2.6
300 CTS Corp. 12,638 1.0
700 Augat 14,875 1.2
60,663 4.8
Financial Services 3,000 Power Corp. 52,770 4.2
600 Travelers 29,475 2.3
900 Countrywide Credit 23,063 1.8
400 First USA 22,150 1.8
1,800 Transmedia Network 10,575 0.8
120 Dean Witter Discover 6,600 0.5
144,633 11.5
Home Furnishings 1,100 La-Z-Boy 33,137 2.6
Machinery:
Construction/Mfg. 2500 Global Industrial 45,937 3.6
Technology *
45,937 3.6
Manufactured Housing/
RV 3,160 Coachmen 81,370 6.4
1,500 Thor 35,812 2.8
117,182 9.3
Medical Supplies 1,200 Bio-Rad* 34,500 2.7
Oilfield Services/
Equipment 2,000 Daniel Industry 25,500 2.0
Precision Instruments 600 Tektronix 24,525 1.9
Recreation 1,200 Quiksilver* 30,000 2.4
Restaurant 350 Sbarro 9,056 0.7
Retail: Specialty 2,000 Dress Barn* 21,750 1.7
Securities Brokerage 2,000 Inter-Regional
Financial 64,750 5.1
965 Alex Brown 55,849 4.4
1,180 Raymond James 28,615 2.3
300 Merrill Lynch 19,687 1.6
700 Quick & Reilly 18,550 1.5
187,451 14.9
Toiletries/Cosmetics 2,400 Helen of Troy* 36,000 2.9
Total Common Stocks 1,246,396 98.7
(Cost $1,126,288)
Total Investment
Portfolio 1,262,250
Other Assets
Less Liabilities -9,869
Net Assets - 100% 1,252,381
(Applicable to
112,258 shares
outstanding)
*Non-Income Producing Security
At September 30, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $1,126,288 was as follows:
Gross unrealized appreciation 148,921
Gross unrealized depreciation (28,813)
Net unrealized appreciation 120,108
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities Ending 9/30/96
<S> <C>
Assets:
Investments at Market Value,
(Identified Cost $1,126,288) (Note 1-A) $1,246,396
Cash 15,854
Dividends and Interest Receivable 851
Total Assets 1,263,101
Liabilities:
Payable for securities purchased 9,808
Accrued Expenses 912
Total Liabilities 10,720
Net Assets $1,252,381
(Applicable to 112,528 shares outstanding,
$.001 par value, unlimited shares authorized)
Net Asset Value and Repurchase Price per Share $11.13
Maximum Offering Price per Share $11.46
(100/97 of net asset value)
Net Assets
At September 30, 1996, net assets consisted of:
Paid-in Capital $1,107,396
Accumulated net realized gains on investments 24,877
Unrealized appreciation of investments 120,108
$1,252,381
28
<PAGE>
</TABLE>
<TABLE>
Statement of Operations From November 6, 1995 to September 30, 1996
<S> <C>
Investment Income
Income
Dividends 10,957
Interest 1,891
Total Investment Income 12,848
Expenses
Advisory fee (Note 2 7,588
Distribution fees 2,544
Administration Fees 6,606
Total Expenses 16,738
Net Investment (Loss) (3,890)
Realized and Unrealized Gain on Investment
Net Realized gain from security transactions 28,969
Increase in unrealized appreciation of investments 120,108
Net realized and unrealized gain on investments 149,077
Net Increase in Net Assets Resulting from Operations $145,187
INCREASE (DECREASE) IN NET ASSETS FROM
Operations:
Net Investment Loss $(3,890)
Net Realized gain (Loss) on investments 28,969
Increase in unrealized appreciation of investments 120,108
Net Increase in Net Assets from Operations 145,187
Distributions to Shareholders
Net Realized gains (202)
Capital Share Transactions (a)
Increase in net assets resulting
from capital share transactions 1,007,396
Total increase in net assets 1,152,381
Net Assets
Beginning of Period $100,000
End of Period $1,252,381
(a) Summary of capital share activity follows:
SHARES Value
Shares Sold 115,274 $1,143,762
Distributions Reinvested 20 202
Shares Redeemed (12,766) (136,568)
Net Increase 102,528 $1,007,396
</TABLE>
29
<PAGE>
<TABLE>
Financial Highlights for Period Ending
September 30, 1996
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (loss) (.03)
Net Realized and unrealized gain on investments 1.17
Total from investment operations 1.14
Less Distributions from
Net capital gains (.01)
Net Asset Value end of period $11.13
Total Return 11.40%
Ratios/ Supplemental Data
Net Assets-End of Period ($000) $1,252
Ratios to average net assets
Expenses 2.20% (a)
Net investment income (loss) (.51)% (a)
Portfolio Turnover 67.6%
Average Commissions per Share $.08
</TABLE>
(a)Annualized
To the Shareholders and Board of Directors
Texas Capital Value Funds, Inc.
Value & Growth Portfolio
We have audited the accompanying statement of assets and liabilities
of Value & Growth Portfolio (the "Fund"), a series of shares of Texas
Capital Value Funds, Inc., including the portfolio of investments, as of
September 30, 1996, and the related statements of operations and
changes in net assets, and the financial highlights for the period
November 6, 1995 (commencement of operations) to September 30,
1996. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of September 30, 1996,
by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
30
<PAGE>
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Value & Growth Portfolio of the Texas Capital Value
Funds, Inc. as of September 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the period
November 6, 1995 to September 30, 1996 in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 1, 1996
Organization and Significant Accounting Policies
Texas Capital Value Funds, Inc. was incorporated on June 26, 1995 as
a Maryland Corporation and is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management
investment company. The Value & Growth Portfolio (the "Fund"), a
series of the Texas Capital Value Funds, Inc., began investment
operations on November 6, 1995. The Fund's investment objective is
capital appreciation, with income a secondary consideration. The
following is a summary of significant accounting policies followed by
the Fund in the preparation of the financial statements. The policies
are in conformity with generally accepted accounting principles.
A. Security Valuation - Portfolio securities that are listed on national
securities exchanges or the NASDAQ National Market System are
valued as of the close of business of the exchange on each business day
which that exchange is open (presently 4:00pm Eastern time).
Unlisted securities that are not included in such System are valued at
the mean of the quoted bid and asked prices in the over-the-counter-
market. Securities and other assets for which market quotations are
not readily available are valued at fair value as determined in good
faith by the Advisor under procedures established by and under the
general supervision and responsibility of the Fund's Board of
Directors. Short-term investments are valued at amortized cost, if
their original maturity was 60 days or less, or by amortizing the values
as of the 61st day prior to maturity, if their original term to maturity
exceeded 60 days.
B. Income Taxes - The Fund intends to continue to qualify for the tax
treatment applicable to regulated investment companies under the
Internal Revenue Code and to make the requisite distributions to
shareholders which will be sufficient to relieve the Fund from income
and excise taxes.
C. Securities Transactions, Investment Income and Other - Securities
transactions are recorded on the next business date after trade date.
Realized gains and losses on sales of
D. investments are calculated on the identified cost basis.
31
<PAGE>
E. Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis.
F. Accounting Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the amounts of income and expense during the
reporting period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
Investment Advisory and Administrative Agreements
The Fund has an investment advisory agreement with the Advisor,
pursuant to which the Advisor receives a fee, computed daily, at an
annual rate of 1.0% of the average daily net assets.
The Advisor provides continuous supervision of the investment
portfolio and pays the cost of compensation of the officers of the Fund,
occupancy and certain clerical and administrative costs involved in the
day to day operations of the Fund.
Under the investment advisory agreement, if the aggregate expenses of
the Fund (including the fees to the Advisor but excluding taxes,
interest, brokerage fees and commissions, distribution fee and
extraordinary expenses) exceed the limitations imposed by state
securities administrators, the Advisor, at its option, may reduce its fee
by the amount of such excess.
In addition, the Advisor is acting as the administrator to the Fund.
For these services, the Advisor receives a fee, computed daily at an
annual rate of .70% of the average daily net assets. The
administrator's fee was reduced from .90% to .70%, effective August
28, 1996.
Transactions with the Distributor
Choice Investments, Inc., the Company's Distributor, was paid $4,111
in commissions for executing Fund transactions.
Distribution Agreement and Plan
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act under which the Company contracts with
registered broker-dealers and their agents to distribute shares of the
Fund. The distribution fee was reduced from .35% to .25%, effective
August 28, 1996. For the period ending September 30, 1996, the
amount paid to the Distributor was $2,544.
3. PURCHASES AND SALES OF SECURITIES
For the period ended September 30, 1996, the cost of purchases and
the proceeds from sales of securities, excluding short-term securities,
were $2,337,372 and $1,240,053, respectively.
4. FEDERAL INCOME TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and
32
<PAGE>
to distribute all of its taxable net income to its shareholders. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Therefore, no federal income tax provision is
required.
Texas Capital Value Funds, Inc.
Form N-1A
Part C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Filed as part of this registration statement:
Portfolio of Investments
Statement of Assets & Liabilities
Statement of Operations
Financial Highlights
(b) Exhibits:
(1) Agreement and Declaration of Trust - 1
(2) By-Laws - 1
(3) Voting Trust Agreement - Not Applicable
(4) Specimen Share Certificate - Not Applicable
(5) Form of Investment Advisory Agreement - 2
(6) Form of Distribution and Sales Agreement - Included
(7) Benefit Plan - Not Applicable
(8) Form of Custodian Agreement - 2
(9) Other material contracts; Transfer Agent Agreement and
Accounting Services Agreement - 1
(10) Consent and Opinion of Counsel as to legality of shares -
Included
(11) Consent of Accountants - Included
(12) All Financial Statements omitted from Item 23 -- Not Applicable
(13) Letter of Understanding relating to initial capital - 1
(14) Model retirement Plan Documents - 2
(15) Form of Plan pursuant to Rule 12b-1 - 2
(16) Schedule for Computation of Performance Quotations:
Performance, assuming the maximum sales load of 4.5% is computed
as follows:
$1,000(1+.066).8877 = $1,058.38
Where $1,000 is the initial amount invested, .066 is the total return
since inception, after deducting a front-end sales charge of 4.5%, and
.8877 is the number of years for which the return is calculated.
$1,058.38 is the Period Ending Redeemable Value at the end of the
fiscal year. The fund was effective on November 6, 1995, and the
period for which the return has been calculated ended on September
30th, 1996.
(17) Financial Data Schedule Meeting the requirements of rule 483
under the Securities Act of 1933. 3
<PAGE>
1. Incorporated by reference from Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A, filed on August 22nd,
1995.
2. Incorporated by reference from Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A, filed on August 1st, 1996.
3. Incorporated by reference from Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A, filed on February 3rd,
1997.
Item 25. Persons Controlled by or under Common Control with
Registrant.
As of the date of this Amendment to the Registration
Statement, there are no persons controlled or under common control
with the Registrant.
Item 26. Number of Holders of Securities.
Shares of Beneficial Interest, par value: $.0001
Value & Growth Portfolio 191
Item 27. Indemnification
The information on indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement.
Item 28. Business and Other Connections of Investment Adviser.
With respect to Investment Advisors, the response to this item
is incorporated by reference to their Form ADV's as amended:
First Austin Capital Management, Inc. File No. 801-31075
Item 29. Principal Underwriters - N/A
Item 30. Location of Accounts and Records
The information on the location of accounts and records is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
Item 31. Management Services: Discussed in Part A and B
Item 32. Undertakings
The registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
2
<PAGE>
Exhibit 6
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is
made this ____ day of __________, 1997, between Texas Capital
Value Funds, Inc., a Maryland corporation (the "Company"), and
Choice Investments, Inc., a Texas corporation (the "Distributor").
This Agreement amends, restates and supersedes in its entirety that
certain Distribution Agreement dated August 10, 1995, between the
parties hereto, as amended by (i) that certain 1st Amendment to the
Distribution Agreement dated June 5, 1996, and (ii) that certain 2nd
Amendment to the Distribution Agreement dated August 28, 1996.
WITNESSETH:
WHEREAS, the Distributor is a broker-dealer registered with
the Securities and Exchange Commission ("SEC") under the Securities
Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company is an open-end non-diversified
management investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940
("1940 Act"); and
WHEREAS, the Company operates as a "series company" as
contemplated by Rule 18f-2 under the 1940 Act and is authorized to
issue shares of beneficial interest in various investment series
representing interests in separate portfolios of securities and other
assets; and
WHEREAS, as of the date of this Agreement, the Company is
offering for public sale two distinct series of shares of beneficial
interest corresponding to distinct portfolios to be commonly known as
the Value and Growth Portfolio and the Growth & Income Portfolio
(each individually, a "Fund" and collectively, the "Funds"); and
WHEREAS, the Company desires the Distributor to act as
distributor, on a principal basis, in offering the shares of the Funds for
sale to the public and the Distributor desires to so act;
NOW, THEREFORE, in consideration of the foregoing and
the mutual promises and covenants set forth herein and for other good
and valuable consideration, receipt and adequacy of which is
acknowledged, the Company and the Distributor mutually agree that
the Distributor will provide distribution services for the Funds as
follows:
1. Right to Distribute. The Distributor shall have the exclusive right,
on the terms and conditions contained herein, to purchase, promote,
and resell shares of the Funds within any state in the United States of
America in which the Funds are properly registered (the "Territory").
2. Distributing the Fund.
A. The Distributor shall use its best efforts to promote, offer
for sale and sell the shares of the Funds to the public on a continuous
basis within the Territory. In so doing, the Distributor shall conduct
its affairs in accordance with the Rules of Fair Practice of the NASD,
the 1940 Act and all laws and regulations promulgated thereunder,
and all state and local regulations. The Distributor is authorized to
enter into written agreements for the sale of shares of the Funds
("Sales Agreements") with registered broker-dealers who are members
of NASD, on forms previously approved in writing by the Company
for this purpose. Some of such broker-dealers may be contracted with
by the Distributor to wholesale the Funds to other broker-dealers (the
"Wholesalers"). One such Wholesaler shall be Mr. David Flora, an
individual (the "Original Wholesaler"). The Distributor may also
distribute shares of the Funds directly through its own registered
representatives. In either event, the Distributor shall be responsible
for the payment of any and all fees or commissions to such broker-
dealers or representatives (individually a "Dealer"; collectively the
"Dealers") out of the total fees paid by the Funds to the Distributor, in
the amounts and as provided in Paragraph 4(A) below.
B. Prior to entering into any Sales Agreement with a third
party, or any amendment thereto, the Distributor shall deliver a copy
of the Sales Agreement or amendment to the Company and the
Company shall have ten (10) business days within which to approve or
disapprove same by written notice to the Distributor. If no such notice
is sent, such Sale Agreement or amendment shall be deemed approved.
The Company may grant or withhold any such approval in its sole and
absolute discretion. If the Company disapproves and notifies the
Distributor of same as required herein, the Distributor will not enter
into such Sales Agreement or amendment.
C. Any Sales Agreement entered into between the Distributor
and the Original Wholesaler with respect to the Funds (the "Wholesale
Agreement") shall provide that the Distributor may terminate the
Wholesale Agreement without cause or penalty by giving written
notice of same (the "Termination Notice") to the Original Wholesaler
any time prior to that date (the "Threshold Date") which is the earlier
to occur of (i) October 1, 1997, or (ii) the date on which the Original
Wholesaler has generated Five Million Dollars ($5,000,000.00) of
"Net Wholesaler Assets" (as defined in Paragraph 4(A) below). The
Wholesale Agreement shall also provide that the Distributor may
terminate the Wholesale Agreement without cause on or after the
Threshold Date by giving a Termination Notice to the Original
Wholesaler and paying the Original Wholesaler a "Buyout Amount"
(as defined below). Such Buyout Amount shall be payable either in
full at the time of the Termination Notice or in twelve consecutive
equal monthly installments at an interest rate of ten percent (10%) per
annum, as determined by the Distributor in its sole and absolute
discretion.
The Distributor shall exercise its termination rights contained
in the Wholesale Agreement immediately upon receiving written
notice from the Company requesting same. In such case, if a Buyout
Amount is required, the Company shall pay such amount to the
Original Wholesaler either in full or in installments as provided above,
as determined by the Company in its sole and absolute discretion.
For the purposes of this Agreement, the "Buyout Amount"
shall mean an amount equal to six (6) times the sum of: (x) the 12b-1
fees earned by the Original Wholesaler during the last two full
calendar months preceding the month such Termination Notice was
given (the "Last Two Full Months"), plus (y) the amount of the
compensation paid by the Company to the Distributor pursuant to the
provisions of Subparagraph 4(A) below during the Last Two Full
Months, plus (z) the sales load holdback (as defined in the most recent
effective prospectus for the Funds (the "Prospectus")) for the Last Two
Full Months.
Notwithstanding anything contained herein to the contrary, if
the Company ceases charging a sales charge on all sales of shares of
the Funds at any time after the Threshold Date, but prior to the date on
which this agreement terminates, the Buyout Amount shall become
immediately due and payable to the Original Wholesaler as provided
herein.
In addition, notwithstanding anything contained herein to the
contrary, if this Agreement terminates after the Threshold Date and
such termination is not the result of any misfeasance or malfeasance
by the Original Wholesaler, any new distribution arrangement made
by the Company for the Funds shall provide for the retention of the
Original Wholesaler as a Wholesaler or the payment to the Original
Wholesaler of the Buyout Amount on the terms and conditions
provided herein.
D. The Company may suspend sales of shares of any or all of
the Funds for any reason whatsoever within its sole and absolute
discretion. Any such suspension shall be effective upon the receipt by
the Distributor of written notice of same. The provisions of this
Agreement shall remain in full force
2
<PAGE>
and effect during the period of any such suspension. Any subsequent
decision by the Company to renew sales may also be made by the
Company in its sole and absolute discretion and such sales shall
resume upon the receipt of written notice by the Distributor. Upon
receipt of any such notice to suspend or resume sales, the Distributor
shall notify all Dealers immediately of such suspension or resumption
and shall be responsible to enforce same.
E. Future series of the Company or derivations of existing
series of the Company, if any, are not included within the scope of this
Agreement. The Distributor understands and acknowledges that any
such future series may include one or more so-called "private label"
series formed by the Company for other security dealers under one or
more of the existing series.
F. Notwithstanding anything contained in this Agreement to
the contrary, the Company shall not employ any Wholesaler to
wholesale the Funds to other broker-dealers in the State of Texas.
3. Pricing Policies. The price at which the shares of each Fund may
be sold to the public shall be the net asset value per share as
determined in accordance with the provisions of the 1940 Act, less any
sales commissions as set forth in the Prospectus.
4. Distributor Compensation.
A. The Board of Directors has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Section 12(b) of the 1940 Act and
Rule 12b-1 (the "Rule") thereunder after having concluded that there
is a reasonable likelihood that the Distribution Plan would benefit the
Funds and their shareholders. Pursuant to such Distribution Plan, and
as compensation for the services performed and the expenses incurred
by the Distributor under this Agreement (including the commissions
and other fees and expenses paid by the Distributor for the sale of
shares of the Funds), the Company shall pay to the Distributor: (i) on a
monthly basis, in arrears, a distribution fee, accrued daily, as set forth
in the Prospectus; (ii) for shares of the Funds sold with a sales charge,
the underwriting discount applicable thereto determined in accordance
with the payment schedule set forth in the Prospectus; and (iii) on a
calendar monthly basis, in arrears, twenty (20) basis points annually
on the net cumulative assets generated from wholesaling the Funds to
other Dealers (the "Net Wholesaler Assets"), provided, however, such
Net Wholesaler Assets shall not include assets invested by investment
advisors, assets which come into the Funds directly, or assets invested
prior to the date of this Agreement. The Distributor shall promptly
pay the entire amount of any compensation the Distributor receives
pursuant to the provisions of the preceding subparagraph (iii), to the
applicable Wholesaler(s) with no holdbacks.
B. If the Distributor has sufficient evidence that the load
structure of shares of the Funds is not appropriate to address the
Dealer market, the Distributor shall request that the Company consider
changes to such load structure. Such request shall be made by the
Distributor to the Company in writing. The Company may determine,
in its sole and absolute discretion, upon the receipt of such a request
whether such change or even the discussion of same is necessary.
5. Costs..
A. The Distributor shall be responsible for all its costs and
expenses, incurred in the performance of its obligations hereunder,
including, without limitation, advertising costs and a service fee to
each Dealer. The service fee payable by the Distributor to each Dealer
shall equal the difference between (i) the 12b-1 fee in the Prospectus,
and (ii) 10/100 of one percent (0.10%) of the Funds' shares owned by
investors for whom such Dealer is the holder or dealer of record.
B. Notwithstanding the foregoing, the Company shall be
responsible for (i) the cost of printing and distributing prospectuses,
proxy solicitations, and reports to shareholders, and (ii) "Incidental
Expenses" (as hereinafter defined) incurred by the Original
Wholesaler in the distribution of shares of each Fund, such Incidental
Expenses not to exceed One Hundred Dollars ($100.00) per Fund per
month. With respect to Incidental Expenses, the Company shall not
be responsible for paying any Incidental Expenses in excess of One
Hundred Dollars ($100.00) per Fund per month unless such excess
Incidental Expenses were approved by the Company in advance in
writing. The Distributor shall cause the Original Wholesaler to keep a
written record of Incidental Expenses incurred each month for each
Fund along with the original receipts documenting such expenses, and
shall cause the Original Wholesaler to submit a written report of same
for each Fund to the Company within the first five (5) business days of
each month. Each such report shall be accompanied by copies of the
applicable original receipts.
For the purposes of this Agreement, "Incidental Expenses"
shall mean and be limited to the following costs and expenses incurred
by the Original Wholesaler while wholesaling the Funds to Dealers:
(a) telephone & fax expenses, (b) mail and Federal Express charges,
(c) business card & stationary expenses, (d) the cost of occasional
meals with prospects and customers, (e) the cost of refreshments at
business meetings, (f) the cost of small gifts and promotional items,
(g) travel expenses at the Internal Revenue Service allowable rate per
mile, (h) the cost of air fare, and (i) hotel/motel expenses.
C. The Original Wholesaler shall have a one time option, to
be exercised by written notice of same by the Original Wholesaler to
the Company in the month of December, 1997, to either continue
reimbursement of Incidental Expenses to the Original Wholesaler as
provided in Subparagraph 5(B) above, or take an additional five (5)
basis points from Net Wholesaler Assets as provided in Subparagraph
4(A) above, any such change to be effective January 1, 1998. If the
Original Wholesaler fails to exercise such option, the Original
Wholesaler shall continue to be reimbursed as provided in
Subparagraph 5(B) above.
D. The Distributor agrees to make available to its
Wholesalers, including, without limitation, the Original Wholesaler,
any information generated by the transfer agent for the Funds related
to commissions, fees or other compensation which may be due to the
Distributor or its Wholesalers.
6. Exclusions From Compensation.
A. Nothing herein shall prevent the Company from issuing
directly, without payment of any sales fee or commission to the
Distributor, shares of the Funds as a dividend or distribution to its
shareholders or in a reorganization.
B. Notwithstanding anything contained in this Agreement to
the contrary, the Company may contract directly with securities
broker-dealers to distribute shares in the Funds to investors or
shareholders which are not subject to sales charges as set forth in the
Prospectus. Any fees due such broker-dealers will be paid by the
Company through the Distributor, with the Distributor retaining no
part of such fees whatsoever.
7. Advertising Policies. The Company will cooperate with the
Distributor and its Dealers in providing for continuous and effective
advertising and promotion of the Funds' shares throughout the
Territory. Nothing herein shall prevent the Distributor from
independently advertising and marketing the Funds' shares within the
Territory, provided, however, that any such advertising or marketing,
in whatever form, shall be reviewed and approved by the Company in
writing prior to its use by the Distributor.
8. Indemnification. The Distributor agrees to indemnify the Company
against and hold the Company harmless from any claims, liabilities,
losses, damages, costs and expenses, including, but not limited to,
actual attorneys' and accountants' fees and expenses, arising out of or
relating to any act or omission of the Distributor, Distributor's agents,
employees, independent contractors or representatives, in connection
with the distribution of the Funds' shares, including, without
limitation, (i) the advertising, sale or servicing of the Funds' shares,
(ii) any representations or warranties made by the Distributor, its
agents, employees, independent contractors or representatives with
respect to the Funds' shares and (iii) any signature guarantees made by
the Distributor
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<PAGE>
in accordance with the provisions of Paragraph 20 below. Further, in
the event that any of the Distributor's Wholesalers or Dealers shall,
with respect to any Fund's shares purchased from the Distributor, fail
to discharge the Dealer's obligations to the original consumer pursuant
to the terms and conditions of the Prospectus, the Distributor agrees to
discharge promptly such unfulfilled obligations.
9. Financial Policies. The Distributor acknowledges the importance
to the Company of the Distributor's sound financial operation. The
Distributor shall maintain and employ in connection with the
Distributor's business and operations under this Agreement such
working capital and net worth as may be required to enable the
Distributor properly and fully to carry out and perform all of the
Distributor's duties, obligations and responsibilities under this
Agreement.
10. Use of the Company's Name. The Distributor will not use,
authorize or permit the use of, the name "Texas Capital Value Funds,
Inc.", "Value and Growth Portfolio", "Texas Opportunity Fund", or
"Growth and Income Portfolio", or any other trademark or trade name
owned by the Company as part of its firm, corporate, or business name
in any way. The Distributor shall not contest the right of the Company
to exclusive use of any trademark or trade name used or claimed by the
Company. The Distributor may, subject to the Company's policies
regarding reproduction of same and the prior approval provisions of
Paragraph 7 above, utilize the Company's name, trademarks or logos
in advertising and marketing materials.
11. Relationship of the Parties. The relationship between the
Company and the Distributor is that of vendor and vendee. The
Distributor, its agents, employees, representatives, independent
contractors, Wholesalers and Dealers shall under no circumstances, be
deemed employees, agents, representatives, independent contractors,
wholesalers or dealers of the Company. Neither the Distributor nor
the Company shall have any right to enter into any contract or
commitment in the name of, or on behalf of the other, or to bind the
other in any respect whatsoever.
12. Term and Termination.
A. This Agreement shall take effect upon its execution.
Thereafter, this Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, for one year periods so long as its
continuance is approved annually in advance by a majority vote of the
Board of Directors including the vote of a majority of the Directors
who are not parties to this Agreement or interested persons of any such
party. Such votes shall be cast in person at a meeting called for the
purpose of voting on such approval in accordance with the procedures
and requirements of the 1940 Act.
B. The terms and provisions of this Agreement shall be
modified automatically to conform with the requirements imposed by
the 1940 Act and by the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
C. This Agreement shall automatically terminate in the event
of its whole or partial assignment by either party, as provided by the
1940 Act.
D. Either party hereto shall have the right to terminate this
Agreement without payment of a penalty upon sixty (60) days' prior
written notice to the other party, which notice may be waived by such
other party; termination by the Company shall be effected by vote of a
majority of the Directors including a majority of the Directors who are
not parties to this Agreement or interested persons of any such party.
E. Notwithstanding the foregoing, the Company may
terminate this Agreement effective immediately upon notice to the
Distributor upon the occurrence of any of the following events: (1)
failure of the Distributor to fulfill or perform any one of the duties,
obligations or responsibilities of the Distributor under this Agreement;
(2) any attempted assignment by the Distributor of any interest in this
Agreement or delegation of the Distributor's obligations hereunder
without the Company's prior written consent; (3) any sale, transfer, or
relinquishment, voluntary or involuntary, by operation of law or
otherwise, of any material interest in the direct or indirect ownership
or any change in the management of the Distributor; (4) failure for any
reason of the Distributor to function in the ordinary course of business;
(5) conviction in a court of competent jurisdiction of the Distributor, or
a manager, partner, principal officer or major stockholder of the
Distributor for any violation of law tending, in the Company's sole
discretion, to affect adversely the operation or business of the
Distributor or the good name, goodwill, or reputation of the Company,
the Funds, or the Distributor; or (6) submission by the Distributor to
the Company of false or fraudulent reports or statements. The
determination that any of the foregoing listed events have occurred
shall be made by the Company in good faith in its sole and absolute
discretion.
F. The Distributor shall be deemed to be an independent
contractor and shall be free to render to others similar or dissimilar
services as those rendered under this Agreement.
G. If this Agreement terminates but prior to such termination
the Buyout Amount provided for in Subparagraph 2(C) above became
due and payable, then, notwithstanding anything contained herein to
the contrary (including, without limitation, the provisions of
Paragraph 13 below), the Buyout Amount shall be paid by the
Company to the Original Wholesaler as provided in Subparagraph
2(C) above regardless of such termination, unless any of the events
listed in Subparagraph 12(E) above has occurred with respect to the
Original Wholesaler.
13. Obligations on Termination. On termination of this Agreement,
the Distributor shall cease to be an authorized distributor of the Funds'
shares, and neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account
of the loss of prospective profits or anticipated sales, or on account of
expenditures, investments, or commitments in connection with the
business or goodwill of the Company or the Distributor or for any
other reason whatsoever growing out of such termination. Within five
(5) business days after any such termination, the Distributor shall
promptly deliver to the Company all original documents and other
written materials relating to the distribution of the Funds' necessary
for the Company to continue such distribution, including, without
limitation, any written agreements with Dealers and Wholesalers.
14. Interested Persons. Absent law or regulation to the contrary,
neither this Agreement nor any transaction entered into pursuant
hereto, shall be invalidated or in any way affected by the fact that
directors, officers, or stockholders of the Company are or may be
interested persons of the Distributor as directors, officers, or
stockholders or otherwise; or that directors, officers or stockholders of
the Distributor are or may be interested persons of the Company as
directors, officers, shareholders, or otherwise.
15. Reports. Unless otherwise provided herein, the Distributor shall
prepare reports for the Board of Directors of the Company showing
such information concerning expenditures related to this Agreement as
from time to time shall be reasonably requested by such Board of
Directors but in no event less frequently than quarterly.
16. Notices. Any notice required or permitted to be given hereunder
must be in writing and may be given by personal delivery or by mail,
and if given by mail shall be deemed sufficiently given if sent by
registered or certified mail addressed to the party to be notified at the
following applicable address:
The Company:
Texas Capital Value Funds, Inc.
1600 West 38th Street, Suite 412
Austin, Texas 78731
The Distributor:
Choice Investments, Inc.
5900 Balcones Drive, Suite 100
Austin, Texas 78731
Either party may specify a different address for notice
purposes by written notice to the other.
17. Governing Law. This Agreement is executed and delivered in the
State of Texas and shall be governed by the laws of Texas and the
1940 Act.
18. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and terminates and supersedes all prior
understandings or agreements on the subject matter hereof. No
conditions or warranties shall be implied herefrom unless expressly set
forth herein. The Distributor and the Company each acknowledge that
the terms and conditions of this Agreement, and each of them, are
reasonable and fair and equitable. This Agreement may be modified
only by a future writing that is duly executed by both parties.
19. Assignment. Neither this Agreement nor any interest in this
Agreement may be assigned by the Distributor or the Company.
20. Signature Guarantees. The Distributor is authorized by the
Company to make signature guarantees which may be relied upon by
the Company as factual and genuine. As provided by the provisions of
Paragraph 8 above, in the event of fraud, or any problem which may
arise out of a signature guarantee made by the Distributor causing the
Company to incur some loss or expense, the Distributor shall
reimburse the Company for any and all such losses or expenses.
21. Severability. If any term of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, then this
Agreement, including all of the remaining terms, will remain in full
force and effect as if such invalid or unenforceable term had never
been included.
22. Waiver. Waiver by either party of any breach of any term,
covenant or condition in this Agreement shall not be deemed to be a
waiver of any subsequent breach of the same or any other term,
covenant or condition herein contained, nor shall any custom or
practice which may grow up between the parties in the administration
of the terms hereof be deemed a waiver of or in any way affect the
right of each party to insist on the performance of the other party in
strict accordance with said terms.
23. Time Is of the Essence. Time is of the essence of this Agreement.
24. Attorneys' Fees. In the event of any litigation or arbitration
between the parties with respect to this Agreement, all costs and
expenses, including, without limitation, actual professional fees such
as accountants' and attorneys' fees, incurred by the prevailing party,
shall be paid by the other party, which obligation on the part of the
other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgement.
25. Mandatory Arbitration. All disputes arising under this
Agreement shall be arbitrated pursuant to the Commercial Arbitration
Rules of the American Arbitration Association.
26. Independent Counsel. The parties acknowledge that they have
had the opportunity to consult with independent counsel of their own
choosing in the negotiation and execution of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first above written.
Distributor:
Choice Investments, Inc., a Texas corporation
By:__________________________________________
Its:_________________________________________
Company:
Texas Capital Value Funds, Inc., a Maryland corporation
By:__________________________________________
Mark A. Coffelt, President
4
<PAGE>
Exhibit 11
Opinion and Consent of Counsel:
Susan Braun Rice
Attorney At Law
27 New Haven
Laguna Niguel, California 92677
714-661-8399
February 3, 1997
Texas Capital value Funds, Inc
1600 West 38th Street, Suite 412
Austin, Texas 78731
Gentlemen:
I have been asked to provide this opinion in connection with the
registration under the Securities Act of 1933 of an indefinite number
of shares of common capital stock (par value .0001 per share) of Texas
Capital Value Funds, inc., a Maryland corporation (the "Company").
I have examined the Articles of Incorporation of the Company; the
Bylaws of the Company, as amended; various pertinent corporate
proceedings; and such other items considered to be material to
determine the legality of the sale of the authorized but unissued shares
of the Company's common capital stock. With respect to the good
standing of the Company, I am advised by the State Department of
Assessments and Taxation of the State of Maryland that the Company
is in good standing with the State of Maryland, its state of
incorporation, and that all taxes due have been paid.
Based upon the foregoing, it is my opinion that upon the effectiveness
of the Post Effective Amendment to the Securities Act Registration
Statement of the Company filed pursuant to the provisions of Section
24(f) of the Investment Company Act of 1940 to register an indefinite
number of shares of the Company's common capital stock (.0001 par
value per share), and during such time as such Registration Statement
is in effect, the Company will be authorized to solicit and cause to be
solicited share purchase orders and to issue its shares for a cash
consideration, as described in the Company's Registration Statement,
which shares so issued will be validly issued, fully paid and non-
assessable shares.
I offer no opinion with respect to the offer and sale of the Company's
securities under the securities laws of the several states, the District of
Columbia, any territory of the United States or of any foreign country.
I consent to the inclusion of this opinion as an exhibit to the
Registration Statement of the Company and to the reference in the
Company's Prospectus and/or Statement of Additional Information to
the fact that this opinion concerning the legality of the issue on behalf
of the Company, as issuer, has been rendered by me.
Very Truly Yours,
Susan Braun Rice
Susan Braun Rice
Exhibit 12 - Letter from Certified Public Accountant:
To the Shareholders and Board of Directors
Texas Capital Value Funds, Inc.
Value & Growth Portfolio
We have audited the accompanying statement of assets and liabilities
of Value & Growth Portfolio (the "Fund"), a series of shares of Texas
Capital Value Funds, Inc., including the portfolio of investments, as of
September 30, 1996, and the related statements of operations and
changes in net assets, and the financial highlights for the period
November 6, 1995 (commencement of operations) to September 30,
1996. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of September 30, 1996,
by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Value & Growth Portfolio of the Texas Capital Value
Funds, Inc. as of September 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the period
November 6, 1995 to September 30, 1996 in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 1, 1996
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UNDERTAKING
The registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
Signatures
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 the Registrant has duly
caused this amendment to this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Austin the in State of Texas on Feb 3, 1997..
TEXAS CAPITAL VALUE FUNDS, INC.
by: Mark A. Coffelt
Mark A Coffelt
President
Mark A. Coffelt President, Chief Investment Officer and Director
Mark A Coffelt Feb 3, 1997
Edward Clark Director Feb 3, 1997
Edward D. Clark
John Henry McDonald Director Feb 3, 1997
John Henry McDonald
Janis Claflin Director Feb 3, 1997
Janis Claflin
Eric Barden Secretary Feb 3, 1997
Eric Barden
