Fund Facts
Your Charity Input. Every year the Advisor to the
Funds donates up to 10% of the
advisor profits to various charities. If you have
more than $15,000 in the Funds,
please mail or preferably FAX us a letter to:
FAX 512.458.8166, or Texas Capital
Value Funds, Inc., 1600 W. 38 th Street, Suite 412,
Austin, TX 78731 with the
following information prior to December 25 th :
Charity Name Your Name
Charity Address Your Address
Charity Phone # Your Account Balance
Remember, the group must be a valid charity under
the IRS rules, Section 501 (c)(3)
For 1997, shareholders designated the following charities:
AIDS Services of Austin
Alzheimer's Association
American Cancer Society
American Heart Association
Animal Trustees of Austin
Arthritis Foundation
Austin Sunshine Camp
Austin YMBL Sunshine Camps
Boy Scouts of America
Brenham Christian Academy
The Columban Fathers
Compassion International
Cross Pointe Church
Cystic Fibrosis Foundation
Family Violence Project
Faith Home for Babies with AIDS
Forgotten Children's Fund
Habitat for Humanity
Harvard Law School Fund
Hilo Salvation Army
The Home Care Program/MSKCC
Make-A-Wish Foundation
MD Anderson Children's Art Project
Medical Institute for Sexual Health
Methodist Children's Home
National Cancer Institute
National Kidney Cancer Association
Nature Conservancy of Tennessee
Nevada SPCA
Northwest Hills United Methodist
People's Community Clinic
Rapheal Free Clinic
Red Cloud Indian School
Salvation Army
San Diego Historical Society
SOVA Food Pantry
St. Michael's Academy
Texas Baptist Children's Home
Union Station
United Way of the Flint Hills
Wesleyan Homes Alzheimer's Care
Women Helping Women
Change of Transfer Agents. Beginning January 2, 1999,
the Funds will begin to use Firstar as the new transfer
agent. Please make a note of the new phone number and address:
Phone: 888-839-7424
Address: Texas Capital Value Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Have questions about your account? Call the Transfer Agent
at 1-888-839-7424.
<PAGE>
Fellow Shareholders,
The Net Asset Value of the Value & Growth Portfolio
(V&G) for the period ending September 30th , 1998 was
$13.45. For our new Mid-Cap Focus Portfolio
(Mid-Cap Focus and formally the BlueChip Value Portfolio),
the Net Asset Value was $7.76. Since our last report on
March 31st, we have now lived through a painful drop in
prices, more than the 30% we warned you about. We hope
you took our caution from the last report to "fasten
your seat belts" seriously.
<TABLE>
<CAPTION>
Smaller Companies Mid-size Companies
Period V&G<F1> Russell 2000 Mid-Cap Focus<F2>Russell Mid-Cap
<S> <C> <C> <C> <C>
Last Quarter (32.3)% (20.2)% (21.5)% (14.8)%
Last 12 Months (19.7)% (19.0)% NA NA
1997<F3> 45.6% 22.4% NA NA
1996<F3> 26.3% 16.5% NA NA
Since Inception 14.3% 8.0% (22.4)% (15.1)%
(annualized if longer than 1 year)
<FN>
<F1>
After the maximum sales charge of 4.5%, the returns for the
last quarter, 12 months, 1997, 1996
and since inception (11/06/95) would be: (35.4)%, (23.4)%,
39.0%, 20.6%, and 9.5%, respectively.
<F2>
After the maximum sales charge of 4.5%, the returns for
the last quarter and since inception
(3/18/98) would be: (25.1)% and (25.9)%, respectively.
<F3>
Calendar years.
</FN>
</TABLE>
Of course, you know the old caveat, "past performance may not
be indicative of future results." Given the last quarter,
we sure hope so.
2
<PAGE>
Commentary
Stock markets around the world have seen dramatic declines
over the last few months. While our own market decline
shouldn't be a shock, as we have discussed the possibility
in many of our quarterly letters, we understand it is no fun.
This is when it is important to keep perspective. Following
are some of the questions we have received from shareholders.
Q. If you knew the market was going to go down, why didn't
you sell, and wait until prices were cheaper?
We would if we could. Unfortunately, knowing the market
may decline at some point in the future is of no use
unless one knows exactly when. And since the "when"
is unknowable, the best we can do is buy when we find
good companies at value prices. Once the decline is
underway, it rarely pays to go to cash.
Remember that stock returns are generally compressed
into very short bursts followed by long periods of modest
returns. Statistically, those short bursts of big returns
occur only 2%-7% of the time, and generally right after the
worst declines. With stocks, you have to stay in to win.
Q. How far will stocks fall?
Periodically, the market averages fall 25%-45% from
their peaks. The Russell 2000 Index and the Russell
Mid-Cap Index are representative of the universe of
stocks from which we have selected each of the funds.
Both indices have fallen dramatically since their peaks
in April, especially the Russell 2000 Index of small companies.
Interestingly, while large stocks have done better,
it is largely because a handful of companies-Dell,
Lucent Technologies, Microsoft, Pfizer, and Wal-Mart-
have held up the S&P 500 Index this year. Those five
stocks contributed 52% of the S&P's return through the
third quarter of the year, being up 95% on average.
No, we didn't own them. At an average of 15 times
book value, 42 times earnings, and 36 times price-to-cashflow,
we hope you understand why. With both Russell
Indices down substantially, we're almost certainly
close to the bottom, if not past the bottom.
3
<PAGE>
Q. I thought that small to Mid-cap, value stocks
generally fell less than the overall market. What
happened this time?
Historically, small and mid-value stocks have on average
fallen less in market downturns. Of course, "on average"
is different than always. In this market downturn,
small to Mid-cap stocks have fallen much more than the
large stocks, principally, we think, because the market
turmoil has been a "crisis of confidence." As value-buyers,
we take advantage of perceived "crises" in stocks.
Unfortunately, the good news in our companies has been
overwhelmed by the overall fear in the markets.
A good barometer for this fear is the credit spreads
between corporate bonds and U.S. treasury bonds. Fear
of recession typically causes the premium of corporate
bonds over treasuries to widen. Morgan Stanley reports
that in the midst of the 1990-91 recession, interest
rate spreads on "Aa" industrial bonds relative to Treasuries
spiked as high as 125 basis points over treasuries. Today,
"Aa" industrial bonds are higher than treasuries by 153
basis points (1.53%), a level of fear, we believe, that
is not supported by the facts. When fear reigns, just
as lenders want only the highest quality bonds, investors
want only the "safest" stocks. But investors have confused
size with safety. Instead of buying the cheapest stocks
with the best prospects, the herd has run to the largest,
most well-known comfort stocks. Thus, valuations for small
and mid-value stocks are at the lowest levels in a decade,
especially in light of multi-decade lows in interest rates.
Q. Why should I be in smaller stocks?
In the words of the bank robber Willie Sutton,
"because that's where the money is." Smaller
companies have provided superior long-term returns
over large companies. From January 1926 to December
1994, small stocks earned nearly 2% more each year
than large-caps. Style also makes a difference.
Small-cap value, the style in which your V&G fund
is invested, has almost doubled the cumulative return
of small growth from June 1979 through June 1998,
according to Wilshire Associates-$1 grew to $32.46
in small value stocks, and $17.62 in small growth
stocks. Value stocks, whether large, small or mid-cap,
have a long history of producing superior returns,
which is why both funds have deep value characteristics.
3
<PAGE>
[CHART]
4
<PAGE>
In addition, we think there is a good short-term
justification for a focus on smaller to mid-cap
companies. Over the 1969-73 period in which the
Nifty 50 dominated, smaller stocks cumulatively
under performed large stocks by 46.1%, much as
they have under performed the Nifty 50 for the
last five years (See chart). In the subsequent
five years, small stocks trounced large stocks,
providing a cumulative return of 124.8% versus
13.2% for large stocks. Unusual? Not according
to Professor Marc Reinganum. Like the tides,
small and large stocks have shown an almost certain
tendency to reverse leads. When small stocks lead
for five years, large stocks will lead for the next
five years and vice versa. With small stocks
under-performing in the last five years by the
greatest margin since 1926, history suggests they
should produce stellar returns for the next five years.
The impetus for the tide shift is that smaller
companies are considerably cheaper and growing
faster than their larger brethren. The Russell
2000 companies have beaten the S&P 500 in earnings
growth for five quarters in a row, according to
Claudia Mott of Prudential. Yet, smaller companies
are trading at substantially cheaper P/E and P/BV ratios.
Q. Is now a good time to increase my investment?
The goal of any investor is to buy when the prices
are low. Right now, your portfolio is trading at
even cheaper ratios than the cheapest index, the
small-cap index and absolutely at the cheapest
valuations of the last decade. That is almost
certainly the reason, according to Bloomberg News,
that corporate insiders are buying more stock of
their companies than at any point in the last five years.
In his book Contrarian Investment Practice, David
Dreman sights 11 instances of crises and how the
markets responded therafter. In all but one case,
the market was substantially higher one and two
years after the market lows were reached. Of course,
we will only know after the fact where the market
low is, although we believe we are certainly near,
if not past, the lows. More important than timing,
though, are valuations. Small and mid-cap valuations
are so compressed that when the appreciation occurs,
it should be outstanding. But you have got to be in to win.
5
<PAGE>
<TABLE>
<CAPTION>
Market low 1 year 2 years
Crisis After crisis Later Later
<S> <C> <C> <C>
Berlin Blockade 7/19/48 -3.3% 13.2%
Korean War 7/13/50 28.8% 39.3%
Kennedy vs. Steel 6/26/62 32.3% 55.1%
Cuban missile crisis 10/23/62 33.8% 57.3%
Kennedy assassination 11/22/63 25.0% 33.0%
Gulf of Tonkin 8/6/64 7.2% 3.1%
1969/70 stock market break 5/26/70 43.6% 53.9%
1973/74 stock market break 12/6/74 42.2% 66.5%
1979/80 oil crisis 3/27/80 27.9% 5.9%
1987 crash 10/19/87 22.9% 54.3%
1990 Persian Gulf War 8/23/90 23.6% 31.3%
Average Appreciation 25.8% 37.5%
</TABLE>
For V&G since inception through September 30th, 1998, your
Fund has dwarfed the returns of most small-cap funds and
done a good job of keeping up with the larger stocks, even
though the tides have been against us. We expect Mid-Cap
Focus, over any reasonable period, to also do well. Like
corporate insiders buying their own stock, your management
to the person has responded to the current "crisis" by buying
both funds with their own money. In difficult times, the
supreme investor virtues are courage and patience. In a
period when many funds have lost 30% of their assets from
shareholder redemptions, we've had almost none. We feel
fortunate to have a shareholder group strong on both courage
and patience. We'll try to do our part to make it pay off for you.
Respectfully submitted,
Mark A. Coffelt, CFA
<TABLE>
S T O C K P R I C E S R E L A T I V E TO
<CAPTION>
Earnings Cash flow Book value
<S> <C> <C> <C>
Value & Growth 14.9x 8.4x 1.8x
Avg Small Value Fund 17.6x 12.9x 2.4x
Avg Small Growth Fund 27.7x 24.0x 4.8x
Mid-Cap Focus (est.) 12.5x 9.9x 3.6x
Avg Mid Value Fund 19.8x 13.0x 3.0x
Avg Mid Growth Fund 31.4x 24.6x 6.0x
S&P 500 27.5x 19.9x 6.6x
<FN>
Data from Morningstar Mutual Funds 10/98 with the exception of
Mid-Cap Focus which is estimated.
The top chart compares a hypothetical investment of $10,000
between the Value & Growth Portfolio and the Russell 2000 Index
(with dividends), which is considered representative of the
market for small stocks. The maximum 4.5% sales charge is applied
to V&G, as are management fees and transaction costs. The Russell
2000 Index has no costs associated with it, nor is it possible to
invest in the index as shown.
</FN>
</TABLE>
6
<PAGE>
[CHART]
The bottom chart compares a hypothetical investment of $10,000
between the Mid-Cap Focus Portfolio and the Russell Mid-Cap Index
(with dividends), which is considered representative of the market
for mid-capitalization stocks. The maximum 4.5% sales charge is
applied to Mid-Cap Focus, as are management fees and transaction costs.
The Russell Mid-Cap Index has no costs associated with it, nor is it
possible to invest in the index as shown.
The performance shown represents past performance and is not a
guarantee of future results. Each 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. All
Fund distributions have been reinvested.
7
<PAGE>
<TABLE>
VALUE & GROWTH
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998
<CAPTION>
Industry Shares Company Market Value %
<S> <C> <C> <C> <C>
Apparel 128,600 Nautica Enterp* 2,403,213 4.6
107,000 Oshkosh B'Gosh 2,220,250 4.2
117,400 St. John's Knits 1,878,400 3.6
6,501,863 12.4
Auto Parts 8,800 Standard Products 152,350 .3
Building Materials 76,900 Lafarge Corp. 2,191,650 4.2
Computer Hardware 22,000 Orbotech LTD* 708,125 1.4
Financial Services 68,700 Barra, Inc.* 1,408,350 2.7
Furniture 180,200 Shelby Williams 2,072,300 4.0
Homebuilding 145,200 Standard Pacific 2,050,950 3.9
101,000 Kaufman & Broad 2,373,500 4.5
4,424,450 8.4
Hotel/Gaming 41,100 Anchor Gaming* 2,352,975 4.5
Maritime 75,100 Sea Containers 1,807,094 3.4
Medical Devices 187,500 Mentor Corp. 2,132,813 4.1
Manufactured Housing 114,800 Coachmen Ind. 2,296,000 4.4
Oil Drilling 151,500 Varco Int'l* 1,268,813 2.4
Precision Instruments 67,200 Esterline Tech* 1,318,800 2.5
62,900 Instron Corp. 888,462 1.7
2,207,262 4.2
Recreation 189,100 Seattle Filmworks* 567,300 1.1
Recreational Vehicles 66,300 Champion* 1,591,200 3.0
Restaurant 96,300 Applebees 2,010,262 3.8
155,200 Vicorp Rest.* 2,104,900 4.0
4,115,162 7.8
8
<PAGE>
Retail 289,000 OfficeMax* 2,871,938 5.5
162,300 Dress Barn* 1,967,887 3.7
112,400 Claire's Stores 2,023,200 3.9
59,600 Land's End* 1,102,600 2.1
14,000 Jo-Ann Stores* 311,500 .6
8,277,125 15.8
Securities Brokerage 5,600 Advest Group 114,100 .2
Software 83,000 Autodesk 2,178,750 4.1
230,600 Pairgain Tech.* 1,873,625 3.6
153,500 Symantec Corp* 2,024,281 3.9
6,076,656 11.6
Textiles 221,100 Dixie Group 1,437,150 2.7
Trucking 13,400 Werner Enterprises 211,050 .4
Transportation 52,950 Air Express Int'l 847,200 1.6
*NON-INCOME PRODUCING
Total Common Stocks 52,760,988 100.6
(Cost 65,339,411)
Short-Term Investments
Bank of Boston Repurchase Agreement 2,173,909 4.1
5.349%, due 10/01/98 (Collateralized by $2,238,474 U.S. Treasury Notes,
5.5%, due 5/31/03, First Boston) (Proceeds $2,174,228)
(Cost $2,173,909)
Total Investments 54,934,897 104.7
(Cost 67,513,320)
Liabilities in Excess of Assets (2,473,642) (4.7)
Net Assets 52,461,255 100.0
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1998, the net unrealized depreciation based on the
cost of investments for income tax purposes of $65,643,829 was as follows:
<S> <C>
Gross unrealized appreciation $382,516
Gross unrealized depreciation (13,265,357)
Net unrealized depreciation $(12,882,841)
</TABLE>
9
<PAGE>
<TABLE>
Mid-Cap Focus
Portfolio of Investments
September 30,1998
<CAPTION>
Industry Shares Company Market Value %
<S> <C> <C> <C> <C>
Aerospace/Defense 850 Sundstrand Corp. 39,419 4.9
Apparel 1,030 Warnaco Group 23,819 3.0
Auto/Truck 380 Paccar Inc. 15,651 2.0
Banks 1,050 Canadian Imperial 19,294 2.4
Cement & Aggreg. 1,030 Lafarge Corp. 29,355 3.7
Computer Software 1,500 Autodesk Inc. 39,375 5.0
2,000 Symantec Corp* 26,375 3.3
65,750 8.3
Computers 1,400 Storage Tech.* 35,700 4.5
Financial Services 720 Finova Group 35,955 4.5
1,310 MBNA Corp. 37,499 4.7
2,050 Power Corp. 36,633 4.6
1,020 SLM Holding 33,086 4.2
143,173 18.0
Food Processing 1,040 Interstate Bakeries 32,370 4.1
Foreign Telecom 870 Telefonos de Mexico 38,280 4.8
Home Appliances 900 Maytag 42,750 5.4
Insurance 1,320 Conseco Inc. 41,085 5.2
660 Mercury General 25,039 3.1
930 Sunamerica Inc. 57,427 7.2
123,551 15.5
Oilfield Services 1,800 Noble Drilling* 26,550 3.3
3,200 Varco Int'l* 26,800 3.4
53,350 6.7
10
<PAGE>
Securities Brokerage 850 A.G. Edwards 25,766 3.2
Telecom Services 1,000 Bell Atlantic 48,438 6.1
Thrifts 1,060 Dime Bancorp 27,361 3.4
*Non-income producing Total Common Stocks 764,027 96.0
(Cost $960,065)
Short-Term Investments
Bank of Boston Repurchase Agreement, 32,622 4.1
5.349%, due 10/01/98 Collateralized by $33,951 U.S. Treasury
Notes, 5.5% due 5/31/03, First Boston)
(Proceeds $32,627)(Cost $32,622)
Total Investments 796,649 100.1
(Cost $992,687)
Liabilities in Excess of Assets (585) (.01)
Net Assets 796,064 100.0
</TABLE>
At September 30, 1998, the net unrealized depreciation
based on the cost of investments for income tax purposes
of $960,065 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $18,883
Gross unrealized depreciation (214,921)
Net unrealized depreciation $(196,038)
</TABLE>
SEE NOTES TO FINANCIAL STATEMTENTS
11
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
<CAPTION>
Value & Mid-Cap
Growth Focus*
<S> <C> <C>
ASSETS
Investments at Market Value,
(Identified Cost $65,339,411 and $960,065)
(NOTE 1-A) $52,760,988 $764,027
Cash & Equivalents 2,173,909 32,622
Dividends and Interest Receivable 10,981 1,667
Receivable for Securities Sold 835,495 -
Receivable for Fund Shares Sold 164,238 -
Total Assets 55,945,611 798,316
LIABILITIES
Administration Fee <NOTE 2> 18,771 451
Management Fee <NOTE 2> 42,839 640
12B-1 Fees <NOTE 2> 34,412 1,033
Payable for Securities Purchased 3,271,701 -
Payable for Fund Shares Redeemed 115,089 -
Other Liabilities 1,544 128
Total Liabilities 3,484,356 2,252
NET ASSETS $52,461,255 $796,064
(Applicable to 3,900,814 and 102,574 shares outstanding, $.0001 par value, 25 million shares authorized each fund).
NAV AND REPURCHASE PRICE PER SHARE $13.45 $7.76
MAXIMUM OFFERING PRICE PER SHARE $14.08 $8.13
(100/95.5 of net asset value)
NET ASSETS
At September 30, 1998, net assets consisted of:
Capital Stock @ Par 390 10
Capital in Excess of Par 70,744,049 1,008,971
Accumulated Net Realized Loss on Investments (5,704,761) (16,879)
Net Unrealized Depreciation on Investments (12,578,423) (196,038)
$52,461,255 $796,064
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
SEPTEMBER 30,1998
<CAPTION>
Value & Mid-Cap
Growth Focus*
<S> <C> <C>
INVESTMENT INCOME
Dividends $379,127 $5,651
Interest 33,941 898
TOTAL INVESTMENT INCOME 413,068 6,549
EXPENSES
Administrative Fee (Note 2) 220,640 2,891
Management Fee (Note 2) 525,085 4,130
12B-1 Fees (Note 2) 131,271 1,033
Interest Expense (Note 4) 26,664 155
TOTAL EXPENSES 903,660 8,209
NET INVESTMENT GAIN/(LOSS) (490,592) (1,660)
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net Realized Loss from Security Transactions (4,922,612) (16,879)
Increase/(Decrease) in Unrealized Appreciation (15,016,540) (196,038)
NET GAIN/ (LOSS) ON INVESTMENTS (19,939,152) (212,917)
NET INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS $(20,429,744)$(214,577)
*For Mid-Cap Focus, represents period from inception date March 18, 1998 to September 30, 1998.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended Year Ended
Sept. 30, 98 Sept. 30, 97
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS:
Net Investment Loss $(490,592) $(51,602)
Net Realized Gain/(Loss) on Investments (4,922,612) 959,264
Increase in Unrealized Appreciation
on Investments (15,016,540) 2,318,009
INCREASE/(DECREASE) IN NET
ASSETS FROM OPERATIONS (20,429,744) 3,225,671
DISTRIBUTIONS TO SHAREHOLDERS:
Net Realized Gains ($.88
and $.47, respectively) (1,334,802) (63,343)
CAPITAL SHARE TRANSACTIONS: <F1>
Shares Sold 98,363,911 23,834,857
Shares Redeemed (53,224,319) (510,028)
Distributions Reinvested 1,286,949 59,722
INCREASE FROM CAPITAL SHARE TRANSACTIONS 46,426,541 23,384,551
TOTAL INCREASE IN NET ASSETS 24,661,995 26,546,879
NET ASSETS
Beginning of Period 27,799,260 1,252,381
End of Period $52,461,255 $27,799,260
(A) CAPITAL SHARE TRANSACTIONS
Shares Sold 5,119,433 1,487,704
Shares Redeemed (2,871,499) (31,203)
Distributions Reinvested 78,857 4,994
TOTAL INCREASE IN SHARES 2,326,791 1,461,495
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
<TABLE>
MID-CAP FOCUS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
March 18, 1998* to
Sept. 30, 1998
<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net Investment Loss $(1,660)
Net Realized Loss on Investments (16,879)
Increase in Unrealized Depreciation on Investments (196,038)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (214,577)
CAPITAL SHARE TRANSACTIONS: (a)
Shares Sold 1,177,267
Shares Redeemed (166,626)
Distributions Reinvested -
INCREASE FROM CAPITAL SHARE TRANSACTIONS 1,010,641
TOTAL INCREASE IN NET ASSETS 796,064
NET ASSETS
Beginning of Period -
End of Period $796,064
(a) CAPITAL SHARE TRANSACTIONS
Shares Sold 119,762
Shares Redeemed (17,188)
TOTAL INCREASE IN SHARES 102,574
*Inception of Mid-Cap Focus Portfolio
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
<TABLE>
VALUE & GROWTH PORTFOLIO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<CAPTION>
FY 1998 FY 1997 11/06/95*
to
09/30/96
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NAV, BEGINNING OF PERIOD $17.66 $11.13 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (.13) (.03) (.03)
Net Realized and Unrealized
Gains/ (Losses) (3.20) 7.03 1.17
TOTAL FROM INVESTMENT OPERATIONS: (3.33) 7.00 1.14
LESS DISTRIBUTIONS:
Net Capital Gains (.88) (.47) (.01)
NAV, END OF PERIOD $13.45 $17.66 $11.13
TOTAL RETURN FOR FISCAL YEAR (19.7)% 64.9% 11.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets-End of Period ($000) $52,461 $27,799 $1,252
RATIOS TO AVERAGE NET ASSETS
Expenses 1.72% 1.83% 2.20%**
Net Investment Income (Loss) (.93)% (.86)% (0.51)%**
Portfolio Turnover Rate 223.6% 103.3% 148.0%
Avg. Debt Per Share $.12 - -
Avg. amount of debt outstanding ($000)$345 - -
Avg. number of shares outstanding(000) 2,815 - -
*Inception of Value & Growth Portfolio
**Annualized
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
<TABLE>
MID CAP VALUE
FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<CAPTION>
March 18, 1998*
to
Sept. 30, 1998
<S> <C>
PER SHARE OPERATING PERFORMANCE
NAV, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (.02)
Net Realized and Unrealized Gains (Losses) (2.22)
TOTAL FROM INVESTMENT OPERATIONS (2.24)
LESS DISTRIBUTIONS:
Net Capital Gains -
NAV, END OF PERIOD $7.76
TOTAL RETURN FOR PERIOD (22.4)%
RATIOS/SUPPLEMENTAL DATA
Net Assets-End of Period ($000s) $796
RATIOS TO AVERAGE NET ASSETS
Expenses 1.98%**
Net Investment Income (Loss) (0.40)%**
Portfolio Turnover 89.1%
Average Debt Per Share $.04
Average amount of debt outstanding ($000) $4
Average number of shares outstanding (000) 86
*Inception of Mid-Cap Focus Portfolio
**Annualized
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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To the Shareholders and Board of Directors
Texas Capital Value Funds, Inc.
We have audited the accompanying statements of assets and liabilities of
the Value & Growth Portfolio and the Mid-Cap Focus Portfolio (formerly
the BlueChip Value Portfolio, the "Funds"), each a series of shares of
the Texas Capital Value Funds, Inc., including the portfolio of
investments, as of September 30, 1998, and the related statements of
operations, changes in net assets, and the financial highlights for the
periods indicated thereon. These financial statements are the
responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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, 1998, 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 audits provide 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 the Texas Capital Value & Growth Portfolio and the
Texas Capital Mid-Cap Focus Portfolio as of September 30, 1998, the
results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated thereon, in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 6, 1998
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Texas Capital Value Funds, Inc. was incorporated on June 26, 1995 as a
Maryland Corporation and is registered under the Investment Company Act
of 1940 as a non-diversified, open-end management investment company.
The Value & Growth Portfolio (the "V&G") and the Mid-Cap Focus Portfolio
(the "Mid-Cap Focus" and formerly BlueChip Value Portfolio) are series
of the Texas Capital Value Funds, Inc, collectively (the "Funds"). V&G
began investment operations on November 6, 1995, while Mid-Cap Focus
began investment operations on March 18, 1998. V&G's investment
objective is capital appreciation. Mid-Cap Focus's investment objective
is growth, with income a secondary consideration. The following is a
summary of significant accounting policies followed by the Funds 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 Funds' Board of Directors. Short-
term investments are valued at amortized cost, if their original
maturity was 60 days or less, or by amortizing the values as of the 61st
day prior to maturity, if their original term to maturity exceeded 60
days.
B. Federal Income Taxes - It is the Funds' policy to meet the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable net income to
its shareholders. In addition, the Funds intend to pay distributions as
required to avoid imposition of excise tax. No federal income tax
provision is required.
C. Securities Transactions, Investment Income and Other - Securities
transactions are recorded on the next business date after trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis.
D. Distributions to Shareholders. Distributions from investment income
and realized gains, if any, are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
net operating losses and post-October capital losses.
E. 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.
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2. TRANSACTIONS WITH AFFILIATES
Investment Advisory and Administrative Agreements
The Funds have investment advisory agreements with the Advisor, First
Austin Capital Management, Inc., 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 portfolios
and pays the cost of compensation of the officers of the Funds,
occupancy and certain clerical and administrative costs involved in the
day to day operations of the Funds. The Advisor bears most of the
operating expenses of the Funds including legal, audit, printing, and
insurance.
In addition, the Advisor is acting as the administrator to the Funds.
For these services, the Advisor receives a fee, computed daily based on
the average daily net assets at an annual rate of .70% on the 1st $5
million, .50% on the next $25 million, .28% on the next $70 million,
.25% on the next $100 million, and .20% for over $200 million of each
series.
Transactions with the Distributor
Choice Investments, Inc., the Company's Distributor and clearing through
Southwest Securities, was paid $31,230 in commissions for executing
portfolio transactions for the Value & Growth Portfolio.
Distribution Agreement and Plan
The Funds have adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act under which the Funds contract with registered broker-
dealers and their agents to distribute shares of the Funds. The
Distributor received a fee, computed daily at an annual rate of .25% of
the average daily net assets. For the period ending September 30, 1998,
the amounts paid to the Distributor were $131,271 and $1,033, for V&G
and Mid-Cap Focus, respectively, plus charges for sales of the Funds'
shares in the amount $23,497.
3. PURCHASES AND SALES OF SECURITIES--For the period ended September 30,
1998 the cost of purchases and the proceeds from sales of securities,
excluding short-term securities, were $156,300,017 and $111,248,941,
respectively, for the Value & Growth Portfolio and $1,635,836 and
$658,892 for Mid-Cap Focus Portfolio, respectively.
4. LINE OF CREDIT-The Funds have a $9 million secured line of credit
with Bank of Boston. Borrowings under this arrangement bear interest at
the bank's prime rate. At September 30, 1998, the Funds had no
borrowings outstanding. Based upon balances outstanding during the
year, the weighted average interest rate was 8.6% and the weighted
average amount outstanding was $344,509 for the Value & Growth Portfolio
and $3,613 for the Mid-Cap Focus Portfolio.
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