Fund Facts
For 1997, shareholders designated the following charities:
AIDS Services of Austin
Alzheimers 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 Childrens Fund
Habitat for Humanity
Harvard Law School Fund
Hilo Salvation Army
The Home Care Program/MSKCC
Make-A-Wish Foundation
MD Anderson Childrens Art Project
Medical Institute for Sexual Health
Methodist Childrens Home
National Cancer Institute
National Kidney Cancer Association
Nature Conservancy of Tennessee
Nevada SPCA
Northwest Hills United Methodist
Peoples Community Clinic
Rapheal Free Clinic
Red Cloud Indian School
Salvation Army
San Diego Historical Society
SOVA Food Pantry
St. Michaels Academy
Texas Baptist Childrens Home
Union Station
United Way of the Flint Hills
Wesleyan Homes Alzheimers Care
Women Helping Women
Our new fund, Blue Chip Value,(previously called Growth &
Income) is now available. Please read the Investment
Managers Report for more information.
Who is one of the largest individual shareholders Your
manager, Mark Coffelt.
Need a prospectus and other information for a friend
Call 1-888-839-4769.
Have questions about your account Call the Transfer Agent
at 1-800-628-4077.
Daily NAV. Call (512) 302-6099, or (888) 839-4769.
Roth IRAs are now available. Call 1-888-839-4769 for a
kit.
1
<PAGE>
Fellow Shareholders,
The Net Asset Value of the Value & Growth Portfolio (V&G)
for the period ending March 31st, 1998 was $20.71. For our
new Blue Chip Value Fund (Blue Chip), the Net Asset Value
was $9.90. Blue Chip was only opened March 18th, 1998 so
it would be premature to discuss performance in this
report.For the quarter, V&G was up 24.3%, making it the
best performing domestic equity fund for the quarter out of
a total of 1,924 funds according to The New York Times.
The New York Times also declared V&G the best performing
small cap fund for the last 12 months, out of 437 funds,
with its annual return of 77.1%. We performed
exceptionally well against the Russell 2000 Index which is
representative of how your Fund is invested, up 10.1% for
the quarter, and against the S&P 500 Index,
up 13.9% for the quarter.
<TABLE>
<CAPTION>
Period V&G2 Russell 2000 S&P 500
<S> <C> <C> <C>
Last Quarter 24.3% 10.1% 13.9%
Last 12 Months 77.1% 42.0% 48.0%
Since Inception
(annualized) 40.7% 22.9% 32.4%
<FN>
<F1>
After payment of the maximum 4.5% sales charge, the Fund return for the
last quarter, last 12 months, and since inception would be 18.7%, 69.1%
and 38%, respectively.
</FN>
</TABLE>
Of course, you know the old caveat, past performance may
not be indicative of future results.
Please fasten your seatbelts
We would like to highlight to our shareholders that the
ride in stocks has been uncommonly smooth in the last few
years. You should not be surprised at a 30% drop in stock
prices at some point going forward. Thats not a forecast,
but history would suggest you should be prepared.
2
<PAGE>
When the market drops, we hope that you will keep in mind
that the V&G fund has historically done well during market
dips, and exceptionally well in the recovery periods.
But please dont try to market time
Weve watched a few investors with fascination, many of whom
are investment advisors who have tried to time their
purchases and sales of the V&G fund. They have generally
shown an uncanny ability to buy high and sell low not the
path to investment riches. You would think that investment
advisors would know better Apparently not.
Over the last 30 years, one dollar invested in stocks grew
to $28.50. But investors who missed just the best 10
months out of thirty years saw their dollar grow to only
$9.70, about the equivalent return of a money market
account. Peter Lynch, the former manager of the Fidelity
Magellan fund, wrote in One up on Wall Street:
Experts...cant predict
markets with any useful consistency, any more than gizzard
squeezers could tell the Roman emperors when the Huns would
attack. The examples go on and on.
Market timing forget it! The V&G fund has so far
compounded in excess of 40% per year since inception.
Anyone who has tried to add to that return has made a
costly error.
You should also know that once we identify market timers,
they are precluded from further purchases of the funds.
Market timers add costs to all shareholders and are about
as welcome as cockroaches in the kitchen.
Growth not impacting performance
Besides exceptional performance, this quarter saw explosive
growth for the Value & Growth fund. The total assets in
the V&G fund have grown from $27 million on December 31st,
1997 to $63 million by March 31st, a 133% increase. These
numbers reveal that not only did our quantitative strategy
continue to identify attractive equity investments, but
that a landslide of new money was put to use quickly and
efficiently. Thats important for you the shareholder,
since a flood of money can
sometimes ruin a funds performance.
Comments on the Quantitative strategy
Over V&Gs 30 month history, management has been asked many
times to clarify the advantages of a quantitative strategy.
We would like to devote this report to a discussion of our
3
<PAGE>
thoughts on our quantitative investment strategy and why we
feel this approach is superior to other investment styles.
Both the V&G and Blue Chip funds use a similar quantitative
approach. The most significant difference between the two
funds is that V&G concentrates on smaller companies, while
Blue Chip concentrates on larger companies. Both funds
rely on highly tested, rigorous value strategies, and both
funds show robust returns on a back tested
basis. If you are looking for a fund focused on larger
stocks, we hope you will consider the Blue Chip Value fund.
Quant analysis in action
Our purchase of PETCO Animal Supplies is a case study in
the advantages of quantitative investing. A quick analysis
of the company reveals that it is the second largest pet
and animal supply chain in the United States. Like many
other category killers, PETCO has gone on an acquisition
binge over the last two years, acquiring eight regional pet
store chains that operate 148 individual stores. The stock
had been pushed to over $33/share in mid-1997. In December
of 1997, the first of a series of downgrades came from Wall
Street. The first happened to be the best, because PETCO
was fully valued at $33, if not overvalued.
We doubt that was the reason for the downgrade, but their
timing was good. After that, Wall Street proceeded to
follow its usual practice of closing the barnyard door
after all the animals are out, and two more downgrades
ensued after the stock was already in free fall.
Incidentally, we doubt many investors of the last two
brokerage firms
benefited from their downgrades. Institutions are highest
on the food chain of brokerage firm research and probably
received the first recommendation to sell. It is likely
that they had too much stock to get out at the hold price.
And, by the time retail investors were notified to hold, it
was time to buy. What was all the fuss about PETCOs first
mistake was to miss the estimates that it had
given Wall Street for the previous quarter. Even though
their earnings were still good, that got investors nervous.
What really got Wall Street going was the announcement by
PETCO that it no longer expected to build 10 stores per
quarter for the year, but would instead build 4 stores in
the first half of the year, and 36 stores in the second
half.
3
<PAGE>
You dont need higher math to realize PETCOs new
schedule still results in 40 new stores for the fiscal
year. This revised schedule amazingly cut the stocks price
in half. Was PETCOs long run growth rate going to diminish
No, that wasnt it either. In the same press release as the
new schedule of store openings, PETCO affirmed analysts
long term growth estimates.
Looking ahead to fiscal 1998, we
anticipate that PETCO will grow net earnings by
approximately 30 percent from current analysts expectations
(First Call estimates, which aggregates Wall Street
analysts estimates) in 1997 of $0.87 to $0.88 per share.
This anticipated growth rate compares with PETCOs 30 percent
growth in fiscal 1997 over fiscal 1996.
[GRAPH]
Our Quant process screen picked PETCO when the stock spiked
down below $15 per share. The prospects of the company
were still strong. The company continued to pass our
quality test with good financial ratings and exceptionally
low debt. Earnings still looked reasonable. Most
importantly though, the stock at $15 per share was selling
for about half of what the company would sell for in a
takeover. In other words, the company at $15 per share was
selling for a big discount from its intrinsic value.
At the end of February, we purchased 72,500 shares. We
bought another 85,000 shares shortly thereafter, and by
early March our total investment was over $3.3 million
dollars at an average cost of about 14 5/8. PETCO had
become the largest single equity investment in the Funds
history.
4
<PAGE>
We believe that one of our competitive advantages
is that our Quant process allows us to act quickly on an
investment like PETCO. In less than two weeks, the stock
rebounded to a price of about $18 per share, or a gain of
23% in a very short period.
Heres the $64,000 question: Why would we purchase a stock
like PETCO when influential, educated, and well paid
analysts from reputable firms are downgrading their buy
recommendations The answer, most simply, is that we are
betting the so-called smart money managers have been
carried away and are no longer rationally valuing the
company. In short, theyre biased. Wall Street is overly
focused on the very short term. Their panic became our
opportunity.
A Quant process helps us avoid getting swept up with the
crowd. More importantly, it allows us to quickly evaluate
the relevant factors in a situation and, if appropriate,
seize the opportunity.
Human Bias
As in any complex process, investment management is riddled
with human bias. The concept of human bias is difficult to
explain and understand, and surprisingly, its not well
accepted by most academicians or money managers. At least
in money management, bias is only costly for most
investors. In medicine or psychiatry, bias can be deadly.
The following experiment demonstrates the tendency toward
irrational human bias. A game is played with two decks of
cards. One deck is red, and the other is blue. The dealer
shows a player one card from the red deck then returns it
to the middle of the deck and shuffles. The dealer then
tells the player that if he can draw the card from the
deck, the player wins $100. A similar game is played with the
blue deck of cards. This game is identical except that the
player gets to select and hold his card before he returns
it to the deck. When the players were asked what they would sell their
place in the game for, the answers were surprising:
RED DECK (no touching the cards)
19% of players were unwilling to sell their cards.
Those willing to sell had an average asking price of $2.
5
<PAGE>
BLUE DECK (player able to touch cards)
37% of players were unwilling to sell their cards.
Of those willing to sell, their average asking price was $9.
A deck of cards has 52 cards. The participants with the
red deck (no touching) had the probabilities correct
selling their place in the game for about $2 is a rational
decision. But note how bias enters the picture when the
players can touch the card. Touching the card gave players
an illusion of control over the game and increased their
confidence in a winning outcome. Bias made their decisions
irrational.
There are two lessons in this. You want to avoid bias in
investment management. We do this by sticking to a Quant
process, which keeps emotions, and thus bias, out of the
decision. The second lesson is that the PETCO management
should have invited the analysts to lunch to make their
announcement. Our bet is that by visiting the company,
analysts would have maintained their illusion of control and the
stock price would not have dropped so precipitously. Of
course, for the rational investor, that was our
opportunity. We dont know what the market holds going
forward, but we can commit to you that whatever happens, we
will continue to try to respond rationally when investing
your (and our) funds.
Respectfully Submitted,
Mark A. Coffelt, CFA
Chairman
<TABLE>
<CAPTION>
S T O C K P R I C E S R E L A T I V E TO
Earnings Cash flow Book value
<S> <C> <C> <C>
Value & Growth Portfolio 17.3x 10.6x 3.0x
Avg Small Value Fund 22.6x 11.0x 3.2x
Avg Small Growth Fund 34.2x 22.7x 6.4x
S&P 500 Index 30.0x 20.0x 7.1x
<FN>
<F1>
All Ratios from Morningstar Mutual Funds March, 1998
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Short-Term Principal Issues Value As % of
Investments Amount Net Assets
<S> <C> <C> <C> <C>
930,468 Repurchase Agreement 930,468
(Collateralizrd by U.S. Treasury Notes, First Boston)
Total Cash & Equiv. 930,468
<CAPTION>
Common Stocks
Industry Shares Company $ Amount %
<S> <C> <C> <C> <C>
Aerospace 16,000 United Industrial 207,000 .3
Apparel 67,700 Farah Inc.* 427,356 .7
Auto Parts 41,900 Standard Products 1,380,081 2.2
13,500 Superior Industries 448,031 .7
18,281,112 2.9
Building Materials 57,900 LaFarge Corp. 2,221,913 3.5
Computer & Peripherals 150,800 Sequent Computer* 2,752,100 4.4
72,100 Stratus Computer* 3,176,906 5.1
102,000 Symantec Corp.* 2,747,625 4.4
9,676,631 13.9
Diversified Companies 64,000 Katy Industries 1,216,000 1.9
7,100 Bell Industries* 100,288 .2
78,000 Myers Industries 1,628,250 2.6
30,500 Valmont Industries 739,625 1.2
3,684,163 5.9
Drugs 222,600 Roberts Pharm.* 3,172,050 5.0
Food Wholesale 102,975 Oshawa Group 1,867,967 3.0
7
<PAGE>
Furniture 95,200 Kimball International 2,189,600 3.5
Homebuilding 67,900 Standard Pacific 1,022,744 1.6
Hotel/Gaming 41,900 Anchor Gaming* 2,650,725 4.2
Medical Supplies 122,300 Spacelabs Medical* 2,705,888 4.3
24,900 Diagnostic Products 694,088 1.1
3,399,976 5.4
Metal Fabricating 135,000 Allied Products 3,147,188 5.0
Oilfield Service 9,800 Helmerich & Payne 306,250 .5
Packaging/Container 116,800 Gibson Greetings* 3,226,600 5.1
Precision Instruments 26,500 Esterline Tech* 1,117,969 1.8
Recreation 13,700 Callaway Golf 397,300 .6
335,900 Seattle Filmworks* 3,065,088 4.9
3,462,388 5.5
Recreational Vehicles 104,500 Winnebago 1,234,406 2.0
10,000 Champion* 266,875 .4
1,501,281 2.4
Restaurant 98,300 Applebees 2,273,188 3.6
76,200 Vicorp Rest.* 1,400,175 2.2
3,673,363 5.8
Retail 24,900 Ross Stores 1,098,713 1.7
173,600 Burlington Coat 3,016,300 4.8
94,200 Claires Stores 2,160,713 3.4
174,500 Petco Animal Supply* 3,402,750 5.4
9,678,476 15.4
8
<PAGE>
Securities Brokerage 31,700 Advest Group 778,631 1.2
26,000 Lehman Bros. 1,946,750 3.1
2,725,381 4.3
Trucking 48,700 Werner Enterprises 1,241,850 2.0
Total Common Stocks
(Cost $53,998,362) 61,428,979 96.3
Total Investment Portfolio 62,873,050 101.0
Other Assets
Less Liabilities -513,603 -1.0
Net Assets - 100% $62,539,447 100.0
(Applicable to 360,194 shares outstanding)
<FN>
<F1>
*Non-income producing
</FN>
</TABLE>
At June 30, 1997, the net unrealized appreciation based on
the cost of investments for
income tax purposes of $7,340,617 was as follows:
Gross unrealized appreciation 8,081,484
Gross unrealized depreciation (650,867)
Net unrealized appreciation 7,430,617
9
<PAGE>
<TABLE>
<CAPTION>
Short-Term Principal Issues Value As % of
Investments Amount Net Assets
<S> <C> <C> <C> <C>
34,019 Repurchase Agreement 34,019
(Collateralized by U.S. Treasury Notes, First Boston)
Total Cash & Equiv. 34,019
<CAPTION>
Common Stocks
Industry Shares Company Amount %
<S> <C> <C> <C> <C>
Auto/Trucking 190 Paccar Inc. 11,317 1.3
Banking 200 Royal Bank of Canada 11,825 1.3
270 Toronto-Dominion 12,292 1.3
24,117 2.6
Computer & Peripherals 1,290 Compaq Computers 33,379 3.8
1,040 Stratus Computers 45,825 5.2
79,204 9.0
Financial Services 340 Household Intl 46,793 5.3
1,020 SLM Holding 44,689 5.0
1,310 MBNA Corp. 46,914 5.3
138,396 15.6
Food Processing 1,040 Interstate Bakeries 33,865 3.8
1,320 Flowers Inds. 30,938 3.5
64,803 7.3
Homebuilding 970 Kaufman & Broad 31,586 3.6
10
<PAGE>
Industrial Services 2,720 Olsten Corp. 42,840 4.8
Insurance 930 SunAmerica, Inc. 45,620 5.0
Oilfield Service/Equip. 920 Tidewater, Inc. 40,308 4.6
Retail 380 Dayton Hudson 33,440 3.8
2,040 Claires Stores 46,793 5.3
1,110 Ross Stores 48,979 5.5
129,212 14.6
Securities Brokerage 460 Lehman Bros. 34,443 3.9
Telecommunications 1,970 Andrew Corp. 39,031 4.4
Thrift 880 Greenpoint Financial 31,625 3.6
Tobacco 760 Philip Morris 31,683 3.6
Total Common Stocks
(Cost $749,190) 708,485 95.4
Total Investment Portfolio 776,523 104.6
Other Assets
Less Liabilities -34,019 -4.6
Net Assets - 100% 742,504 100.0
(Applicable to 78,233 shares outstanding)
</TABLE>
Gross unrealized appreciation 0
Gross unrealized depreciation (6,686)
Net unrealized appreciation -6,686
11
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Value
Value & Growth
<S> <C> <C>
ASSETS
Investments at Market Value,
(Identified Costs $749,190 & $53,998,362) 742,504 61,428,979
Cash & Equivalents 34,019 930,468
Dividends and Interest Receivable 60 25,508
Receivable for Shares Sold 110,243 1,390,919
Total Assets 886,826 63,779,421
LIABILITIES
Distribution Payable 0 389
Operating Expense 134 20,230
Management Fee 191 47,277
12B-1 Fees 48 21,482
Interest Expense 0 -3,200
Payable for securities purchased 111,790 819,218
Accrued Expenses 304 976
Total Liabilities 112,467 906,371
NET ASSETS 774,359 62,873,050
(Applicable to 78,233 & 216,878 shares outstanding,
$.001 par value, $25 million shares authorized)
NAV AND REPURCHASE PRICE PER SHARE 9.90 20.70
MAXIMUM OFFERING PRICE PER SHARE 10.30 21.60
(1000/955 of net asset value)
NET ASSET
Par Value @ .001 78 3,037
Capital in Excess of Par 781,279 52,546,509
Accumulated Undistributed Net Income -313 -208,573
Accumulated Undist Realized Gain/Loss 0 3,101,461
Net Unrealized Appreciation -6,686 7,430,617
774,359 62,873,050
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Blue Chip Value Value & Growth
<S> <C> <C>
INVESTMENT INCOME
Dividends 60 130,998
Interest 0 15,494
TOTAL INVESTMENT INCOME 60 146,492
EXPENSES
Operating Expense 134 83,058
Management Fee 191 169,810
12B-1 Fee 48 42,453
TOTAL EXPENSES 372 299,371
NET INVESTMENT INCOME (LOSS) -313 -152,879
REALIZED AND UNREALIZED GAINS
Net Realized gain from security trans 0 3,511,761
Incr in unrealized appr of investments -6,686 4,992,500
NET GAIN ON INVESTMENTS -6,686 8,504,261
NET INCREASE IN ASSETS FROM OPERATIONS -6,999 8,351,381
OPERATIONS
Net Investment Gain (Loss) -313 -152,879
Net Realized Gain (Loss) 0 3,511,761
Unrealized Gain (Loss) -6,686 4,992,500
INCREASE IN NET ASSETS FROM OPERATIONS -6,999 8,351,381
13
<PAGE>
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income 0 0
Net Realized Gain on Investments 0 1,335,191
Return of Capital 0 0
DECREASE IN NET ASSETS FROM DISTRIBUTIONS 0 1,335,191
CAPITAL SHARE TRANSACTONS (AMOUNT)
Shares Sold 781,358 41,427,877
Shares Redeemed 0 -14,552,351
Distributions Reinvested 0 1,286,949
INCREASE FROM CAPITAL SHARE TRANSACTIONS 781,358 28,162,475
TOTAL INCREASE IN NET ASSETS 774,359 35,178,666
NET ASSETS
Beginning of Period 0 27,694,384
End of Period 774,359 62,873,050
CAPITAL SHARE TRANSACTIONS (SHARES)
Shares Sold 78,233 2,202,139
Shares Redeemed 0 812,584
Distributions Reinvested 0 78,857
TOTAL INCREASE IN SHARES 78,233 1,468,412
14
<PAGE>
NET ASSET VALUE, BEGINNING OF PERIOD 10.00 17.75
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) -313 -152,879
Net Realized and unrealized gain 6,686 8,504,261
TOTAL FROM INVESTMENT OPERATIONS -6,999 8,351,381
LESS DISTRIBUTIONS
Net capital gains 0 -1,335,191
NET ASSET VALUE AT END OF PERIOD 9.90 20.71
TOTAL RETURN FOR PERIOD -1.0% 16.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period 774,359 62,873,050
RATIOS TO AVERAGE NET ASSETS
Expenses 1.95%(a) 1.64%(a)
Net investment income (loss) 0 -.70%
Portfolio Turnover 0 93%
Commissions per share .06 .06
*Blue Chip commenced operations March 18, 1998.
<FN>
<F1>
(a)Annualized
</FN>
</TABLE>
15
<PAGE>
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 fund), a series of the Texas Capital
Value Funds, Inc., began investment operations on November
6, 1995, while the Blue Chip Value Portfolio (the Blue Chip
fund) began investment operations on March 18, 1998. Both
the V&G and Blue Chip funds are referred to collectively as Funds.
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. Income Taxes - The Funds intend 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 Funds 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 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.
17
<PAGE>
D. Accounting Estimates - The preparation of financial
statements in accordance with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
amounts of income and expense during the reporting period.
Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
Investment Advisory and Administrative Agreements
The Funds have investment advisory agreements 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 of each fund. The Advisor provides
continuous supervision of the investment portfolio 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. In
addition, the Advisor is acting as the administrator to the
Funds. For these services, the Advisor receives a fee,
computed daily at an annual rate of .70%, or lower, of the
average daily net assets of each fund. The administrators
fee was reduced from .90% to
.70%, effective August 28, 1996.
Transactions with the Distributor
Choice Investments, Inc., the Companys Distributor, was
paid $15,222 in commissions for executing V&G transactions,
and $0 for executing Blue Chip transactions. Distribution
Agreement and Plan
The Funds have 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 Funds. The distribution fee was
reduced from .35% to .25%, effective August 28, 1996. For
the period ending March 31, 1997 the amount paid to the
Distributor was $42,452.65 plus sales charges for the V&G
fund and $47.75 for the Blue Chip fund.
18
<PAGE>
3.PURCHASES AND SALES OF SECURITIES
For the period ended March 31, 1997, the cost of purchases
and the proceeds from sales of securities, excluding short-
term securities, were $57,351,040 and $32,075,385,
respectively for the V&G fund and $749,190 for the Blue
Chip fund.
4.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. Therefore, no federal income tax provision is
required.
