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. 7
TEXAS CAPITAL VALUE FUNDS, INC
(Exact Name of Registrant as Specified in Charter)
2301 South Capital of Texas Highway
Building J-102
Austin, TX 78746
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code:
(512)328-9321
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) | |
On (date) pursuant to paragraph (a)(1) |_|
75 days after filing pursuant to paragraph (a)(2) |_|
On October 1,1999 pursuant to paragraph (a)(2) of rule 485 |X|
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
TEXAS CAPITAL VALUE FUNDS, INC.
CROSS REFERENCE SHEET
PART A
------
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Front and Back Cover Pages.......... Same
2. Risk/Return Summary: Investments,
Risks, and Performance............. What risks are involved?
What can the Funds Invest In?
What else do I need to know before
investing?
How have the Funds performed?
3. Risk/Return Summary: Fee Table..... What Fees and Expenses do I pay?
4. Investment Objectives, Principal
Investment Strategies, and
Related Risks..................... What are the Funds' Investment
Strategy?
What Risks are Involved?
5. Management's Discussion
of Fund Performance............... Not Applicable
6. Management, Organization, and
Capital Structure................. How are the Funds Set Up?
Who Runs the Funds?
7. Shareholder Information............ What Else do I Need to Know Before
Investing?
How Can I Reach the Funds?
8. Distribution Arrangements.......... How are the Funds Set Up?
How do I Purchase Shares?
9. Financial Highlights Information... How Have the Funds Performed?
<PAGE>
Texas Capital Value Funds, Inc.
CROSS REFERENCE SHEET
PART B
------
FORM N-1A ITEM NO. SECTION IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page and Table of Contents.... Same
11. Fund History........................ Fund History
12. Description of the Fund and
Its Investments and Risks.......... Investment Objective and Policies
13. Management of the Fund.............. Investment Advisor
Directors and Officers
14. Control Persons and Principal
Holders of Securities.............. Principal Holders of Securities
15. Investment Advisory and
Other Services..................... Directors and Officers
Investment Advisor
Service Providers
16. Brokerage Allocation and
Other Practices.................... Brokerage
17. Capital Stock and
Other Securities................... Voting
Fund History
18. Purchase, Redemption, and
Pricing of Shares.................. Purchase and Redemption of Shares
Net Asset Value
19. Taxation of the Fund................ Tax Status
20. Underwriters........................ Distribution of the Funds
21. Calculation of Performance Data..... Performance Information
22. Financial Statements................ Cover Page
<PAGE>
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>
PART A - PROSPECTUS - Value & Growth Portfolio
Mid-Cap Focus Portfolio
Texas Capital Value Funds - Prospectus October 1, 1999
Table of Contents
What is Each Funds Investment Strategy? 2
What Risks are Involved? 2
What Fees and Expenses Do I Pay? 3
How do I Purchase Shares? 5
How do I Sell Shares? 6
What Can the Funds Invest In? 8
What is the Charitable Giving Program? 9
How are the Funds Set Up? 9
Who Runs the Funds? 9
What are the Funds Brokerage Policies? 11
How are Fund Distributions and Taxes Handled? 12
Do the Funds Offer Retirement Accounts? 12
What Else do I Need to Know Before Investing? 13
How Have the Funds Performed? 13
How Can I Reach the Funds? 16
Phone Numbers
Existing Accounts: 888-839-4769
New Accounts & Information: 888-839-7424
512-328-9321
Ticker Symbols Value & Growth Portfolio TCVGX
Mid-Cap Focus Portfolio Not assigned
This prospectus tells you what you need to know about the Value & Growth
Portfolio and the Mid-Cap Focus Portfolio, before you invest. First Austin
Capital Management, Inc. manages and administers the Funds and will
be referred to as "we" or "us" in this prospectus. You should read this
prospectus carefully before you invest and keep it for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This Prospectus is not a solicitation by any Fund for the sale of shares in
states in which the offering is not authorized. No one is authorized by the
Funds to give information or make representations that are different from any
material issued by the Funds or its Distributor. No one should rely on any
other information or representation.
<PAGE>
WHAT IS EACH FUNDS INVESTMENT STRATEGY?
Objectives
Value & Growth Portfolio
Capital appreciation by investing in equity
securities of small domestic and foreign corporations.
Mid-Cap Focus Portfolio
Capital appreciation and, to a lesser extent,
income by investing in equity securities of
mid-cap domestic and foreign corporations.
How are the Funds' Investment Strategies Similar?
We will seek to achieve our objectives by purchasing and holding stocks. For
both Funds, we practice quantitative techniques in the selection of stocks using
a computer screening process to assist us in finding investment opportunities.
Our screening process concentrates on a few of a company's fundamental ratios
such as market price relative to company earnings (P/E), market price relative
to company cashflow (P/CF), and market price relative to company net worth or
bookvalue (P/B). We consider companies undervalued when these ratios are below
average when compared to the market. These are by no means the only ratios that
are considered, but they weigh heavily in the selection of securities.
Qualitative factors are considered in investment selection, but their influence
is usually minimal. Both Funds are "non-diversified", meaning that they have
the ability to invest a larger percentage of their overall assets in any one
stock than do "diversified" funds.
How are the Funds' Investment Strategies Different?
For the Value & Growth Portfolio, we seek capital appreciation by investing in
smaller capitalization companies that are undervalued.
For the Mid-Cap Focus Portfolio, we seek capital appreciation by investing in
undervalued mid-cap companies. Mid-Cap companies are relatively well-known
companies whose stocks are listed on one of the major exchanges and trade
relatively frequently. Most Mid-Cap companies have market capitalizations
between $2 billion and $10 billion. Company dividends are more important here.
You should read What Can the Funds Invest In? and What Risks are Involved on
pages 8 and 2 respectively, for more detailed information.
<PAGE>
WHAT RISKS ARE INVOLVED?
General
Losing money is a risk associated with investing in all mutual funds.
Please read the other risks detailed below that apply to investing in our Funds.
Market Risk
Market Risk involves the possibility that the Fund's investments in equity
securities will decline because of falls in the stock market, reducing the
value of individual company's stocks regardless of the success or failure of an
individual company's operations.
Small Capitalization Company Risk
Small capitalization company risk involves the greater risk of investing in less
well-known companies that are smaller, especially those that are traded
infrequently, than investing in larger, frequently traded companies with proven
track records. This risk applies primarily to the Value & Growth Portfolio.
Non-diversification Risk
Because the Funds are "non-diversified", you should be aware that investing in
them may pose a greater than average risk by becoming more sensitive to a
single economic, political, or regulatory occurrence.
Suitability
As you consider an investment in these Funds, you should also take into account
your tolerance for the daily fluctuations of the financial markets and whether
you can afford to leave your money in the Funds for long periods of time to
ride out down periods. The individual Funds are not intended to be a complete
investment program for investors.
Other Risks
An investment in this Fund is not a deposit of any bank,
and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
<PAGE>
Summary
The bar chart and table below illustrate the variability of the Funds' returns
and the risks of investing. The bar chart shows how performance has varied
from year to year. The table comapres the Fund's performance to that of a
broad-based market index. This information is based on past performance.
It is not a prediction of future results.
[CHART SHOWING RETURNS FOR THE VALUE & GROWTH PORTFOLIO]
Value & Growth: 1996 26.3%
1997 45.6%
1998 -3.06%
1/1/99-6/30/99 -7.62%
Mid-Cap Focus:
12/31/98-6/30/99 0.07%
The inception date for Value & Growth was 11/6/95. Sales loads were not
reflected in these performance numbers. If they were reflected, returns
would be less than shown. Mid-Cap Focus has not had a full calendar year of
operation, the inception date was 3/18/98.
Best Quarter for above period (Q1 1998): 24.29%
Worst Quarter for above period (Q3 1998): -32.35%
<TABLE>
Average Annual Returns compared to Russell 2000 Index (as of December 31st, 1998)
<CAPTION>
Value & Growth Mid-Cap Focus Russell 2000
<S> <C> <C> <C>
1999-6/30/99 -7.61% 0.07% 9.28%
1998 -3.06% N/A -2.55%
1997 45.54% N/A 22.36%
11/5/95-1997 26.33% N/A 16.49%
</TABLE>
The Russell 2000 index is an unmanaged equity index comprising smaller U.S.
companies and includes dividends reinvested.
<PAGE>
WHAT FEES AND EXPENSES DO I PAY?
<TABLE>
This table describes the fees and expenses that you may pay when you buy and
hold shares of the Funds:
<CAPTION>
Value & Mid-Cap
Growth Focus
<S> <C> <C>
Max. Sales Charge
(Load) Imposed on
Purchases (as a %
of offering price) 4.5% 4.5%
Max. Sales Charge
(Load) Imposed on
Reinvested Dividends
and other Dostributions:None None
Redemption Fees (as
a percentage of the
amount redeemed) See Below* See Below*
Exchange Fees: None None
Management Fees 1.00% 1.00%
Distribution and
Service (12b-1) Fees 0.25% 0.25%
Other Expenses 0.42% 0.70%
Total Annual Fund
Operating Percentage: 1.67% 1.95%
</TABLE>
* A $12 wire fee may be charged to your account. There is a 2% redemption fee
for investors who did not pay the initial sales charge if the redemption occurs
within 90 days of investment. Please read "Redemption Fee" on page 7. A 1%
redemption fee will apply to all who invest $1 million or more without paying
the initial sales charge and redeem within one year. Please read "Sales
Charges" on Page 5.
Example
The following table should help you understand the various costs and expenses
that you would bear as a shareholder in the Funds and compare them to other
Funds. The example assumes that you purchase $10,000 and pay the maximum sales
load and earn a 5% annual rate of return and redeem at the end of the periods.
<TABLE>
Value & Growth Mid-Cap Focus
<CAPTION>
<S> <C> <C>
1 year $610 $630
3 years $940 $1030
5 years $1300 $1440
10 years $2310 $2590
</TABLE>
You should not consider this example to be representative of past or future
expenses or performance. Your actual expenses may be greater or less than shown
above. Our advisory fee is higher than that paid by most funds.
<PAGE>
12b-1 Plan
The Investment Company has adopted a plan under rule 12b-1 that allows the Funds
to pay distribution fees for the sale and distribution of its shares.
Specifically agents (brokers) of registered broker-dealers will distribute
shares, and you will be charged, and your broker will collect, .25% of average
daily net assets on the amount invested in the Funds. For investors who invest
directly with the Fund, the Distributor will be the broker on the account. All
12b-1 fees will accrue daily and be paid monthly. According to the 12b-1 Plan,
the services provided by selected broker-dealers are primarily designed to
promote the sale of shares of the Funds and include the furnishing of office
space and equipment, telephone facilities, personnel, and assistance to the Fund
in servicing shareholders.
The fees collected under the 12b-1 plan may be used to pay for Fund supermarket
fees. Supermarket fees are charged by financial institutions so that the Fund
may be available for purchase and sale in a mutual fund marketplace.
Because the fees are ongoing, the distribution expense may increase the cost of
your investment and may cost you more than if such amounts had been paid as an
initial sales charge.
Sales Charges
The Funds are distributed through the broker-dealer community at an offering
price which includes a sales charge. If you wish to purchase shares, the charge
will be levied against the purchase amount, and it will be paid to your broker
and the Distributor unless you meet one of the requirements below.
<TABLE>
Sales charge as a percentage of assets invested
<CAPTION>
amount of dealer discount
transaction price value as a % of 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%
$100,000 but less than $250,000 3.5% 3.63% 3.0%
$250,000 but less than $500,000 2.5% 2.56% 2.25%
$500,000 but less than $1 million 2.0% 2.04% 1.75%
$1 million * and up 1.0%* 0% 0%
</TABLE>
*for single purchases aggregating $1 million or more, you will not pay an
initial sales charge. The fund's advisor will pay the authorized broker the
lesser of 1% or $15,000. On these purchases, a contingent deferred sales
charge of 1% is levied on redemptions occurring within 1 year of the initial
investment.
<PAGE>
Ways to reduce or avoid paying the sales charge
Aggregation of Accounts
If you fit into one of the following categories, then you may aggregate accounts
to qualify for a reduced sales charge:
an individual, his or her spouse, or their
children under 21 purchasing for their own account.
a trustee or other fiduciary purchasing for a
single fiduciary account (including an estate,
pension, profit sharing, or employee benefit
trust qualified under IRS Code Section 401)
employee benefit plans of a single employer
or affiliated employers.
Statement of Intention
You may write a letter of intent to invest $50,000 or more within a 13 month
period and qualify for the reduced sales charge in the table above. Forms for
this may be obtained from the Fund by writing or calling the Transfer Agent at
888-839-4769.
A letter of intent is not an obligation, but if you do not meet the goals
detailed in the letter, you are required to pay the difference between the sales
charge actually paid and the one that would have been required had you not
signed the letter of intent.
Rights of Accumulation
You may get a cumulative discount by adding your current purchase to the net
asset value of all shares (based on prices for the previous day) previously
purchased and still owned in the Fund. To benefit from a right of accumulation,
you must identify and communicate to the Fund shareholder service staff in
writing all links to other accounts.
Sales Charge Exemptions
If you fit into one of the following categories, you are exempt from the sales
charge:
Charter Shareholder (shareholders with at
least $10,000 with the Fund before
December 31, 1995)
Shareholder 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
Fund, Advisor, and Distributor and their
family members and retirement plans
Registered Representatives of the NASD
buying for their own account
Discretionary accounts of bank trust
departments
Registered Investment Advisors buying for
their clients and themselves
Charities and religious organizations as
defined by IRS Code 501(c)3
Transfers from other mutual funds when
dealing directly with the Distributor,
excluding money market funds (funds that
value their shares using Rule 2a-7 of the
Investment Company Act of 1940) and
excluding the Bear 500 Portfolio.
<PAGE>
Redemption Fee
The Funds can experience substantial price fluctuations and are intended for
long-term investors. Short-term market timers who engage in frequent
purchases and redemptions can disrupt the Funds investment programs and create
additional transaction costs and account setup fees. For these reasons, the
Fund will assess a 2% fee on redemptions (including exchanges) of Fund shares
purchased and held for less than 90 days if the investor did not pay a sales
load on shares purchased. Redemption fees will be paid to the Advisor to
offset account costs. The Fund will use the FIFO (first-in, first-out) method
to determine the 90 day holding period. Under this method, the date of
redemption or exchange will be compared with the earliest purchase date of
shares held in the account. If the holding period is less than 90 days, the fee
will be assessed.
This fee does not apply to shares held as of January 31, 1999. In addition, the
fee does not apply to any shares purchased through reinvested distributions
(including dividends and capital gains). The Fund may waive the redemption fee
at its discretion.
<TABLE>
Other Fees
<CAPTION>
<S> <C>
Traditional and Roth IRA fees $12.50
Education IRA fees $5.00
Refund of excess contributions $15.00
Distribution to participant $15.00
Transfer to successor trustee $15.00
Wire fee $12.00
NSF fee $20.00
</TABLE>
Other fees may be charged by other advisors, broker-dealers, or financial
institutions in connection with purchases or sales of the Funds.
<PAGE>
HOW DO I PURCHASE SHARES?
You may obtain copies of our application forms through our web site at
www.firstaustin.com or by calling 800-839-4769.
Purchases through a broker
You may purchase shares in the Fund through any broker-dealer that has signed a
sales agreement with the Fund or its affiliates. Broker-dealers may place Fund
orders on behalf of shareholders by calling the Distributor. Some financial
intermediaries may accept purchase and redemption orders for the Fund and may
have a specialized agreement with the Fund for settlement and payment. The
broker-dealer is responsible for placing purchase orders promptly with the
Distributor and forwarding payment within three business days. Orders will be
processed only after receipt in good order.
Direct Purchases
All completed applications and checks go to:
Sending via U.S. Mail
Texas Capital Value Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Sending via overnight courrier
Texas Capital Value Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
Mutual Fund Services
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207
Whenever you write a check, make sure you include your account number and the
name on your account. You do not need a certified check, but the check must be
drawn on a U.S. bank in U.S. dollars. Your purchase will be processed at the
public offering price next calculated after the request is received in good
order. A fee may be imposed if your check does not clear.
Include the following information on all wire transfers
Firstar Bank Milwaukee
ABA# 075000022
Firstar MFS 112952137
Texas Capital Value Funds
Shareholder Name
Shareholder Account Number
Social Security Number
Call 888-938-4769, and notify the transfer agent whenever you are wiring money.
They can give you an account number over the phone if you are a first time
investor.
You cannot redeem your investment if you purchased
by wire until one business day after the completed
account application is received by the Fund.
The Fund reserves the right to reject all or part of any purchase. If your
payment and completed application are received in proper form before the close
of trading on the New York Stock Exchange (currently 4:00 PM EST), Fund shares
will be purchased at the next offering price calculated after trading closes.
Minimums
The minimum you may invest is $2000 unless you are using the Autovest Plan
described below or unless we, at our discretion, waive the minimum. Subsequent
investments are subject to a $100 minimum. The Fund can raise or lower minimums
at its discretion.
Autovest Plan
Under the Autovest Plan, your money will be transferred from your bank account
to your account with Texas Capital Value Funds on or about the 15th of each
month or quarter. You can participate in the Autovest Plan by filling out the
appropriate section of the New Account Forms. You are obligated to contribute
at least $2000 the first year of the plan. You may obtain more information by
calling the Transfer Agent.
<PAGE>
HOW DO I SELL SHARES?
You may redeem all or part of your investment at closing net asset value any day
the New York Stock Exchange is open. Redemption price is the next net asset
value per share determined after your request is received in good order.
Things you should know about redeeming your shares:
Checks will be remitted to the address of
record only.
If you request a wire, another $10 will be
charged as a wire fee.
You bear the risk of a loss that may result
from unauthorized or fraudulent transactions that
the Transfer Agent believes to be genuine.
All owners of the account must sign
redemption documents.
The Fund may require additional documents
in the case of shareholder death, corporate
accounts, agent or fiduciary.
Payment of redemption proceeds will be no
later than the 7th day after receipt of signature
guarantees and other necessary documents.
The Fund may suspend the right of redemption
in extraordinary circumstances in accordance with
the rules set by the Securities and
Exchange Commission.
If you redeem shortly after purchase by check,
the Fund will wait for notification that the check
has cleared before processing your request. This
could take up to 15 business days from the
purchase date.
A redemption may result in recognition of a
gain or loss to the shareholder for Federal
Income Tax purposes.
Redemption fees apply if you redeem within 90
days of purchase, see Redemption Fees
Written request for redemption
You may redeem your shares directly through the Fund via written request. For
any amount over $25,000 you will need a signature guarantee as discussed below.
Telephone redemptions
You may redeem shares over the telephone only if you requested telephone
redemption privileges on your account application. If you did not request this,
you may do so in writing to the Transfer Agent with an accompanying signature
guarantee.
Things you should know about telephone redemptions:
You cannot redeem over the telephone if
you paid by check and the payment has been
on the books for less than 15 days.
If the transfer agent is handling a large
volume of calls you may have to send a
redemption request via overnight mail.
The Transfer Agent may ask certain
questions that are designed to help confirm
your identity as the shareholder of record.
<PAGE>
Situations involving redemptions
If you redeem shares and then within 60 days change your mind, you may reinvest
the redemption amount without paying the sales charge. This may be done once
per shareholder. This one-time exemption is not used up if your intent is to
reinvest the redemption amount in an IRA or Pension. If you realized any
taxable gains on your redemption, this privilege will not alter your
responsibility to the IRS. If you realized a loss, depending on the timing and
amounts of the reinvestment, you may not be allowed to take the loss for tax
purposes. Please consult your personal tax advisor before making these
decisions.
If your account, because of redemptions, falls below $2000 and is not a
retirement account or a UGMA/UTMA account then the Fund may redeem shares in
your account. This does not apply if your account falls below $2000 because of
a drop in Net Asset Value. If the Fund determines to make an involuntary
redemption, you will be notified that your account is less than $2000 and you
will have 30 days to bring your account value up to $2000 by investing more
money before the Fund takes any action.
Signature Guarantees
To protect you and the Fund from fraud, signature guarantees are required for
the following:
All redemptions where the check to payable
to anyone other than the shareholder of
record or address for check remittance is
different than the address of record.
All requests to tranfer the registration of
shares to another person.
All authorizations to establish or change
telephone redemption privileges other than the
original account application.
Whenever you redeem by mail. In this
case the guarantee must be on a written
request or separate stock power assignment
specifying number of shares.
The Fund may waive any of the above
requirements in certain instances.
Where To Get a Signature Guarantee
Participants in good standing of the
Securities Transfer Agents Medallion
Program ("STAMP")
Commercial banks which are members of
the Federal Deposit Insurance
Corporation ("F.D.I.C.")
Trust companies
Firms that are members of a domestic
stock exchange
Eligible guarantor institutions qualifying
under Rule 17Ad-15 of the Securities
Exchange Act of 1934 that are authorized by
charter to provide signature guarantees
Foreign branches of any of the above
The Transfer Agent cannot honor guarantees from notaries public, savings and
loan associations, or savings banks.
<PAGE>
WHAT CAN THE FUNDS INVEST IN?
The following should be read in conjunction with the section on page 3 entitled
"What Risks are Involved?"
We may make changes in the Funds consistent with the each Fund's policies when
we believe doing so is in the best interest of the Fund. We anticipate Fund
turnover to be higher than average for most Funds, but we do not expect that it
will exceed 150% per year. High turnover may increase transaction costs and
increase taxable gains. We consider these effects when evaluating short-term
investments. We will invest the Funds primarily in common equities listed on
the major U.S. Stock Exchanges, including American Depository Receipts, or
securities convertible into common stocks. Up to 33% of each Fund's investment
portfolio may include foreign based companies.
We do not use hedging techniques or short sales in the portfolios, nor do we use
derivative investments. However, each Fund may hold cash, money market
instruments, notes or bonds, or enter into repurchase agreements, all of which
will be investment grade as determined by Moody's Investor Service Inc., or
Standard & Poor's Corporation rating agencies. The Funds may, for temporary
defensive purposes, invest 100% of their assets in short-term debt instruments.
Academic research and studies have shown that portfolios with low fundamental
ratios described above may be associated with higher long-term investment
results. Smaller companies have historically outperformed large companies over
long periods, but also have shown significantly higher volatility.
The Funds, the distributor, the transfer agent, the custodian, the stock
exchanges, and we at the Fund's advisor, rely heavily on computers. The year
2000 may have an adverse impact on the Fund and you should be aware that all
parties involved are taking measures to minimize potential problems. The
individual securities held in the Funds are also subject to risk from the turn
of the century. You should be aware that many of the companies we may hold in
the Funds may not be prepared for the year 2000 and as a result could incur
losses that could adversely affect their stock price.
The Funds are non-diversified, which means each Fund must follow these
guidelines:
Neither Fund may invest more than 25% of
its total assets in any one issuer other than U.S.
government securities.
At the close of each quarter of the taxable
year, at least 50% of the value of each Fund
must be represented by:
Cash and cash items, including U.S.
government securities
Other securities of different issuers
in which each Fund cannot invest
more than 5% of its assets, and at
the same time, cannot own more
than 10% of any one issuer.
We seek diversification only to be invested adequately in securities that we
believe have a greater potential to outperform while maintaining our federal
non-taxable status under Sub-Chapter M of the IRS Code.
The Funds may, from time to time, take temporary defensive positions that are
inconsistent with the Funds principal investment strategies in attempting to
respond to adverse market, economic, political, or other conditions. By taking
a temporary defensive position, the Funds may not achieve their investment
objectives.
<PAGE>
WHAT IS THE CHARITABLE GIVING PROGRAM?
We (the advisor) will donate up to 10% of our net earned proceeds from the
advisory fees from the two Funds to various charities each year. Shareholders
who have investments in the Funds worth at least $15,000 will have the
opportunity to designate any charity that falls under the non-profit 501(c)3
Section of the IRS Code. Since it is the Advisor (not the Fund) that is writing
the check, there are no tax deductions for shareholders, nor is there any impact
on the value of Fund holdings. The amount to be donated will be decided by us.
Information on how you designate a charity will be in the annual reports.
<PAGE>
WHO RUNS THE FUNDS?
Mark A. Coffelt, CFA
Chaiman of the Board of Directors of the Company and Chief Investment Officer of
the Advisor, manages the investment program of these two Funds and is primarily
responsible for their day-to-day management. He is a Chartered Financial
Analyst of the Association of Investment Management and Research. Prior to
founding the Investment Companys advisor, First Austin Capital Management, Inc.
in 1987, he was Controller of Racal-Milgo, a data communications company. He
received his B.A. in economics from Occidental College and his MBA
from the Wharton School at the University of Pennsylvania.
B. David Flora IV
Co-Portfolio Manager
Mr. Flora attended the University of Texas where he earned a BA in Finance. His
previous investment experience includes serving as Vice-President for Comerica
Securities (1994-1995), Senior Consultant and Assistant Vice-President for Banc
One Securities (1991-1994), and Investment Executive for PaineWebber
(1988-1991). Mr. Flora joined First Austin Capital management, Inc. in
January 1997. He is a CFA level III candidate.
Eric D. Barden
Co-Portfolio Manager
Mr. Barden received a BA in Government and Economics from the University of
Texas. He joined First Austin Capital management in 1995. Previously, Mr.
Barden was employed by Electronic Data Systems as an information systems
associate (1994) and by Neosho Basin Development Company as a consultant
(1993). Mr. Barden is a CFA level III candidate.
Investment Advisor
First Austin Capital Management, Inc., is the advisor to the Funds, and a
registered investment advisor with the Securities and Exchange Commission.
The address for First Austin Capital Management, Inc. is:
2301 South Capital of Texas Highway
Building J-102
Austin, TX 78746
Mark Coffelt is the President and Chief Investment Officer of First Austin, and
Chairman of the Board of Directors and President of the Fund Company. He
founded the company in 1987 and First Austin now manages many other
discretionary accounts other than the Funds, including individuals and
institutions. The Board of Directors approved an Investment Advisory and
Administrative Contract between the Fund Company and First Austin Capital
Management, Inc. on August 13th, 1998. The Advisor provides day-to-day
investment management services to the Funds, and also is responsible for
administration.
<PAGE>
Advisory Agreement
Under the advisory agreement, First Austin will furnish investment advice to the
Funds and continuously review and recommend to the Company when and to what
extent securities should be purchased or disposed of. The advisory agreement
can 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 60 days prior written notice to us. Ultimate decisions
regarding investment policy and individual purchases and sales of securities
for the Funds are made not by the Advisor but by the Investment Company's
Officers and Directors.
All Fund costs will be borne by us as part of fees charged with the exception of
extraordinary legal expenses as determined by the Board of Directors, brokerage
commissions, and custodial charges based upon transactions in the Funds.
Marketing expenses will be primarily borne by the Distributor. For advisory
services, the Company has agreed to pay us a flat fee of 1.00% per year. The
advisory fee paid is higher than that paid by most investment companies. The
Advisor has also absorbed all of the organizational costs associated with the
Funds.
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 are paid as part of its Advisory and
Administrative Contract with the Fund company.
Transfer Agent and Accounting Services
The Company has contracted with Firstar Trust Company, Inc. for transfer agent
and accounting services. You should call the transfer agent with questions
about setting up or maintaining your account.
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.
Distributor
The Fund's Underwriter and Distibutor is Rafferty Capital Markets, Inc., an NASD
registered broker-dealer.
<PAGE>
HOW DO FUND DISTRIBUTIONS AND TAXES WORK?
Each Fund will pay out almost all of the investment income and realized capital
gains that it accumulates through its investments. The portion of the
distribution attributed to long-term gains in the Funds' investments will be
passed through and become your responsibility as a shareholder as long-term
capital gains regardless of the amount of time you have owned the Fund.
All short-term capital gains and income realized by the Fund will also be passed
through and become your responsibility as a shareholder. These gains will be
taxed at your ordinary income tax rate. Distributions will be paid at least
annually and if necessary may be authorized more often by the Board of
Directors.
You should realize that purchasing shares shortly before distribution payout
may adversely affect you by reducing the net asset value by the amount of the
distribution and leaving you with a tax liablity. You should also note that
your investment may be subject to federal income tax when sold or when a
distribution is made in cash or reinvested in additional shares.
The distributions that each Fund makes will be automatically reinvested with no
sales charge, unless you specify on your application forms that you wish to be
paid the distribution in cash.
The Fund is required to withhold 31% of reportable payments to shareholders who
have not complied with IRS regulations. To avoid this withholding, you must
provide the following information on or with your application:
Certification on a W-9 tax form
Social Security Number
Attestation that you are not subject to
back-up withholding
Certification that you are exempt from
back-up withholding
<PAGE>
DO THE FUNDS OFFER RETIREMENT ACCOUNTS?
IRA's
The company offers the following types of IRA's
Traditional IRAs
Roth IRAs
Roth Conversion IRAs
Education IRAs
SEP IRAs
Rollover IRAs
403(b)7s
The minimum for Retirement Accounts is $500, and each account may be subject to
a trustee annual charge of $12.50 for Traditional and Roth IRAs and $5.00 for
Education IRAs.
You should discuss each plan listed above with your personal tax advisor, and
you should read the company's Retirement Booklet including important disclosures
before opening an account. The Retirement Booklet is available at no charge by
either calling the Fund at 888-839-7424 or visiting the Fund's website
www.firstaustin.com.
<PAGE>
WHAT ELSE DO I NEED TO KNOW BEFORE INVESTING?
Exchanges
You may exchange your shares in the Value & Growth Portfolio for shares of equal
value in the Mid-Cap Focus Portfolio or vice versa without paying a sales charge
although a $5.00 fee will be assessed to your account for telephone exchanges.
Please call the Transfer Agent to do this. Once you exchange shares by
telephone or in writing, you cannot modify or cancel your decision. We
discourage frequent exchanges and may restrict them at the Fund's discretion.
The exchange will occur at the Net Asset Value next determined after the
request has been received in good order.
You should note that exchanges may be taxable events. You should consider the
tax consequences before exchanging your shares. Exchanges between the
Bear 500 Portfolio and either the Value & Growth Portfolio or Mid-Cap Focus
Portfolio are not allowed without paying the applicable sales charges.
Reports
Each Fund will send annual reports to shareholders containing certified
financial statements and semi-annual reports containing unaudited financial
statements.
Account Statements: Provided Quarterly
Financial Reports: Provided at least semi-annually
Confirmation Reports: Provided after each transaction
that affects the account balance
or registration of shareholder.
To reduce expenses, one copy of each report will be mailed to each Tax ID even
though you may have more than one account with the Funds.
Net Asset Value (Pricing)
The NAV will be determined as of the close of the New York Stock Exchange on
each day the exchange is open. The NAV is determined using the following
formula:
Value of Fund Assets - Fund liabilities
NAV = ---------------------------------------
Number of Outstanding Shares
Fund securities are valued at the latest available market price. If market
quotations are not readily available for some securities held by the Funds, the
officers will value securities at fair market value in accordance with methods
approved by the Board of Directors.
Litigation
As of the date of this Prospectus, there was no pending or threatened
litigation involving either Fund in any capacity.
Auditors
Tait, Weller & Baker, Certified Public Accountants of Philadelphia, PA have been
selected as the independent accountants and auditors of each Fund. Tait, Weller
& Baker certify the financial statements of many mutual funds in the country.
The firm has no direct or indirect interest in the Fund or its Advisor.
<PAGE>
HOW HAVE THE FUNDS PERFORMED?
The following table relates to one share of capital stock in the Value & Growth
Portfolio and Mid-Cap Focus Portfolio for the entire period. The total returns
in the table represent the rate that an investor would have earned or lost on an
investment in the Fund assuming reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
Value & Growth Mid-Cap Focus
9/98 to 9/97 to 9/96 to 11/95 to 9/98 to Inception to
3/99 9/98 9/97 9/96 3/99 9/98
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period 13.45 17.66 11.13 10.00 7.76 10.00
Income from
Investment Operations
net investment loss (.07) (.13) (.03) (.03) (.03) (.02)
net realized and .10 (3.20) 7.03 1.17 1.45 (2.22)
unrealized gain on
investments
Total from Investment .03 3.33 $7.00 $1.14 1.42 $(2.24)
Operations
Less Distributions
net capital gains N/A (.88) (.47) (.01) N/A N/A
Net Asset Value End 13.48 $13.45 $17.66 $11.13 $9.18 $7.76
of Period
Total Return 0.2% (19.7)% 64.9% 11.4% 18.28% (22.4)%
Ratios/Supplemental
Data
Net Assets-
End of Period($000) $41,635 $52,461 $27,799 $1,252 $1,100 $796
Ratios of Expenses
to Average Net Assets 1.84% 1.72% 1.83% 2.20% 1.98% 1.98%
net investment loss (.45)% (.93)% (.86)% (0.51)% (.26)% (0.40)%
portfolio turnover rate 195.2% 223.6% 103.3% 148% 206.0% 89.1%
average commissions $.03 $.03 $.06 $.08 $.06 $.06
per share
</TABLE>
Total return figures include reinvestment of all dividends and distributions and
DO NOT reflect the maximum front-end sales charge. Operations commenced 11/6/95
for the Value & Growth and 3/19/98 for the Mid-Cap Focus Funds. All ratios have
been annualized and are for the period shown, except for total return.
<PAGE>
HOW DO I REACH THE FUNDS?
Advisor
First Austin Capital Management, Inc.
2301 South Capital of Texas Highway
Building J-102
Austin, Texas 78746
888-839-4769
Transfer Agent, Accountant, and Custodian
Firstar Trust Company
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
888-839-7424
Call for questions on your account
Distributor
Rafferty Capital Markets, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
Mailing Address
Texas Capital Value Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Please send all account related correspondence here.
Independent Auditors
Tait, Weller & Baker
8 Penn Center, Suite 800
Philadelphia, PA 19103-2108
Counsel
Law Offices of Stephanie Djinis
7918 Jones Branch Drive Suite 600
McLean, VA 22102
SEC file # 801-31075
www.firstaustin.com
<PAGE>
More information about the Funds is available in the statement of additional
information and in the Funds annual and semi-annual reports to shareholders.
They are available at no cost to you by calling 800-628-4077. The reports to
shareholders contain management discussions of the market conditions and
investment strategies that significantly affected the Funds performance during
the last fiscal year. You should also obtain and read the Funds Retirement
Booklet that has important disclosures and information relating to IRAs and
other Retirement Accounts.
Information about the Fund, including the SAI, can be reviewed and copied at the
Securities and Exchange Commissions Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room is available by
calling 800-SEC-0330. Reports and other information about the Fund company are
available on the SECs internet site at (http://www.sec.gov), and copies of this
information may be obtained upon payment of a duplicating fee by writing the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Texas Capital Value Funds, Inc.
Value & Growth Portfolio CUSIP #882241102
Mid-Cap Focus Portfolio CUSIP #882241300
<PAGE>
PART A - PROSPECTUS - BEAR 500 PORTFOLIO
Texas Capital Value Funds, Inc.
Bear 500 Portfolio Prospectus
October 1, 1999
Table of Contents
What is The Fund's Investment Strategy? 2
What Risks are Involved? 2
What Fees and Expenses Do I Pay? 3
How do I Purchase Shares? 5
How do I Sell Shares? 6
What Can the Fund Invest In? 8
What is the Charitable Giving Program? 9
Who Runs the Funds? 9
How do Fund Distributions and Taxes Work? 11
What Else do I Need to Know Before Investing? 12
How Can I Reach the Fund? 13
CUSIP Symbols
Bear 500 CUSIP #000000000
ticker symbol expected shortly
Internet Site Applications & Information www.texasfunds.com
Phone Number New & Existing Accounts 888-839-7424
This prospectus tells you what you need to know about the
Bear 500 Portfolio of the Texas Capital Value Funds, Inc.,
before you invest. The Bear 500 Portfolio will be referred
to as the Bear 500 Fund, or simply, the Fund in this prospectus.
First Austin Capital Management, Inc. manages and
administers the Funds and will be referred to as "we" or "us" in
this prospectus. You should read this prospectus carefully before
you invest and keep it for future reference.
The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
This Prospectus is not a solicitation by the Fund for the sale of shares
in states in which the offering is not authorized. No one is authorized
by the Fund to give information or make representations that are
different from any material issued by the Fund or its Distributor.
No one should rely on any other information or representation.
<PAGE>
WHAT IS THE FUND'S
INVESTMENT STRATEGY?
Objective
The Bear 500 Fund seeks to provide investment results that inversely correlate
to the performance of the S&P 500 Composite Stock Price Index TM
(S&P 500 Index). The S&P 500 Index is a capitalization-weighted index
composed of 500 common stocks, which are chosen by the Standard & Poor's
Corporation on a statistical basis. The Standard & Poor's Corporation,
a division of The McGraw-Hill Companies, Inc. is not a sponsor of, nor in
any way affiliated with, the Fund. The Fund will attempt to
achieve its objective by entering into positions in stock index futures
contracts, options on such contracts, and options on securities and on
stock indicies. The Fund will also hold U.S. Government securities as a
substantial portion of its assets.
If the Bear 500 Fund is successful in meeting its objective, the net asset
value of Bear 500 shares will increase in direct proportion to any decrease
in the level of the S&P 500 Index. Conversely, the net asset value of
Bear 500 shares will decrease in direct proportion to any increase in the
level of the S&P 500 Index. Thus, investors in the Fund may experience
substantial losses during sustained periods of rising U.S. equity prices.
The Bear 500 Portfolio involves special risks, some not traditionally
associated with mutual funds. Investors should carefully review and evaluate
these risks in considering an investment in the Fund to determine whether the
investment is appropriate.
<PAGE>
WHAT RISKS
ARE INVOLVED?
General
Losing money is a risk associated with investing in all mutual funds. Please
read the other risks detailed below that apply to investing in the Fund.
Market Risk
Market Risk involves the possibility that the value of the Fund's investments
in securities will decline because of a rising stock market, reducing the net
asset value of the Fund's shares.
Shareholders in the Fund should lose money while prices of the securities in
the S&P 500 Index increase. This is the opposite result expected of
investing in a traditional equity mutual fund in a generally rising
stock market.
Non-diversification Risk
Because the Fund is "non-diversified", you should be aware that investing in it
may pose a greater than average risk by becoming more sensitive to a single
economic, political, or regulatory occurrence.
Suitability
Since the Fund is structured to meet narrowly defined investment objectives,
it is intended to be used as part of an asset allocation strategy and in no
way should constitute, by itself, a balanced investment plan. The Fund is
designed principally for experienced investors and not for inexperienced or
less sophisticated investors.
Tracking Error Risk
While the Fund does not expect returns to deviate from its objective of
inversely correlating to the S&P 500 Index by more than ten percent over a
twelve month period, factors such as Fund expenses, imperfect inverse
correlation between the Fund's investments and the components of the S&P 500
Index, rounding of share prices, changes to the S&P 500 Index, and regulatory
policies may affect the Fund's ability to achieve perfect inverse correlation.
Additionally, the magnitude of any tracking error may be affected by a higher
portfolio turnover rate and/or the amount of investor purchases
and redemptions.
You should also be aware that even if there is a perfect inverse correlation
between the Fund and the return of the S&P 500 Index on a daily basis,
compounding over time can significantly alter the inverse correlation.
For example, if the Fund achieved a perfect inverse correlation with the
S&P 500 Index on every trading day over an extended period and the level of
the S&P 500 Index significantly decreased during that period, compounding
would cause an increase in the Fund's net asset value by a percentage that
is somewhat greater than the percentage the S&P 500 Index returns decreased.
The Fund intends to pursue its investment objectives regardless of market
conditions and does not intend to take defensive positions in anticipation of
rising U.S. equity prices. Consequently, investors in the Fund may experience
substantial losses during sustained periods of rising U.S. equity prices.
Interest Rate Risk
The Fund will most likely hold U.S. Government Securities as a substantial
portion of its assets. Yields on short-, intermediate-, and long-term U.S.
Government Securities are dependent on a variety of factors, including the
general conditions of the money and bond markets, the size of a particular
offering and the maturity of the obligation. Debt securities with longer
maturities tend to produce higher capital appreciation and depreciation than
obligations with shorter maturities and lower yields. The market value of
U.S. Government Securities generally varies inversely with changes in market
interest rates. Thus, an increase in market interest rates would generally
reduce the market value of the Fund's portfolio investments in U.S.
Government Securities, while a decline in such rates would generally
increase the market value of a Fund's investments in these securities.
Default Risk
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by
an agency or instrumentality of the U.S. Government. Since the
Fund holds a substantial portion of its assets in these securities,
you should be aware that not all U.S. Government Securities are backed
by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are
backed by discretionary authority of the U.S. Government to purchase
the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed
by the full faith and credit of the United States, the investor must
look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment. Although we believe the risk of default for
these securities is minimal, you should be aware that it is possible.
Trading Halts
The Fund will typically hold short-term options and futures contracts.
The major exchanges on which these contracts are traded, such as the
Chicago Mercantile Exchange and the Chicago Board of Options Exchange,
have established limits on how much an option or futures contract may
decline over various time periods within a day. If an option or
futures contract's price declines more than the established limits,
trading on the exchange is halted on that instrument. If a trading
halt occurs at the close of a trading day, the Fund may not be able
to purchase or sell options or futures contracts. In such an event,
the Fund may also be required to use a "fair-value" method to price
its outstanding contracts. A trading halt by one of the exchanges
at the end of a business day would constitute an emergency situation
under SEC regulations. In such and emergency, the Fund would not be
able to accept investors' orders for purchases or redemptions received
earlier during the business day.
Year 2000 Risk
The Fund depends upon the smooth functioning of computer systems in
almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the Fund could be
adversely affected if the computer systems used by its service
providers do not properly process dates on and after January 1, 2000.
The Company has asked its service providers whether they expect to
have their computer systems adjusted for the year 2000 transition,
and received assurances from all that they are devoting significant
resources to prevent material adverse consequences to the Fund.
You should be aware, however, that if these assurances prove to be
incorrect, you may experience losses.
Other Risks
The Bear 500 Fund expects that a substantial portion of the Fund's
investors will be professional investors, brokers, and advisors who
intend to invest in the Fund as part of their tactical investment
strategies for themselves or their clients. These investors are
likely to redeem or exchange their Fund shares frequently to take
advantage of anticipated changes in market conditions. These
strategies employed by Fund shareholders may result in
considerable assets moving in and out of the Fund. Consequently,
the Fund expects unusually high portfolio turnover, which will
cause the realization of capital gains and losses, higher expenses,
increased transaction fees, and additional costs. Additionally,
high turnover may adversely affect the ability of the Fund to
meet its investment objective.
<PAGE>
WHAT FEES AND EXPENSES DO I PAY?
This table describes the fees and expenses that you may pay when
you buy and hold shares of the Fund:
Shareholder Fees
Maximum Sales Charge (Load) Imposed
on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None
Redemption Fees See Below*
Exchange Fees None
Annual Fund Operating Expenses
Management Fees 1.00%
Distribution and Service (12b-1) Fees 1.00%
Other Expenses** 0.70%
Estimated Total Annual Fund Expenses 2.70%
* (a) A $12 wire fee may be charged to your account.
(b) There is a redemption fee equal to 1% of the amount redeemed
for investors who redeem within 90 days of investment. Please read
"Redemption Fee" on page 6.
**Other fees include administrative fees that are expected to decline
as Fund assets increase.
Example
The following table should help you understand the various costs and
expenses that you would bear as a shareholder in the Fund and compare
them to those of other Funds. The example assumes that you purchase
$10,000 and earn a 5% annual rate of return and redeem at the end
of the periods.
1 year $273
3 years $837
12b-1 Plan
The Investment Company has adopted a plan under rule 12b-1 that
allows the Funds to pay distribution and service fees for the
sale and distribution of its shares and servicing of shareholder
accounts. Specifically agents (brokers) of registered broker-dealers
will distribute shares and service shareholder accounts, and you will
be charged, and your broker will collect, 1% of average daily net
assets on the amount invested in the Funds. For investors who
invest directly with the Fund, the distributor will be the broker
on the account. All 12b-1 fees will accrue daily and be paid
monthly. According to the 12b-1 Plan, the services provided by
selected broker-dealers are primarily designed to promote the
sale of shares of the Funds and include the furnishing of office
space and equipment, telephone facilities, personnel, and assistance
to the Fund in servicing shareholders. Fund 12(b)-1 fees will
continue indefinitely and shares will not be converted to another
lower-expense class.
The fees collected under the 12b-1 plan may be used to pay for
Fund "supermarket fees". Supermarket fees are charged by
financial institutions so that the Fund may be available for
purchase and sale in a mutual fund marketplace.
Because the fees are ongoing, the distribution expense may
increase the cost of your investment and may cost you more,
particularly if you hold shares on a long-term basis, than
if such amounts had been paid as an initial sales charge.
The structure of the Bear 500 Fund is similar to Class "C"
shares offered by many other mutual fund companies. The Bear
500 Fund, and similarly structured funds with class "C" shares,
have no front-end sales charges. Thus, your purchase will be
effected at net asset value and your broker will be compensated
via the 12b-1 fees. There are no Contingent Deferred Sales
Charges (CDSCs) associated with the Fund; however, the Fund does
impose a redemption fee to cover the costs associated with
short-term investments that is described below.
Note concerning sales charges:
The other series of the Texas Capital Value Funds have
provisions that allow certain classes of investors to waive
part or all of the Fund's sales charges. Purchasers of the
Bear 500 Fund are NOT eligible for exemptions that would
waive any part of or all of the 12b-1 fees assessed.
Redemption Fees
The Fund can experience substantial price fluctuations and
is intended for long-term investors as part of an asset allocation
strategy. Short-term "market timers" who engage in frequent purchases
and redemptions can disrupt the Fund's investment programs and
create additional transaction costs and account setup fees.
For these reasons, the Fund will assess a 1% fee on redemptions
of Fund shares purchased and held for less than 90 days. Redemption
fees will be paid to the Advisor to offset account costs. The Fund
will use the FIFO (first-in, first-out) method to determine the
90-day holding period. Under this method, the date of redemption
or exchange will be compared with the earliest purchase date of
shares held in the account. If the holding period is less than
90 days, the fee will be assessed. The fee does not apply to
any shares purchased through reinvested distributions
(including dividends and capital gains). The Fund may waive the
redemption fee at its discretion.
Other Fees
Traditional and Roth IRA fees $12.50
Education IRA fees $5.00
Refund of excess contributions $15.00
Distribution to participant $15.00
Transfer to successor trustee $15.00
Wire fee $12.00
NSF fee $20.00
Other advisors, broker-dealers, or
financial institutions may charge
fees in connection with purchases
or sales of Fund shares.
<PAGE>
HOW DO I PURCHASE SHARES?
You may obtain copies of our application forms by calling
the Fund company directly, or through our web site at
www.texasfunds.com.
Purchases through a broker
You may purchase shares in the Fund through any broker-dealer
that has signed a sales agreement with the Fund or its
affiliates. Broker-dealers may place Fund orders on behalf of
shareholders by calling the Distributor. Some financial intermediaries
may accept purchase and redemption orders for the Fund and may have
a specialized agreement with the Fund for settlement and payment.
The broker-dealer is responsible for placing purchase orders
promptly with the Distributor and forwarding payment within
three business days. Orders will be processed only after
receipt in good order.
Direct Purchases
All completed applications and checks go to:
Sending via U.S. Mail
Texas Capital Value Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Sending via overnight courier
Texas Capital Value Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
Mutual Fund Services
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207
Include the following information on
all wire transfers
Firstar Bank Milwaukee
ABA# 075000022
Firstar MFS 112952137
Texas Capital Value Funds
Shareholder Name
Shareholder Account Number
Social Security Number
Call 888-839-7424, and notify the transfer agent whenever you are
wiring money. They can give you an account number over the phone if
you are a first time investor. The Fund reserves the right to
reject all or part of any purchase. If your payment and completed
application are received in proper form before the close of trading
on the New York Stock Exchange (currently 4:00 PM EST), Fund shares
will be purchased at the next offering price calculated after
trading closes.
Whenever you write a check,
make sure you include your
account number and the name
on your account. You do not
need a certified check, but the
check must be drawn on a U.S.
bank in U.S. dollars. Your
purchase will be processed at
the public offering price next
calculated after the request is
received in good order.
A fee may be imposed if your check
does not clear.
You cannot redeem your invest-
ment if you purchased by wire
until one business day after the
completed account application
is received by the Fund.
Minimums
The minimum you may invest for regular accounts is $2000,
and $500 for retirement accounts unless you are using the
Autovest Plan described below or unless we, at our
discretion, waive the minimum. Subsequent investments are
subject to a $100 minimum. The Fund can raise or lower
minimums at its discretion.
<PAGE>
HOW DO I SELL SHARES?
You may redeem all or part of your investment at closing net
asset value any day the New York Stock Exchange are open.
Redemption price is the next net asset value per
share determined after your request is received in good order.
Things you should know about redeeming your shares:
Checks will be remitted to the address of record only.
If you request a wire, another $12 will be charged as a wire fee.
You bear the risk of a loss that may result from unauthorized
or fraudulent transactions that the Transfer Agent believes to
be genuine.
All owners of the account must sign redemption documents.
The Fund may require additional documents in the case of
shareholder death, corporate accounts, agent or fiduciary.
Payment of redemption proceeds will be made no later than the
7th day after receipt of signature guarantees and other
necessary documents.
The Fund may suspend the right of redemption in extraordinary
circumstances in accordance with the rules set by the Securities
and Exchange Commission.
If you redeem shortly after purchase by check, the Fund will
wait for notification that the check has cleared before
processing your request. This could take up to
15 business days from the purchase date.
A redemption may result in recognition of a gain or loss to
the shareholder for Federal Income Tax purposes.
Redemption fees apply if you redeem within 90 days of purchase, see
"Redemption Fees"on page 6.
Written request for redemption
You may redeem your shares directly through the Fund via
written request. For any amount over $5000 you will need a
signature guarantee as discussed below.
Telephone redemptions
You may redeem shares over the telephone only if you requested
telephone redemption privileges on your account application.
If you did not request this, you may do so in writing to the
Transfer Agent with an accompanying signature guarantee.
Things you should know about telephone redemptions:
You may only redeem via telephone between 9:00 AM and 3:40 PM EST
You cannot redeem over the telephone if you paid by check
and the payment has been on the books for less than 15 days.
If the transfer agent is handling a large volume of calls
you may have to send a redemption request via overnight mail.
The Transfer Agent may ask certain questions that are
designed to help confirm your identity as the shareholder of record.
Special situation involving redemptions
If your account, because of redemptions, falls below $2000
and is not a retirement account or a UGMA/UTMA account then the
Fund may redeem shares in your account. This does not apply
if your account falls below $2000 because of a drop in Net Asset
Value. If the Fund determines to make an involuntary redemption,
you will be notified that your account is less than $2000 and
you will have 30 days to bring your account value up to $2000
by investing more money before the Fund takes any action.
<PAGE>
Signature Guarantees
To protect you and the Fund from fraud, signature guarantees
are required for the following:
All redemptions where the check is payable to anyone other than
the shareholder of record or address for check remittance is
different than the address of record.
All requests to transfer the registration of shares to another
person.
All authorizations to establish or change telephone redemption
privileges other than the original account application.
Whenever you redeem by mail. In this case the guarantee must
be on a written request or separate stock power assignment
specifying number of shares.
The Fund may waive any of the above requirements in certain
instances.
Where To Get a Signature Guarantee
Participants in good standing of the Securities Transfer Agents
Medallion Program ("STAMP")
Commercial banks that are members of the Federal Deposit Insurance
Corporation ("F.D.I.C.")
Trust companies
Firms that are members of a domestic stock exchange
Eligible guarantor institutions qualifying under Rule 17Ad-15 of the
Securities Exchange Act of 1934 that are authorized by charter to
provide signature guarantees
Foreign branches of any of the above
The Transfer Agent cannot honor guarantees from notaries public,
savings and loan associations, or savings banks.
<PAGE>
WHAT CAN THE FUNDS INVEST IN?
The following should be read in conjunction with the
section on page 2 entitled "What Risks are Involved?"
We may make changes in the Fund consistent with Fund policies
when we believe doing so is in the best interest of the Fund.
We anticipate a turnover rate that is consistent with accomplishing
our investment objective. You should be aware that high turnover
may increase transaction costs and increase taxable gains. We will
use Fund assets primarily to engage in the sale of S&P 500 Index
futures, options on futures, and short-selling of S&P 500
Depositary Receipts. We will collateralize these financial
instruments with U.S. Government Securities. These
U.S. Government Securities will be deposited with futures
commission merchants as initial or variation margin, and
used for liquidity purposes.
Futures Contracts and Options on Futures
The Bear 500 Fund may purchase and sell stock index futures
contracts and options on such futures contracts, and may do
so as a substitute for a comparable market position in the
underlying securities in order to hedge or limit the exposure of its
position, for tax-related purposes, or to effect closing transactions.
A futures contract obligates the seller to deliver (and the
purchaser to take delivery of) the specified security on the
expiration date of the contract. The purchaser of an index
futures contract is obligated to take (and the seller is
obligated to deliver) an amount of cash equal to a specific
dollar amount times the difference between the value of a
specific index at the close of the last trading
day of the contract and the price at which the agreement is
made. No physical delivery of the underlying securities in
the index is made.
If the Bear 500 Fund writes an option on a futures contract,
it becomes obligated to assume a position in the futures
contract at a specified exercise price at any time
during the term of the option in return for a premium.
If the Fund writes a call option, it assumes a short futures
position. If it writes a put, it assumes a long futures
position. When the Fund purchases an option on a futures contract,
it acquires the right in return for the premium it pays to assume
a position in a futures contract. If the option is a call, the
Fund would assume a long position in the futures, and conversely,
if the option is a put, the Fund would assume a short
position in the futures. The Fund will only purchase or sell
futures and options on futures that are traded on a U.S.
exchange or board of trade.
The Fund may realize a gain or loss on its investments in
futures or options on futures depending upon the movement
in the underlying index. You should be aware
that the Fund has the potential for unlimited loss when:
1. writing unhedged call options on futures, or
2. taking an unhedged short position in futures contracts.
Indexed Securities
The Bear 500 Fund may purchase indexed securities. Indexed
securities have a value which varies positively or negatively
in relation to the value of other securities indices, or
financial indicators. Usually an indexed security is a
deposit whose value at maturity is determined by reference
to a specific instrument or statistic.
Indexed securities are subject to performance of the index
to which it relates and may be more volatile than the underlying index.
Short Sales
The Bear 500 Fund may engage in short sale transactions under
which the Fund sells a security that it does not own and
eventually close the transaction by delivering the underlying
security to the buyer. The short seller accomplishes this by
purchasing the security that was being borrowed in the open
market. The price at the time of replacement may be more or
less than when the short sale was enacted. Until the security
is replaced, the Fund is required to pay the lender amounts
equal to any dividends that accrue during the period of the
loan. The broker will retain the proceeds of the short sale
to the extent necessary to meet margin requirements until
the short position is closed out.
Until the short position is closed out, or the borrowed stock
is replaced, the Fund will:
1. maintain an account containing cash or liquid assets so that:
a. the amount deposited in the account plus that amount
deposited with the broker as collateral will equal the current
value of the stock sold short; and
b. the amount deposited in the account plus the amount
deposited with the broker as collateral will not be less
than the market value of the stock at the time the
stock was sold short;
or
2. otherwise cover the Fund's short position.
U.S. Government Securities
The Bear 500 Fund invests in U.S. Government Securities in
order to deposit such securities as initial or variation
margin, as "cover" for the investment techniques it employs,
as part of a cash reserve and for liquidity purposes. U.S.
Government Securities include direct obligations of the U.S.
Treasury such as Treasury bills, Treasury notes, and Treasury bonds.
Borrowing
The Fund may borrow money as a temporary measure for
extraordinary or emergency purposes and to meet redemption
requests without immediately selling portfolio securities.
In addition, each Fund may lend securities to broker-dealers
and financial institutions, provided that the borrower at all
times maintains cash collateral in an amount equal to at least
100% of the market value of the securities loaned. Such loans
will not be made if they result in aggregate loans exceeding 33
1/3% of the Fund's total assets. You should read the SAI
for more information.
The Fund is "non-diversified", which means the Fund must follow
these guidelines:
The Fund may not invest more than 25% of its total
assets in any one issuer other than U.S. Government Securities.
At the close of each quarter of the taxable year, at
least 50% of the value of the Fund must be represented by:
Cash and cash items, including U.S. Government Securities
Other securities of different issuers in which the Fund
cannot invest more than 5% of its assets, and at the same
time, cannot own more than 10% of any one issuer.
<PAGE>
WHAT IS THE CHARITABLE
GIVING PROGRAM?
We (the advisor) will donate up to 10% of our net earned
proceeds from the advisory fees from the Fund to various
charities each year. Shareholders who have investments in
the Fund worth at least $15,000 will have the opportunity to
designate any charity that falls under the non-profit 501(c)3
Section of the IRS Code. Since it is the Advisor (not the Fund)
that is writing the check, there are no tax deductions for
shareholders, nor is there any impact on the value of Fund
holdings. The amount to be donated will be decided by us.
Information on how you designate a charity will be in the
annual reports.
WHO RUNS
THE FUND?
Mark A. Coffelt, CFA
Chairman of the Board of Directors
Chief Investment Officer of the Advisor
Mr. Coffelt manages the investment program of the Fund and
is primarily responsible for its day-to-day management.
He is a Chartered Financial Analyst of the Association of
Investment Management and Research. Prior to founding
the Investment Company's advisor, First Austin Capital
Management, Inc. in 1987, he was Controller of Racal-Milgo,
a data communications company. He received his B.A. in
economics from Occidental College and his MBA from the Wharton
School at the University of Pennsylvania.
Brian T. Bares
Co-Portfolio Manager
Mr. Bares received his Bachelor of Science degree in
Mathematics from the University of Nebraska. He has
been with First Austin since 1997, where he is a
co-portfolio manager and the head trader. He also
serves as Secretary of the Texas Capital Value Funds.
Previously, Mr. Bares was vice-president of Convenience
Design Inc. (1995-1997) and co-founder of Strength
Magazine, a publishing company (1995). He currently
serves as a Director of Bellevue Optical, a privately
held eyewear store. Mr. Bares is a level II candidate
for the Chartered Financial Analyst designation.
B. David Flora IV
Co-Portfolio Manager
Mr. Flora attended the University of Texas where he earned
a BA in Finance. His previous investment experience
includes serving as Vice-President for Comerica
Securities (1994-1995), Senior Consultant and Assistant
Vice-President for Banc One Securities (1991-1994), and
Investment Executive for PaineWebber (1988-1991). Mr. Flora
joined First Austin Capital management, Inc. in January 1997.
He is a CFA level III candidate.
Investment Advisor
First Austin Capital Management, Inc., is the advisor to the
Fund, as well as the other series of the Texas Capital Value
Funds, and a registered investment advisor with the Securities
and Exchange Commission. The address for First Austin Capital
Management, Inc. is:
2301 South Capital of Texas Highway
Bldg. J-102
Austin, TX 78746
Mark Coffelt is the President and Chief Investment Officer
of First Austin, and Chairman of the Board of Directors and
President of the Fund Company. He founded the company in 1987
and First Austin now manages many other discretionary
accounts in addition to the Funds, including accounts of
individuals and institutions. The Board of Directors approved
an Investment Advisory and Administrative Contract between the
Fund Company and First Austin Capital Management, Inc. on
August 19th, 1999. The Advisor provides day-to-day investment
management services to the Funds, and also is responsible for
administration.
<PAGE>
Advisory Agreement
Under the advisory agreement, First Austin will furnish
investment advice to the Fund and continuously review and
recommend to the Company when and to what extent securities
should be purchased or disposed of. The advisory agreement
can 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 Fund on 60 days
prior written notice to us. Decisions regarding investment
policy and individual purchases and sales of securities for
the Fund are made by the Advisor but, the Investment Company's
Officers and Directors are ultimately responsible for oversight
of the Advisor's implementation of the Fund's advisory and
administrative duties. All Fund costs will be borne by us
as part of fees charged with the exception of extraordinary
legal expenses as determined by the Board of Directors,
brokerage commissions, and custodial charges based upon
transactions in the Funds. Marketing expenses will be
primarily borne by the Distributor. For advisory
services, the Company has agreed to pay us a flat fee
of 1.00% per year. The Advisor has also absorbed all
of the organizational costs associated with the Funds.
As part of the Advisory and Administrative Contract with the
Fund Company, the Advisor collects an administrative fee that
starts at 0.70% per year and declines as assets in the Fund
grow above certain breakpoints. 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 are paid by the Advisor as
part of this fee.
Transfer Agent and
Accounting Services
The Company has contracted with Firstar Mutual Fund Services,
LLC for transfer agent and accounting services. You should
call the transfer agent with questions about setting up or
maintaining your account. 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.
Distributor
The Fund's Underwriter and Distributor is Rafferty Capital
Markets, Inc., an NASD registered broker-dealer.
<PAGE>
HOW DO FUND DISTRIBUTIONS AND
TAXES WORK?
The Fund will pay out almost all of the investment income
and realized capital gains that it accumulates through its
investments. The portion of the distribution attributed to
long-term gains in the Fund's investments will be passed
through and become your responsibility as a shareholder as
long-term capital gains regardless of the amount of time you
have owned your Fund shares.
All short-term capital gains and income realized by the Fund
will also be passed through and become your responsibility
as a shareholder. These gains will be taxed at your ordinary
income tax rate. Distributions will be paid at least annually
and if necessary may be authorized more often by the Board of
Directors.
You should realize that purchasing shares shortly before
distribution payout may adversely affect you by reducing
the net asset value by the amount of the distribution and
leaving you with a tax liability. You should also note that
your investment may be subject to federal income tax when
sold or when a distribution is made in cash or reinvested
in additional shares.
The distributions that the Fund makes will be automatically
reinvested unless you specify on your application forms
that you wish to be paid the distribution in cash.
The Fund is required to withhold 31% of reportable payments
to shareholders who have not complied with IRS regulations.
To avoid this withholding, you must provide the following
information on or with your application:
Certification on a W-9 tax form
Social Security Number
Attestation that you are not subject to back-up withholding
Certification that you are exempt from back-up withholding
IRA's
The Fund is available for purchase in retirement accounts.
Texas Capital Value Funds, Inc. offer the following types of IRA's
Traditional IRAs 403(b)7s
Rollover IRAs SEP IRAs
Education IRAs Roth IRAs
Roth Conversion IRAs
The minimum for Retirement Accounts is $2000, and each account
may be subject to a trustee annual charge of $12.50 for Traditional
and Roth IRAs and $5.00 for Education IRAs.
You should discuss each plan listed above with your tax advisor and
you should read the company's IRA disclosure documents before opening
an account. The IRA disclosure documents are available at no charge
by calling the Fund directly or visiting the Fund's website
www.texasfunds.com.
<PAGE>
WHAT ELSE DO I NEED TO KNOW BEFORE
INVESTING?
Exchanges
Exchanges are not allowed between the Bear 500 Fund and other
series of the Texas Capital Value Funds.
Reports
The Fund will send annual reports to shareholders containing
certified financial statements and semi-annual reports containing
unaudited financial statements.
Account Statements: Provided Quarterly
Financial Reports: Provided at least semi-annually
Confirmation Reports: Provided after each transaction that affects
the account balance or registration of shareholder.
To reduce expenses, one copy of each report will be mailed to
each Tax ID even though you may have more than one account with
the Texas Capital Value Funds, Inc.
Net Asset Value (Pricing)
The NAV will be determined as of the close of the New York
Stock Exchange, the close of the Chicago Mercantile Exchange,
or the close of the Chicago Board of Options Exchange whichever
is later, on each day any of these exchanges are open. The NAV is
determined using the following formula:
Value of Fund Assets - Fund liabilities
NAV = ---------------------------------------
Number of Outstanding Shares
Fund securities are valued at the latest available market price.
If market quotations are not readily available for some securities
held by the Funds, the officers will value securities at fair
market value in accordance with methods approved by the Board
of Directors.
Litigation
As of the date of this Prospectus, there was no pending or threatened
litigation involving any series of the Texas Capital Value Funds in
any capacity.
Auditors
Tait, Weller & Baker, Certified Public Accountants of Philadelphia,
PA have been selected as the independent accountants and auditors
of the Fund. Tait, Weller & Baker certify the financial statements
of many mutual funds in the country. The firm has no direct or
indirect interest in the Fund or its Advisor.
<PAGE>
HOW DO I REACH
THE FUND?
Transfer Agent, Accountant, and Custodian
Firstar Mutual Fund Services LLC
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
888-839-7424
Mailing Address
Texas Capital Value Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Advisor
First Austin Capital Management, Inc.
2301 South Capital of Texas Highway
Bldg. J-102
Austin, TX 78746
888-839-4769
Distributor
Rafferty Capital Markets, Inc.
550 Mamaroneck Avenue
Harrison, NY 10528
Independent Auditors
Tait, Weller & Baker
8 Penn Center, Suite 800
Philadelphia, PA 19103-2108
Counsel
Law Offices of Stephanie Djinis
7918 Jones Branch Drive, Suite 600
McLean, VA 22102
SEC File # 801-31075
www.texasfunds.com
<PAGE>
More information about the Fund is available in the statement
of additional information and in the Fund's annual and semi-annual
reports to shareholders. They are available at no cost to you by
calling 800-628-4077 or by visiting the Funds' website at
www.texasfunds.com. The reports to shareholders will contain
management discussions of the market conditions and investment
strategies that significantly affected the Fund's performance
during the last fiscal year, once a track record has been
established. You should also obtain and read the Fund's Retirement
Booklet that has important disclosures and information relating to
IRAs and other Retirement Accounts. Information about the Fund,
including the SAI, can be reviewed and copied at the Securities
and Exchange Commission's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room
is available by calling 800-SEC-0330. Reports and other information
about the Fund company are available on the SEC's internet site
at (http://www.sec.gov), and copies of this information may be
obtained upon payment of a duplicating fee by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-6009.
Bear 500 Portfolio
CUSIP #
<PAGE>
PART B - STATEMENT OF ADDITIONAL INFORMATION
TEXAS CAPITAL VALUE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
Value & Growth Portfolio
Mid-Cap Focus Portfolio
Bear 500 Portfolio
This document is not a prospectus.
You should read this document in
conjunction with the appropriate
portfolio's prospectus and the
latest shareholder report, which
contains important financial
information that is incorporated in
this Statement of Additional
Information by reference. You
may obtain these at no charge
by visiting www.texasfunds.com
or by calling 800-628-4077.
October 1, 1999
2301 South Capital of Texas Hwy
Bldg J-102 AUSTIN TX 78746
<PAGE>
FUND HISTORY 2
VOTING 3
INVESTMENT OBJECTIVE AND POLICIES 4
FUND TURNOVER 5
DIRECTORS AND OFFICERS 6
PRINCIPAL HOLDERS OF SECURITES 10
INVESTMENT ADVISOR 14
SERVICE PROVIDERS 18
DISTRIBUTION OF THE FUNDS 22
BROKERAGE 26
PURCHASE AND REDEMPTION OF SHARES 29
NET ASSET VALUE 33
TAX DEFERRED RETIREMENT PLANS 36
TAX STATUS 38
PERFORMANCE INFORMATION 39
APPENDIX A 41
APPENDIX B 46
No one has been authorized to give any information or to make
any representations, other than those contained in this SAI or
in the Prospectus. You should not rely on any information given
or any representation made because it may not have been author-
ized by the Investment Company or its affiliates. This SAI and/or
the Prospectus are not offers to sell or a solicitation of an offer
to buy any securities in any jurisdiction where an offer to sell
or solicitation of an offer to buy may not lawfully be made.
Phone Numbers
General Marketing 888-839-4769
Shareholder Information 888-839-7424
This Statement of Additional information is actually Part B of the
Investment Company's registration statement filed with the
Securities and Exchange Commission. The Investment
Company's advisor and administrator, First Austin Capital
Management, Inc. will be referred to as "us" or "we" in this
document. Likewise, any shareholder or prospective shareholder
will be referred to as "you". Throughout this document, the
phrase Statement of Additional Information will be shortened
to "SAI".
The Value & Growth Portfolio, the Mid-Cap Focus Portfolio,
and the Bear 500 portfolio are non-diversified, open-end
investment series of Texas Capital Value Funds, Inc and are
commonly known as mutual funds and will be referred to as
"Fund" or "Funds" in this SAI.
<PAGE>
Fund History
The Investment Company is structured so that:
It is a non-diversified, open-end management investment
company organized as a Maryland corporation on June 26, 1995.
The Company's Articles of Incorporation authorize the Board of
Directors to issue shares of common stock, par value $.0001
per share.
The Board of Directors can classify or allocate shares to the Fund
Company or each separate series at its discretion.
Currently, 100 million shares have been authorized and twenty-five
million shares of the Company's authorized common stock have
been initially allocated to each of the three Funds. Each series
currently has a fiscal year ending September 30th.
Each share of a Fund has equal voting, dividend, distribution
and liquidation rights.
There will not normally be meetings of the shareholders for the
purpose of electing Directors until and unless less than a majority
of the Directors holding office have been elected by shareholders.
Shares of the Company have no preemptive rights and only such
conversion or exchange rights as the Board of Directors 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.
The Investment Company registered the Growth & Income Portfolio in
its original registration statement and made it available to the
public on March 18, 1998. The name of the Fund was changed shortly
thereafter to Blue Chip Value Portfolio, and then to Mid-Cap Focus
Portfolio. The Investment Company launched the Bear 500 Portfolio on
October 1, 1999.
<PAGE>
VOTING
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in
aggregate and not by class or series except as otherwise required
by the 1940 Act or Maryland General Corporation Law.
Rule l8f-2 of 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 this one, shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding
shares of each fund of the Investment 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 a new 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 Investment 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
Investment Company outstanding (or of a class or series of the
Investment 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 Investment
Company may provide for authorization to be given by the
affirmative vote of the holders of less than a majority of the
total number of shares of the Investment Company outstanding
(or of a class or series).
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information is in addition to the information
detailed in the prospectus under the headings "What is the
Fund Investment Strategy?" and "What can the Fund Invest in?"
The fundamental investment policies detailed below may not be
changed for any Fund without the approval of a majority of that
Fund's outstanding voting securities. As used in this SAI, a
majority of the Funds' outstanding voting securities means
the lesser of:
more than 50% of its outstanding voting securities; or
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 Funds have adopted the following fundamental investment
policies. These policies may not be changed without
shareholder approval:
The Funds 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.
The Value & Growth Portfolio and the Mid-Cap Focus
Portfolio may not make loans, although they
may invest in debt securities, enter into repurchase
agreements, and lend their Fund securities.
The Funds 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.
The Funds 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).
The Funds may not issue senior securities or
borrow money except for temporary purposes in
amounts up to 33 1/3% of its net assets (including
the amount borrowed) less liabilities (not including the amount
borrowed) at the time of such borrowing,
provided that collateral arrangements with
respect to permitted instruments shall not be
deemed to entail the issuance of senior securities
if appropriately covered. The Funds may not make
any investments while outstanding borrowings exceed 5% of the
value of its total assets.
The Funds 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.
All series of the Texas Capital Value Funds may not:
invest in oil, gas, or mineral
exploration or development
programs or leases
Only the Bear 500 Portfolio may:
make loans to other series of the Texas Capital Value Funds,
not to exceed 15% of the net assets of the Bear 500 Portfolio
at the time of such loan subject to an exemptive order from the
Securities and Exchange Commission which has been
applied for.
purchase securities on margin,
except that all the Funds may utilize
short-term credit as may be
necessary for the clearance
of transactions and engage in
borrowings in amounts not
exceeding 33 1/3% of their net assets.
purchase or sell commodities
or commodities contracts (including
financial futures and related options)
The Funds' 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 Funds objectives. However, the Funds will not
change their investment policies or restrictions without written
notice to shareholders.
Further Information on the Nature of the Investments held by
the Value & Growth Portfolio and Mid-Cap Focus Portfolio:
<PAGE>
General Characteristics of Convertible Securities
The Funds 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, Moody's Investors
Service, Inc., Fitch IBCA, Inc., or Duff & Phelps, Inc. or that
are determined by the Advisor to be of equivalent quality. For a
more complete description of debt ratings, see APPENDIX
A. Investments in convertible securities may provide incidental
income through interest and dividend payments and/or an opportunity
for capital appreciation by virtue of their conversion or
exchange features. Convertible debt securities and convertible
preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market
value of convertible securities tends to decline as interest
rates increase and, conversely, tends to increase as interest
rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically
changes as the market value of the underlying common stocks
changes, and, therefore, also tends to follow movements
in the general market for equity securities. As the market
price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis and
so may not experience market value declines to the same
extent as the underlying common stock. When the
market price of the underlying common stock increases,
the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no
securities investments are without risk, investments in convertible
securities generally entail less risk than investments in
common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon
securities, accretion of income) with generally higher yields
than common stocks. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because
of their conversion or exchange features.
Convertible securities are generally subordinated to other similar
but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of payment
to all equity securities, and convertible preferred stock is senior to
common stock of the same issuer. However, because of the subordination
feature, convertible bonds and convertible preferred stock typically
have lower ratings than similar non-convertible securities.
Investments in Real Estate Investment Trusts (REITs)
Because the Funds may invest their assets in equity securities of
REITs, they may also be subject to certain risks associated with
direct investments in REITs. REITs may be affected by changes
in the value of their underlying properties and by defaults
by borrowers or tenants. Furthermore, REITs are dependent upon
specialized management skills of their managers and may have
limited geographic diversification, thereby, subjecting
them to risks inherent in financing a limited number of projects.
REITs depend generally on their ability to generate cash flow
to make distributions to shareholders, and certain REITs have
self-liquidation provisions by which mortgages held may be
paid in full and distributions of capital returns may be
made at any time.
<PAGE>
Temporary Defensive Policy
Each Fund may on a temporary basis because of market, economic,
political, or other conditions, invest up to 100% of its assets in
investment-grade, short-term debt instruments. Such securities may
consist of obligations of the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by such
instruments; certificates of deposit of domestic banks having
capital, surplus, and undivided profits in excess of $100 million;
banker's acceptances of similar banks; commercial paper and
other corporate debt obligations.
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 affectU.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 Funds 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 for-
eign 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 secu-
rities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the
Funds are uninvested and no return is earned. The inability of the Funds to
make intended security purchases due to settlement problems could cause
the Funds to miss attractive investment opportunities. Inability to dispose
of Fund securities due to settlement problems could either result in losses
to the Funds due to subsequent declines in value of the Fund security or,
if the Funds have entered into a contract to sell the security, result in a
possible liability to the purchaser. Payment for securities without
delivery may be required in certain foreign markets. Further, the Funds may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. Foreign governments can also levy confisca-
tory 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 Funds' agents to keep currently informed about
corporate actions such as stock dividends or other matters which may
affect the prices of Fund securities.
Communications between the United States and foreign countries may be
less reliable than within the United States thus increasing the risk of
delayed settlements of Fund transactions or loss of certificated Fund
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 Funds may hold
foreign currencies, the value of the assets of the Funds 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 Funds may incur costs in connection with
conversions between various currencies. Although the Funds
value assets daily in terms of U.S. dollars, the Advisor does not
intend to convert Fund holdings of foreign currencies into U.S.
dollars on a daily basis, although it may do so from time to time,
and you 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 between the prices
at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Funds at one rate,
while offering a lesser rate of exchange should the Funds desire to
resell that currency to the dealer. The Funds 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.
<PAGE>
General Characteristics of Securities Lending
In compliance with Securities and Exchange Commission guidelines, any
loans of securities in Fund portfolios 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
its agencies, or irrevocable letters of credit or other debt
securities issued by entities rated within the two highest grades
assigned by S&P, Moody's, Fitch IBCA, or Duff & Phelps or which
are determined by the 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
Funds 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 Funds will
receive all dividends, interest or other distributions on
loaned securities and the Funds must be able to vote loaned
securities whenever the right to vote is material to the
Funds' performance.
Investment in Unseasoned Issuers
The Funds 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.
<PAGE>
FURTHER INFORMATION ON THE NATURE OF THE
INVESTMENTS HELD BY THE BEAR 500 PORTOFLIO:
All references to the "Fund" in this section refer only to the Bear 500
Portfolio.
General Information on Options, Futures and other Strategies
As discussed in the Prospectus, the Fund may use certain options,
futures contracts (sometimes referred to as simply "futures"), and
options on futures contracts (collectively called Financial Instruments
for this section) as a substitute for a comparable market position in
the underlying security, to attempt to hedge or limit the exposure of
the Fund's position, and to effect closing transactions.
The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges upon which they are traded and the
Commodity Futures Trading Commission (the CFTC).
In addition to the instruments, strategies and risks described below and in
the Prospectus, the Advisor may discover additional opportunities in con-
nection with Financial Instruments and other similar or related tech-
niques. These new opportunities may become available as the Advisor
develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new Financial Instruments or other tech-
niques are developed. The Advisor may utilize these opportunities to the
extent that they are consistent with the Fund's investment objectives and
permitted by the Fund's investment limitations and applicable regulatory
authorities. The Fund's Prospectus or SAI will be supplemented to the
extent that new products or techniques involve materially different risks
than those described below or in the Prospectus.
Special Risks
The use of Financial Instruments involves special considerations and risks,
certain of which are described below. Risks pertaining to particular
Financial Instruments are described in the sections that follow.
(1) Options and futures prices can diverge from the prices of their
underlying instruments. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument and the time remaining until expira-
tion of the contract, which may not affect security prices the same way.
Imperfect correlation also may result from differing levels of demand in
the options and futures markets and the securities markets, from structural
differences in how options and futures and securities are traded, and from
imposition of daily price fluctuation limits or trading halts.
(2) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it
takes positions in Financial Instruments involving obligations to third par-
ties (e.g., Financial Instruments other than purchased options). If the Fund
were unable to close out its positions in such Financial Instruments, it
might be required to continue to maintain such assets or accounts or make
such payments until the position expired or matured. These requirements
might impair the Fund's ability to sell a portfolio security or make an
investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous time.
The Fund's ability to close out a position in a Financial Instrument prior
to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of
the other party to the transaction (the counterparty) to enter into a trans-
action closing out the position. Therefore, there is no assurance that any
position can be closed out at a time and price that is favorable to the
Fund.
<PAGE>
Cover
Transactions using Financial Instruments, other than purchased options,
expose the Fund to an obligation to another party. The Fund will not
enter into any such transactions unless it owns either (1) an offsetting
(covered) position in securities or other options or futures contracts or (2)
cash and liquid assets with a value, marked-to-market daily, sufficient to
cover its potential obligations to the extent not covered as provided in (1)
above. The Fund will comply with SEC guidelines regarding cover for
these instruments and will, if the guidelines so require, set aside cash or
liquid assets in an account with its custodian, Firstar Bank Milwaukee,
N.A. ("Custodian"), in the prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the posi-
tion in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a
large portion of the Fund's assets to cover or accounts could impede
portfolio management or the Fund's ability to meet redemption requests
or other current obligations.
Options
The value of an option position will reflect, among other things, the cur-
rent market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment and general market conditions. Options that expire
unexercised have no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing pur-
chase transaction. Conversely, the Fund may terminate a position in a put
or call option it had purchased by writing an identical put or call option;
this is known as a closing sale transaction. Closing transactions permit
the Fund to realize profits or limit losses on an option position prior to
its exercise or expiration.
Risks of Options and Other Securities
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed
that, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, over-the-counter ("OTC") options are contracts
between the Fund and its counterparty (usually a securities dealer or a
bank) with no clearing organization guarantee. Thus, when the Fund pur-
chases an OTC option, it relies on the counterparty from whom it pur-
chased the option to make or take delivery of the underlying investment
upon exercise of the option. Failure by the counterparty to do so would
result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-traded
options depends on the existence of a liquid market. However, there can
be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating
directly with the counterparty, or by a transaction in the secondary market
if any such market exists. There can be no assurance that the Fund will in
fact be able to close out an OTC option position at a favorable price prior
to expiration. In the event of insolvency of the counterparty, the Fund
might be unable to close out an OTC option position at any time prior to
its expiration.
<PAGE>
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit.
The inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written
option until the option expires or is exercised.
Options on Indices
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question rather than on price move-
ments in individual securities or futures contracts. When the Fund writes
a call on an index, it receives a premium and agrees that, prior to the expi-
ration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index
upon which the call is based is greater than the exercise price of the call.
The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the call times a specified multiple
(multiplier), which determines the total value for each point of such differ-
ence. When the Fund buys a call on an index, it pays a premium and
has the same rights to such call as are indicated above. When the Fund
buys a put on an index, it pays a premium and has the right, prior to the
expiration date, to require the seller of the put, upon the Fund's exercise
of the put, to deliver to the Fund an amount of cash if the closing level
of the index upon which the put is based is less than the exercise price of
the put, which amount of cash is determined by the multiplier, as
described above for calls. When the Fund writes a put on an index, it
receives a premium and the purchaser of the put has the right, prior to
the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and the exer-
cise price times the multiplier if the closing level is less than the exercise
price.
Risks of Options on Indices
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to
pay the difference between the closing index value and the exercise price
of the option (times the applicable multiplier) to the assigned writer.
<PAGE>
OTC Options
Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option con-
tract. While this type of arrangement allows the Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk
than exchange-traded options, which are guaranteed by the clearing organ-
ization of the exchanges where they are traded.
Futures Contracts and Options on Futures Contracts
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial mar-
gin" in an amount generally equal to 10% or less of the contract value.
Margin also must be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Unlike
margin in securities transactions, initial margin does not represent a bor-
rowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction
if all contractual obligations have been satisfied. Under certain circum-
stances, such as periods of high volatility, the Fund may be required by an
exchange to increase the level of its initial margin payment, and initial
margin requirements might be increased generally in the future by regula-
tory action.
Subsequent "variation margin" payments are made to and from the
futures commission merchant daily as the value of the futures position
varies, a process known as "marking-to-market." Variation margin does
not involve borrowing, but rather represents a daily settlement of the
Fund's obligations to or from a futures commission merchant. When the
Fund purchases an option on a futures contract, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchas-
es or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a
time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions in
options, by selling or purchasing, respectively, an instrument identical to
the instrument purchased or sold. Positions in futures and options on
futures contracts may be closed only on an exchange or board of trade
that provides a secondary market. However, there can be no assurance
that a liquid secondary market will exist for a particular contract at a par-
ticular time. In such event, it may not be possible to close a futures con-
tract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once
that limit is reached, no trades may be made that day at a price beyond the
limit. Daily price limits do not limit potential losses because prices could
move to the daily limit for several consecutive days with little or no trad-
ing, thereby preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund
would continue to be subject to market risk with respect to the position.
In addition, except in the case of purchased options, the Fund would con-
tinue to be required to make daily variation margin payments and might be
required to maintain cash or liquid assets in an account.
Risks of Futures Contracts and Options on Futures Contracts
The ordinary spreads between prices in the cash and futures markets
(including the options on futures markets), due to differences in the
natures of those markets, are subject to the following factors, which may
create distortions. First, all participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures con-
tracts through offsetting transactions, which could distort the normal rela-
tionships between the cash and futures markets. Second, the liquidity of
the futures market depends on participants entering into offsetting trans-
actions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less oner-
ous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause
temporary price distortions.
Combined Positions
The Fund may purchase and write options in combination with each other.
For example, the Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined posi-
tion whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a sub-
stantial price increase. Because combined options positions involve mul-
tiple trades, they result in higher transaction costs and may be more diffi-
cult to open and close out.
<PAGE>
U.S. Government Securities
The Bear 500 Portfolio will invest in U.S. Government Securities.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which are backed by the
full faith and credit of the U.S. Treasury and which differ only in their
interest rates, maturities, and times of issuance. U.S. Treasury bills have ini-
tial maturities of one year or less; U.S. Treasury notes have initial maturi-
ties of one to ten years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. Government Securities
are issued or guaranteed by agencies or instrumentalities of the U.S.
Government including, but not limited to, obligations of U.S. Government
agencies or instrumentalities such as Fannie Mae, the Government
National Mortgage Association, the Small Business Administration, the
Federal Farm Credit Administration, the Federal Home Loan Banks, Banks
for Cooperatives (including the Central Bank for Cooperatives), the
Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee
Valley Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the Student
Loan Marketing Association, and the National Credit Union
Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are sup-
ported by the discretionary authority of the U.S. Government to purchase
certain obligations of the Federal agency, while other obligations issued by
or guaranteed by Federal agencies, such as those of the Federal Home
Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury, while the U.S. Government provides financial support to
such U.S. Government-sponsored Federal agencies, no assurance can be
given that the U.S. Government will always do so, since the U.S.
Government is not so obligated by law. U.S. Treasury notes and bonds typ-
ically pay coupon interest semi-annually and repay the principal at maturity.
Indexed Securities
The Fund may purchase securities the value of which varies in relation to
the value of other securities, securities indices or other financial indicators,
consistent with its investment objective. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Recent issuers of indexed securities have included banks, corporations
and certain U.S. Government agencies. Certain indexed securities that are
not traded on an established market may be deemed illiquid. See "Illiquid
Investments and Restricted Securities" below.
Derivative Strategies
The use of derivatives strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine
for income tax purposes the amount, character, and timing of recognition
of the gains and losses the Fund realizes in connection therewith. Gains
from options and futures derived by the Fund with respect to its business
of investing in securities will qualify as permissible income under the
Income Requirement.
Certain options (including options on "broad-based" stock indices) and
futures in which the Fund may invest may be "section 1256 contracts."
Section 1256 contracts held by the Fund at the end of each taxable year,
other than section 1256 contracts that are part of a "mixed straddle" with
respect to which the Fund has made an election not to have the following
rules apply, must be "marked-to-market" (that is, treated as sold for their
fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses will be treated as though they were realized.
Sixty percent of any net gain or loss recognized on these deemed sales,
and 60% of any net realized gain or loss from any actual sales of section
1256 contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. Section 1256 con-
tracts also may be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal prop-
erty; for these purposes, options and futures contracts are personal prop-
erty. Section 1092 generally provides that any loss from the disposition of
a position in a straddle may be deducted only to the extent the loss
exceeds the unrealized gain on the offsetting position(s) of the straddle.
Section 1092 also provides certain "wash sale" rules, which apply to trans-
actions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the Fund makes certain elections, the amount, character, and
timing of recognition of gains and losses from the affected straddle posi-
tions would be determined under rules that vary according to the elections
made. Because only a few of the regulations implementing the straddle
rules have been promulgated, the tax consequences to the Fund of strad-
dle transactions are not entirely clear.
If a call option written by the Fund lapses (i.e., terminates without being
exercised), the amount of the premium it received for the option will be
short-term capital gain. If the Fund enters into a closing purchase transac-
tion with respect to a written call option, it will have a short-term capital
gain or loss based on the difference between the premium it received for
the option it wrote and the premium it pays for the option it buys. If
such an option is exercised and the Fund thus sells the securities or futures
contract subject to the option, the premium the Fund received will be
added to the exercise price to determine the gain or loss on the sale. If a
call option purchased by the Fund lapses, it will realize short-term or long-
term capital loss, depending on its holding period for the security or
futures contract subject thereto. If the Fund exercises a purchased call
option, the premium it paid for the option will be added to the basis of
the subject securities or futures contract.
The foregoing is only a general summary of some of the important
Federal income tax considerations generally affecting the Bear 500 Fund.
No attempt is made to present a complete explanation of the Federal tax
treatment of its activities, and this discussion is not intended as a substi-
tute for careful tax planning. Accordingly, potential investors are urged to
consult their own tax advisers for more detailed information and for infor-
mation regarding any state, local or foreign taxes applicable to the Fund
and to dividends and other distributions therefrom.
<PAGE>
FUND TURNOVER
While it is difficult to predict, we expect that the annual Fund turnover
rate of the Value & Growth and Mid-Cap Focus Portfolios will not exceed
150%. For the Bear 500 Portfolio, we anticipate a high turnover rate since
it is intended to be used as a shorter-term investment. A greater turnover
rate may be experienced during periods of marketplace volatility which
necessitates more active trading. A higher Fund turnover rate involves
greater transaction costs to the Funds and may result in the realization of
net capital gains which would be taxable to shareholders when distributed.
For the two most recently completed fiscal years, the turnover rates for the
Funds were as follows:
Value & Growth Fund
9/30/98-3/31/99 195.2%
9/30/97-9/30/98 223.6%
9/30/96-9/30/97 103.3%
Mid-Cap Focus Fund
9/30/98-3/31/99 206.0%
Bear 500 Portfolio
N/A
Bear 500 inception date was 10/1/99
<PAGE>
DIRECTORS AND OFFICERS
The business and affairs of the Funds are
managed under the direction of the Board of
Directors, while the Fund's 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 or changing
fundamental investment policies or for any
other matter as required by law.
The Directors and Officers of the Funds, their positions held with the
Funds and their principal occupations during the past five years are set
forth below.
Mark A. Coffelt, C.F.A*
2301 South Capital of Texas Highway
Building J-102
Austin, TX 78746
Chairman of the Board of Directors and President of the Texas
Capital Value Funds, Inc., Chief Investment Officer of the
Value & Growth Fund and Mid-Cap Focus Fund.
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
1301 Capital of Texas Highway Ste B-127
Austin, Texas 78746
Independent 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
Kelly, Hart, & Hallman
201 Main Street Suite 2500
Ft. Worth, Texas 76102-3194
Independent Director
Principal Occupations During Past Five Years
Member-Kelly, Hart & Hallman (1997- Present)
Partner-Clark & Clark of Austin, Texas (1995-1997)
Sole Practitioner (1994-1995)
Shareholder-Scofield & Clark, P.C. (1993-1994)
Of Counsel-Ford & Ferraro, L.L.P. (1991-1992)
General Counsel/Chief Financial Officer of Jefferson Service
Company, Inc. (1990-1991)
Partner, McGinnis, Lockridge & Kilgore L.L.P. (1982-1990)
Board Certified in Tax Law by the Texas Board of Legal
Specialization
Certified Public Accountant
University of Texas, B.B.A. and M.P.A. (Master in Professional
Accounting) University of Houston College of Law, J.D.
John Henry McDonald, CFP
5511 Parkcrest #210
Austin, TX 78731
Independent 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.
<PAGE>
Brian T Bares
2301 South Capital of Texas Highway
Building J-102
Austin, TX 78746
Secretary
Principal Occupations During Past Five Years
Compliance Officer, Head Trader and Co-Portfolio Manager
for First Austin Capital
Management, Inc. (1997-Present)
Registered Representative with Rafferty Capital Markets, Inc., the
Fund's Distributor
Vice-President & Co-Founder of Convenience Design Inc.
(1995-1997)
Project Manager (1995) and Director (1995-Present) of Bellevue
Optical, Inc.
University of Nebraksa, B.S. in Mathematics
* Denotes a Director of the Company who is an "interested
person" of the Company, as defined in the Investment Company
Act of 1940. The Directors of the Fund who are officers or
employees of the Advisor or the Distributor receive no
remuneration from the Funds. Each of the other Directors is
paid an annual retainer of $6,000 and is reimbursed for expenses
of attending meetings.
Board of Directors Compensation Table
NAME & AGGREGATE PENSION ESTIMATED TOTAL
POSITION COMPENSATION BENEFITS RETIREMENT COMP
BENEFITS
Mark A. Coffelt* $0 $0 $0 $0
President & Chief
Investment Officer
Edward D. Clark $6,000* $0 $0 $6,000
Director
John H. McDonald $6,000* $0 $0 $6,000
Director
Janis Claflin $6,000* $0 $0 $6,000
Director
Such compensation is paid by the Adviser as part of the administrative
expense to the Fund.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of the end of the fiscal year, officers and directors of the Texas Capital
Value Funds, Inc., owned .018% of all outstanding securities of the Funds
in the aggregate. To the knowledge of the Fund's management, as of
June 30, 1999, the persons owning beneficially more than 5% of the
outstanding shares of the Fund were as follows:
Value & Growth Portfolio
Charles Schwab & Co. Inc. 30.30%
101 Montgomery St.
San Francisco, CA 94104
Mid-Cap Focus Portfolio
Coffelt Family LP 15.72%
1600 West 38th Street Suite 412
Austin, TX 78731
Guy Coffelt 10.48%
HCR-5 Box 574-607
Kerrville, TX 78028
Johnny Look Trust 10.14%
1550 Dann Heim Rd.
Brenham, TX 77833
Elaine Davis 8.99%
1852 Clarence Dr.
Hellertown, PA 18055
Bear Stearns Securities Corp. 8.14%
One Metrotech Center North
Brooklyn, N.Y. 11201-3859
Babette Rubin 5.64%
9 Elena Court
Peekskill, NY 10566
Southwest Securities FBO 5.24%
James G. Kaighin Jr.
5900 Balcones Suite 100
Austin, TX 78731
Bear 500 Portfolio
N/A
The officers and Directors of the Company own less than 1% of the
outstanding securities of the Funds.
<PAGE>
INVESTMENT ADVISOR
First Austin Capital Management is controlled by Mark A. Coffelt and his
wife, Jane Coffelt through a partnership which owns 100% of the out-
standing shares of First Austin Capital Management. Mark A. Coffelt is
the President of Texas Capital Value Funds, Inc., Chief Investment
Officer of the Funds, as well as President and Chief Investment Officer
of First Austin Capital Management, Inc. B. David Flora is a co-Portfolio
Manager and Institutional Marketing Director of the Texas Capital Value
Funds and an Investment Advisor for First Austin Capital Management.
Eric Barden is a co-Portfolio Manager and Institutional Marketing
Director of the Texas Capital Value Funds and an Investment Advisor for
First Austin Capital Management. Brian T. Bares serves as Secretary and
Co-Portfolio Manager of the Texas Capital Value Funds, Inc., as well as
Compliance Officer and Head Trader for First Austin Capital
Management.
The Fund has an investment advisory and administrative contract with
First Austin Capital Management, Inc. (First Austin) where:
First Austin receives a fee, computed daily, at an annual rate of
1.0% of the average daily net assets.
First Austin 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.
First Austin acts as the administrator to the Fund, and receives a
fee, for administrative services equal to the sum of:
seven-tenths percent (0.70%) of the amount of assets
in the Fund between one dollar ($1.00) and five million
dollars ($5,000,000), inclusive; plus
five-tenths percent (0.50%) of the amount of assets in
the Fund between five million and one dollars
($5,000,001.00) and thirty million dollars ($30,000,000),
inclusive; plus
twenty-eight hundredths percent (0.28%) of the
amount of assets in the Fund between thirty million and
one dollars ($30,000,001) and one hundred million dollars
($100,000,000), inclusive; plus
twenty-five hundredths percent (0.25%) of the
amount of assets in the Fund between one hundred
million and one dollars ($100,000,001) and two hundred
million dollars ($200,000,000), inclusive, plus
twenty hundredths percent (0.20%) of the amount of
assets in the Fund in excess of two hundred and one
million dollars ($200,000,001), inclusive.
All assets in the Funds for the purposes of the administration fee calcula-
tion are to be rounded to the nearest dollar prior to the computation of
any fee owed.
The total amount of fees for the last three years are as follows:
Value & Mid-Cap Bear
Growth Focus 500
Advisory Fees
9/30/98-3/31/99 $302,959 $5,278 N/A
9/30/97-9/30/98 $525,085 $4,130 N/A
9/30/96-9/30/97 $59,431 N/A N/A
11/6/95-9/30/96 $7,588 N/A N/A
Administrative Fees
9/30/98-3/31/99 $122,725 $3,695 N/A
9/30/97-9/30/98 $220,640 $2,891 N/A
9/30/96-9/30/97 $35,970 N/A N/A
11/6/95-9/30/96 $6,606 N/A N/A
<PAGE>
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
which was opened to the public in March 18 of 1998. Shortly after its launch,
the name of the Growth & Income Portfolio was changed to the Blue Chip Value
Portfolio, and subsequently to Mid-Cap Focus Portfolio.
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
pending approval 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 at a meeting called for such purpose. The
current Advisory and Administrative Agreement reads that in the event of an
assignment by the Advisor of investment advisory services, the advisory
agreement will terminate automatically.
First Austin will also act as the administrator to the Funds. The administrator
provides the following support services to each Fund:
Establishing and maintaining shareholders'
accounts and records
Processing purchase and redemption transactions
Answering routine client inquiries regarding the Fund
Preparing registration statements,
prospectuses, tax returns and proxy
statements
Providing daily valuation of each Fund,
calculating the daily net asset value per share
and providing such other services to the
Fund as the Company may reasonably request
First Austin may assign administrative services to other groups and providers
without automatic termination of the Agreement. For such administrative servic-
es, 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. The
Value & Growth Portfolio and the Mid-Cap Focus Portfolio pay a 12(b)-1 fee of
0.25% to the Distributor, who passes through the entire amount to the broker
of record. The Bear 500 Portfolio pays a 12(b)-1 fee of 1.00% to the
Distributor who passes the entire amount through to the broker of record.
All fees are computed on the average daily closing net asset value of each
Fund and are payable monthly.
<PAGE>
SERVICE PROVIDERS
The Fund has contracted with the Firstar Trust Company for its transfer
agent and custodial services. Under the contracts, Firstar will process pur-
chase and redemption requests, generate shareholder statements and con-
firmations, and keep track of shareholder records. Firstar will also handle
the daily NAV computation, fund accounting, and custody of the
Investment Company's assets. For transfer agent services that Firstar pro-
vides, compensation is based on number of shareholder accounts. For
custodial services, compensation is based on asset size and transactions
according to a sliding schedule.
Firstar Trust Company
615 E. Michigan Street, 3rd Floor
Miwaukee, WI 53202-5207
<PAGE>
DISTRIBUTION OF THE FUNDS
The following information is in addition to the Investment Company's
relationship with the Distributor outlined in the prospectus.
Rafferty Capital Markets, Inc. is the Investment Company's Distributor,
and acts as the principal underwriter of the shares of the Funds. The
Distributor agrees to use its best efforts to promote, offer for sale, and sell
the shares of the Funds to the public on a continuous basis whenever and
wherever it is legally authorized to do so. For the period ending
(9/30/98), Choice Investments, Inc., the Company's previous Distributor,
was paid $551,119. Of this, $29,769 was retained as a distributor commis-
sion.
Net Discounts Repurchase Brokerage Other
Underwriter and comm. Compensation Commission Comp.
Choice
Invmts* $29,769 N/A $33,348 N/A
The Fund has adopted a Distribution Assistance, Promotion, and
Adminisrative Service Plan pursuant to Rule 12b-1 under the 1940 Act
under which the Company contracts with registered broker-dealers and
their agents to distribute shares of the Fund. For the period ending
September 30, 1998, the amount paid to the Distributor under that plan
was $131,271.43. David Flora, Eric Barden and Brian Bares, the Secretary
of the Company, all acting as registered representatives of Choice
Investments, Inc, and now as registered representatives of Rafferty Capital
Markets, Inc. received a portion of the distribution fee as result of their
distribution of shares of the Fund.
The following table details payments made under the Investment
Company's 12b-1 Plan from 9/30/98-3/31/99:
Advertising $0
Printing/Mailing of Prospectuses $0
to other than current shareholders
Broker-dealer compensation $131,271
Compensation to sales personnel $0
Interest, carrying, or other
finance charges $0
<PAGE>
The plan compensates the Distributor regardless of the expenses it actual-
ly incurs. For the period above there were no unreimbursed expenses carried
over from previous years.
Brian T. Bares, B. David Flora, and Eric Barden are all registered represen-
tatives with the Investment Company's Distributor and may receive 12b-1
fees in connection with the sale of Fund shares.
The Fund may benefit from its adopted 12b-1 plan by increased distribu-
tion and sales of Fund shares through the broker-dealer community. As
Fund assets grow, the administrative costs of the Fund decline.
The Value & Growth Portfolio and the Mid-Cap Focus Portfolio share the
same 12b-1 plan, while the Bear 500 has adopted a similar 12(b)-1 plan
except that the fees payable under the plan are 1.00% instead of 0.25%
Any fees paid under the plan may be used to finance distribution for any
series of the Investment Company.
<PAGE>
BROKERAGE
Soft-Dollars
The Fund requires all brokers who effect securities transactions to give
prompt execution at favorable prices. Some brokers provide research and
trade execution services to the Fund for commission rates that are higher
than the lowest available rates (soft dollars). We will only use brokers that
charge rates that are reasonable and commensurate with the services they
provide. We will only effect securities transactions at higher than the low-
est available rates if the benefits provided by the broker assist us directly
in the investment decision making process and the commission rates are
reasonable. You should be aware that brokerage is the property of the
client, and it is our responsibility to trade solely for the benefit of the
clients of First Austin and not for the benefit of the Advisor itself. Some
Fund transactions that provide research and trading services benefits some
or all of the Advisor's clients. And conversely, research and execution
services provided through trading the Advisor's other accounts may bene-
fit the Fund's shareholders. In our opinion, it is impossible to separately
determine the benefits from research services for each advisory account.
Subject to the supervision of the Directors, decisions to buy and sell secu-
rities for the Funds and negotiation of its brokerage commission rates are
made by the investment advisor. Transactions on United States stock
exchanges involve the payment by the Funds 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
Funds usually includes an undisclosed dealer commission or mark-up. In
certain instances, the Funds 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 Funds on a continuing basis as
well as the expected contribution of the broker in selling shares of
the Funds.
Accordingly, the cost of the brokerage commissions to the Funds in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execu-
tion services offered. For example, the investment advisor will consider
the research and execution services provided by brokers or dealers who
effect or are parties to portfolio transactions of the Funds or the invest-
ment 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 and execution systems and
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 Funds 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 deter-
mines 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 Funds. Research and
investment information and execution services provided by these and
other brokers at no cost to the investment advisor is available for the ben-
efit of other accounts advised by the investment advisor and its affiliates,
and not all of the information will be used in connection with the Funds.
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 (9/30/98), the
Fund paid Choice Investments, the Distributor of the Fund during that
period, $33,348 in brokerage commissions for securities bought and sold
by the Fund. These commissions comprise 4.37% of the aggregate bro-
kerage commissions paid by the Fund over this period. These commis-
sions purchased 2.7% of the aggregate dollar amount of transactions
involving the payment of commissions by the Fund.
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
The following information is in addition to the details in the prospectus
under the heading, "How do I Purchase Shares?", and "How do I Sell
Shares?" and "What Else do I Need to Know Before Investing?"
Nonpayment
If any order to purchase shares is cancelled due to nonpayment or if the
Investment Company does not receive good funds either by check or elec-
tronic funds transfer, the Transfer Agent will treat the cancellation as a
redemption of shares purchased, and you will be responsible for any
resulting loss incurred by the Investment Company. If you are a share-
holder, the Transfer Agent can redeem shares from any of your account(s)
as reimbursement for all losses. In addition, you may be prohibited or
restricted from making future purchases in any of the Texas Capital Value
Funds. A $20 fee is charged for all returned items, including checks and
electronic funds transfers.
Transfer of Shares
You may transfer Fund shares to another person by sending written
instructions to the Transfer Agent. The account must be clearly identified,
and you must include the number of shares to be transferred, and the sig-
natures of all registered owners, which are the subject of transfer. You
also need to send written instructions signed by all registered owners and
supporting documents to change an account registration due to events
such as divorce, marriage, or death. If a new account needs to be estab
lished, you must complete and return an application to the Transfer Agent.
Transfers Directly with the Distributor
When transfering directly to the Distributor into the Value and Growth
Portfolio or the Mid-Cap Focus Portfolio from another mutual fund
(excluding funds that value their shares according to Rule 2a-7 of the
Investment Company Act of 1940, and excluding the Bear 500 Portfolio),
the transfer will occur at Net Asset Value. All purchases of the Bear 500
Portfolio occur at Net Asset Value.
Additional Information on Redeeming Shares
The right of redemption may be suspended by the Funds, or the date of
payment postponed by the Funds, beyond the normal seven-day period,
under the following conditions authorized by the 1940 Act:
For any period during which the New York Stock Exchange is
closed, other than customary weekend or holiday closings, or
during which trading on the New York Stock Exchange
is restricted;
For any period during which an emergency exists as a result
of which disposal by the Funds of securities owned by it is
not reasonably practical, or it is not reasonably practical for the
Funds to determine the fair value of its net assets; and
For such other periods as the Securities and Exchange
Commission may by order permit for the protection of the
Funds' shareholders.
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 Funds to
pay for redemptions in cash. In such cases the Board may authorize pay-
ment to be made in portfolio securities of the Fund(s). However, the
Funds 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 Funds' 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.
Autovest Plan
The Funds offer the Autovest Plan. The Autovest Plan is an automatic
investment plan detailed in the Investment Company's prospectus under
the heading "How do I Purchase Shares?" that allows shareholders auto-
matic periodic investment in the Funds. Engaging in this type of invest-
ment plan allows you to dollar cost average your purchases. Details on the
benefits of dollar cost averaging are in APPENDIX B.
<PAGE>
NET ASSET VALUE
Each Funds' net asset value per share will be calculated separately from the
per share net asset value of any other Fund of the Investment Company.
"Assets belonging to" a Fund consist of the consideration received upon
the issuance of shares of the particular fund together with all net invest-
ment income, earnings, profits, realized gains/losses and proceeds derived
from the investment thereof, including any proceeds from the sale of such
investments, any funds or payments derived from any reinvestment of
such proceeds, and a portion of any general assets of the Investment
Company not belonging to a particular series. Each Fund of the
Investment Company will be charged with the direct liabilities of that
Fund and with a share of the Investment Company's general liabilities.
Subject to the provisions of the Articles of Incorporation and the Bylaws
of the Investment 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.
<PAGE>
TAX-DEFERRED RETIREMENT PLANS
Federal taxes on current income may be deferred if you qualify for certain
types of retirement programs. For your convenience, the Funds offer
403(b)(7) accounts and various forms of IRAs. The minimum initial
investment in each of these plans is $2000, or a yearly $2000 minimum is
required with a minimum $100 monthly electronic investment. You may
make subsequent investments of $100 or more per account at any time.
You may make investments in one or any combination of the Funds
described in the Prospectus.
Retirement plan applications for the IRA and 403(b)(7) programs should
be sent directly to Firstar Mutual Fund Services, LLC, P.O. Box 701,
Milwaukee, WI 53201-0701. Firstar Trust Company serves as Custodian
for these tax-deferred retirement plans under the programs made available
by the Investment Company. Applications for these retirement plans
received by the Fund will be forwarded to the Custodian for acceptance.
An administrative fee of $15 is deducted from the money sent to you after
closing an account. This charge is subject to change as provided in the
various agreements. There may be additional charges, as mutually agreed
upon between you and the Custodian, for further services requested of
the Custodian.
Each employer or individual establishing a tax-deferred retirement plan is
advised to consult with a tax advisor before establishing the plan.
<PAGE>
TAX STATUS
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986. Accordingly, the
Funds generally must:
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;
and diversify its holdings so that, at the end of each fiscal quarter,
at least 50% of the market value of the Funds' 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 Funds' total
assets and 10% of the outstanding voting securities of such issuer,
and;
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, each Fund generally will not be sub-
ject to U.S. federal income tax on income and gains that it distributes to
shareholders, if at least 90% of the Funds' 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 Funds intend to distribute substantially all of such
income. Investment income received by each Fund from investments in
foreign countries may be subject to foreign income taxes withheld at the
source. We do not anticipate that a Fund will "pass through" these taxes
to shareholders, but instead, it will deduct them.
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 level. To avoid the tax, each Fund must distribute during each
calendar year an amount equal to the sum of
at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year,
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 September 30 of the calendar year, and
all ordinary income and capital gains for previous years that were
not distributed during such years.
To avoid application of the excise tax, the Funds intend to make distribu-
tions in accordance with the calendar year distribution requirement. A dis-
tribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Funds in October, November or December of
that year with a record date in such a month, and paid by the Funds dur-
ing 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.
For the Bear 500 Portfolio, there can be no assurance that any such Fund
will qualify as a Regulated Investment Company. If the Bear 500 Portfolio
fails to qualify as a Regulated Investment Company for any taxable year, its
taxable income, including net capital gains, will be taxed at corporate
income tax rates and it will not receive a deduction for distributions to its
shareholders.
Currency Fluctuations-"Section 988" Gains or Losses
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Funds accrue income or other receivables or accrue
expenses or other liabilities denominated in a foreign currency and the
time the Funds actually collect such receivables or pay such liabilities gen-
erally are treated as ordinary income or ordinary loss. Similarly, on dispo-
sition of some investments, including debt securities, gains or losses attrib-
utable 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 invest-
ment company taxable income available to be distributed to its sharehold-
ers as ordinary income. If section 988 losses exceed other investment
company taxable income during a taxable year, the Funds 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 Funds to a corporate shareholder, to the extent
such dividends are attributable to dividends received from U.S. corpora-
tions by the Funds, 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 Funds 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 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.
Upon a redemption, sale or exchange of a shareholder's shares of the
Funds, 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 gen-
erally will be long-term or short-term depending upon the shareholder's
holding period for the shares.
<PAGE>
PERFORMANCE INFORMATION
Performance Presentation
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 the value of your investment in each Fund from the beginning date to
the ending date of the measurement period. The figure reflects changes in the
price of your shares including the payment of the maximum sales load (except
where noted) and assumes that any income dividends and/or capital gains distri-
butions made by the Fund during the period are reinvested. When applicable, fig-
ures will be given for recent one, five, and ten year periods, and may 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, you 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 your investment in the Fund
for the specific period. Aggregate total returns may be shown by schedules,
charts, or graphs, and may be broken down to indicate subtotals of the
components of total return (the change in value of initial investment, income
dividends, and capital gains distributions).
Each Fund may quote average annual total and/or aggregate total return for vari-
ous time periods in advertisements or communications to shareholders. The
Fund may also compare performance to:
Other mutual funds with similar
investment objectives
Stock and other relevant indices
Rankings prepared by independent services
or industry publications.
<PAGE>
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.
Value & Growth
Fund Returns
Average Annual Total Return*
Inception
to 3/31/99 12.17%
Mid-Cap Focus
Inception
to 3/31/99 -7.93%
Bear 500 N/A
*Returns assume the reinvestment of all distributions. Including the cost
of the maximum sales charge of 4.5%, the annual return would have been
10.66% for the Value & Growth Portfolio, and -11.93% for the
Mid-Cap Focus Portfolio, respectively. Inception was 11-06-95 for the
Value & Growth Portfolio, 3-18-98 for the Mid-Cap Focus Portfolio, and
10-1-99 for the Bear 500 Portfolio.
From time to time, quotations of the Funds' performance may be includ-
ed in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures are calculated in the fol-
lowing 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 Funds' shares and assume that all dividends
and capital gains distributions during the respective periods were reinvest-
ed 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% for the Value &
Growth Portfolio and the Mid-Cap Focus Portfolio is computed as fol-
lows:
Value & Growth
$1,000(1+.1066)^3.40 = $1411.13
Mid-Cap Focus
$1000(1-.1193)^1.036 = $876.68
Bear 500
N/A
Where $1,000 is the initial amount invested, .1066 and -.1193 are the
average annual total return since inception, after deducting a front-end
sales charge of 4.5%, and 3.4 and 1.036 are the number of years for
which the return is calculated. $1,411.13 and $876.68 are the Period
Ending Redeemable Values at the end of the fiscal year for the Value &
Growth Portfolio and the Mid-Cap Focus Portfolio, respectively.
The Value & Growth Portfolio went effective on November 6, 1995, and the
Mid-Cap Focus Portfolio went effective on March 18, 1998. The periods
for which the returns have been calculated ended on March 31, 1999.
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 Funds will vary based on changes in market
conditions and the level of the Funds' expenses.
<PAGE>
In connection with communicating its average annual total return to cur-
rent or prospective shareholders, the Funds may also compare these fig-
ures 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 Funds with performance quoted
with respect to other investment companies or types of investments.
In connection with communicating its performance to current or prospec-
tive shareholders, the Funds may compare its performance to the perform-
ance 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 Funds 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 Funds will be
compared to the appropriate fund category, that is, by fund objective and
Fund holdings or the appropriate volatility grouping, where volatility is a
measure of the Funds' risk. From time to time, the average price-earnings
ratio and other attributes of the Funds' 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 retire-
ment planning in order to estimate future payouts of social security bene-
fits. 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 Funds.
The description may include a "risk/return comparison" which compares
the Funds 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 fluctuat-
ing yield. Share price, yield and total return of a bond fund will fluctuate.
The share price and return of an equity fund also will fluctuate. The
description may also compare the Funds to bank products, such as certifi-
cates 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 comparisons also may depict funds that invest in both domes-
tic and foreign securities or a combination of bond and equity securities.
<PAGE>
APPENDIX A
LONG-TERM AND SHORT-TERM DEBT RATINGS
A rating issued by 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 Funds' investment advi-
sor believes that the quality of debt securities in which the Funds invest
should be continuously reviewed. A rating is not a recommendation to
purchase, sell or hold a security, because it does not take into account mar-
ket value or suitability for a particular investor. When a security has
received a rating from more than one service, each rating should be evalu-
ated independently. Ratings are based on current information furnished
by the issuer or obtained by the ratings services from other sources which
they consider reliable. Ratings may be changed, suspended or withdrawn
as a result of changes in or unavailability of such information, or for
other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc., Standard & Poor's Corporation, Fitch
IBCA, Inc., and Duff & Phelps, Inc.
<PAGE>
MOODY'S INVESTOR SERVICES, INC.
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of 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 securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are 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 which are 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 characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are 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 which are 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 which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: MOODY'S APPLIES NUMERICAL MODIFIERS 1, 2, AND 3 IN EACH
GENERIC RATING CLASSIFICATION. THE MODIFIER 1 INDICATES THAT
THE OBLIGATION RANKS IN THE HIGHER END OF ITS GENERIC RATING
CATEGORY, THE MODIFIER 2 INDICATES A MID-RANGE RANKING, AND
THE MODIFIER 3 INDICATES A RANKING IN THE LOWER END OF THAT
GENERIC RATING CATEGORY.
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated "AA" differs from the highest rated issues only in
small degree. The obligor's capacity to meet its financial commitment on
the obligation is VERY STRONG.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still STRONG.
BBB An obligation rated "BBB" exhibits adequate capacity to pay interest and
repay principal. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated "BB" is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated "B" is MORE VULNERABLE to nonpayment than obligations
rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated "CCC" is CURRENTLY VULNERABLE to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on
the obligation.
CC An obligation rated "C" is CURRENTLY HIGHLY VULNERABLE to nonpay-
ment.
C The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on
this obligation are being continued.
D An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or
the taking of a similar action if payments on an obligation are
jeopardized.
PLUS (+) OR MINUS (-): THE RATINGS FROM "AA" TO "CCC" MAY BE MODI-
FIED BY THE ADDITION OF A PLUS OR MINUS SIGN TO SHOW RELATIVE
STANDING WITHIN THE MAJOR RATING CATEGORIES.
FITCH IBCA, INC.
<PAGE>
AAA Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB Good credit quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This
is the lowest investment-grade category.
PLUS (+) MINUS(-) SIGNS ARE USED WITH A RATING SYMBOL TO INDICATE
THE RELATIVE POSITION OF A CREDIT WITHIN THE RATING CATEGORY.
PLUS AND MINUS SIGNS, HOWEVER, ARE NOT USED IN THE AAA CATEGO-
RY.
<PAGE>
DUFF & PHELPS, INC.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
<PAGE>
APPENDIX B
DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method which can be used
by investors as a disciplined technique for investing. A fixed amount of
money is invested in a security (such as a stock or mutual fund) on a regu-
lar basis over a period of time, regardless of whether securities markets
are moving up or down.
This practice reduces average share costs to the investor who acquires
more shares in periods of lower securities prices and fewer shares in peri-
ods of higher prices.
While dollar-cost averaging does not assure a profit or protect against loss
in declining markets, this investment strategy is an effective way to help
calm the effect of fluctuations in the financial markets. Systematic invest-
ing involves continuous investment in securities regardless of fluctuating
price levels of such securities. Investors should consider their financial
ability to continue purchases through periods of low and high price levels.
As the following chart illustrates, dollar-cost averaging tends to keep
the overall cost of shares lower. This example is for illustration only, and
different trends would result in different average costs.
<PAGE>
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
- --------------------------------------------------------------------
Down Up Mixed
- ------------------- --------------------- -----------------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
- ------------------- --------------------- -----------------------
$100 10 10 6 16.6 7 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
- - ---- -- ----- -- ----- -- -----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $7.97 *Avg. Cost: $7.54 *Avg. Cost: $9.14
- ----- ----- -----
**Avg. Price: $8.20 **Avg. Price: $7.80 **Avg. Price: $9.20
- ----- ----- -----
* Average Cost is the total amount invested divided by number of
shares purchased.
** Average Price is the sum of the prices paid divided by number
of purchases.
*** Cumulative total of share prices used to compute average prices.
<PAGE>
Part C - OTHER INFORMATION
ITEM 23 - EXHIBITS
(a) Agreement and Declaration of Trust -1
(b) By-laws -1
(c) Instruments Defining Rights of Securities Holders
(1)Articles of Incorporation -1
(d) Investment Advisory Contracts -5
(e) Underwriting Contract
(1)Distribution Agreement -6
(f) Bonus or Profit Sharing Contracts -N/A
(g) Custodian Agreements -6
(h) Other Material Contracts
(1)Transfer Agency Agreement -6
(2)Fund Accounting Agreement -6
(i) Legal Opinion -6
(j) Other Opinions
Consent of Accountants -6
(k) Omitted Financial Statements -N/A
(l) Initial Capital Agreements
(1)Articles of Incorporation -1
(m) Rule 12b-1 Plan -6
(n) Financial Data Schedule
(1)Value & Growth Portfolio Financial Statements -Included
(2)Mid-Cap Focus Portfolio -Included
(o) Rule 18f-3 Plan -N/A
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
May 28th, 1996.
3. Incorporated by reference from Post-Effective Amendment
No. 3 to the Registration Statement on Form N-1A, filed on
August 13th, 1996.
4. Incorporated by reference from Post-Effective Amendment
No. 4 to the Registration Statement on Form N-1A, filed on
February 5th, 1997.
5. Incorporated by reference from Post-Effective Amendment
No. 5 to the Registration Statement on Form N-1A, filed on
November 26th, 1997.
6. Incorporated by reference from Post-Effective Amendment
No. 6 to the Registration Statement on Form N-1A, filed on
December 1, 1998.
Item 24. Persons Controlled by or Under Common Control with the Fund
None
Item 25. Indemnification
The information on indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement.
Item 26. Business and Other Connections of the Investment Adviser
Information regarding the business, profession, vocation or employment of a
substantial nature that each director, officer, and partner of the
Registrant and Advisor is involved with or has been involved in over the
last two years is listed in the Prospectus under the heading, "Who Runs
the Funds?" and in the Statement of Additional Information under the
headings, "Directors and Officers", and "Investment Advisor."
All other information regarding the Advisor is incorporated
by reference to its Form ADV as amended:
First Austin Capital Management, Inc. File No. 801-31075
Item 27. Principal Underwriters
Other than the Registrant, the Principal Underwriter for the Fund also
is the Principal Underwriter for the following investment companies:
Homestate Funds
Potomac Funds
Badgley Funds
Brazos Funds
Golf Associated Funds
Information regarding the Principal Underwriter, including compensation is
included under the heading, "Distribution of the Funds" in the Statement of
Additional Information.
Note: On 11/1/98, the Registrant changed distributors to Rafferty Capital
Markets.
Rafferty Capital Markets, Inc.
550 Mamaroneck Avenue
Harrison, NY 10528
Item 28. Location of Accounts and Records
The following entities prepare, maintain and preserve the records
required by Section 31(a) of the Investment Company Act of 1940
(the "1940 Act") for the Registrant. These services are provided to
the Registrant through written agreements between the parties to
the effect that such services will be provided to the Registrant
for such periods prescribed by the Rules and Regulations of the
Securities and Exchange Commission under the 1940 Act and such
records are the property of the entity required to maintain and
preserve such records and will be surrendered promptly on request:
Transfer Agent, Fund Accountant, and Custodian
Firstar Trust Company
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
Distributor
Rafferty Capital Markets, Inc.
550 Mamaroneck Avenue
Harrison, NY 10528
Item 29. Management Services
Not Applicable
Item 30. Undertakings
None
Signatures
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 the Registrant (certifies that
it meets all of the requirements for effectiveness of this registration
statement under rule 485(b) under the Securities Act and) 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 July 16, 1999.
TEXAS CAPITAL VALUE FUNDS, INC.
by: /s/Mark A. Coffelt
Mark A Coffelt
President
/s/Mark A. Coffelt President, Chief Investment Officer and Director
Mark A Coffelt Dec 1, 1998
/s/Edward Clark Director Dec 1, 1998
Edward D. Clark
/s/John Henry McDonald Director Dec 1, 1998
John Henry McDonald
/s/Janis Claflin Director Dec 1, 1998
Janis Claflin
/s/Brian T. Bares Secretary Dec 1, 1998
Brian T. Bares
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> Value & Growth Portfolio
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
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<INVESTMENTS-AT-VALUE> 41,263
<RECEIVABLES> 743
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,008
<PAYABLE-FOR-SECURITIES> 122
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<PAID-IN-CAPITAL-COMMON> 390
<SHARES-COMMON-STOCK> 58,157
<SHARES-COMMON-PRIOR> 821
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,908)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 41,635
<DIVIDEND-INCOME> 206
<INTEREST-INCOME> 22
<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> (273)
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<APPREC-INCREASE-CURRENT> 8,697
<NET-CHANGE-FROM-OPS> 1,848
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 24,765
<NUMBER-OF-SHARES-REDEEMED> (37,609)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (10,997)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,908)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 303
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 501
<PER-SHARE-NAV-BEGIN> 13.45
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.48
<EXPENSE-RATIO> 1.68
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<AVERAGE-NET-ASSETS> 47,089
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> Texas Capital Value Funds, Inc.
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<NAME> Mid-Cap Focus Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
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<INVESTMENTS-AT-VALUE> 1,098
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<TOTAL-ASSETS> 1,106
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<TOTAL-LIABILITIES> 4
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<PAID-IN-CAPITAL-COMMON> 1,162
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<SHARES-COMMON-PRIOR> 103
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<OVERDISTRIBUTION-GAINS> 0
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<NET-CHANGE-FROM-OPS> 157
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 241
<NUMBER-OF-SHARES-REDEEMED> (90)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 304
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10
<PER-SHARE-NAV-BEGIN> 7.76
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
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<EXPENSE-RATIO> 1.98
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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