PROSPECTUS
December 31, 1994
ICAP FUNDS, INC.
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
1-800-645-2457
ICAP FUNDS, INC. is an open-end, diversified, management
investment company, known as a mutual fund (the "Company"). The
Company is currently comprised of two separate portfolios, the
ICAP DISCRETIONARY EQUITY PORTFOLIO (the "Discretionary Equity
Portfolio") and the ICAP EQUITY PORTFOLIO (the "Equity Portfolio")
(hereinafter collectively referred to as the "Portfolios").
The investment objective of the Portfolios is to seek a
superior total return with only a moderate degree of risk. This
investment objective is relative to and measured against the
Standard & Poor's 500 Stock Index (the "S&P 500"); the Portfolios
seek to achieve a total return greater than the S&P 500 with an
equal or lesser degree of risk than the S&P 500. Both Portfolios
seek to achieve this investment objective primarily through the
capital appreciation of investments in equity securities of
domestic companies with market capitalizations of at least $500
million. The distinction between the two Portfolios is that the
Discretionary Equity Portfolio has the discretion to invest up to
35% of its total assets and, for defensive, temporary purposes, up
to 100% of its total assets, in short-term fixed income
securities; hence, the name "Discretionary" Equity Portfolio. The
Equity Portfolio, on the other hand, will not invest in short-term
fixed income securities for investment purposes, but rather
intends, under normal market conditions, to be virtually fully
invested at all times. The Portfolios are 100% "no-load." There
are no sales, redemption or 12b-1 fees.
This Prospectus sets forth concisely the information that
you should be aware of prior to investing in the Company. Please
read this Prospectus carefully and retain it for future reference.
Additional information regarding the Company is included in the
Statement of Additional Information dated December 31, 1994, which
has been filed with the Securities and Exchange Commission and is
incorporated in this Prospectus by reference. A copy of the
Company's Statement of Additional Information is available without
charge by writing to the Company at the address listed above or by
calling 1-800-645-2457.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Objective . . . . . . . . . . . . . . . . . . 4
Investment Adviser . . . . . . . . . . . . . . . . . . . 4
Purchases and Redemptions . . . . . . . . . . . . . . . 4
Shareholder Services . . . . . . . . . . . . . . . . . . 4
SUMMARY OF PORTFOLIO EXPENSES . . . . . . . . . . . . . . . . 5
Fee Tables . . . . . . . . . . . . . . . . . . . . . . . 5
Example . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . 6
DISCRETIONARY EQUITY PORTFOLIO . . . . . . . . . . . . . . . 6
Investment Objective . . . . . . . . . . . . . . . . . . 6
Investment Policies . . . . . . . . . . . . . . . . . . 6
EQUITY PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . 7
Investment Objective . . . . . . . . . . . . . . . . . . 7
Investment Policies . . . . . . . . . . . . . . . . . . 7
INVESTMENT TECHNIQUES AND RISKS . . . . . . . . . . . . . . . 7
Investment Grade Debt Securities . . . . . . . . . . . . 7
Short-Term Fixed Income Securities . . . . . . . . . . . 7
When-Issued Securities . . . . . . . . . . . . . . . . . 8
Illiquid Securities . . . . . . . . . . . . . . . . . . 8
ADRs . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Options and Futures Transactions . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . 9
Portfolio Turnover . . . . . . . . . . . . . . . . . . . 9
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . 10
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 10
HOW TO PURCHASE PORTFOLIO SHARES . . . . . . . . . . . . . . 11
Initial Investment - Minimum $100,000 . . . . . . . . . 11
Subsequent Investments - Minimum $1,000 . . . . . . . . 12
HOW TO REDEEM SHARES . . . . . . . . . . . . . . . . . . . . 12
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . 12
TAX-SHELTERED RETIREMENT PLANS . . . . . . . . . . . . . . . 13
Individual Retirement Account . . . . . . . . . . . . . 13
Simplified Employee Pension Plan . . . . . . . . . . . . 13
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DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT . . 13
PORTFOLIO EXPENSES . . . . . . . . . . . . . . . . . . . . . 14
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . 14
SHAREHOLDER REPORTS . . . . . . . . . . . . . . . . . . . . . 15
ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . 15
ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . 15
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . 16
COMPARISON OF INVESTMENT RESULTS . . . . . . . . . . . . . . 16
No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus
and the Statement of Additional Information, and if given or made,
such information or representations may not be relied upon as
having been authorized by the Company. This prospectus does not
constitute an offer to sell securities in any state to any person
to whom it is unlawful to make such offer in such state.
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SUMMARY
Investment Objective
The investment objective of both the Discretionary Equity
Portfolio and the Equity Portfolio, each being separate portfolios
of the Company, an open-end, diversified management investment
company, is to seek a superior total return with only a moderate
degree of risk. This investment objective is relative to and
measured against the S&P 500; the Portfolios seek to achieve a
total return greater than the S&P 500 with an equal or lesser
degree of risk than the S&P 500. The Portfolios seek to achieve
this investment objective primarily through the capital
appreciation of investments in equity securities of domestic
companies with market capitalizations of at least $500 million.
The distinction between the two Portfolios is that the
Discretionary Equity Portfolio may invest up to 35% of its total
assets and, for defensive, temporary purposes, up to 100% of its
total assets, in short-term fixed income securities, while the
Equity Portfolio intends, under normal market conditions, to be
virtually fully invested at all times. Each Portfolio's
investments are subject to market risk and the value of its shares
will fluctuate with changing market valuations of its portfolio
holdings. See "INVESTMENT OBJECTIVES AND POLICIES" and
"INVESTMENT TECHNIQUES AND RISKS."
Investment Adviser
Institutional Capital Corporation ("ICAP") is the investment
adviser to the Portfolios. ICAP was organized in 1970 and acts as
the investment adviser to individual and institutional clients
with investment portfolios of approximately $2.5 billion. See
"MANAGEMENT."
Purchases and Redemptions
Shares of the Portfolios are sold and redeemed at net asset
value, without the imposition of any sales or redemption charges.
The minimum initial investment required by both Portfolios is
$100,000. The minimum subsequent investment is $1,000. These
minimums may be changed or waived at any time at the discretion of
the Portfolios. See "HOW TO PURCHASE PORTFOLIO SHARES" and "HOW
TO REDEEM SHARES." Shares in one Portfolio may be exchanged for
shares in another Portfolio at their relative net asset values,
without any charge. See "EXCHANGE PRIVILEGE."
Shareholder Services
Questions regarding either of the Portfolios may be directed
to the Company at the address and telephone number on page 1 of
this Prospectus.
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SUMMARY OF PORTFOLIO EXPENSES
Fee Tables
Shareholder Transaction Expenses
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load Imposed on Redemptions NONE
Redemption Fees NONE
Exchange Fees NONE
Annual Operating Expenses (after waivers or reimbursements)
(as a percentage of average
net assets)
Discretionary Equity Equity
Portfolio Portfolio
Management Fees .80% .80%
12b-1 Fees NONE NONE
Other Expenses (Net of
Reimbursement) 0% 0%
TOTAL OPERATING EXPENSES .80% .80%
(after Waivers or
Reimbursements)
The Portfolios' investment adviser, ICAP, has agreed to waive
its management fee and/or reimburse each Portfolio's operating
expenses to the extent necessary to ensure that each Portfolio's
Total Operating Expenses do not exceed 0.80% of the Portfolio's
average daily net assets for the Portfolio's first 12 months of
operation. "Other Expenses" have been estimated as the Portfolios
did not begin operations until December 31, 1994, and are
presented net of reimbursements. Absent these reimbursements, the
Other Expenses and Total Operating Expenses for the Discretionary
Equity Portfolio are estimated to be 0.54% and 1.34%,
respectively; Other Expenses and Total Operating Expenses for the
Equity Portfolio are estimated to be 0.37% and 1.17%,
respectively. For additional information concerning fees and
expenses, see "MANAGEMENT."
There are certain charges associated with certain services
offered by the Portfolios, such as a service fee of $9.00 for
redemptions effected via wire transfer. See "HOW TO REDEEM
SHARES." Purchases and redemptions may also be made through
broker-dealers or others who may charge a commission or other
transaction fee for their services.
Example
You would pay the following expenses on a $1,000 investment,
assuming (i) 5% annual return, and (ii) redemption at the end of
each time period:
Discretionary Equity
Equity Portfolio Portfolio
1 Year ............. $ 8 $ 8
3 Years ............ $26 $26
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The Fee Tables, including the Example, are included to assist
you in understanding the various costs and expenses that an
investor in the Portfolios bears directly or indirectly. The
Example is based on the Total Operating Expenses specified in the
table above. The amounts in the Example may increase absent the
waivers or reimbursements. Please remember that the Example
should not be considered representative of past or future expenses
and that actual expenses may be greater or lesser than those
shown. The assumption in the Example of a 5% annual rate of
return is required by regulations of the Securities and Exchange
Commission ("SEC") applicable to all mutual funds. This return is
hypothetical and should not be considered representative of past
or future performance of the Portfolios.
INVESTMENT OBJECTIVES AND POLICIES
When making investment decisions, ICAP develops an economic
framework (including an interest rate, inflation, and business
cycle outlook) and analyzes strategic economic and/or industry
themes to identify appropriate investments. A variety of
proprietary research techniques and computer models are used to
search for issuers possessing best relative value based on
proprietary price/earnings projections and analysis of earnings
momentum. Furthermore, a clear catalyst, either stock-specific,
industry or economic, which ICAP believes will trigger significant
price appreciation must exist. ICAP also utilizes a wide variety
of external sources for investment information including
recognized strategists, economists, technical and fundamental
analysts, corporate executives, and industry sources.
For each investment, ICAP establishes an upside price target
and a downside risk potential. This strategy allows for
continuous monitoring of fundamental conditions and stock price
performance. Although ICAP typically expects the investment
potential of each investment to be realized over a nine to fifteen
month time period, it is not unusual for equities to be held for a
longer period if the potential is justified. Investments that
underperform the market are reviewed intensively. If the
risk/reward of a particular investment becomes unattractive or the
reasons for owning the security no longer appear valid, the
investment is typically sold expeditiously to avoid future
underperformance.
The investment objectives presented below may not be changed
without shareholder approval. Other investment restrictions which
may not be changed without shareholder approval are contained in
the Company's Statement of Additional Information. Since all
investments are subject to inherent market risks, there is no
assurance that these objectives will be realized. Except for each
Portfolio's investment objective and the investment restrictions
enumerated in the Company's Statement of Additional Information, a
Portfolio's policies may be changed without a vote of the
Portfolio's shareholders.
DISCRETIONARY EQUITY PORTFOLIO
Investment Objective
The Discretionary Equity Portfolio's investment objective is
to seek a superior total return with only a moderate degree of
risk. This investment objective is relative to and measured
against the S&P 500; the Portfolio seeks to achieve a total return
greater than the S&P 500 with an equal or lesser degree of risk
than the S&P 500. The distinction between the Discretionary
Equity Portfolio and the Equity Portfolio is that the
Discretionary Equity Portfolio may invest up to 35% of its total
assets and, for defensive, temporary purposes, up to 100% of its
total assets, in short-term fixed income securities while the
Equity Portfolio intends to be virtually fully invested in equity
securities at all times.
Investment Policies
The Discretionary Equity Portfolio will seek, under normal
market conditions, to achieve its investment objective by
investing its assets primarily in equity securities of domestic
companies with market capitalizations of at least $500 million,
which include but are not limited to common stocks; preferred
stocks;
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warrants to purchase common stocks or preferred stocks;
American Depository Receipts ("ADRs"); and securities convertible
into common or preferred stocks, such as convertible bonds and
debentures rated Baa or higher by Moody's Investors Service
("Moody's") or BBB or higher by Standard & Poor's ("S&P"), Duff &
Phelps, Inc. ("D&P") or Fitch Investors Service, Inc. ("Fitch").
In addition, the Discretionary Equity Portfolio may invest up to
35% of its total assets in short-term fixed income securities for
any purpose including pending investment or reinvestment, and may
invest up to 100% of its assets in such instruments as a temporary
defensive measure. However, under normal market conditions, at
least 65% of the value of its total assets will be invested in
equity securities.
EQUITY PORTFOLIO
Investment Objective
The Equity Portfolio's investment objective is to seek a
superior total return with only a moderate degree of risk. This
investment objective is relative to and measured against the S&P
500; the Portfolio seeks to achieve a total return greater than
the S&P 500 with an equal or lesser degree of risk than the S&P
500. The Equity Portfolio intends to be virtually fully invested
at all times with only nominal short-term fixed income positions
held at any time. If short-term fixed income securities are held,
however, it would be to meet anticipated redemption requests, pay
expenses and pending investment, which, in any case, would not
exceed 5% of the Equity Portfolio's total assets. Because the
Equity Portfolio will hold only nominal short-term fixed income
positions, it may be subject to greater risk in times of market
volatility than the Discretionary Equity Portfolio.
Investment Policies
The Equity Portfolio will seek to achieve its investment
objective by investing its assets primarily in equity securities
of domestic companies with market capitalizations of at least $500
million, which include but are not limited to common stocks;
preferred stocks; warrants to purchase common stocks or preferred
stocks; ADRs; and securities convertible into common or preferred
stocks, such as convertible bonds and debentures rated Baa or
higher by Moody's or BBB or higher by S&P, D&P or Fitch. The
Equity Portfolio will only hold short-term fixed income securities
to meet anticipated redemption requests, pay expenses and pending
investment. As a result, the Equity Portfolio's investment in
such securities generally will not exceed 5% of its total assets.
Thus, under normal market conditions, at least 65% of the value of
its total assets will be invested in equity securities.
INVESTMENT TECHNIQUES AND RISKS
Neither Portfolio will invest more than 5% of its net assets
in any one of the following types of investments: investment
grade debt securities; non-investment grade debt securities
(commonly referred to as "junk bonds"); warrants; illiquid
securities; unseasoned companies; and transactions in short sales
against the box.
Investment Grade Debt Securities
Investment grade debt securities include bonds rated Baa or
higher by Moody's and BBB or higher by S&P, D&P or Fitch. Bonds
rated BBB by S&P or Baa by Moody's, although considered investment
grade, have speculative characteristics and may be subject to
greater fluctuations in value than higher-rated bonds. For a more
extensive discussion of these ratings, see the Company's Statement
of Additional Information.
Short-Term Fixed Income Securities
The Discretionary Equity Portfolio may invest up to 35% of
its total assets and the Equity Portfolio may invest up to 5% of
its total assets in short-term fixed income securities. In
addition, when ICAP believes that market conditions warrant, the
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Discretionary Equity Portfolio may invest up to 100% of its assets
in such instruments for temporary defensive purposes. Short-term
fixed income securities must be rated at least A or higher by S&P,
Moody's or Fitch or A- or higher by D&P, and include without
limitation the following securities, each of which has a stated
maturity of one year or less from the date of purchase unless
otherwise indicated: U.S. government securities, including bills,
notes and bonds, differing as to maturity and rate of interest,
which are either issued or guaranteed by the U.S. Treasury or by
U.S. governmental agencies or instrumentalities; certificates of
deposit issued against funds deposited in a U.S. bank or savings
and loan association; bank time deposits, which are monies kept on
deposit with U.S. banks or savings and loan associations for a
stated period of time at a fixed rate of interest; bankers'
acceptances which are short-term credit instruments used to
finance commercial transactions; commercial paper and commercial
paper master notes (which are demand instruments without a fixed
maturity bearing interest at rates which are fixed to known
lending rates and automatically adjusted when such lending rates
change) rated A-1 or better by S&P, Prime-1 or better by Moody's,
Duff 2 or higher by D&P, or Fitch 2 or higher by Fitch; or
repurchase agreements entered into only with respect to
obligations of the U.S. government, its agencies or
instrumentalities. Repurchase agreements could involve certain
risks in the event of the default or insolvency of the other party
to the agreement, including possible delays or restrictions upon a
Portfolio's ability to dispose of the underlying securities.
When-Issued Securities
Each Portfolio may invest without limitation in securities
purchased on a when-issued or delayed delivery basis ("When-Issued
Securities"). Although the payment and terms of these securities
are established at the time the purchaser enters into the
commitment, these securities may be delivered and paid for at a
future date, generally within 45 days. Purchasing When-Issued
Securities allows a Portfolio to lock in a fixed price on a
security it intends to purchase. The Portfolios will segregate
and maintain cash, cash equivalents, U.S. government securities,
or other high-quality, liquid debt securities in an amount at
least equal to the amount of outstanding commitments for When-
Issued Securities at all times.
Illiquid Securities
Each Portfolio may invest up to 5% of the value of its net
assets in illiquid securities, which include, but are not limited
to, restricted securities (securities the disposition of which is
restricted under the federal securities laws), securities which
may be resold pursuant to Rule 144A under the Securities Act of
1993 and repurchase agreements with maturities in excess of seven
days. Risks associated with restricted securities include the
potential obligation to pay all or part of the registration
expenses in order to sell restricted securities. A considerable
period of time may elapse between the time of the decision to sell
a restricted security and the time a Portfolio may be permitted to
sell under an effective registration statement or otherwise. If,
during such a period, adverse conditions were to develop, the
Portfolio might obtain a less favorable price than that which
prevailed when it decided to sell. The Board of Directors of the
Company, or its delegate, has the ultimate authority to determine,
to the extent permissible under the federal securities laws, which
securities are liquid or illiquid. The Board of Directors has
adopted guidelines and delegated this determination to ICAP.
ADRs
Each of the Portfolios may invest in ADRs or other
instruments denominated in U.S. dollars. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing
ownership of the underlying foreign security and denominated in
U.S. dollars. Some institutions issuing ADRs may not be sponsored
by the issuer. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is
required to provide under its contractual arrangements with the
issuer, including reliable financial statements.
Investments in securities of foreign issuers involve risks
which are in addition to the usual risks inherent in domestic
investment. In many countries, there is less publicly available
information about issuers than is available in the reports and
ratings published about companies in the United States.
Additionally, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards. Other
<PAGE>
risks inherent in foreign investment include expropriation,
confiscatory taxation, withholding taxes on dividends and
interest, less extensive regulation of foreign brokers, securities
markets and issuers, costs incurred in conversions between
currencies, the possibility of delays in settlement in foreign
securities markets, limitations on the use or transfer of assets
(including suspension of the ability to transfer currency from a
given country), the difficulty of enforcing obligations in other
countries, diplomatic developments, and political or social
instability. Foreign economies may differ favorably or
unfavorably from the U.S. economy in various respects, and many
foreign securities are less liquid and their prices are more
volatile than comparable U.S. securities. From time to time,
foreign securities may be difficult to liquidate rapidly without
adverse price effects. Certain costs attributable to foreign
investing, such as custody charges and brokerage costs, are higher
than those attributable to domestic investing.
Options and Futures Transactions
Each of the Portfolios may engage in options and futures
transactions. A Portfolio's options and futures transactions may
include instruments such as stock index options and futures
contracts. Such transactions may be used for several reasons,
including hedging unrealized portfolio gains. The Portfolios will
only engage in futures and options transactions which must,
pursuant to regulations promulgated by the Commodity Futures
Trading Commission (the "CFTC"), constitute bona fide hedging or
other permissible risk management transactions and will not enter
into such transactions if the sum of the initial margin deposits
and premiums paid for unexpired options exceed 5% of the
Portfolio's total assets. In addition, neither Portfolio will
enter into options and futures transactions if more than 30% of
the Portfolio's net assets would be committed to such instruments.
A Portfolio may hold a futures or options position until its
expiration, or it can close out such a position before then at
current value if a liquid secondary market is available. If a
Portfolio cannot close out a position, it may suffer a loss apart
from any loss or gain experienced at the time the Portfolio
decided to close the position. When required by guidelines of the
SEC or the CFTC, each Portfolio will set aside permissible liquid
assets in a segregated account to secure its potential obligations
under its futures or options positions. Such liquid assets may
include cash, U.S. government securities and high grade liquid
debt securities. The ability of the Portfolios to effectively use
options and futures is largely dependent upon ICAP's ability to
correctly use such instruments which may involve different skills
than are associated with securities generally.
Lending of Portfolio Securities
Each Portfolio may lend its portfolio securities, up to 33
1/3% of its total assets, to broker-dealers or institutional
investors. The loans will be secured continuously by collateral
equal at least to the value of the securities lent by "marking to
market" daily. The Portfolios will continue to receive the
equivalent of the interest or dividends paid by the issuer of the
securities lent and will retain the right to call, upon notice,
the lent securities. The Portfolios may also receive interest on
the investment of the collateral or a fee from the borrower as
compensation for the loan. The Portfolios may pay reasonable
custodial and administrative fees in connection with a loan.
While there may be delays in recovery or even loss of rights in
the collateral should the borrower fail financially, ICAP will
review the credit worthiness of the entities to which loans are
made to evaluate those risks.
Portfolio Turnover
Each Portfolio anticipates that its portfolio turnover rate
will generally not exceed 150% and is expected to be between 100
and 125%. A turnover rate of 100% would occur, for example, if
all of the securities held by a Portfolio were replaced within one
year. In the event a Portfolio were to have a turnover rate of
100% or more in any year, it would result in the payment by the
Portfolio of increased brokerage costs and could result in the
payment by shareholders of increased taxes on realized investment
gains.
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INVESTMENT RESTRICTIONS
The Company has adopted several restrictions on the
investments and other activities of the Portfolios that may not be
changed without shareholder approval. For example, neither
Portfolio may:
(1) With respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed
by the U.S. government or any agency or instrumentality thereof)
if, as a result, (i) more than 5% of the Portfolio's total assets
would be invested in securities of that issuer, or (ii) the
Portfolio would hold more than 10% of the outstanding voting
securities of that issuer.
(2) Borrow money, except that the Portfolio may (i) borrow
money from banks for temporary or emergency purposes (but not for
leverage or the purchase of investments) and (ii) make other
investments or engage in other transactions permissible under the
Investment Company Act of 1940 which may involve a borrowing,
provided that the combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Portfolio's total assets (including the
amount borrowed), less the Portfolio's liabilities (other than
borrowings).
For additional investment restrictions, see the Company's
Statement of Additional Information.
MANAGEMENT
Under the laws of the State of Maryland, the Board of
Directors of the Company (the "Board of Directors") is responsible
for managing its business and affairs. The Company has entered
into an investment advisory agreement with ICAP dated December 30,
1994 (the "Investment Advisory Agreement") pursuant to which ICAP
manages each Portfolio's investments and business affairs, subject
to the supervision of the Company's Board of Directors. The Board
of Directors also oversees duties required by applicable state and
federal law.
ICAP, an independent investment advisory firm, was founded in
1970 and is located at 225 West Wacker Drive, Suite 2400, Chicago,
IL 60606. Under the Investment Advisory Agreement, each Portfolio
compensates ICAP for its investment advisory services at the
annual rate of 0.80% of the Portfolio's average daily net assets.
The advisory fee is higher than that paid by most investment
companies. The Company's Board of Directors believes that this fee
is reasonable in light of each Portfolio's investment objective.
ICAP has agreed to waive its management fee and/or reimburse each
Portfolio's operating expenses to the extent necessary to ensure
that each Portfolio's Total Operating Expenses do not exceed 0.80%
of the Portfolio's average daily net assets for the Portfolio's
first 12 months of operation. Any such waiver or reimbursement
will have the effect of lowering the overall expense ratio for the
Portfolio and increasing the Portfolio's overall return to
investors at the time any such amounts were waived and/or
reimbursed.
The investment decisions for each Portfolio are made through
a team approach, with all of the ICAP investment professionals
contributing to the process. Each of the officers and other
investment professionals of ICAP has developed an expertise in at
least one functional investment area, including equity research,
strategy, fixed income analysis, quantitative research, technical
research, and trading. A key element in the decision making
process is a formal investment committee meeting generally held
each business day and attended by all the investment profes-
sionals. At this meeting, a comprehensive review of ICAP's
investment position is undertaken. Pertinent information from
outside sources is shared and incorporated into the investment
outlook. The investment strategy, each asset sector, and each
individual security holding are reviewed to verify their continued
appropriateness. Investment recommendations are presented to the
committee for decisions.
ICAP provides continuous advice and recommendations
concerning each Portfolio's investments, and is responsible for
selecting the broker-dealers who execute the portfolio trans-
actions. In executing such transactions, ICAP seeks to obtain the
best net results for the Portfolios. ICAP provides office space
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for the Company and pays the salaries, fees and expenses of all
officers and directors of the Company who are interested persons
of ICAP. While ICAP has not previously provided investment advice
to a registered investment company, ICAP serves as investment
adviser to pension and profit-sharing plans, and other
institutional and private investors. As of September 30, 1994,
ICAP had approximately $2.5 billion under management. Mr. Robert
H. Lyon, President of ICAP, owns shares representing 51% of the
voting rights of ICAP.
HOW TO PURCHASE PORTFOLIO SHARES
Shares of the Portfolios are sold on a continual basis at the
next offering price after receipt of the order by the Portfolio.
This price is the net asset value of the Portfolio and is
determined as of the close of trading (currently 4:00 p.m.,
Eastern Standard Time) on each day the New York Stock Exchange is
open. See "DETERMINATION OF NET ASSET VALUE." The price at which
your purchase will be effected is based on the Portfolio's net
asset value next determined after the Portfolio receives your
request in proper form. A confirmation indicating the details of
the transaction will be sent to you promptly. Shares are credited
to your account, but certificates are not issued. However, you
will have full shareholder rights.
The minimum initial investment required by both Portfolios is
$100,000. Subsequent investments may be made by mail or wire with
a minimum subsequent investment of $1,000. The Portfolios reserve
the right to change or waive these minimums at any time.
Shareholders will be given at least 30 days' notice of any
increase in the minimum dollar amount of subsequent investments.
If you purchase shares of either Portfolio by check and
request the redemption of such shares within fifteen days of the
initial purchase, the Portfolio will not forward the portion of
your redemption proceeds which has not been collected by the
Portfolio. This is a security precaution only and does not affect
your investment.
Initial Investment - Minimum $100,000
You may purchase shares of the Portfolios by completing an
application form and mailing it along with a check or money order
payable to "ICAP Funds" to: ICAP Funds, Inc., c/o Supervised
Service Company, Inc. at either P.O. Box 419330, Kansas City, MO
64141-6336 or 811 Main Street, Kansas City, MO 64105-2005.
Purchases must be made in U.S. dollars and all checks must be
drawn on a U.S. bank. If your check does not clear, you will be
charged a $20 service fee. You will also be responsible for any
losses suffered by the Portfolios as a result. All applications
to purchase shares of the Portfolios are subject to acceptance by
the Company and are not binding until so accepted. The Company
reserves the right to decline to accept a purchase order
application in whole or in part.
Alternatively, you may place an order to purchase shares of
the Portfolios through a broker-dealer. Broker-dealers may charge
a transaction fee for placing orders to purchase Portfolio shares.
It is the responsibility of the broker-dealer to place the order
with the appropriate Portfolio on a timely basis.
In addition, you may purchase shares of the Portfolios by
wire. To establish a new account by wire transfer, please call
the Transfer Agent at 1-800-645-2457. The Transfer Agent will
assign an account number to you at that time. Funds should be
wired through the Federal Reserve System as follows:
United Missouri Bank
ABA Number 101000 695
For credit to ICAP Funds, Inc.
Account Number 98-7060-765-4
For further credit to ICAP Funds, Inc.
(investor account number)
(name or account registration)
(social security or tax identification number)
(identiy which Portfolio to purchase)
<PAGE>
The Portfolios are not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire system.
Subsequent Investments - Minimum $1,000
Additions to your account in amounts of $1,000 or more may be
made by mail or by wire . When making an additional purchase by
mail, enclose a check payable to "ICAP Funds" along with the
Additional Investment Form provided on the lower portion of your
account statement. To make an additional purchase by wire, please
follow the instructions listed above.
HOW TO REDEEM SHARES
You may request redemption of part or all of your Portfolio
shares at any time. The price you receive will be the net asset
value next determined after the Portfolio receives your request in
proper form. Once your redemption request is received in proper
form, the Portfolio normally will mail or wire your redemption
proceeds the next business day and, in any event, no later than
seven days after receipt of a redemption request. However, the
Portfolio may hold payment of that portion of an investment which
was made by check which has not been collected. Redemptions may
also be made through broker-dealers who may charge a commission or
other transaction fee.
To request redemption of Portfolio shares, you must furnish a
written, unconditional request to: ICAP Funds, Inc., c/o
Supervised Service Company, Inc. at either P.O. Box 419336, Kansas
City, MO 64141-6336 or 811 Main Street, Kansas City, MO 64105-
2005. The request must (i) be signed exactly as the shares are
registered, including the signature of each owner and (ii) specify
the number of Portfolio shares or dollar amount to be redeemed.
Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or
attorneys-in-fact. Signature guarantees are required for: (i)
redemption requests over $25,000, (ii) redemption requests to be
mailed or wired to a person other than the registered owner(s) of
the shares, and (iii) redemption requests to be mailed or wired to
other than the address of record. A signature guarantee may be
obtained from any eligible guarantor institution, as defined by
the SEC. These institutions include banks, savings associations,
credit unions, brokerage firms, and others. Redemption proceeds
may be wired to a commercial bank authorized on your account
application. You will be charged a $9.00 service fee for wire
redemptions.
Your account may be terminated by a Portfolio on not less
than 30 days' notice if, at the time of any redemption of shares
in your account, the value of the remaining shares in the account
falls below $10,000. Upon any such termination, a check for the
proceeds of redemption will be sent to you within seven days of
the redemption.
EXCHANGE PRIVILEGE
You may exchange your shares in a Portfolio for shares in any
other Portfolio of the Company at any time by written request.
The value of the shares to be exchanged and the price of the
shares being purchased will be the net asset value next determined
after receipt of instructions for exchange. An exchange from one
Portfolio to another is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will realize a
capital gain or loss. This is not a tax-free exchange. Exchange
requests should be directed to: ICAP Funds, Inc., c/o Supervised
Service Company, Inc. at either P.O. Box 419336, Kansas City, MO
64141-6336 or 811 Main Street, Kansas City, MO 64105-2005.
Exchange requests may be subject to limitations, including those
relating to frequency, that may be established from time to time
to ensure that the exchanges do not disadvantage the Portfolios or
their investors. The Company reserves the right to modify or
terminate the exchange privilege upon 60 days' written notice to
each shareholder prior to the modification or termination taking
effect.
<PAGE>
TAX-SHELTERED RETIREMENT PLANS
The Company offers through its Custodian, United Missouri
Bank, n.a., certain qualified retirement plans for adoption by
individuals and employers. Participants in these plans can
accumulate shares of a Portfolio on a tax deferred basis.
Contributions to these plans are tax deductible as provided by law
and earnings are tax deferred until distributed.
Individual Retirement Account ("IRA")
Individuals who receive compensation or earned income, even
if they are active participants in a qualified retirement plan (or
certain similar retirement plans), may establish their own tax-
sheltered Individual Retirement Account ("IRA"). The Portfolios
offer a prototype IRA plan which may be adopted by individuals to
establish a new IRA or to roll-over funds from an existing IRA.
There may be a charge for establishing an IRA account and there is
also an annual maintenance fee.
Earnings on amounts held in an IRA are not taxed until
withdrawal. However, the amount of deduction, if any, allowed for
IRA contributions is limited for individuals who are active
participants in an employer-sponsored retirement plan and whose
incomes exceed specific limits.
Simplified Employee Pension Plan ("SEP/IRA")
The Portfolios also offer a simplified employee pension
("SEP") plan for employers, including self-employed individuals,
who wish to purchase Portfolio shares with tax-deductible
contributions. Under the SEP plan, employer contributions are
made directly to the IRA accounts of eligible participants.
A complete description of the above plans, as well as a
description of the applicable service fees may be obtained by
calling 1-800-645-2457 or writing to the Company at 225 West
Wacker Drive, Suite 2400, Chicago, Illinois 60606. Please note
that early withdrawals from a retirement plan may result in
adverse tax consequences.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT
Each Portfolio intends to operate as a "Regulated Investment
Company" under Subchapter M of the Internal Revenue Code, and
therefore will not be liable for federal income taxes to the
extent earnings are distributed on a timely basis.
For federal income tax purposes, all dividends paid by the
Portfolios and net realized short-term capital gains are taxable
as ordinary income whether reinvested or received in cash unless
you are exempt from taxation or entitled to a tax deferral.
Distributions paid by a Portfolio from net realized long-term
capital gains, whether received in cash or reinvested in
additional shares, are taxable as capital gain. The capital gain
holding period is determined by the length of time the Portfolio
has held the security and not the length of time you have held
shares in the Portfolio. Investors are informed annually as to
the amount and nature of all dividends and capital gains paid
during the prior year. Such gains and dividends may also be
subject to state or local taxes. If you are not required to pay
taxes on your income, you are generally not required to pay
federal income taxes on the amounts distributed to you.
Dividends are usually distributed quarterly, and capital
gains, if any, are usually distributed annually in December. When
a dividend or capital gain is distributed, a Portfolio's net asset
value will decrease by the amount of the payment. A dividend or
capital gains distribution received shortly after the purchase of
shares reduces the net asset value of shares by the amount of the
<PAGE>
dividend or distribution and, although in effect a return of
capital, will be subject to income taxes. All dividends or
capital gains distributions will automatically be reinvested in
shares of the Portfolios at the then prevailing net asset value
unless an investor specifically requests that either dividends or
capital gains or both be paid in cash. The election to receive
dividends or reinvest them may be changed by writing to: ICAP
Funds, Inc., c/o Supervised Service Company, Inc. at either P.O.
Box 419336, Kansas City, MO 64141-6336 or 811 Main Street, Kansas
City, MO 64105-2005. Such notice must be received at least 1 day
prior to the record date of any dividend or capital gain
distribution.
If you do not furnish a Portfolio with your correct social
security number or employer identification number, the Portfolio
is required by federal law to withhold federal income tax from
your distributions and redemption proceeds at a rate of 31%.
This section is not intended to be a full discussion of
federal income tax laws and the effect of such laws on you. There
may be other federal, state, or local tax considerations
applicable to a particular investor. You are urged to consult
your own tax advisor.
PORTFOLIO EXPENSES
Each Portfolio is responsible for its own expenses,
including, without limitation: interest charges; taxes; brokerage
commissions; organizational expenses; expenses of registering or
qualifying shares for sale with the states and the SEC; expenses
of issue, sale, repurchase or redemption of shares; expenses of
printing and distributing prospectuses to existing shareholders;
charges of custodians; expenses for accounting, administrative,
audit, and legal services; fees for directors who are not
interested persons of ICAP; expenses of fidelity bond coverage and
other insurance; expenses of indemnification; extraordinary
expenses; and costs of shareholder and director meetings.
DETERMINATION OF NET ASSET VALUE
Each Portfolio's net asset value per share is determined as
of the close of trading (currently 4:00 p.m. Eastern Standard
Time) on each day the New York Stock Exchange is open for
business. A Portfolio's net asset value may not be calculated on
days during which a Portfolio receives no orders to purchase
shares and no shares are tendered for redemption. Net asset value
is calculated by taking the fair value of the Portfolio's total
assets, including interest or dividends accrued, but not yet
collected, less all liabilities, and dividing by the total number
of shares outstanding. The result, rounded to the nearest cent,
is the net asset value per share. In determining net asset value,
expenses are accrued and applied daily and securities and other
assets for which market quotations are available are valued at
market value. Common stocks and other equity-type securities are
valued at the last sales price on the national securities exchange
or Nasdaq on which such securities are primarily traded; however,
securities traded on a national securities exchange or Nasdaq for
which there were no transactions on a given day or securities not
listed on an exchange or Nasdaq are valued at the most recent bid
prices. Debt securities are valued by a pricing service that
utilizes electronic data processing techniques to determine values
for normal institutional-sized trading units of debt securities
without regard to the existence of sale or bid prices when such
values are believed to more accurately reflect the fair market
value of such securities; otherwise, actual sale or bid prices are
used. Any securities or other assets for which market quotations
are not readily available are valued at fair value as determined
in good faith by the Board of Directors. Debt securities having
remaining maturities of 60 days or less when purchased are valued
by the amortized cost method when the Board of Directors
determines that the fair market value of such securities is their
amortized cost. Under this method of valuation, a security is
initially valued at its acquisition cost, and thereafter,
amortization of any discount or premium is assumed each day,
regardless of the impact of fluctuating interest rates on the
market value of the security. Regardless of the method employed
to value a particular security, all valuations are subject to
<PAGE>
review by ICAP; ICAP may determine the appropriate value of a
security whenever the value as calculated is significantly
different from the previous day's calculated value.
SHAREHOLDER REPORTS
You will be provided at least semi-annually with a report
showing the Portfolio or Portfolios' holdings and annually after
the close of the Company's fiscal year, which ends December 31,
with an annual report containing audited financial statements. An
individual account statement will be sent to you by the Transfer
Agent after each purchase or redemption of Portfolio shares as
well as on a monthly basis. You will also receive an annual
statement after the end of the calendar year listing all
transactions in shares of the Portfolios during such year.
If you have questions about your account(s), you should call
the Portfolios' Transfer Agent at 1-800-645-2457. Investors who
have general questions about the Portfolios or the Company or
desire additional information should write to ICAP Funds, Inc.,
225 West Wacker Drive, Suite 2400, Chicago, Illinois 60606.
ORGANIZATION
ICAP Funds, Inc. (the "Company") was organized as a Maryland
corporation on November 1, 1994. The Company is authorized to
issue 300,000,000, $.01 par value shares, in addition to the
100,000,000, $.01 par value shares of the Discretionary Equity
Portfolio and the 100,000,000, $.01 par value shares of the Equity
Portfolio. The assets belonging to the Discretionary Equity
Portfolio and the Equity Portfolio will be held separately by the
Custodian, and if the Company issues additional series, each
additional series will be held separately. In effect, each series
will be a separate portfolio.
Each share, irrespective of series, is entitled to one vote
on all questions, except that certain matters must be voted on
separately by the series of shares affected, and matters affecting
only one series are voted upon only by that series. Shares have
non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Directors can
elect all of the Directors if they choose to do so and, in such
event, the holders of the remaining shares will not be able to
elect any person or persons to the Board of Directors.
The Company will not hold annual shareholders' meetings
except when required by the Investment Company Act of 1940. The
Company has adopted procedures in its By-laws for the removal of
directors by the shareholders as well as by the Board of
Directors. As of December 9, 1994, ICAP owned a controlling
interest in the Company.
ADMINISTRATOR
Pursuant to an Administration Agreement, Sunstone Financial
Group, Inc. (the "Administrator"), 207 East Buffalo Street, Suite
400, Milwaukee, Wisconsin 53202, calculates the daily net asset
value of each Portfolio, prepares and files all federal income and
excise tax returns and state income tax returns (other than those
required to be made by the Portfolios' Custodian or the Transfer
Agent), oversees the Portfolios' insurance relationships,
participates in the preparation of the registration statement,
proxy statements and reports, prepares compliance filings relating
to the registration of the securities of the Portfolios pursuant
to state securities laws, compiles data for and prepares notices
to the SEC, prepares the financial statements for the annual and
semi-annual reports to the SEC and current investors, monitors the
Portfolios' expense accruals and performs securities valuations,
monitors the Portfolios' status as a regulated investment company
under Subchapter M of the Internal Revenue Code and monitors
compliance with the Portfolios' investment policies and
restrictions, from time to time, and generally assists in the
Portfolios' administrative operations. The Administrator, at its
own expense and without reimbursement from the Portfolios,
furnishes office space and all necessary office facilities,
equipment, supplies and clerical and executive personnel for
<PAGE>
performing the services required to be performed by it under the
Administration Agreement. For the foregoing, the Administrator
receives from the Portfolios an aggregate fee, computed daily and
payable monthly based on each Portfolio's aggregate average net
assets at the annual rate of .20 of 1% on the first $50,000,000,
.175 of 1% on the next $50,000,000, .10 of 1% on the next
$150,000,000, .075 of 1% on the next $250,000,000 and .05 of 1% on
average net assets in excess of $500,000,000, subject to an annual
minimum of $120,000, plus out of pocket expenses.
CUSTODIAN AND TRANSFER AGENT
United Missouri Bank, n.a., 928 Grand Avenue, Kansas City, MO
64141, acts as Custodian of each Portfolio's assets. Supervised
Service Company, Inc., 811 Main Street, Kansas City, MO 64105-2005
acts as dividend-disbursing and Transfer Agent for the Portfolios.
COMPARISON OF INVESTMENT RESULTS
Each Portfolio may from time to time compare its investment
results to various passive indices or other mutual funds and cite
such comparisons in reports to shareholders, sales literature, and
advertisements. The results may be calculated on the basis of
average annual total return, total return, or cumulative total
return.
Average annual total return and total return figures assume
the reinvestment of all dividends and measure the net investment
income generated by, and the effect of, any realized and unrealized
appreciation or depreciation of the underlying investments in each
Portfolio over a specified period of time. Average annual total
return figures are annualized and therefore represent the average
annual percentage change over the specified period. Total return
figures are not annualized and represent the aggregate percentage
or dollar value change over the period. Cumulative total return
simply reflects a Portfolio's performance over a stated period of
time.
Average annual total return, total return and cumulative
total return are based upon the historical results of each
Portfolio and are not necessarily representative of the future
performance of the respective Portfolio. Additional information
concerning the performance of each Portfolio appears in the
Statement of Additional Information.
The Company reserves the right to change any of the
policies, practices and procedures described in this
prospectus with respect to either Portfolio, including
the Statement of Additional Information, without
shareholder approval except in those instances where
shareholder approval is expressly required.
<PAGE>
DIRECTORS
Robert H. Lyon
Pamela H. Conroy
Gary S. Maurer
Dr. James A. Gentry
Ms. Barbara A. Chiesa
Mr. Harold W. Nations
OFFICERS
Robert H. Lyon
President
Pamela H. Conroy
Vice President and Treasurer
Donald D. Niemann
Vice President and Secretary
INVESTMENT ADVISER
Institutional Capital Corporation
225 West Wacker Drive, Suite 2400
Chicago, IL 60606
CUSTODIAN
United Missouri Bank, n.a.
928 Grand Avenue
Kansas City, MO 64141
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Supervised Service Company, Inc.
811 Main Street
Kansas City, MO 64105-2005
ADMINISTRATOR
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
AUDITORS
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
CAG-ICAP Prospectus
ICAP-PRO.CAG
12/30/94
