As filed with the Securities and Exchange Commission on April 29, 1996
Securities Act Registration No. 33-86006
Investment Company Act Registration No. 811-8850
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[X]
Amendment No. 6 [X]
ICAP FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 424-9100
Pamela H. Conroy
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
(Name and Address of Agent for Service)
Copies to:
Carol A. Gehl
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Registrant has registered an indefinite amount of securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940;
the Registrant's Rule 24f-2 Notice for the year ended December 31,
1996 will be filed on or before February 28, 1997.
It is proposed that this filing will become effective (check
appropriate box).
[ ] immediately upon filing pursuant to paragraph
(b) of Rule 485
[X] on April 30, 1996 pursuant to paragraph (b) of
Rule 485
[ ] 60 days after filing pursuant to paragraph
(a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule
485
[ ] 75 days after filing pursuant to paragraph
(a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule
485
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the
Prospectus and the Statement of Additional Information of the
responses to the Items of Parts A and B of Form N-1A).
Caption or Subheading in
Prospectus or Statement
Item No. on Form N-1A of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Summary; Summary of Portfolio
Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description of Organization; Investment
Registrant Objectives and Policies;
Investment Techniques and
Risks; Investment Restrictions
5. Management of the Fund Management; Portfolio Expenses
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other Dividends, Capital Gain
Securities Distributions and Tax
Treatment; Organization
7. Purchase of Securities Being How to Purchase Shares;
Offered Determination of Net Asset
Value; Exchange Privilege
8. Redemption or Repurchase How to Redeem Shares;
Determination of Net Asset
Value; Exchange Privilege
9. Pending Legal Proceedings **
<PAGE>
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Included in Prospectus under
History the heading Organization
13. Investment Objectives and Investment Restrictions;
Policies Investment Policies and
Techniques
14. Management of the Fund Directors and Officers
15. Control Persons and Principal Principal Shareholders;
Holders of Securities Directors and Officers;
Investment Adviser
16. Investment Advisory and Other Investment Adviser; Management
Services (in Prospectus); Custodian;
Transfer Agent and Dividend-
Disbursing Agent; Independent
Accountants
17. Brokerage Allocation and Other Portfolio Transactions and
Practices Brokerage
18. Capital Stock and Other Included in Prospectus under
Securities the heading Organization
19. Purchase, Redemption and Included in Prospectus under
Pricing of the headings How to
Securities Being Offered Purchase Shares;
Determination of Net Asset
Value; How to Redeem
Shares; Exchange Privilege; and
in the Statement of Additional
Information under the
heading Investment Adviser
20. Tax Status Included in Prospectus under
the heading Dividends,
Capital Gain Distributions and
Tax Treatment
21. Underwriters **
22. Calculations of Performance Information
Performance Data
23. Financial Statements Financial Statements
- - -----------------------------------
* The information called for by this item is contained in the
Annual Report of the Registrant.
** Answer negative or inapplicable.
PROSPECTUS
April 30, 1996
ICAP Funds
Discretionary
Equity
Portfolio
Equity
Portfolio
Table of Contents
page
SUMMARY 2
Investment Objective 2
Investment Adviser 2
Purchases and Redemptions 2
Shareholder Services 2
SUMMARY OF PORTFOLIO EXPENSES 3
Fee Tables 3
Example 4
FINANCIAL HIGHLIGHTS 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 8
Short-Term Fixed Income Securities 8
When-Issued Securities 8
Illiquid Securities 8
ADRs 9
Options and Futures Transactions 9
Lending of Portfolio Securities 10
Portfolio Turnover 10
INVESTMENT RESTRICTIONS 10
MANAGEMENT 11
HOW TO PURCHASE SHARES 12
Initial Investment -
Minimum $100,000 12
Subsequent Investments -
Minimum $1,000 13
HOW TO REDEEM SHARES 13
Written Redemption 13
Signature Guarantees 13
EXCHANGE PRIVILEGE 14
TAX-SHELTERED RETIREMENT PLANS 14
Individual Retirement Account 14
Simplified Employee Pension Plan 14
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND
TAX TREATMENT 15
PORTFOLIO EXPENSES 15
DETERMINATION OF NET ASSET VALUE 16
SHAREHOLDER REPORTS 16
ORGANIZATION 17
ADMINISTRATOR AND FUND ACCOUNTANT 17
CUSTODIAN AND TRANSFER AGENT 18
COMPARISON OF INVESTMENT RESULTS 18
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.
PROSPECTUS
April 30, 1996
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 temporary defensive purposes, up
to 100% of its total assets, in cash and short-term fixed income securities;
hence, the name "Discretionary" Equity Portfolio. The Equity Portfolio, on the
other hand, will not invest in cash or 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 April 30, 1996, 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.
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 temporary defensive purposes, up to 100%
of its total assets, in cash and 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
$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 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.
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 0.80% 0.80%
12b-1 Fees NONE NONE
Other Expenses (Net of Reimbursement) 0% 0%
----- -----
TOTAL OPERATING EXPENSES 0.80% 0.80%
===== =====
(after Waivers or Reimbursements)
The Portfolios' investment adviser, ICAP, has voluntarily 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. Absent these
reimbursements, the Other Expenses and Total Operating Expenses for the
Discretionary Equity Portfolio would have been 0.76% and 1.56%, respectively;
Other Expenses and Total Operating Expenses for the Equity Portfolio would have
been 0.64% and 1.44%, 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 $7.00 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
5 Years $ 46 $ 46
10 Years $102 $102
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.
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants. Their report is included in
the Portfolios' Annual Report for the year ended December 31, 1995. The
Financial Highlights should be read in conjunction with the Financial Statements
and related notes included in the Annual Report, a copy of which may be obtained
without charge by calling or writing to the Company.
DISCRETIONARY
EQUITY EQUITY
(For a share outstanding throughout the year) PORTFOLIO<F1> PORTFOLIO<F1>
Net asset value, beginning of year $20.00 $20.00
Income from investment operations:
Net investment income 0.31 0.28
Net realized and unrealized gain on investments 6.70 7.45
------ ------
Total income from investment operations 7.01 7.73
------ ------
Less distributions:
From net investment income (0.31) (0.28)
From net realized gain on investments (1.27) (1.41)
In excess of book net realized gain on investments (0.01) (0.01)
------ ------
Total distributions (1.59) (1.70)
------ ------
Net asset value, end of year $25.42 $26.03
====== ======
Total return 35.21% 38.85%
Supplemental data and ratios:
Net assets, end of year (in thousands) $37,362 $46,788
Ratio of expenses to average net assets <F2> 0.80% 0.80%
Ratio of net investment income to
average net assets <F2> 1.71% 1.49%
Portfolio turnover rate 102% 105%
<F1> Commencement of operations January 1, 1995.
<F2> Net of waivers by ICAP. Without waivers of expenses, the ratio of expenses
to average net assets would have been 1.56% and 1.44%, and the ratio of net
investment income to average net assets would have been 0.95% and 0.85% for the
Discretionary Equity and Equity Portfolios, respectively.
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 the 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 in a definable time period must exist. In order
to enhance its internal research, 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 temporary defensive purposes, up to 100% of its
total assets, in cash and 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;
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 cash and 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 cash or short-term fixed income positions held at any time. If
cash or 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, generally would not exceed 5% of the Equity Portfolio's
total assets. The Equity Portfolio may, however, temporarily exceed this 5%
limitation, but only in circumstances pending investment and only for short
periods of time. Because the Equity Portfolio will hold only nominal cash and
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. Under normal market conditions, at least 65% of the
value of its total assets will be invested in such equity securities. The Equity
Portfolio will only hold cash or 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.
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 generally not invest more than 5% of its total assets
in cash and short-term fixed income securities. In addition, when ICAP believes
that market conditions warrant, the 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. Such securities involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date.
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 only be resold pursuant to Rule 144A under the
Securities Act of 1933; 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 U. S. Additionally, foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards. Other 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 which are
sometimes referred to as derivative 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 exceeds 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. For a further discussion of options and
futures transactions, please see the Statement of Additional Information.
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's historical portfolio turnover rate is listed under "Financial
Highlights."Under normal market conditions, 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 has 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.
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, Illinois 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
voluntarily 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. 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 professionals. 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 transactions. In executing such transactions, ICAP seeks to obtain the
best net results for the Portfolios. ICAP provides office space for the Company
and pays the salaries, fees and expenses of all officers and directors of the
Company who are interested persons of ICAP. ICAP also serves as investment
adviser to pension and profit-sharing plans, and other institutional and private
investors. As of April 1, 1996, ICAP had approximately $5 billion under
management. Mr. Robert H. Lyon, President of ICAP, owns shares representing 51%
of the voting rights of ICAP.
HOW TO PURCHASE SHARES
Shares of the Portfolios are sold on a continuous 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 each Portfolio is $100,000.
Subsequent investments may be made by mail or wire with a minimum subsequent
investment of $1,000. Each Portfolio reserves 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 purchases.
If you purchase shares of either Portfolio by check and request the redemption
of such shares within 15 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 and
mailing it along with a check or money order payable to "ICAP Funds" to: ICAP
Funds, Inc., c/o Sunstone Financial Group, Inc., P.O. Box 2160, Milwaukee,
Wisconsin 53201-2160. For overnight deliveries, please use 207 E. Buffalo
Street, Suite B-12, Milwaukee, Wisconsin 53202. 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 a Portfolio 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 987-0609665
For further credit to ICAP Funds, Inc.
(investor account number)
(name or account registration)
(social security or tax identification number)
(identify which Portfolio to purchase)
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. In addition to the redemption procedures described below,
redemptions may also be made through broker/dealers who may charge a commission
or other transaction fee.
Written Redemption
To request redemption of Portfolio shares, you must furnish a written,
unconditional request to: ICAP Funds, Inc., c/o Sunstone Financial Group, Inc.,
P.O. Box 2160, Milwaukee, Wisconsin 53201-2160. For written redemption requests
sent via overnight delivery, please use 207 E. Buffalo Street, Suite B-12,
Milwaukee, Wisconsin 53202. 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. Redemption proceeds may be
wired to a commercial bank authorized on your account application. However, you
will be charged a $7.00 service fee for such redemptions.
Signature Guarantees
Signature guarantees are required for: (i) redemption requests to be mailed or
wired to a person other than the registered owner(s) of the shares and (ii)
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.
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 redemption proceeds will be sent to the account of record 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 Sunstone Financial Group, Inc., P.O. Box 2160, Milwaukee,
Wisconsin 53201-2160. For written exchange requests sent via overnight delivery,
please use 207 E. Buffalo Street, Suite B-12, Milwaukee, Wisconsin 53202.
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. The exchange privilege is only available in states where the
securities are registered.
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
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 withdrawn. However, the
amount of deduction, if any, allowed for IRA contributions is limited for an
individual who is, or whose spouse is, an active participant in an employer-
sponsored retirement plan and whose income exceeds specific limits.
Simplified Employee Pension Plan
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 and other plans, including 401(k)
plans, as well as a description of the applicable service fees may be obtained
by calling 1-800-645-2457 or writing to ICAP Funds, Inc. 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 GAIN
DISTRIBUTIONS AND TAX TREATMENT
Each Portfolio intends to continue 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 a 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 capital 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 decreases by the amount of the
payment. IF YOU PURCHASE SHARES SHORTLY BEFORE A DISTRIBUTION, YOU WILL BE
SUBJECT TO INCOME TAXES ON THE DISTRIBUTION, EVEN THOUGH THE VALUE OF YOUR
INVESTMENT (PLUS CASH RECEIVED, IF ANY) REMAINS THE SAME. All dividends or
capital gain 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 Sunstone Financial Group, Inc., P.O. Box
2160, Milwaukee, Wisconsin 53201-2160. For overnight deliveries, please use 207
E. Buffalo Street, Suite B-12, Milwaukee, Wisconsin 53202. Such notice must be
received at least five days 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 adviser.
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 and annual and semi-annual
reports 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. For the year ended December 31, 1995, after
waivers and reimbursements, these expenses totaled 0.80% of each Portfolio's
average net assets.
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 a national
securities 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 review by the Company's Board of
Directors or its delegate who 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's 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
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
Bylaws for the removal of Directors by the shareholders as well as by the Board
of Directors. As of April 1, 1996, no person owned a controlling interest in the
Company.
ADMINISTRATOR AND
FUND ACCOUNTANT
Pursuant to an Administration and Fund Accounting 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 and provides administrative services (which include clerical,
compliance and regulatory services such as filing all federal income and excise
tax returns and state income tax returns, assisting with regulatory filings,
preparing financial statements and monitoring expense accruals). For the
foregoing, the Administrator receives from the Portfolios a fee, computed daily
and payable monthly based on each Portfolio's average net assets at the annual
rate of .175 of 1% on the first $50,000,000, .10 of 1% on the next $50,000,000
and .05 of 1% on average net assets in excess of $100,000,000, 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, Missouri 64141 acts
as Custodian of each Portfolio's assets. Sunstone Financial Group, Inc., 207 E.
Buffalo Street, Suite B-12, P.O. Box 2160, Milwaukee, Wisconsin 53201-2160 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.
All 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 Annual
Report of the Portfolios, a copy of which may be obtained without charge by
calling or writing to the Portfolios.
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.
DIRECTORS
Robert H. Lyon
Pamela H. Conroy
Gary S. Maurer
Dr. James A. Gentry
Barbara A. Chiesa
Harold W. Nations
Donald D. Niemann
Joseph A. Hays
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, Illinois 60606
CUSTODIAN
United Missouri Bank, n.a.
928 Grand Avenue
Kansas City, Missouri 64141
TRANSFER AGENT
AND DIVIDEND-DISBURSING AGENT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite B-12
P.O. Box 2160
Milwaukee, Wisconsin 53201-2160
ADMINISTRATOR AND
FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
AUDITORS
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
ICAP Funds, Inc.
225 West Wacker Drive
Suite 2400
Chicago, Illinois 60606
STATEMENT OF ADDITIONAL INFORMATION
ICAP FUNDS, INC.
ICAP Discretionary Equity Portfolio
ICAP Equity Portfolio
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
1-800-645-2457
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Prospectus of ICAP
Funds, Inc. (the "Company"), dated April 30, 1996. Requests for
copies of the Prospectus should be made by writing to the Company
at the address listed above; or by calling 1-800-645-2457.
This Statement of Additional Information is dated April 30, 1996.
ICAP FUNDS, INC.
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 4
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . 5
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . 5
Short-Term Fixed Income Securities . . . . . . . . . . . . . . . . . . 6
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . 7
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . 8
Unseasoned Companies . . . . . . . . . . . . . . . . . . . . . . . . . 8
Non-Investment Grade Debt Securities "Junk Bonds" . . . . . . . . . . 9
Hedging Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 10
General Description of Hedging Strategies . . . . . . . . . . . . . 10
General Limitations on Futures and Options Transactions . . . . . . 10
Asset Coverage for Futures and Options Positions . . . . . . . . . 11
Stock Index Options . . . . . . . . . . . . . . . . . . . . . . . . 11
Certain Considerations Regarding Options . . . . . . . . . . . . . 12
Federal Tax Treatment of Options . . . . . . . . . . . . . . . . . 12
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 12
Options on Futures . . . . . . . . . . . . . . . . . . . . . . . . 14
Federal Tax Treatment of Futures Contracts . . . . . . . . . . . . 14
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 15
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 17
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . 20
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT . . . . . . . . . . . . . . 21
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 22
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 23
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . 25
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 25
APPENDIX A - BOND RATINGS . . . . . . . . . . . . . . . . . . . . . . . . A-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated April 30, 1996, and if given or made,
such information or representations may not be relied upon as having been
authorized by the Company.
This Statement of Additional Information does not constitute an offer to
sell securities.
<PAGE>
INVESTMENT RESTRICTIONS
The investment objective of both the ICAP Discretionary Equity Portfolio
(the "Discretionary Equity Portfolio") and the ICAP Equity Portfolio (the
"Equity Portfolio") (hereinafter collectively referred to as 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 ("S&P 500"). The investment objective and policies of each Portfolio are
described in detail in the Prospectus under the captions "DISCRETIONARY EQUITY
PORTFOLIO" and "EQUITY PORTFOLIO." The following is a complete list of each
Portfolio's fundamental investment limitations which cannot be changed without
shareholder approval.
Neither Portfolio may:
1. With respect to 75% of its total assets, purchase 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
the 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).
3. Act as an underwriter of another issuer's securities, except
to the extent that the Portfolio may be deemed to be an underwriter
within the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.
4. Make loans to other persons, except through (i) the purchase
of debt securities permissible under the Portfolio's investment
policies, (ii) repurchase agreements, or (iii) the lending of portfolio
securities, provided that no such loan of portfolio securities may be
made by the Portfolio if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of the Portfolio's total assets.
5. Purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Portfolio from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Portfolio from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
7. Issue senior securities, except as permitted under the
Investment Company Act of 1940.
8. Purchase the securities of any issuer if, as a result, more
than 25% of the Portfolio's total assets would be invested in the
securities of issuers whose principal business activities are in the
same industry.
With the exception of the investment restriction set out in item 2
above, if a percentage restriction is adhered to at the time of investment, a
later increase in percentage resulting from a change in market value of the
investment or the total assets will not constitute a violation of that
restriction.
<PAGE>
The following investment policies may be changed by the Board of
Directors of the Company (the "Board of Directors") without shareholder
approval.
Neither Portfolio may:
1. Sell securities short, unless the Portfolio owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in options,
futures contracts, options on futures contracts, or other derivative
instruments are not deemed to constitute selling securities short.
2. Purchase securities on margin, except that the Portfolio may
obtain such short-term credits as are necessary for the clearance of
transactions; and provided that margin deposits in connection with
futures contracts, options on futures contracts, or other derivative
instruments shall not constitute purchasing securities on margin.
3. Pledge, mortgage or hypothecate any assets owned by the
Portfolio except as may be necessary in connection with permissible
borrowings or investments and then such pledging, mortgaging, or
hypothecating may not exceed 33 1/3% of the Portfolio's total assets at
the time of the borrowing or investment.
4. Purchase the securities of any issuer (other than securities
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total assets
would be invested in the securities of issuers that, including
predecessors or unconditional guarantors, have a record of less than
three years of continuous operation. This policy does not apply to
securities of pooled investment vehicles or mortgage or asset-backed
securities.
5. Invest in illiquid securities if, as a result of such
investment, more than 5% of the Portfolio's net assets would be invested
in illiquid securities.
6. Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company Act of 1940
and applicable state law.
7. Enter into futures contracts or related options if more than
30% of the Portfolio's net assets would be represented by futures
contracts or more than 5% of the Portfolio's net assets would be
committed to initial margin deposits and premiums on futures contracts
and related options.
8. Invest in direct interests in oil, gas or other mineral
exploration programs or leases; however, the Portfolio may invest in the
securities of issuers that engage in these activities.
9. Purchase securities when borrowings exceed 5% of its total
assets.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Portfolios'
investment objectives, policies, and techniques that are described in the
Prospectus under the captions "DISCRETIONARY EQUITY PORTFOLIO," "EQUITY
PORTFOLIO," and "INVESTMENT TECHNIQUES AND RISKS."
Illiquid Securities
The Portfolios may invest in illiquid securities (i.e., securities that
are not readily marketable). For purposes of this restriction, illiquid
securities include, but are not limited to, restricted securities (securities
the
<PAGE>
disposition of which is restricted under the federal securities laws),
securities which may only be resold pursuant to Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act"), and repurchase agreements with
maturities in excess of seven days. However, neither Portfolio will acquire
illiquid securities if, as a result, such securities would comprise more than
5% of the value of the Portfolio's net assets. The Board of Directors or its
delegate has the ultimate authority to determine, to the extent permissible
under the federal securities laws, which securities are liquid or illiquid for
purposes of this 5% limitation. The Board of Directors has delegated to
Institutional Capital Corporation ("ICAP") the day-to-day determination of the
liquidity of any security, although it has retained oversight and ultimate
responsibility for such determinations. Although no definitive liquidity
criteria are used, the Board of Directors has directed ICAP to look to such
factors as (i) the nature of the market for a security (including the
institutional private resale market), (ii) the terms of certain securities or
other instruments allowing for the disposition to a third party or the issuer
thereof (e.g., certain repurchase obligations and demand instruments), (iii)
the availability of market quotations (e.g., for securities quoted in the
PORTAL system), and (iv) other permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Portfolio may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Portfolio may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, the Portfolio might obtain a less favorable price
than that which prevailed when it decided to sell. Restricted securities will
be priced at fair value as determined in good faith by the Board of Directors.
If, through the appreciation of restricted securities or the depreciation of
unrestricted securities, a Portfolio should be in a position where more than
5% of the value of its net assets are invested in illiquid securities,
including restricted securities which are not readily marketable, the affected
Portfolio will take such steps as is deemed advisable, if any, to protect
liquidity.
Short-Term Fixed Income Securities
The Discretionary Equity Portfolio may invest up to 35% of its total
assets and, for temporary defensive purposes up to 100% of its total assets,
in cash and short-term fixed income securities, defined below. The Equity
Portfolio intends to be fully invested at all times and accordingly will only
hold cash or short-term fixed income securities to meet anticipated redemption
requests, pending investment and to pay expenses which, in any case, generally
will not exceed 5% of its total assets. The Equity Portfolio may, however,
temporarily exceed this 5% limitation, but only in circumstances pending
investment and only for short periods of time. Short-term fixed income
securities are defined to include without limitation, the following:
1. U.S. government securities, including bills, notes and bonds
differing as to maturity and rates of interest, which are either issued
or guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities. U.S. government agency securities include securities
issued by (a) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, and the Government National Mortgage Association, whose
securities are supported by the full faith and credit of the United
States; (b) the Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Tennessee Valley Authority, whose securities are
supported by the right of the agency to borrow from the U.S. Treasury;
(c) the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and (d)
the Student Loan Marketing Association, whose securities are supported
only by its credit. While the U.S. government provides financial
support to such U.S. government-sponsored agencies or instrumentalities,
no assurance can be given that it always will do so since it is not so
obligated by law. The U.S. government, its agencies, and
instrumentalities do not guarantee the market value of their securities,
and consequently, the value of such securities may fluctuate.
2. Certificates of Deposit issued against funds deposited in a
bank or savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are
normally
<PAGE>
negotiable. If such certificates of deposit are non-
negotiable, they will be considered illiquid securities and be subject
to the Portfolios' 5% restriction on investments in illiquid securities.
Pursuant to the certificate of deposit, the issuer agrees to pay the
amount deposited plus interest to the bearer of the certificate on the
date specified thereon. Under current FDIC regulations, the maximum
insurance payable as to any one certificate of deposit is $100,000;
therefore, certificates of deposit purchased by a Portfolio may not be
fully insured.
3. Bankers' acceptances which are short-term credit instruments
used to finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to obtain a
stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to
pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an asset or it may
be sold in the secondary market at the going rate of interest for a
specific maturity.
4. Repurchase agreements which involve purchases of debt
securities. In such an action, at the time a Portfolio purchases the
security, it simultaneously agrees to resell and redeliver the security
to the seller, who also simultaneously agrees to buy back the security
at a fixed price and time. This assures a predetermined yield for the
Portfolio during its holding period since the resale price is always
greater than the purchase price and reflects an agreed-upon market rate.
Such actions afford an opportunity for the Portfolio to invest
temporarily available cash. The Portfolios may enter into repurchase
agreements only with respect to obligations of the U.S. government, its
agencies or instrumentalities; certificates of deposit; or bankers
acceptances in which the Portfolios may invest. Repurchase agreements
may be considered loans to the seller, collateralized by the underlying
securities. The risk to the Portfolios is limited to the ability of the
seller to pay the agreed-upon sum on the repurchase date; in the event
of default, the repurchase agreement provides that the affected
Portfolio is entitled to sell the underlying collateral. If the value
of the collateral declines after the agreement is entered into, however,
and if the seller defaults under a repurchase agreement when the value
of the underlying collateral is less than the repurchase price, the
Portfolio could incur a loss of both principal and interest. ICAP
monitors the value of the collateral at the time the action is entered
into and at all times during the term of the repurchase agreement. ICAP
does so in an effort to determine that the value of the collateral
always equals or exceeds the agreed-upon repurchase price to be paid to
the Portfolio. If the seller were to be subject to a federal bankruptcy
proceeding, the ability of a Portfolio to liquidate the collateral could
be delayed or impaired because of certain provisions of the bankruptcy
laws.
5. Bank time deposits, which are monies kept on deposit with
banks or savings and loan associations for a stated period of time at a
fixed rate of interest. There may be penalties for the early withdrawal
of such time deposits, in which case the yields of these investments
will be reduced.
6. Commercial paper, which are short-term unsecured promissory
notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between a Portfolio and a corporation.
There is no secondary market for the notes. However, they are
redeemable by the Portfolios at any time. ICAP will consider the
financial condition of the corporation (e.g., earning power, cash flow,
and other liquidity ratios) and will continuously monitor the
corporation's ability to meet all of its financial obligations, because
a Portfolio's liquidity might be impaired if the corporation were unable
to pay principal and interest on demand. Investments in commercial
paper will be limited to commercial paper rated in the two highest
categories by a major rating agency or unrated commercial paper which
is, in the opinion of ICAP, of comparable quality.
<PAGE>
Short Sales Against the Box
When ICAP believes that the price of a particular security held by a
Portfolio may decline, it may make "short sales against the box" to hedge the
unrealized gain on such security. Selling short against the box involves
selling a security which the Portfolio owns for delivery at a specified date
in the future. Each Portfolio will limit its transactions in short sales
against the box to 5% of its net assets. In addition, each Portfolio will
limit its transactions such that the value of the securities of any issuer in
which it is short will not exceed the lesser of 2% of the value of the
Portfolio's net assets or 2% of the securities of any class of the issuer.
If, for example, a Portfolio bought 100 shares of ABC at $40 per share in
January and the price appreciates to $50 in March, the Portfolio might "sell
short" the 100 shares at $50 for delivery the following July. Thereafter, if
the price of the stock declines to $45, it will realize the full $1,000 gain
rather than the $500 gain it would have received had it sold the stock in the
market. On the other hand, if the price appreciates to $55 per share, the
Portfolio would be required to sell at $50 and thus receive a $1,000 gain
rather than the $1,500 gain it would have received had it sold the stock in
the market. The Portfolios may also be required to pay a premium for short
sales which would partially offset any gain.
Warrants
Each Portfolio may invest in warrants if, after giving effect thereto,
not more than 5% of its net assets will be invested in warrants other than
warrants acquired in units or attached to other securities. Of such 5%, not
more than 2% of its assets at the time of purchase may be invested in warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Investing in warrants is purely speculative in that they have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. Warrants basically are options to purchase
equity securities at a specific price for a specific period of time. They do
not represent ownership of the securities but only the right to buy them.
Warrants are issued by the issuer of the security, which may be purchased on
their exercise. The prices of warrants do not necessarily parallel the prices
of the underlying securities.
When-Issued Securities
The Portfolios may from time to time purchase securities on a "when-
issued" basis. The price of securities purchased on a when-issued basis is
fixed at the time the commitment to purchase is made, but delivery and payment
for the securities take place at a later date. Normally, the settlement date
occurs within 45 days of the purchase. During the period between the purchase
and settlement, no payment is made by the Portfolios to the issuer and no
interest is accrued on debt securities or dividend income is earned on equity
securities. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Portfolios' other assets.
While when-issued securities may be sold prior to the settlement date, the
Portfolios intend to purchase such securities with the purpose of actually
acquiring them. At the time a Portfolio makes the commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The Portfolios
do not believe that net asset value will be adversely affected by purchases of
securities on a when-issued basis.
The Portfolios will maintain cash, U.S. government securities and high
grade liquid debt securities equal in value to commitments for when-issued
securities. Such segregated securities either will mature or, if necessary,
be sold on or before the settlement date. When the time comes to pay for
when-issued securities, each Portfolio will meet its obligations from then
available cash flow, sale of the securities held in the separate account,
described above, sale of other securities or, although it would not normally
expect to do so, from the sale of the when-issued securities themselves (which
may have a market value greater or less than the Portfolio's payment
obligation).
Unseasoned Companies
Neither Portfolio may invest more than 5% of its net assets in
unseasoned companies. While smaller companies generally have potential for
rapid growth, they often involve higher risks because they lack the
<PAGE>
management
experience, financial resources, product diversification, and competitive
strengths of larger corporations. In addition, in many instances, the
securities of smaller companies are traded only over-the-counter or on
regional securities exchanges, and the frequency and volume of their trading
is substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations.
When making large sales, the Portfolios may have to sell portfolio holdings of
small companies at discounts from quoted prices or may have to make a series
of smaller sales over an extended period of time due to the trading volume in
smaller company securities.
Non-Investment Grade Debt Securities "Junk Bonds"
The Portfolios may invest up to 5% of their assets in junk bonds. Junk
bonds while generally offering higher yields than investment grade securities
with similar maturities, involve greater risks, including the possibility of
default or bankruptcy. They are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. The
special risk considerations in connection with investments in these securities
are discussed below. Refer to the Appendix of this Statement of Additional
Information for a discussion of securities ratings.
Effect of Interest Rates and Economic Changes. The junk bond market is
relatively new and its growth has paralleled a long economic expansion. As a
result, it is not clear how this market may withstand a prolonged recession or
economic downturn. Such an economic downturn could severely disrupt the
market for and adversely affect the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of junk bond securities tend to reflect individual corporate
developments to a greater extent than do higher rated securities, which react
primarily to fluctuations in the general level of interest rates. Junk bond
securities also tend to be more sensitive to economic conditions than are
higher-rated securities. As a result, they generally involve more credit
risks than securities in the higher-rated categories. During an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of junk bond securities may experience financial stress and may not
have sufficient revenues to meet their payment obligations. The risk of loss
due to default by an issuer of these securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a junk bond security defaulted, a Portfolio might incur additional
expenses to seek recovery. Periods of economic uncertainty and changes would
also generally result in increased volatility in the market prices of these
securities and thus in a Portfolio's net asset value.
As previously stated, the value of a junk bond security will generally
decrease in a rising interest rate market, and accordingly so will a
Portfolio's net asset value. If a Portfolio experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of junk bond securities, a Portfolio may be forced to
liquidate these securities at a substantial discount. Any such liquidation
would reduce a Portfolio's asset base over which expenses could be allocated
and could result in a reduced rate of return for the Portfolio.
Payment Expectations. Junk bond securities typically contain
redemption, call or prepayment provisions which permit the issuer of such
securities containing such provisions to redeem the securities at its
discretion. During periods of falling interest rates, issuers of these
securities are likely to redeem or prepay the securities and refinance them
with debt securities with a lower interest rate. To the extent an issuer is
able to refinance the securities, or otherwise redeem them, a Portfolio may
have to replace the securities with a lower yielding security, which could
result in a lower return for the Portfolio.
Credit Ratings. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities.
They do not, however, evaluate the market value risk of junk bond securities
and, therefore may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the condition of the issuer
that affect the
<PAGE>
market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality. Investments
in junk bond securities will be more dependent on ICAP's credit analysis than
would be the case with investments in investment-grade debt securities. ICAP
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. ICAP continually monitors each
Portfolios' investments and carefully evaluates whether to dispose of or to
retain junk bond securities whose credit ratings or credit quality may have
changed.
Liquidity and Valuation. A Portfolio may have difficulty disposing of
certain junk bond securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all junk bond
securities there is no established retail secondary market for many of these
securities. The Portfolios anticipate that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market does exist, it is generally not as liquid as the
secondary market for higher-rated securities. The lack of a liquid secondary
market may have an adverse impact on the market price of the security. The
lack of a liquid secondary market for certain securities may also make it more
difficult for a Portfolio to obtain accurate market quotations for purposes of
valuing the Portfolio. Market quotations are generally available on many junk
bond issues only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. During
periods of thin trading, the spread between bid and asked prices is likely to
increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of junk bond securities, especially in a thinly traded
market.
New and Proposed Legislation. Recent legislation has been adopted, and
from time to time, proposals have been discussed, regarding new legislation
designed to limit the use of certain junk bond securities by certain issuers.
An example of such legislation is a law which requires federally insured
savings and loan associations to divest their investments in these securities
over time. It is not currently possible to determine the impact of the recent
legislation or the proposed legislation on the junk bond securities market.
However, it is anticipated that if additional legislation is enacted or
proposed, it could have a material affect on the value of these securities and
the existence of a secondary trading market for the securities.
Hedging Strategies
General Description of Hedging Strategies
The Portfolios may engage in hedging activities. ICAP may cause the
Portfolios to utilize a variety of financial instruments, including options,
futures contracts (sometimes referred to as "futures") and options on futures
contracts to attempt to hedge a Portfolio's holdings.
Hedging instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a
Portfolio owns or intends to acquire. Hedging instruments on stock indices,
in contrast, generally are used to hedge against price movements in broad
equity market sectors in which a Portfolio has invested or expects to invest.
The use of hedging instruments is subject to applicable regulations of the
Securities and Exchange Commission (the "SEC"), the several options and
futures exchanges upon which they are traded, the Commodity Futures Trading
Commission (the "CFTC") and various state regulatory authorities. In
addition, a Portfolio's ability to use hedging instruments will be limited by
tax considerations.
General Limitations on Futures and Options Transactions
The Company has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in the futures markets.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act
(the "CEA"), the notice of eligibility for the Portfolios includes the
representation that the Portfolios will use futures contracts and related
options solely for bona fide hedging purposes within the meaning of CFTC
regulations, provided that the Portfolios may hold other
<PAGE>
positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions (i.e., for speculative purposes) if aggregate
initial margins and premiums paid do not exceed 5% of the net asset value of
the respective Portfolios. In addition, neither Portfolio will enter into
futures contracts and options transactions if more than 30% of its net assets
would be committed to such instruments.
The foregoing limitations are not fundamental policies of the Portfolios
and may be changed without shareholder approval as regulatory agencies permit.
Various exchanges and regulatory authorities have undertaken reviews of
options and futures trading in light of market volatility. Among the possible
actions that have been presented are proposals to adopt new or more stringent
daily price fluctuation limits for futures and options transactions and
proposals to increase the margin requirements for various types of futures
transactions.
Asset Coverage for Futures and Options Positions
Each Portfolio will comply with the regulatory requirements of the SEC
and the CFTC with respect to coverage of options and futures positions by
registered investment companies and, if the guidelines so require, will set
aside cash, U.S. government securities, high grade liquid debt securities
and/or other liquid assets permitted by the SEC and CFTC in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or options position is outstanding,
unless replaced with other permissible assets, and will be marked-to-market
daily.
Stock Index Options
Each Portfolio may (i) purchase stock index options for any purpose,
(ii) sell stock index options in order to close out existing positions, and/or
(iii) write covered options on stock indexes for hedging purposes. Stock
index options are put options and call options on various stock indexes. In
most respects, they are identical to listed options on common stocks. The
primary difference between stock options and index options occurs when index
options are exercised. In the case of stock options, the underlying security,
common stock, is delivered. However, upon the exercise of an index option,
settlement does not occur by delivery of the securities comprising the index.
The option holder who exercises the index option receives an amount of cash if
the closing level of the stock index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to the difference between
the closing price of the stock index and the exercise price of the option
expressed in dollars times a specified multiple.
A stock index fluctuates with changes in the market values of the stocks
included in the index. For example, some stock index options are based on a
broad market index, such as the Standard & Poor's 500 or the Value Line
Composite Index or a narrower market index, such as the Standard & Poor's 100.
Indexes may also be based on an industry or market segment, such as the AMEX
Oil and Gas Index or the Computer and Business Equipment Index. Options on
stock indexes are currently traded on the following exchanges: the Chicago
Board of Options Exchange, the New York Stock Exchange, the American Stock
Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange.
A Portfolio's use of stock index options is subject to certain risks.
Successful use by the Portfolios of options on stock indexes will be subject
to the ability of ICAP to correctly predict movements in the directions of the
stock market. This requires different skills and techniques than predicting
changes in the prices of individual securities. In addition, a Portfolio's
ability to effectively hedge all or a portion of the securities in its
portfolio, in anticipation of or during a market decline through transactions
in put options on stock indexes, depends on the degree to which price
movements in the underlying index correlate with the price movements of the
securities held by a Portfolio. Inasmuch as a Portfolio's securities will not
duplicate the components of an index, the correlation will not be perfect.
Consequently, each Portfolio will bear the risk that the prices of its
securities being hedged will not move in the same amount as the prices of its
put options on the stock indexes. It is also possible that there may be a
negative correlation between the index and a Portfolio's securities which
would result in a loss on both such securities and the options on stock
indexes acquired by the Portfolio.
<PAGE>
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot
be reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that the premium and
transaction costs paid by a Portfolio in purchasing an option will be lost as
a result of unanticipated movements in prices of the securities comprising the
stock index on which the option is based.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist.
If a Portfolio is unable to close out a call option on securities that it has
written before the option is exercised, the Portfolio may be required to
purchase the optioned securities in order to satisfy its obligation under the
option to deliver such securities. If a Portfolio is unable to effect a
closing sale transaction with respect to options on securities that it has
purchased, it would have to exercise the option in order to realize any profit
and would incur transaction costs upon the purchase and sale of the underlying
securities.
The writing and purchasing of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation
between the options and securities markets may detract from the effectiveness
of attempted hedging. Options transactions may result in significantly higher
transaction costs and portfolio turnover for the Portfolios.
Federal Tax Treatment of Options
Certain option transactions have special tax results for the Portfolios.
Expiration of a call option written by a Portfolio will result in short-term
capital gain. If the call option is exercised, the Portfolio will realize a
gain or loss from the sale of the security covering the call option and, in
determining such gain or loss, the option premium will be included in the
proceeds of the sale.
If a Portfolio writes options other than "qualified covered call
options," as defined in Section 1092 of the Internal Revenue Code of 1986, as
amended (the "Code"), or purchases puts, any losses on such options trans-
actions, to the extent they do not exceed the unrealized gains on the
securities covering the options, may be subject to deferral until the
securities covering the options have been sold.
In the case of transactions involving "nonequity options," as defined in
Code Section 1256, the Portfolios will treat any gain or loss arising from the
lapse, closing out or exercise of such positions as 60% long-term and 40%
short-term capital gain or loss as required by Section 1256 of the Code. In
addition, such positions must be marked-to-market as of the last business day
of the year, and gain or loss must be recognized for federal income tax
purposes in accordance with the 60%/40% rule discussed above even though the
position has not been terminated. A "nonequity option" includes an option
with respect to any group of stocks or a stock index if there is in effect a
designation by the CFTC of a contract market for a contract based on such
group of stocks or indexes. For example, options involving stock indexes such
as the Standard & Poor's 500 and 100 indexes would be "nonequity options"
within the meaning of Code Section 1256.
Futures Contracts
The Portfolios may enter into futures contracts (hereinafter referred to
as "Futures" or "Futures Contracts"), including index Futures as a hedge
against movements in the equity markets, in order to establish more definitely
the effective return on securities held or intended to be acquired by the
Portfolios or for other purposes permissible under the CEA. Each Portfolio's
hedging may include sales of Futures as an offset against the effect of
expected declines in stock prices and purchases of Futures as an offset
against the effect of expected increases in stock prices. The Portfolios will
not enter into Futures Contracts which are prohibited under the CEA and will,
<PAGE>
to the extent required by regulatory authorities, enter only into Futures
Contracts that are traded on national futures exchanges and are standardized
as to maturity date and underlying financial instrument. The principal
interest rate Futures exchanges in the United States are the Board of Trade of
the City of Chicago and the Chicago Mercantile Exchange. Futures exchanges
and trading are regulated under the CEA by the CFTC.
An index Futures Contract is an agreement pursuant to which the parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index Futures Contract was originally
written. Transaction costs are incurred when a Futures Contract is bought or
sold and margin deposits must be maintained. A Futures Contract may be
satisfied by delivery or purchase, as the case may be, of the instrument or by
payment of the change in the cash value of the index. More commonly, Futures
Contracts are closed out prior to delivery by entering into an offsetting
transaction in a matching Futures Contract. Although the value of an index
might be a function of the value of certain specified securities, no physical
delivery of those securities is made. If the offsetting purchase price is
less than the original sale price, a gain will be realized; if it is more, a
loss will be realized. Conversely, if the offsetting sale price is more than
the original purchase price, a gain will be realized; if it is less, a loss
will be realized. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Portfolios will be
able to enter into an offsetting transaction with respect to a particular
Futures Contract at a particular time. If the Portfolios are not able to
enter into an offsetting transaction, the Portfolios will continue to be
required to maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by each Portfolio
with its custodian in a segregated account in the name of the futures
commission merchant in order to initiate Futures trading and to maintain the
Portfolio's open positions in Futures Contracts. A margin deposit is intended
to ensure the Portfolio's performance of the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded and may be significantly modified from time to time
by the exchange during the term of the Futures Contract. Futures Contracts
are customarily purchased and sold on margins that may range upward from less
than 5% of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on
the Futures Contract reaches a point at which the margin on deposit does not
satisfy margin requirements, the broker will require an increase in the
margin. However, if the value of a position increases because of favorable
price changes in the Futures Contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Portfolio. In
computing daily net asset value, each Portfolio will mark to market the
current value of its open Futures Contracts. The Portfolios expect to earn
interest income on their margin deposits.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the Futures Contract is deposited as margin, a subsequent
10% decrease in the value of the Futures Contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess
of the amount initially invested in the Futures Contract. However, a
Portfolio would presumably have sustained comparable losses if, instead of the
Futures Contract, it had invested in the underlying financial instrument and
sold it after the decline.
Most United States Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a Futures Contract
<PAGE>
may
vary either up or down from the previous day's settlement price at the end of
a trading session. Once the daily limit has been reached in a particular type
of Futures Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit
may prevent the liquidation of unfavorable positions. Futures Contract prices
have occasionally moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
Futures positions and subjecting some Futures traders to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Portfolios seek to close out a Futures position. The Portfolios would
continue to be required to meet margin requirements until the position is
closed, possibly resulting in a decline in the Portfolios' net asset value.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be
no assurance that an active secondary market will develop or continue to
exist.
A public market exists in Futures Contracts covering a number of
indexes, including, but not limited to, the Standard & Poor's 500 Index, the
Standard & Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite
Index and the New York Stock Exchange Composite Index.
Options on Futures
The Portfolios may also purchase or write put and call options on
Futures Contracts and enter into closing transactions with respect to such
options to terminate an existing position. A futures option gives the holder
the right, in return for the premium paid, to assume a long position (call) or
short position (put) in a Futures Contract at a specified exercise price prior
to the expiration of the option. Upon exercise of a call option, the holder
acquires a long position in the Futures Contract and the writer is assigned
the opposite short position. In the case of a put option, the opposite is
true. Prior to exercise or expiration, a futures option may be closed out by
an offsetting purchase or sale of a futures option of the same series.
The Portfolios may use options on Futures Contracts in connection with
hedging strategies. Generally, these strategies would be employed under the
same market and market sector conditions in which the Portfolios use put and
call options on securities or indexes. The purchase of put options on Futures
Contracts is analogous to the purchase of puts on securities or indexes so as
to hedge the Portfolios' securities holdings against the risk of declining
market prices. The writing of a call option or the purchasing of a put option
on a Futures Contract constitutes a partial hedge against declining prices of
the securities which are deliverable upon exercise of the Futures Contract.
If the futures price at expiration of a written call option is below the
exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Portfolio's holdings of securities. If the futures price when
the option is exercised is above the exercise price, however, the Portfolio
will incur a loss, which may be offset, in whole or in part, by the increase
in the value of the securities held by the Portfolio that were being hedged.
Writing a put option or purchasing a call option on a Futures Contract serves
as a partial hedge against an increase in the value of the securities the
Portfolio intends to acquire.
As with investments in Futures Contracts, each Portfolio is required to
deposit and maintain margin with respect to put and call options on Futures
Contracts written by it. Such margin deposits will vary depending on the
nature of the underlying Futures Contract (and the related initial margin
requirements), the current market value of the option, and other futures
positions held by the Portfolio. The Portfolios will set aside in a
segregated account at the Portfolios' custodian liquid assets, such as cash,
U.S. government securities or other high grade liquid debt obligations equal
in value to the amount due on the underlying obligation. Such segregated
assets will be marked to market daily, and additional assets will be placed in
the segregated account whenever the total value of the segregated account
falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts
include the risk that a Portfolio may close out its position as a writer of an
option only if a liquid secondary market exists for such options, which cannot
be assured. The Portfolios' successful use of options on Futures Contracts
depends on ICAP's ability to correctly
<PAGE>
predict the movement in prices of
Futures Contracts and the underlying instruments, which may prove to be
incorrect. In addition, there may be imperfect correlation between the
instruments being hedged and the Futures Contract subject to the option. For
additional information, see "Futures Contracts."
Federal Tax Treatment of Futures Contracts
For federal income tax purposes, each Portfolio is required to recognize
as income for each taxable year its net unrealized gains and losses on Futures
Contracts as of the end of the year, as well as gains and losses actually
realized during the year. Except for transactions in Futures Contracts that
are classified as part of a "mixed straddle" under Code Section 1256, any gain
or loss recognized with respect to a Futures Contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the Futures Contract. In the case of
a Futures transaction not classified as a "mixed straddle," the recognition of
losses may be deferred to a later taxable year.
Sales of Futures Contracts that are intended to hedge against a change
in the value of securities held by a Portfolio may affect the holding period
of such securities and, consequently, the nature of the gain or loss on such
securities upon disposition.
Each Portfolio intends to operate as a "Regulated Investment Company"
under Subchapter M of the Code, and therefore will not be liable for federal
income taxes to the extent earnings are timely distributed. In addition, as a
result of being a Regulated Investment Company, net capital gain that the
Portfolios distribute to shareholders will retain their original capital gain
character in the shareholders' individual tax returns.
In order for each Portfolio to continue to qualify for federal income
tax treatment as a Regulated Investment Company, at least 90% of the gross
income of each Portfolio for a taxable year must be derived from qualifying
income; i.e., dividends, interest, income derived from loans of securities and
gains from the sale of securities, and other income (including gains on
options and futures contracts) derived with respect to the Portfolio's
business of investing in stock or securities. In addition, gains realized on
the sale or other disposition of securities or Futures Contracts held for less
than three months must be limited to less than 30% of the Portfolio's annual
gross income. It is anticipated that any net gain realized from the closing
out of Futures Contracts will be considered gain from the sale of securities
and therefore be qualifying income for purposes of the 90% requirement. For
purposes of applying these tests, any increase in value on a position that is
part of a designated hedge will be offset by any decrease in value (whether or
not realized) on any other position that is part of such hedge. It is
anticipated that unrealized gains on Futures Contracts which have been open
for less than three months as of the end of a Portfolio's fiscal year and
which are recognized for tax purposes will not be considered gains on
securities held less than three months for purposes of the 30% test.
The Portfolios will distribute to shareholders annually any net capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the Portfolio's fiscal year) on Futures
transactions. Such distributions will be combined with distributions of
capital gains realized on the Portfolios' other investments and shareholders
will be advised of the nature of the payments.
DIRECTORS AND OFFICERS
The directors and officers of the Company, together with information as
to their principal business occupations during the last five years, and other
information, are shown below. Each director who is deemed an "interested
person," as defined in the Investment Company Act of 1940 ("Investment Company
Act"), is indicated by an asterisk.
*Robert H. Lyon, President and a Director of the Company.
Mr. Lyon joined ICAP in 1988 and has been the President, Chief
Investment Officer, and a Director of ICAP since 1992. For the seven
years prior to joining ICAP, Mr. Lyon was an Executive Vice President
and Director of Research with Fred Alger Management in New York. Mr.
Lyon graduated from Northwestern University with a B.A. in economics and
received his M.B.A. from the Wharton School of Finance. Mr. Lyon has
served as President and a Director of the Company since its inception in
December 1994.
*Pamela H. Conroy, Vice President, Treasurer and a Director of the Company.
Ms. Conroy has been the Senior Vice President of ICAP since joining the
Company in August of 1994. Her responsibilities include accounting,
systems, communication and product development. Prior to joining ICAP,
Ms. Conroy worked at Northern Trust where she served as a Vice President
and worked in a variety of capacities in the investments and securities
processing areas over a nine year period. Ms. Conroy earned a B.A. from
the University of Illinois and an M.M. from the Kellogg School of
Management. Ms. Conroy has served as Vice President, Treasurer and a
Director of the Company since its inception in December 1994.
*Donald D. Niemann, Vice President, Secretary and a Director of the Company.
Mr. Niemann was an original co-founder of ICAP and has served as an
Executive Vice President and a Director of ICAP since March 1993. His
responsibilities at ICAP include stock research, selection and proxy
analysis. Mr. Niemann received a B.A. in history from Princeton
University and an M.B.A. from Harvard University. He is a Chartered
Financial Analyst (CFA). Mr. Niemann has served as Vice President and
Secretary of the Company since its inception in December 1994, and as a
Director of the Company since July 1995.
*Gary S. Maurer, a Director of the Company.
Mr. Maurer, who joined ICAP in 1972, has served as Executive Vice
President and a Director of ICAP since March of 1993. His
responsibilities include oversight of quantitative research, as well as
performance measurement and analysis. In addition, Mr. Maurer is the
director of ICAP's client service effort. Mr. Maurer received a B.A. in
economics from Cornell University and an M.B.A. from the University of
Chicago. Mr. Maurer has served as a Director of the Company since its
inception in December 1994.
*Barbara A. Chiesa, a Director of the Company.
Ms. Chiesa, who joined ICAP in 1981, currently serves as Vice President
for Trading and is a Director of ICAP. Previously, Ms. Chiesa served as
an investment officer and trader at Harris Trust & Savings Bank. Prior
to that, Ms. Chiesa served as an equity trader at First Wisconsin Trust.
She studied accounting at the University of Wisconsin. Ms. Chiesa has
served as a Director of the Company since its inception in December
1994.
Dr. James A. Gentry, a Director of the Company.
Dr. Gentry, who joined the faculty at the University of Illinois in
1966, is a Professor of Finance of the College of Commerce and Business
Administration at the University. Since joining the University, Dr.
Gentry has served as Associate Dean of the College of Commerce and
Business Administration and has authored numerous articles and chapters
in books. Currently, he teaches courses in advanced financial
management and an honors course that provides outstanding undergraduate
students with the opportunity to interact with leading corporate
executives. Dr. Gentry received an A.B. from Indiana State University,
<PAGE>
and an M.B.A. and D.B.A. from Indiana University. Dr. Gentry has
served as a Director of the Company since its inception in December
1994.
Harold W. Nations, a Director of the Company.
Mr. Nations is a partner with the law firm of Shefsky, Froelich & Devine
Ltd. ("SFD") in Chicago, Illinois. He has been with SFD since March,
1991. For the seven years prior thereto, Mr. Nations was an associate
with the firm of Skadden, Arps, Slate, Meagher, & Flom. Mr. Nations
received a B.A. in chemistry from the Georgia Institute of Technology
and a J.D. from Nortwestern University Law School. Mr. Nations has
served as a Director of the Company since its inceptionin December 1994.
Joseph A. Hays, a Director of the Company.
Mr. Hays has been Vice President/Corporate Relations for the Tribune
Company, a diverse media company, since April 1983. Mr. Hays received a
B.S. in journalism from Utah State University and a Bachelor of Law from
Indiana University. Mr. Hays has served as a Director of the Company
since July 1995.
Except for Dr. James A. Gentry, Mr. Harold W. Nations, and Mr. Joseph A.
Hays, the address of all of the above persons is Institutional Capital
Corporation, 225 West Wacker Drive, Suite 2400, Chicago, Illinois 60606. Dr.
Gentry's address is the University of Illinois, 419 Commerce West, 1206 South
6th Street, Champaign, Illinois 61820-6271. Mr. Nation's address is 444 North
Michigan Avenue, Chicago, Illinois 60611. Mr. Hays' address is 1110 North
Lake Shore Drive, Apartment 24-South, Chicago, Illinois 60611.
As of April 1, 1996, officers and directors of the Company beneficially
owned 46,191 shares of common stock or 1.5% of the Discretionary Equity
Portfolio's then outstanding shares and less than 1% of the Equity Portfolio's
then outstanding shares. Directors and officers of the Company who are also
officers, directors, employees, or shareholders of ICAP do not receive any
remuneration from either of the Portfolios for serving as directors or
officers. All other directors receive $2,000 worth of shares of common stock
in the Portfolio or Portfolios of their choice for each board meeting such
director attends.
PRINCIPAL SHAREHOLDERS
As of April 1, 1996, the following persons owned of record or are known
by the Company to own of record or beneficially 5% or more of the outstanding
shares of each Portfolio:
<TABLE>
<CAPTION>
Name and Address Portfolio No. Shares Percentage
<S> <C> <C> <C>
Marshall & Ilsley Trust Discretionary Equity 302,767 9.93%
Trustee FBO Rite-Hite Corp.
Retirement Savings
1000 N. Water Street
Milwaukee, WI 53202
<PAGE>
Name and Address Portfolio No. Shares Percentage
First Interstate Bank of California Discretionary Equity 208,901 6.85%
Trustee FBO Chapman University
P.O. Box 9800
Calabasas, CA 91302
Post & Co. Discretionary Equity 454,115 14.90%
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Melrose Wakefield Healthcare Corp. Discretionary Equity 157,868 5.18%
c/o Mark J. Blass
585 Lebanon Street
Melrose, MA 02176
Union Bank Trust Discretionary Equity 157,141 5.16%
Trustee FBO The Parker Foundation
c/o Trust Security Service
Mutual Funds
P.O. Box 109
San Diego, CA 92112
Marshall & Ilsley Trust Discretionary Equity 230,948 7.58%
Trustee FBO Oil Gear Co.
1000 N. Water Street
Milwaukee, WI 53202
Bank of America Discretionary Equity 199,244 6.54%
Trustee FBO Presbyterian
Intercommunity
Hospital Defined Benefit
Retirement Plan
P.O. Box 3577
Los Angeles, CA 90051
Wendel & Co. Discretionary Equity 206,712 6.78%
Trustee FBO Presbyterian
Intercommunity Hospital
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Mitra & Co. Discretionary Equity 176,878 5.80%
1000 N. Water Street
Attn: Mutual Funds
Milwaukee, WI 53202
<PAGE>
Name and Address Portfolio No. Shares Percentage
Northern Trust Company Equity 217,974 8.50%
Cust. FBO McGraw Foundation
P.O. Box 92956
Chicago, IL 60675
Keystone District Council of Carpenters Equity 135,743 5.29%
Pension Trust
524 South 22nd Street
Harrisburg, PA 17104
Chicago Symphony Orchestra Pension Trust Equity 171,763 6.70%
c/o Tom Hallett
220 South Michigan Avenue
Chicago, IL 60604
Wadsworth Atheneum Equity 195,323 7.62%
600 Main Street
Hartford, CT 06103
Wendel & Co. Equity 319,890 12.47%
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Pennsylvania State Education Equity 413,356 16.12%
Association Pension Plan
400 North 3rd Street, Box 1724
Harrisburg, PA 17105
</TABLE>
As of April 1, 1996, no person owned a controlling interest in the
Company. Shareholders with a controlling interest could effect the outcome of
proxy voting or the direction of management of the Company.
INVESTMENT ADVISER
Institutional Capital Corporation ("ICAP") is the investment adviser to
the Portfolios. Mr. Lyon controls ICAP and is the President, Chief Investment
Officer, and a director of ICAP. Ms. Conroy is the Senior Vice President of
ICAP, and both Mr. Maurer and Mr. Niemann are Executive Vice Presidents and
Directors of ICAP. Ms. Chiesa is a Vice President and Director or ICAP. Mr.
Lyon owns 51% of ICAP. A brief description of the Portfolios' investment
advisory agreement is set forth in the Prospectus under "MANAGEMENT."
The Portfolios' advisory agreement is dated December 30, 1994 (the
"Advisory Agreement"). The Advisory Agreement has an initial term of two
years and thereafter is required to be approved annually by the Board of
Directors of the Company or by vote of a majority of each of the Portfolio's
outstanding voting securities (as defined in the Investment Company Act).
Each annual renewal must also be approved by the vote of a majority
<PAGE>
of the
Company's directors who are not parties to the Advisory Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement was approved
by the vote of a majority of the Company's directors who are not parties to
the Advisory Agreement or interested persons of any such party on December 6,
1994 and by the initial shareholders of each Portfolio on December 14, 1994.
The Advisory Agreement is terminable without penalty, on 60 days' written
notice by the Board of Directors of the Company, by vote of a majority of each
of the Portfolio's outstanding voting securities, or by ICAP, and will
terminate automatically in the event of its assignment.
Under the terms of the Advisory Agreement, ICAP manages the Portfolios'
investments, subject to the supervision of the Company's Board of Directors.
ICAP is responsible for investment decisions and supplies investment research
and portfolio management. At its expense, ICAP provides office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolios.
As compensation for its services, each Portfolio pays to ICAP a monthly
advisory fee at the annual rate of .80% of the average daily net asset value
of the respective Portfolio. See "DETERMINATION OF NET ASSET VALUE" in the
Prospectus. From time to time, ICAP may voluntarily waive all or a portion of
its management fee for the Portfolios. In fact, ICAP has voluntarily agreed
to waive its management fee and/or reimburse each Portfolio's operating
expenses to the extent necessary to ensure that neither Portfolio's total
operating expenses exceed .80% of the respective Portfolio's average daily net
assets. During the year ended December 31, 1995, ICAP received $7,820 and
$36,319 from the Discretionary Equity and Equity Portfolios, respectively, as
compensation for its services under the Advisory Agreement. The amounts
received by ICAP for such services would have been $141,845 and $190,793 for
the Discretionary Equity and Equity Portfolios, respectively, had ICAP not
waived $134,025 and $154,474, respectively, of its fee during the year ended
December 31, 1995. The organizational expenses of each Portfolio were
advanced by ICAP and will be reimbursed by the Portfolios over a period of not
more than 60 months. The organizational expenses were approximately $36,288
for the Discretionary Equity Portfolio and $36,287 for the Equity Portfolio.
The Advisory Agreement requires ICAP to reimburse the Portfolios in the
event that the expenses and charges payable by the Portfolios in any fiscal
year, including the advisory fee but excluding taxes, interest, brokerage
commissions, and similar fees, exceed those set forth in any statutory or
regulatory formula prescribed by any state in which shares of the Portfolios
are registered. Such excess is determined by valuations made as of the close
of each business day of the year. The most restrictive percentage limitation
currently applicable to the Portfolios will be 2 1/2% of each Portfolio's
average net asset value up to $30,000,000, 2% on the next $70,000,000 of each
Portfolio's average net asset value and 1 1/2% of each Portfolio's average net
asset value in excess of $100,000,000. Reimbursement of expenses in excess of
the applicable limitation will be made on a monthly basis and will be paid to
the Portfolios by reduction of ICAP's fee, subject to later adjustment, month
by month, for the remainder of the Portfolios' fiscal year. ICAP may from
time to time voluntarily absorb expenses for the Portfolios in addition to the
reimbursement of expenses in excess of applicable limitations.
PORTFOLIO TRANSACTIONS AND BROKERAGE
ICAP is responsible for decisions to buy and sell securities for the
Portfolios and for the placement of the Portfolios' securities business, the
negotiation of the commissions to be paid on such transactions and the
allocation of portfolio brokerage and principal business. It is the policy of
ICAP to seek the best execution at the best security price available with
respect to each transaction, in light of the overall quality of brokerage and
research services provided to ICAP or the Portfolios. The best price to the
Portfolios means the best net price without regard to the mix between purchase
or sale price and commission, if any. Purchases may be made from
underwriters, dealers, and, on occasion, the issuers. Commissions will be
paid on the Portfolios' futures and options transactions, if any. The
purchase price of portfolio securities purchased from an underwriter or dealer
may include underwriting commissions and dealer spreads. The Portfolios may
pay mark-ups on principal transactions. In selecting broker-
<PAGE>
dealers and in
negotiating commissions, ICAP considers the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition.
Brokerage will not be allocated based on the sale of a Portfolio's shares.
The aggregate amount of brokerage commissions paid by the Discretionary
Equity and Equity Portfolios for the year ended December 31, 1995 was $44,543
and $51,101, respectively.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an
account to pay a broker or dealer who supplies brokerage and research services
a commission for effecting a transaction in excess of the amount of commission
another broker or dealer would have charged for effecting the transaction.
Brokerage and research services include (a) furnishing advice as to the value
of securities, the advisability of investing, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy, and
the performance of accounts; and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement, and
custody).
In selecting brokers, ICAP considers investment and market information
and other research, such as economic, securities and performance measurement
research, provided by such brokers, and the quality and reliability of
brokerage services, including execution capability, performance, and financial
responsibility. Accordingly, the commissions charged by any such broker may
be greater than the amount another firm might charge if ICAP determines in
good faith that the amount of such commissions is reasonable in relation to
the value of the research information and brokerage services provided by such
broker to the Portfolios. ICAP believes that the research information
received in this manner provides the Portfolios with benefits by supplementing
the research otherwise available to the Portfolios. The Advisory Agreement
provides that such higher commissions will not be paid by the Portfolios
unless (a) ICAP determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
ICAP's overall responsibilities with respect to the accounts as to which it
exercises investment discretion; (b) such payment is made in compliance with
the provisions of Section 28(e), other applicable state and federal laws, and
the Advisory Agreement; and (c) in the opinion of ICAP, the total commissions
paid by the Portfolios will be reasonable in relation to the benefits to the
Portfolios over the long term. The investment advisory fees paid by the
Portfolios under the Advisory Agreement are not reduced as a result of ICAP's
receipt of research services.
ICAP places portfolio transactions for other advisory accounts managed by
ICAP. Research services furnished by firms through which the Portfolios
effect their securities transactions may be used by ICAP in servicing all of
its accounts; not all of such services may be used by ICAP in connection with
the Portfolios. ICAP believes it is not possible to measure separately the
benefits from research services to each of the accounts (including the
Portfolios) managed by it. Because the volume and nature of the trading
activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage
and research services will vary. However, ICAP believes such costs to the
Portfolios will not be disproportionate to the benefits received by the
Portfolios on a continuing basis. ICAP seeks to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell securities by the Portfolios and another advisory account. In some
cases, this procedure could have an adverse effect on the price or the amount
of securities available to the Portfolios. In making such allocations between
the Portfolio and other advisory accounts, the main factors considered by ICAP
are the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment and the size of investment commitments generally held.
The Discretionary Equity and Equity Portfolios' portfolio turnover rates
for the year ended December 31, 1995 were 102% and 105%, respectively. Each
Portfolio anticipates that its portfolio turnover rate will not exceed 150%,
and is expected to be between 100% and 125%. The annual portfolio turnover
rate indicates changes in each Portfolio's securities holdings; for instance,
a rate of 100% would result if all the securities in a portfolio (excluding
securities whose maturities at acquisition were one year or less) at the
beginning of an annual period had
<PAGE>
been replaced by the end of the period. The turnover rate may vary from year to
year, as well as within a year, and may be affected by portfolio sales
necessary to meet cash requirements for redemptions of the Portfolios'
shares.
CUSTODIAN
As custodian of the Portfolios' assets, United Missouri Bank, n.a., 928
Grand Avenue, Kansas City, Missouri 64141, has custody of all securities and
cash of each Portfolio, delivers and receives payment for securities sold,
receives and pays for securities purchased, collects income from investments
and performs other duties, all as directed by the officers of the Company.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Sunstone Financial Group, Inc. ("Sunstone") acts as transfer agent and
dividend-disbursing agent for the Portfolios. Sunstone is compensated based
on an annual fee per open account of $12.00 (subject to a minimum of $650 per
month from November 1995 through April 1996, $750 per month from May 1996
through October 1996, and $14,000 per year beginning November 1996) plus out-
of-pocket expenses such as postage and printing expenses in connection with
shareholder communications. Sunstone also receives an annual fee per closed
account of $2.50.
TAXES
Each Portfolio will be treated as a separate entity for Federal income
tax purposes since the Tax Reform Act of 1986 requires that all portfolios of
a series fund be treated as separate taxpayers. As indicated under
"DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAX STATUS" in the Prospectus,
each Portfolio intends to continue to qualify annually as a "regulated
investment company" under the Code. This qualification does not involve
government supervision of the Portfolios' management practices or policies.
A dividend or capital gain distribution received shortly after the
purchase of shares reduces the net asset value of shares by the amount of the
dividend or distribution and, although in effect a return of capital, will be
subject to income taxes. Net gains on sales of securities when realized and
distributed are taxable as capital gains. If the net asset value of shares
were reduced below a shareholder's cost by distribution of gains realized on
sales of securities, such distribution would be a return of investment
although taxable as stated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the same caption, the net asset
value of each of the Portfolios will be determined as of the close of trading
on each day the New York Stock Exchange is open for trading. The Portfolios
do not determine net asset value on days the New York Stock Exchange is closed
and at other times described in the Prospectus. The New York Stock Exchange
is closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday, the
New York Stock Exchange will not be open for trading on the preceding Friday
and when such holiday falls on a Sunday, the New York Stock Exchange will not
be open for trading on the succeeding Monday, unless unusual business
conditions exist, such as the ending of a monthly or the yearly accounting
period.
<PAGE>
SHAREHOLDER MEETINGS
Maryland law permits registered investment companies, such as the
Company, to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company
Act. The Company has adopted the appropriate provisions in its Bylaws and
may, at its discretion, not hold an annual meeting in any year in which the
election of directors is not required to be acted on by shareholders under the
Investment Company Act.
The Company's Bylaws also contain procedures for the removal of directors
by shareholders of the Company. At any meeting of shareholders, duly called
and at which a quorum is present, the shareholders may, by the affirmative
vote of the holders of a majority of the votes entitled to be cast thereon,
remove any director or directors from office and may elect a successor or
successors to fill any resulting vacancies for the unexpired terms of removed
directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting,
the Secretary of the Company shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders of record who have been such for
at least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at
least one percent (1%) of the total outstanding shares, whichever is less,
shall apply to the Company's Secretary in writing, stating that they wish to
communicate with other shareholders with a view to obtaining signatures to a
request for a meeting as described above and accompanied by a form of
communication and request which they wish to transmit, the Secretary shall
within five business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all shareholders as
recorded on the books of the Company; or (2) inform such applicants as to the
approximate number of shareholders of record and the approximate cost of
mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause (2) of
the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all shareholders of record at their
addresses as recorded on the books unless within five business days after such
tender the Secretary shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed
by at least a majority of the Board of Directors to the effect that, in their
opinion, either such material contains untrue statements of fact or omits to
state facts necessary to make the statements contained therein not misleading,
or would be in violation of applicable law, and specifying the basis of such
opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the SEC may, and if demanded by the Board of
Directors or by such applicants shall, enter an order either sustaining one or
more of such objections or refusing to sustain any of them. If the SEC shall
enter an order refusing to sustain any of such objections, or if, after the
entry of an order sustaining one or more of such objections, the SEC shall
find, after notice and opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so declaring, the Secretary
shall mail copies of such material to all shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
As described in the "COMPARISON OF INVESTMENT RESULTS" section of the
Portfolios' Prospectus, the Portfolios' historical performance or return may
be shown in the form of various performance figures. The Portfolios'
performance figures are based upon historical results and are not necessarily
representative of future performance. Factors affecting the Portfolios'
performance include general market conditions, operating expenses
<PAGE>
and
investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.
Total Return
The average annual total return of each Portfolio is computed by finding
the average annual compounded rates of return over the periods that would
equate the initial amount invested to the ending redeemable value, according
to the following formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the stated periods at the end of
the stated periods.
Performance for a specific period is calculated by first taking an investment
(assumed to be $1,000) ("initial investment") in a Portfolio's shares on the
first day of the period and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The calculation assumes that all income and capital gains dividends paid by a
Portfolio have been reinvested at the net asset value of the Portfolio on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period.
Cumulative total return represents the simple change in value of an
investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in
order to illustrate the relationship between these factors and their
contributions to total return.
The total return for the Discretionary Equity Portfolio and Equity
Portfolio for the year ended December 31, 1995 is 35.21% and 38.85%,
respectively.
Volatility
Occasionally statistics may be used to specify a Portfolio's volatility
or risk. Measures of volatility or risk are generally used to compare a
Portfolio's net asset value or performance relative to a market index. One
measure of volatility is beta. Beta is the volatility of a fund relative to
the total market as represented by the Standard & Poor's 500 Stock Index. A
beta of more than 1.00 indicates volatility greater than the market, and a
beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is
used to measure variability of net asset value or total return around an
average, over a specified period of time. The premise is that greater
volatility connotes greater risk undertaken in achieving performance.
Comparisons
From time to time, in marketing and other Portfolio literature, the
Portfolios' performance may be compared to the performance of other mutual
funds in general or to the performance of particular types of mutual funds
with similar investment goals, as tracked by independent organizations. Among
these organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, may be cited. Lipper
performance figures are based on changes in net asset value, with all income
and capital gains dividends reinvested. Such calculations do not include the
effect
<PAGE>
of any sales charges imposed by other funds. The Portfolios will be
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings.
The Portfolios' performance may also be compared to the performance of
other mutual funds by Morningstar, Inc., which ranks funds on the basis of
historical risk and total return. Morningstar's rankings range from five
stars (highest) to one star (lowest) and represent Morningstar's assessment of
the historical risk level and total return of a fund as a weighted average for
3, 5, and 10 year periods. Rankings are not absolute or necessarily
predictive of future performance.
Evaluations of Portfolio performance made by independent sources may also
be used in advertisements concerning the Portfolios, including reprints of or
selections from, editorials or articles about the Portfolios. Sources for
Portfolio performance and articles about the Portfolios may include
publications such as Money, Forbes, Kiplinger's, Financial World, Business
Week, U.S. News and World Report, the Wall Street Journal, Barron's and a
variety of investment newsletters.
The Portfolios may compare their performance to a wide variety of indices
and measures of inflation including the Standard & Poor's Index of 500 Stocks
and the NASDAQ Over-the-Counter Composite Index. There are differences and
similarities between the investments that the Portfolios may purchase for
their respective portfolios and the investments measured by these indices.
Investors may want to compare the Portfolios' performance to that of
certificates of deposit offered by banks and other depository institutions.
Certificates of deposit may offer fixed or variable interest rates and
principal is guaranteed and may be insured. Withdrawal of the deposits prior
to maturity normally will be subject to a penalty. Rates offered by banks and
other depository institutions are subject to change at any time specified by
the issuing institution. Investors may also want to compare performance of
the Portfolios to that of money market funds. Money market fund yields will
fluctuate and shares are not insured, but share values usually remain stable.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202 have been selected as the independent accountants for the Portfolios.
FINANCIAL STATEMENTS
The following audited financial statements of each of the Portfolios for
the year ended December 31, 1995 are contained herein:
(a) Schedules of Investments.
(b) Statements of Assets and Liabilities.
<PAGE>
(c) Statements of Operations.
(d) Statements of Changes in Net Assets.
(e) Financial Highlights.
(f) Notes to Financial Statements.
(g) Report of Independent Accountants.
D i s c r e t i o n a r y E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s
December 31, 1995
______________________________________________________________________________
Number
of Shares Value
______________________________________________________________________________
COMMON STOCKS 89.38%
Aerospace 1.70%
6,885 McDonnell Douglas Corp. $ 633,420
Autos & Parts 0.57%
8,875 ITT Industries, Inc. 213,000
Banks & Finance 7.16%
17,585 BankAmerica Corp. 1,138,629
14,680 Citicorp 987,230
15,150 KeyCorp 549,187
--------
2,675,046
Beverages - Soft Drinks 1.73%
11,600 PepsiCo, Inc. 648,150
Chemicals 4.52%
8,615 Dow Chemical Co. 606,281
5,500 Du Pont (E.I.) de Nemours & Co. 1,083,063
----------
1,689,344
Communication Equipment 1.27%
8,300 Motorola, Inc. 473,100
Drug & Medical Supplies 10.22%
22,600 Abbott Laboratories 943,550
6,970 American Home Products Corp. 676,090
25,430 Ciba-Geigy AG-ADR 1,121,463
7,930 Hoechst AG-ADR 1,077,608
----------
3,818,711
Electric Equipment 0.52%
7,000 American Standard Companies* 196,000
Electronics 1.72%
12,400 Texas Instruments 641,700
Entertainment 4.85%
11,100 Circus Circus Enterprises, Inc.* 309,412
9,875 ITT Corp.* 523,375
25,900 Time Warner, Inc. 980,963
---------
1,813,750
See notes to financial statements.
<PAGE>
D i s c r e t i o n a r y E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s (cont'd.)
December 31, 1995
______________________________________________________________________________
Number
of Shares Value
______________________________________________________________________________
Foods 3.40%
9,030 Unilever N.V. $1,270,973
Hospital Management 1.04%
18,700 Tenet Healthcare Corp.* 388,025
Insurance 3.38%
20,260 Allstate Corp. 833,192
8,875 ITT Hartford Group* 429,328
---------
1,262,520
Leisure 1.76%
13,760 Carnival Cruise Lines, Inc. 335,400
10,475 Mattel, Inc. 322,106
---------
657,506
Machinery 1.53%
16,200 Deere & Co. 571,050
Media 2.69%
8,150 Capital Cities/ABC, Inc. 1,005,506
Miscellaneous 3.13%
32,550 Phillips Electronics N.V. 1,167,731
Office Equipment 4.93%
11,225 Compaq Computer Corp.* 538,800
10,000 International Business Machines Corp. 917,500
14,000 Silicon Graphics, Inc.* 385,000
--------
1,841,300
Oils 7.33%
12,125 Amoco Corp. 871,484
8,810 Atlantic Richfield Co. 975,707
7,950 Mobil Corp. 890,400
--------
2,737,591
Other Financial 3.11%
18,485 Travelers Group, Inc. 1,162,244
See notes to financial statements.
<PAGE>
D i s c r e t i o n a r y E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s (cont'd.)
December 31, 1995
______________________________________________________________________________
Number
of Shares Value
______________________________________________________________________________
Paper 4.82%
27,270 International Paper $1,032,851
17,800 Weyerhaeuser Co. 769,850
-----------
1,802,701
Pollution Control 3.77%
16,085 Browning Ferris Industries 474,507
31,280 WMX Technologies, Inc. 934,490
--------
1,408,997
Printing & Publishing 0.07%
400 Dun and Bradstreet 25,900
Railroads 6.66%
12,250 Burlington Northern Santa Fe Corp. 955,500
33,340 Canadian Pacific 604,288
14,050 Union Pacific Corp. 927,300
---------
2,487,088
Retail Stores 1.53%
20,775 Federated Department Stores, Inc.* 571,313
Specialty Stores 0.36%
4,900 Circuit City Stores, Inc. 135,363
Tobacco 2.87%
11,850 Philip Morris Companies, Inc. 1,072,425
Utilities 2.74%
10,160 AT&T Corp. 657,860
13,300 Tele Danmark A/S-ADR 367,413
--------
1,025,273
Total Common Stocks
(cost $31,120,656) 33,395,727
PREFERRED STOCKS 2.68%
Entertainment 2.68%
51,940 News Corp. Ltd. Preferred ADR 999,845
Total Preferred Stocks
(cost $997,759) 999,845
See notes to financial statements.
<PAGE>
D i s c r e t i o n a r y E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s (cont'd.)
December 31, 1995
_____________________________________________________________________________
Principal
Amount Value
______________________________________________________________________________
SHORT-TERM INVESTMENTS 9.95%
Commercial Paper 4.00%
$1,500,000 IBM Credit Corp., 5.69%, 1/24/96 $ 1,494,644
Money Market 5.95%
2,221,822 United Missouri Bank
Money Market Fiduciary 2,221,822
Total Short-term Investments
(cost $3,716,466) 3,716,466
Total Investments 102.01%
(cost $35,834,881) 38,112,038
Liabilities, less Cash
and Other Assets (2.01)% (749,605)
NET ASSETS 100.00% $37,362,433
See notes to financial statements.
*Non-income producing
<PAGE>
E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s
December 31, 1995
______________________________________________________________________________
Number
of Shares Value
______________________________________________________________________________
COMMON STOCKS 94.75%
Aerospace 2.10%
10,695 McDonnell Douglas Corp. $ 983,940
Autos & Parts 0.69%
13,450 ITT Industries, Inc. 322,800
Banks & Finance 8.62%
26,550 BankAmerica Corp. 1,719,113
22,640 Citicorp 1,522,540
21,845 KeyCorp 791,881
----------
4,033,534
Beverages - Soft Drinks 2.07%
17,330 PepsiCo, Inc. 968,314
Chemicals 4.89%
9,550 Dow Chemical Co. 672,081
23,090 Du Pont (E.I.) de Nemours & Co. 1,613,414
-----------
2,285,495
Communication Equipment 1.44%
11,775 Motorola, Inc. 671,175
Drug & Medical Supplies 10.90%
23,800 Abbott Laboratories 993,650
10,920 American Home Products Corp. 1,059,240
32,395 Ciba-Geigy AG-ADR 1,428,620
11,920 Hoechst AG-ADR 1,619,809
-----------
5,101,319
Electronics 1.88%
16,970 Texas Instruments 878,197
Entertainment 5.35%
14,930 Circus Circus Enterprises, Inc.* 416,174
13,450 ITT Corp.* 712,850
36,250 Time Warner, Inc. 1,372,969
-----------
2,501,993
Foods 3.37%
11,215 Unilever N.V. 1,578,511
See notes to financial statements.
<PAGE>
E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s (cont'd.)
December 31, 1995
______________________________________________________________________________
Number
of Shares Value
______________________________________________________________________________
Hospital Management 1.25%
28,150 Tenet Healthcare Corp.* $ 584,112
Insurance 4.05%
30,295 Allstate Corp. 1,245,882
13,450 ITT Hartford Group* 650,644
----------
1,896,526
Leisure 2.06%
19,630 Carnival Cruise Lines, Inc. 478,481
15,745 Mattel, Inc. 484,159
---------
962,640
Machinery 1.80%
23,890 Deere & Co. 842,122
Media 3.24%
12,275 Capital Cities/ABC, Inc. 1,514,428
Miscellaneous 3.61%
47,130 Philips Electronics N.V. 1,690,789
Office Equipment 4.63%
14,670 Compaq Computer Corp.* 704,160
14,820 International Business Machines Corp. 1,359,735
3,700 Silicon Graphics, Inc.* 101,750
-----------
2,165,645
Oils 6.61%
11,185 Amoco Corp. 803,922
8,375 Atlantic Richfield Co. 927,531
12,170 Mobil Corp. 1,363,040
-----------
3,094,493
Other Financial 3.78%
28,100 Travelers Group, Inc. 1,766,788
Paper 5.14%
35,010 International Paper 1,326,004
24,990 Weyerhaeuser Co. 1,080,818
------------
2,406,822
See notes to financial statements.
<PAGE>
E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s (cont'd.)
December 31, 1995
______________________________________________________________________________
Number
of Shares Value
______________________________________________________________________________
Pollution Control 4.20%
21,350 Browning Ferris Industries $ 629,825
44,670 WMX Technologies, Inc. 1,334,516
-----------
1,964,341
Printing & Publishing 0.08%
600 Dun and Bradstreet 38,850
Railroads 7.03%
14,382 Burlington Northern Santa Fe Corp. 1,121,796
46,100 Canadian Pacific 835,562
20,190 Union Pacific Corp. 1,332,540
-----------
3,289,898
Retail Stores 1.68%
28,510 Federated Department Stores, Inc.* 784,025
Specialty Stores 0.45%
7,700 Circuit City Stores, Inc. 212,712
Tobacco 2.95%
15,275 Philip Morris Companies, Inc. 1,382,388
Utilities 0.88%
14,900 Tele Danmark A/S-ADR 411,612
Total Common Stocks
(cost $40,740,181) 44,333,469
PREFERRED STOCKS 3.46%
Entertainment 3.08%
74,880 News Corp. Ltd. Preferred ADR 1,441,440
Tobacco 0.38%
27,600 RJR Nabisco Holdings Corp. Series C Pfd. 175,950
Total Preferred Stocks
(cost $1,630,285) 1,617,390
See notes to financial statements.
<PAGE>
E q u i t y P o r t f o l i o
S c h e d u l e o f I n v e s t m e n t s (cont'd.)
December 31, 1995
______________________________________________________________________________
Principal
Amount Value
______________________________________________________________________________
SHORT-TERM INVESTMENTS 2.19%
Commercial Paper 0.85%
$400,000 IBM Credit Corp., 5.69%, 1/24/96 $ 398,572
Money Market 1.34%
624,726 United Missouri Bank
Money Market Fiduciary 624,726
Total Short-term Investments
(cost $1,023,298) 1,023,298
Total Investments 100.40%
(cost $43,393,764) 46,974,157
Liabilities, less Cash
and Other Assets (0.40)% (186,539)
NET ASSETS 100.00% $46,787,618
See notes to financial statements.
*Non-income producing
<PAGE>
I C A P F u n d s , I n c .
S t a t e m e n t s o f A s s e t s a n d L i a b i l i t i e s
December 31, 1995
______________________________________________________________________________
Discretionary
Equity Equity
Portfolio Portfolio
______________________________________________________________________________
ASSETS:
Investments, at fair value
(cost $35,834,881 and $43,393,764, respectively) $38,112,038 $46,974,157
Cash 145,616- --
Interest and dividends receivable 70,763 75,811
Deferred organization costs 29,033 29,032
Prepaid blue sky fees 13,218 13,217
Other assets 8,417 151
Total Assets 38,379,085 47,092,368
LIABILITIES:
Payable for securities purchased 934,053 188,479
Payable to adviser 43,111 43,110
Accrued expenses 29,454 32,560
Accrued investment advisory fee 7,820 36,319
Other liabilities 2,214 4,282
Total Liabilities 1,016,652 304,750
NET ASSETS $37,362,433 $46,787,618
NET ASSETS CONSIST OF:
Capital stock $ 14,696 $ 17,975
Paid-in capital in excess of par 35,082,794 43,203,484
Undistributed net investment income 6,201 51
Distributions in excess of net realized
gain on investments (18,415) (14,285)
Net unrealized appreciation on investments 2,277,157 3,580,393
Net Assets $37,362,433 $46,787,618
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000 100,000,000
Issued and outstanding 1,469,574 1,797,493
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $25.42 $26.03
See notes to financial statements.
<PAGE>
I C A P F u n d s , I n c .
S t a t e m e n t s o f O p e r a t i o n s
For the Year Ended December 31, 1995
_____________________________________________________________________________
Discretionary
Equity Equity
Portfolio Portfolio
______________________________________________________________________________
INVESTMENT INCOME:
Dividends $ 344,203 (1) $ 503,950(2)
100,666 43,185
444,869 547,135
EXPENSES:
Investment advisory fees 141,845 190,793
Fund administration and accounting fees 57,537 71,286
Federal and state registration fees 15,724 19,007
Shareholder servicing 11,494 11,549
Legal fees 11,478 11,478
Custody fees 8,064 10,272
Amortization of organization costs 7,255 7,255
Directors' fees 7,225 7,225
Reports to shareholders 6,569 6,591
Audit fees 6,389 6,389
Other 2,290 3,422
Total expenses before waiver 275,870 345,267
Waiver of expenses by adviser (134,025) (154,474)
Net expenses 141,845 190,793
NET INVESTMENT INCOME 303,024 356,342
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 1,751,535 2,362,765
Change in unrealized appreciation
on investments 2,277,157 3,580,393
Net gain on investments 4,028,692 5,943,158
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $4,331,716 $6,299,500
(1) Net of $4,666 in foreign withholding taxes.
(2) Net of $4,846 in foreign withholding taxes.
See notes to financial statements.
<PAGE>
I C A P F u n d s , I n c .
S t a t e m e n t s o f C h a n g e s i n N e t A s s et s
For the Year Ended December 31, 1995
______________________________________________________________________________
Discretionary
Equity Equity
Portfolio Portfolio
______________________________________________________________________________
OPERATIONS:
Net investment income $ 303,024 $ 356,342
Net realized gain on investments 1,751,535 2,362,765
Change in unrealized appreciation
on investments 2,277,157 3,580,393
Net increase in net assets resulting
from operations 4,331,716 6,299,500
DISTRIBUTIONS PAID FROM:
Net investment income (300,886) (356,342)
In excess of book net investment income --- (4,012)
Net realized gain on investments (1,751,535) (2,362,765)
In excess of book net realized gain
on investments (18,415) (14,285)
Net decrease in net assets resulting from
distributions paid (2,070,836) (2,737,404)
CAPITAL SHARE TRANSACTIONS:
Shares sold 33,190,611 42,888,716
Shares issued to holders in
reinvestment of distributions 1,982,225 2,429,267
Shares redeemed (170,283) (2,093,461)
Net increase in net assets resulting from
capital share transactions 35,002,553 43,224,522
TOTAL INCREASE IN NET ASSETS 37,263,433 46,786,618
NET ASSETS:
Beginning of year 99,000 1,000
End of year $37,362,433 $46,787,618
See notes to financial statements.
<PAGE>
I C A P F u n d s , I n c .
F i n a n c i a l H i g h l i g h t s
For the Year Ended December 31, 1995
______________________________________________________________________________
Discretionary
Equity Equity
For a share outstanding throughout the year) Portfolio(1) Portfolio(1)
______________________________________________________________________________
Net asset value, beginning of year $20.00 $20.00
Income from investment operations:
Net investment income 0.31 0.28
Net realized and unrealized gain on investments 6.70 7.45
Total income from investment operations 7.01 7.73
Less distributions:
From net investment income (0.31) (0.28)
From net realized gain on investments (1.27) (1.41)
In excess of book net realized gain on investments (0.01) (0.01)
Total distributions (1.59) (1.70)
Net asset value, end of year $25.42 $26.03
Total return 35.21% 38.85%
Supplemental data and ratios:
Net assets, end of year (in thousands) $37,362 $46,788
Ratio of expenses to average net assets(2) 0.80% 0.80%
Ratio of net investment income to average
net assets (2) 1.71% 1.49%
Portfolio turnover rate 102% 105%
(1) Commencement of operations January 1, 1995.
(2) Net of waivers by ICAP. Without waivers of expenses, the ratio of
expenses to average net assets would have been 1.56% and 1.44%, and the
ratio of net investment income to average net assets would have been 0.95%
and 0.85% for the Discretionary Equity and Equity Portfolios,
respectively.
See notes to financial statements.
<PAGE>
N o t e s t o F i n a n c i a l S t a t e m e n t s
D e c e m b e r 3 1, 1 9 9 5
1. Organization
ICAP Funds, Inc. ("ICAP") was incorporated on November 1, 1994 under the laws
of the State of Maryland and is registered as an open-end management
investment company under the Investment Company Act of 1940. Both the
Discretionary Equity and Equity Portfolios (the "Portfolios") are diversified
portfolios of ICAP. The Discretionary Equity and Equity Portfolios issued and
sold 4,950 and 50 shares of common stock, respectively ("initial shares") at
$20 per share to Institutional Capital Corporation. Institutional Capital
Corporation is the investment adviser (the "Adviser") to the Portfolios. Both
Portfolios commenced operations on January 1, 1995. The costs incurred in
connection with the organization, initial registration and public offering of
shares of the Portfolios aggregated $36,288 and $36,287 for the Discretionary
Equity and Equity Portfolios, respectively. These costs are being amortized
over the period of benefit, but not to exceed 60 months from each Portfolio's
commencement of operations. The proceeds of any redemption of the initial
shares by the original stockholder or any transferee will be reduced by a pro
rata portion of any then unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number
of initial shares outstanding at the time of such redemption.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by ICAP in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - 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 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 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 recognized daily.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Portfolios have complied to date with the provisions of the Internal
Revenue Code available to regulated investment companies and intend to
continue to so comply in future years.
c) Distributions to Shareholders - Dividends from net investment income are
declared and paid quarterly. Dividends differ from book net investment income
due to the nondeductible tax treatment of items such as organization costs.
Distributions of net realized capital gains, if any, will be declared at least
annually. Distributions to shareholders are recorded on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gain may differ from the characterization for federal income
tax purposes due to differences in the recognition of income, expense and gain
items for financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts are made for such differences
that are permanent in nature. Accordingly, at December 31, 1995,
reclassifications were recorded from undistributed net investment income to
reduce paid-in capital by $4,063 for both the Discretionary Equity and Equity
Portfolios.
<PAGE>
d) Short-term Investments - The Portfolios maintain uninvested cash in a bank
overnight investment vehicle at their custodian. This may present credit risk
to the extent the custodian fails to perform in accordance with the custody
agreement. The creditworthiness of the custodian is monitored and this
investment is considered to present minimal credit risk by the Portfolios'
Adviser.
e) Other - Investment transactions are accounted for on the trade date plus
one. The Portfolios determine the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with the
net sale proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis.
3. Capital Share Transactions
Transactions in shares of the Portfolios for the year ended December 31, 1995
were as follows:
Discretionary
Equity Equity
Portfolio Portfolio
Shares sold 1,392,981 1,783,850
Shares issued to holders in
reinvestment of distributions 78,723 94,610
Shares redeemed (7,080) (81,017)
Net increase 1,464,624 1,797,443
4. Investment Transactions
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government obligations, for the Portfolios for the year
ended December 31, 1995 are summarized below:
Discretionary
Equity Equity
Portfolio Portfolio
Purchases $48,007,427 $65,703,268
Sales $17,640,547 $25,695,567
There were no purchases or sales of U.S. government obligations. At December
31, 1995, gross unrealized appreciation and depreciation of investments, based
on cost for federal income tax purposes of $35,853,299 and $43,408,048 for the
Discretionary Equity and Equity Portfolios, respectively, were as follows:
Discretionary
Equity Equity
Portfolio Portfolio
Appreciation $3,066,343 $4,510,729
Depreciation (807,604) (944,620)
Net appreciation on
investments $2,258,739 $3,566,109
For the year ended December 31, 1995, 100% of dividends paid from net
investment income, excluding short-term capital gains, qualifies for the
dividends received deduction available to corporate shareholders of both the
Discretionary Equity and Equity Portfolios.
<PAGE>
5. Investment Advisory Agreement
The Portfolios have an agreement with the Adviser, with whom certain officers
and directors of ICAP are affiliated, to furnish investment advisory services
to the Portfolios. Under the terms of this agreement, the Portfolios will pay
the Adviser a monthly fee at the annual rate of 0.80% of average net assets.
Under the investment advisory agreement, if the aggregate annual operating
expenses (excluding interest, taxes, brokerage commissions and other costs
incurred in connection with the purchase or sale of portfolio securities, and
extraordinary items) exceed 0.80%, the Adviser will reimburse the Portfolios
for the amount of such excess.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of the ICAP Funds, Inc.
We have audited the accompanying statements of assets and liabilities of the
ICAP Funds, Inc. (the "Funds") (comprising, respectively the Discretionary
Equity and the Equity Portfolios), including the schedules of investments in
securities, as of December 31, 1995, and the related statements of operations
and changes in net assets, and financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting ICAP Funds, Inc., as of December 31,
1995, and the results of their operations, the changes in their net assets,
and the financial highlights for the year then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P
Milwaukee, Wisconsin
January 19, 1996
<PAGE>
APPENDIX
BOND RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
Investment Grade
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Speculative grade
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C'
<PAGE>
the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.
CC Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
C Debt rated 'C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grade period. The 'D' rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's Long-Term Debt Ratings
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 risk 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 some time 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
<PAGE>
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.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The
ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
<PAGE>
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated 'AAA'. Because bonds rated in the 'AAA' and 'AA'
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of the issuers is generally rated
'F-1+'.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to
have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher
ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The
ratings ('BB' to 'C') represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation
for bond issues not in default. For defaulted bonds, the rating ('DDD' to
'D') is an assessment of the ultimate recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives
can be identified which could assist the obligor in satisfying its
debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD,
DD
and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization
of the obligor. 'DDD' represents the highest potential for
recovery of these bonds, and 'D' represents the lowest potential
for recovery.
<PAGE>
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related
to such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and
expertise. The projected viability of the obligor at the trough of the cycle
is a critical determination.
Each rating also takes into account the legal form of the security,
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.). The
extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the different
security classes in the capital structure, the overall credit strength of the
issuer, and the nature of covenant protection.
The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall
within the definition of investment grade securities, as defined by bank and
insurance supervisory authorities. Structured finance issues, including real
estate, asset-backed and mortgage-backed financings, use this same rating
scale. Duff & Phelps Credit Rating claims paying ability ratings of insurance
companies use the same scale with minor modification in the definitions.
Thus, an investor can compare the credit quality of investment alternatives
across industries and structural types. A "Cash Flow Rating" (as noted for
specific ratings) addresses the likelihood that aggregate principal and
interest will equal or exceed the rated amount under appropriate stress
conditions.
Rating Scale Definition
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
AA is modest, but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However, risk
A factors are more variable and greater in periods of
A- economic stress.
BBB+ Below average protection factors but still considered
BBB sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial protection factors
BB- fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently
within this category.
<PAGE>
B+ Below investment grade and possessing risk that obligations
B will not be met when due. Financial protection
B- factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors
are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet schedule
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
Moody's Commercial Paper Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act of 1933, as amended.
<PAGE>
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics: (i) leading market positions in well established industries,
(ii) high rates of return on funds employed, (iii) conservative capitalization
structures with moderate reliance on debt and ample asset protection, (iv)
broad margins in earnings coverage of fixed financial charges and high
internal cash generation, and (v) well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Investors Service, Inc. Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ Exceptionally Strong Credit Quality Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than
issues rated 'F-1+'.
F-2 Good Credit Quality Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the margin
of safety is not as great as for issues assigned 'F-1+' and 'F-1'
ratings.
F-3 Fair Credit Quality Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could
cause these securities to be rated below investment grade.
<PAGE>
F-S Weak Credit Quality Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
<PAGE>
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps' short-term ratings are consistent with the rating
criteria used by money market participants. The ratings apply to all
obligations with maturities of under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper is also rated
according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is
the level of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps Credit Ratings' short-term
ratings is the refinement of the traditional '1' category. The majority of
short-term debt issuers carry the highest rating, yet quality differences
exist within that tier. As a consequence, Duff & Phelps Credit Rating has
incorporated gradations of '1+' (one plus) and '1-' (one minus) to assist
investors in recognizing those differences.
These ratings are recognized by the SEC for broker-dealer requirements,
specifically capital computation guidelines. These ratings meet Department of
Labor ERISA guidelines governing pension and profit sharing investments.
State regulators also recognize the ratings of Duff & Phelps Credit Rating for
insurance company investment portfolios.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Non-investment Grade
D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (All included in Parts A and B)
Financial Statements
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits
(1) Registrant's Articles of Incorporation*
(2) Registrant's By-Laws*
(3) None
(4) None
(5) Investment Advisory Agreement**
(6) None
(7) None
(8) Custodian Agreement with United Missouri Bank, n.a. **
(9.1) Transfer Agency Agreement with Sunstone Financial
Group, Inc.
<PAGE>
(9.2) (a) Administration anf Fund Accounting Agreement with
Sunstone Financial Group, Inc.**
(b) Amendment to Administration and Fund Accouting
Agreement with Sunstone Financial Group, Inc.
dated January 1, 1996
(10) Opinion of Godfrey & Kahn, S.C.**
(11) Consent of Coopers & Lybrand L.L.P.
(12) None
(13) Subscription Agreements**
(14) Individual Retirement Trust Account**
(15) None
(16) Schedule for Computation of Performance Quotations
(17) Financial Data Schedule***
(18) None
* Incorporated by reference from Registrant's Registration Statement on
Form N-1A as filed with the Securities and Exchange Commission on November
4, 1994.
** Incorporated by reference from Registrant's Pre-Effective Amendment No. 1
to its Registration Statement on Form N-1A as filed with the Securities
and Exchange Commission on December 14, 1994.
*** Incorporated by reference from Registrant's N-SAR as filed with the
Securities and Exchange Commission on February 27, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common control with
any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Securities as of February 29, 1996
Common Stock, $.01 par value 116
<PAGE>
Item 27. Indemnification
Article VI of Registrant's By-Laws provides as follows:
ARTICLE VI INDEMNIFICATION
The Corporation shall indemnify (a) its Directors and officers,
whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by (i) Maryland law now or hereafter
in force, including the advance of expenses under the procedures and to
the full extent permitted by law, and (ii) the Investment Company Act of
1940, as amended, and (b) other employees and agents to such extent as
shall be authorized by the Board of Directors and be permitted by law.
The foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be entitled.
The Board of Directors may take such action as is necessary to carry out
the indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts
implementing such provisions or such further indemnification arrangements
as may be permitted by law.
Item 28. Business and Other Connections of Investment Adviser
None.
Item 29. Principal Underwriters
(a) None
(b) None
(c) None
Item 30. Location of Accounts and Records
All accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of Institutional Capital
Corporation, Registrant's investment adviser, at Registrant's corporate
offices, except (1) records held and maintained by United Missouri Bank,
n.a., 928 Grand Avenue, Kansas City, MO 64141, relating to its function
as custodian and (2) records held and maintained by Sunstone Financial
Group, Inc., 207 E. Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202, relating to its function as transfer agent, administrator, and
fund accountant.
Item 31. Management Services
All manaagement-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of shareholders, if
requested to do so by the holders of at least 10% of the
Registrant's outstanding shares, for the purpose of voting
upon the question of removal of a director or directors.
The Registrant also undertakes to assist in communications
with other sharehodlers as required by Section 16(c) of the
Investment Company Act of 1940; and
(b) Registrant undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's
1995 Annual Report, upon request and without charge.
<PAGE>
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 pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 4 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago and State of Illinois on the 22nd day of April, 1996.
ICAP FUNDS, INC. (Registrant)
By: /s/ Robert H. Lyon
______________________________
Robert H. Lyon
President
Each person whose signature appears below constitutes and appoints
Robert H. Lyon and Pamela H. Conroy, and each of them, his true and lawful
attorney-in-fact and aagent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all post-effective amendments to this Registration Statement and to
file the same, with all exhibits thereto, andy any other documents in
connection therewith, with the Securities and Exchange Commission andy any
other regulatory body, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his substitute or substitutes, amy lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the
date(s) indicated.
Name Title Date
______ _______ _______
/s/ Robert H. Lyon President and a Director April 22, 1996
_____________________
Robert H. Lyon
/s/ Pamela H. Conroy Vice President, Treasurer April 22, 1996
_____________________
Pamela H. Conroy and a Director
/s/ Donald D. Niemann Vice President, Secretary April 22, 1996
_____________________
Donald D. Niemann and a Director
/s/ Gary S. Maurer Director April 22, 1996
_____________________
Gary S. Maurer
/s/ Dr. James A. Gentry Director April 22, 1996
______________________
Dr. James A. Gentry
/s/ Barbara A. Chiesa Director April 22, 1996
______________________
Barbara A. Chiesa
_______________________ Director _______________
Harold W. Nations
________________________ Director ________________
Joseph Andrew Hays
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(1) Registrant's Articles of Incorporation (previously filed as
Exhibit 1 to the Registration Statement on Form N-1A, File
Nos. 811-8850 and 33-86006)
(2) Registrant's By-Laws (previously filed as Exhibit 2 to the
Registration Statement on Form N-1A, File Nos 811-8850 and
33-86006)
(3) None
(4) None
(5) Investment Advisory Agreement (previously filed as Exhibit 5
to Registrant's Pre-Effective Amendment No. 1 to Registration
Statement on Form N-1A, File Nos. 811-8850 and 33-86006)
(6) None
(7) None
(8) Custodian Agreement with United Missouri Bank, n.a. (previously
filed as Exhibit 8 to Registrant's Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A, File Nos. 811-8850 and
33-86006)
(9.1) Transfer Agency Agreement with Sunstone Financial Group, Inc.
(9.2) (a) Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc. (previously filed as
Exhibit 9.2 to Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form N-1A, File
Nos. 811-8850 and 33-86006)
(b) Amendment to Administration and Fund Accounting
Agreement with Sunstone Financial Group, Inc.
dated January 1, 1996
(10) Opinion and Consent of Godfrey & Kahn, S.C. (previously filed
as Exhibit 10 to Registrant's Post-Effective Amendment No. 2
to Registration Statement on Form N-1A, File Nos. 811-8850
and 33-86006)
(11) Consent of Coopers & Lybrand L.L.P.
(12) None
(13) Subscription Agreement (previously filed as Exhibit 13 to
Registrant's Pre-Effective Amendment No. 1 to Registration
Statement on Form N-1A, File Nos. 811-8850 and 33-86006)
<PAGE>
(14) Individual Retirement Trust Account (previously filed as
Exhibit 14 to Registrant's Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A, File Nos. 811-8850
and 33-86006)
(15) None
(16) Schedule for Computation of Performance Quotations
(17) Financial Data Schedule (previously filed as part of
Registrant's N-SAR, as filed with the Securities and
Exchange Commission on February 27, 1996)
(18) Powers of Attorney for Directors and Officers (see signature
page)
<PAGE>
Exhibit 9.1
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT made as of the 1st day of November,
1995 by and between ICAP FUNDS, INC., a Maryland
corporation having its principal place of business at
225 West Wacker Drive, Suite 2400, Chicago, Illinois,
60606 (the "Corporation"), and SUNSTONE FINANCIAL
GROUP, INC., a Wisconsin corporation, having its
principal place of business at 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin, 53202 (the
"Sunstone"):
WITNESSETH:
WHEREAS, the Corporation is registered under the
Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company and
is authorized to issue shares of common stock
("Shares") in separate series with each such series
representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Corporation desires to retain Sunstone
to render the transfer agency and other services
contemplated hereby with respect to each of the
investment portfolios of the Corporation as are listed
on Exhibit A hereto and any additional investment
portfolios the Corporation and Sunstone may agree upon
and include on Exhibit A as such Exhibit may be amended
from time to time (such investment portfolios and any
additional investment portfolios are individually
referred to as a "Fund" and collectively the "Funds"),
and Sunstone is willing to render such services.
NOW, THEREFORE, in consideration of the mutual
promises and agreements herein contained and other good
and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
ARTICLE I
APPOINTMENT OF TRANSFER AGENT
A. Appointment. The Corporation hereby
constitutes and appoints Sunstone as transfer agent and
dividend disbursing agent of all the Shares of the
Funds during the period of this Agreement, and Sunstone
hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform the
duties thereof as hereinafter set forth.
B. Documents/Records.
1. In connection with such appointment, the
Corporation shall deliver the following documents to
Sunstone:
a) A copy of the Articles of Incorporation
of the Corporation and all amendments thereto certified
by the Secretary of the Corporation;
<PAGE>
b) A copy of the By-Laws of the
Corporation certified by the Secretary of the
Corporation;
c) A copy of the resolutions of the Board
of Directors of the Corporation certified by the
Secretary of the Corporation appointing Sunstone and
authorizing the execution of this Transfer Agency
Agreement on behalf of the Funds and designating
certain persons to sign stock certificates and give
written or oral instructions and requests on behalf of
the Funds;
d) A certificate signed by the Secretary
of the Corporation specifying: the number of
authorized Shares and the number of such authorized
Shares issued and currently outstanding; the names and
specimen signatures of the officers of the Corporation
authorized to sign written stock certificates and the
individuals authorized to provide oral instructions and
to sign written instructions and requests; and the name
and address of the legal counsel for the Funds;
e) In the event the Corporation issues
Share certificates, specimen Share certificates for
each Fund in the form approved by the Board of
Directors of the Corporation (and in a format
compatible with Sunstone's operating system), together
with a Certificate signed by the Secretary of the
Corporation as to such approval;
f) Copies of the Corporation's
Registration Statement, as amended to date, and the
most recently filed Post-Effective Amendment thereto,
filed by the Corporation with the Securities and
Exchange Commission under the Securities Act of 1933,
as amended (the "1933 Act"), and under the 1940 Act, as
amended, together with any applications filed in
connection therewith; and
g) Opinion of counsel for the Corporation
with respect to the Corporation's organization and
existence under the laws of its state of organization,
the validity of the authorized and outstanding Shares,
whether such Shares are fully paid and non-assessable
and the status of such Shares under the 1933 Act, and
any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been
registered and that the Registration Statement has
become effective or, if exempt, the specific grounds
therefor.)
2. The Corporation agrees to deliver or to
cause to be delivered to Sunstone in Milwaukee,
Wisconsin, at the Corporation's expense, all of its
shareholder account records relating to the Funds in a
format acceptable to Sunstone.
C. Scope of Appointment.
1. Sunstone, utilizing the Phoenix Systems
Funds/Net Shareholder Accounting System (the
"System"), a computerized data processing recordkeeping
system for securityholder accounting, shall perform the
transfer agent and dividend disbursing agent services
described on Exhibit B hereto. To the extent that a
Fund requests Sunstone to perform any additional
services in a manner not consistent with Sunstone's
then current
<PAGE>
utilization of the System or Sunstone's
usual processing procedures, Sunstone and the Fund
shall mutually agree as to the services to be
accomplished, the manner of accomplishment and the
compensation to which Sunstone shall be entitled with
respect thereto.
2. Sunstone may, in its discretion, appoint in
writing other parties qualified to perform transfer
agency and shareholder services reasonably acceptable
to the Funds (individually, a "Sub-transfer Agent") to
carry out some or all of its responsibilities under
this Agreement with respect to a Fund; provided,
however, that unless the Fund shall enter into a
written agreement with such Sub-transfer Agent, the
Sub-transfer Agent shall be the agent of Sunstone and
not the agent of the Corporation or such Fund and, in
such event Sunstone shall be fully responsible for the
acts or omissions of such Sub-transfer Agent and shall
not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer
Agent.
3. Subject to Sunstone's duty to act in good
faith with respect to the services described in this
Agreement, Sunstone shall have no duties or
responsibilities whatsoever hereunder except such
duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation
shall be implied in this Agreement against Sunstone.
ARTICLE II
COMPENSATION & EXPENSES
A. Compensation. In consideration for its
services hereunder as transfer agent and dividend
disbursing agent, the Corporation, on behalf of each
Fund will pay to Sunstone such compensation as shall be
set forth in a separate fee schedule to be agreed to by
the Corporation and Sunstone from time to time. A copy
of the initial fee schedule is attached hereto as
Exhibit C.
B. Expenses. The Corporation, on behalf of the
Funds also agrees to promptly reimburse Sunstone for
all reasonable out-of-pocket expenses or disbursements
incurred by Sunstone in connection with the performance
of services under this Agreement including, but not
limited to, expenses for postage, express delivery
services, freight charges, envelopes, checks, drafts,
forms (continuous or otherwise), specially requested
reports and statements, telephone calls, telegraphs,
stationery supplies, outside printing and mailing
firms, magnetic tapes, reels or cartridges (if sent to
a Fund or to third party at the Fund's request) and
magnetic tape handling charges, off-site record
storage, media for storage of records (e.g., microfilm,
microfiche, optical platters, computer tapes), computer
equipment installed at a Fund's request at the Fund's
or a third party's premises, telecommunications
equipment, telephone/telecommunication lines between a
Fund and its agents, on one hand, and Sunstone on the
other, proxy soliciting, processing and/or tabulating
costs, second site backup computer facility,
transmission of statement data for remote printing or
processing, and transaction fees to the extent any of
the foregoing are paid by Sunstone. Such expenses
shall not include personnel changes except with the
prior written approval of an Officer (as hereinafter
defined). The Corporation agrees to pay postage
expenses in advance if so
<PAGE>
requested by Sunstone. In
addition, any other expenses incurred by Sunstone at
the written request or with the written consent of the
Corporation will be promptly reimbursed by the
Corporation.
C. Payment Procedures.
1. Amounts due hereunder shall be due and paid
by the Corporation, on behalf of the respective Fund on
or before the thirtieth (30th) day after the date of
the statement therefor (the "Due Date"). The
Corporation is aware that its failure to pay all
amounts in a timely fashion so that they will be
received by Sunstone on or before the Due Date will
give rise to costs to Sunstone not contemplated by this
Agreement, including but not limited to carrying,
processing and accounting charges. Accordingly, in the
event that any amounts due hereunder are not received
by Sunstone by the Due Date, the Corporation shall pay
a late charge equal to one percent (1.0%) per month or
the maximum amount permitted by law, whichever is less,
until paid in full. In addition, the Corporation shall
pay reasonable attorney's fees and court costs of
Sunstone if any amounts due Sunstone are collected by
or through an attorney. The parties hereby agree that
such late charge represents a fair and reasonable
computation of the costs incurred by reason of late
payment or payment of amounts not properly due.
Acceptance of such late charge shall in no event
constitute a waiver of the Corporation's default or
prevent the nondefaulting party from exercising any
other rights and remedies available to it.
2. In the event that any charges are disputed,
the Corporation shall, on or before the Due Date, pay
all undisputed amounts due hereunder and notify
Sunstone in writing of any disputed charges for out-of-
pocket expenses which it is disputing in good faith.
Payment for such disputed charges shall be due on or
before the close of the fifth (5th) business day after
the day on which Sunstone provides to the Corporation
documentation which an objective observer would agree
reasonably supports the disputed charges (the "Revised
Due Date"). Late charges shall not begin to accrue as
to charges disputed in good faith until the first day
after the Revised Due Date.
ARTICLE III
PROCESSING AND PROCEDURES
A. Issuance, Redemption and Transfer of Shares.
1. Sunstone acknowledges that it has received
a copy of the Funds' Prospectus, which Prospectus
describes how sales and redemption of shares of each
Fund shall be made and Sunstone agrees to accept
purchase orders and redemption requests with respect to
Fund shares on each Fund Business Day in accordance
with such Prospectus. "Fund Business Day" shall be
deemed to be each day on which the New York Stock
Exchange is open for trading, and "Prospectus" shall
mean the last Fund prospectus actually received by
Sunstone from the Funds with respect to which the Funds
have indicated a registration statement under the 1933
Act has become effective, including the Statement of
Additional Information, incorporated by reference therein.
<PAGE>
2. On each Fund Business Day Sunstone shall,
as of the time at which the Funds compute the net asset
value of each Fund, issue to and redeem from the
accounts specified in a purchase order or redemption
request, which in accordance with the Prospectus is
effective on such day, the appropriate number of full
and fractional Shares based on the net asset value per
Share of such Fund specified in an advice received on
such Fund Business Day from or on behalf of the Fund.
3. Upon the issuance of any Shares in
accordance with this Agreement, Sunstone shall not be
responsible for the payment of any original issue or
other taxes required to be paid by a Fund in connection
with such issuance of any Shares.
4. Sunstone shall not be required to issue any
Shares after it has received from an Officer of the
Corporation or from an appropriate federal or state
authority written notification that the sale of Shares
has been suspended or discontinued, and Sunstone shall
be entitled to rely upon such written notification.
"Officer" shall be deemed to be the Corporation's
President, any Vice President, Secretary, Treasurer,
Controller, any Assistant Controller, any Assistant
Treasurer and any Assistant Secretary of the
Corporation, and any other person duly authorized by
the Board of Directors of the Corporation to execute
any certificate, instruction, notice or other
instrument or provide oral instructions on behalf of
the Corporation and disclosed in writing to Sunstone,
as such individuals may be amended from time to time
and disclosed in writing to Sunstone, and any person
reasonably believed by Sunstone to be such a person.
5. Upon receipt of a proper redemption request
and monies paid to it by the Custodian in connection
with a redemption of Shares, Sunstone shall cancel the
redeemed Shares and after making appropriate deduction
for any withholding of taxes required of it by
applicable law, make payment in accordance with the
Funds' redemption and payment procedures described in
the Prospectus.
6. (a) Except as otherwise provided in sub-
paragraph (b) of this paragraph, Shares will be
transferred or redeemed upon presentation to Sunstone
of Share certificates, if any, or instructions properly
endorsed for transfer or redemption, accompanied by
such documents as Sunstone deems necessary to evidence
the authority of the person making such transfer or
redemption, and bearing satisfactory evidence of the
payment of stock transfer taxes. Sunstone reserves the
right to refuse to transfer or redeem Shares until it
is satisfied that the endorsement on the stock
certificate, if any, or instructions is valid and
genuine, and for that purpose it will require, unless
otherwise instructed by an Officer or except as
provided in sub-paragraph (b) of this paragraph, a
guarantee of signature by an "Eligible Guarantor
Institution" as that term is defined by SEC Rule
17Ad-15. Sunstone also reserves the right to refuse to
transfer or redeem Shares until it is satisfied that
the requested transfer or redemption is legally
authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or
redemptions which Sunstone, in its judgment, deems
improper or unauthorized, or until it is satisfied that
there is no basis to any claims adverse to such
transfer or redemption. Sunstone may, in effecting
transfers and redemptions of Shares, rely upon those
provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial
Code, as the same may be amended from time to
<PAGE>
time,
applicable to the transfer of securities, and the
applicable Fund or Funds shall indemnify Sunstone for
any act done or omitted by it in good faith in reliance
upon such laws. In no event will a Fund indemnify
Sunstone for any act done by it as a result of willful
misfeasance, bad faith, negligence or reckless
disregard of its duties.
(b) Notwithstanding the foregoing or any
other provision contained in this Agreement to the
contrary, Sunstone shall be fully protected by the
Funds in not requiring any instruments, documents,
assurances, endorsements or guarantees, including,
without limitation, any signature guarantees, in
connection with a redemption, or transfer, of Shares
whenever Sunstone reasonably believes that requiring
the same would be inconsistent with the transfer and
redemption procedures as described in the Prospectus.
7. Notwithstanding any provision contained in
this Agreement to the contrary, Sunstone shall not be
required or expected to require, as a condition to any
transfer of any Shares pursuant to paragraph 6 of this
Article or any redemption of any Shares pursuant to a
computer tape or electronic data transmission, any
documents to evidence the authority of the person
requesting the transfer or redemption and/or the
payment of any stock transfer taxes, unless Sunstone
has some basis upon which to question said authority,
and shall be fully protected in acting in accordance
with the applicable provisions of this Article.
8. In connection with each purchase and each
redemption of Shares, Sunstone shall send such
statements as are prescribed by the Federal securities
laws applicable to transfer agents or as described in
the Prospectus. If the Prospectus indicates that
certificates for Shares are available and if
specifically requested in writing by any shareholder,
or if otherwise required hereunder, Sunstone will
countersign, issue and mail to such shareholder at the
address set forth in the records of Sunstone a Share
certificate for any full Share requested.
9. On each Fund Business Day Sunstone shall
supply the Funds with a statement specifying with
respect to the immediately preceding Fund Business Day:
the total number of Shares of each Fund (including
fractional Shares) issued and outstanding at the
opening of business on such day; the total number and
the dollar amount of Shares of each Fund sold on such
day; the total number of Shares of each Fund and the
dollar amount redeemed from Shareholders by Sunstone on
such day; and the total number of Shares of each Fund
issued and outstanding at the close of business on such
day. Sunstone shall use its best efforts to supply
such statement to the Funds by 9:00 a.m. C.S.T. on each
Fund Business Day.
10. Sunstone upon written notice to the Funds
may establish such additional procedures, rules and
regulations governing the transfer or registration of
Share certificates, if any, or the purchase, redemption
or transfer of Shares, as it may deem advisable and
consistent with such rules and regulations generally
adopted by mutual fund transfer agents.
B. Dividends and Distributions.
<PAGE>
1. The Corporation shall furnish to Sunstone a
copy of a resolution of its Board of Directors,
certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of
a dividend or distribution, the date of accrual or
payment, as the case may be, thereof, the record date
as of which shareholders entitled to payment, or
accrual, as the case may be, shall be determined, the
amount per Share of such dividend or distribution, the
payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any,
payable to Sunstone on such payment date, or (ii)
authorizing the declaration of dividends and
distributions on a daily or other periodic basis and
authorizing Sunstone to rely on a Certificate, signed
by any Officer, setting forth the information described
in subsection (i) of this paragraph.
2. In connection with a reinvestment of a
dividend or distribution of Shares of a Fund, Sunstone
shall as of each Fund Business Day, as specified in a
Certificate or resolution described in paragraph 1,
issue Shares of the Fund based on the net asset value
per Share of such Fund specified in an advice received
from or on behalf of the Fund on such Fund Business
Day.
3. Upon the mail date specified in such
Certificate or resolution, as the case may be, the
Corporation shall, in the case of a cash-dividend or
distribution, cause the Custodian to deposit in an
account in the name of Sunstone on behalf of the Funds,
an amount of cash, if any, sufficient for Sunstone to
make the payment, as of the mail date, specified in
such Certificate or resolution, as the case may be, to
the Shareholders who were of record on the record date.
Sunstone will, upon receipt of any such cash, make
payment of such cash dividends or distributions to the
shareholders of record as of the record date. Sunstone
shall not be liable for any improper payments made in
good faith and without negligence, in accordance with a
Certificate or resolution described in paragraph 1. If
Sunstone shall not receive from the Custodian
sufficient cash to make payments of any cash dividend
or distribution to all shareholders of a Fund as of the
record date, Sunstone shall, upon prompt notification
to the Funds, withhold payment to all shareholders of
record as of the record date until sufficient cash is
provided to Sunstone.
4. It is understood that Sunstone in its
capacity as transfer agent and dividend disbursing
agent shall in no way be responsible for the
determination of the rate or form of dividends or
capital gain distributions due to the shareholders
pursuant to the terms of this Agreement. It is
expressly agreed and understood that Sunstone is not
liable for any loss as a result of processing a
distribution based on information provided in the
Certificate that is incorrect. The Funds agree to pay
Sunstone for any and all costs, both direct and out-of-
pocket expenses, incurred in such corrective work as
necessary to remedy such error, provided that Sunstone
has acted in good faith and without negligence.
5. It is understood that Sunstone shall file
such appropriate information returns concerning the
payment of dividend and capital gain distributions with
the proper federal, state and local authorities as are
required by law to be filed by the Funds but shall in
no way be responsible for the collection or withholding
of taxes due on such dividends or distributions due to
shareholders, except and only to the extent, required
by applicable law.
<PAGE>
C. Authorization and Issuance of Shares.
1. The Corporation shall deliver to Sunstone
the following documents on or before the effective date
of any increase or decrease in the total number of
Shares authorized to be issued:
(a) A certified copy of the amendment to
the Articles of Incorporation giving effect to such
increase or decrease;
(b) In the case of an increase, an opinion
of counsel for the Corporation with respect to the
validity of the Shares and the status of such Shares
under the 1933 Act, and any other applicable law or
regulation (i.e., if subject to registration, that they
have been registered and that the Registration
Statement has become effective or, if exempt, the
specific grounds therefor); and
(c) In the case of an increase, if the
appointment of Sunstone was theretofore expressly
limited, a certified copy of a resolution of the Board
of Directors of the Corporation increasing the
authority of Sunstone.
2. Prior to the issuance of any additional
Shares pursuant to stock dividends or stock splits,
etc., and prior to any reduction in the number of
shares outstanding, the Fund shall deliver the
following documents to Sunstone:
(a) A certified copy of the resolution(s)
adopted by the Board of Directors of the Corporation
and/or the shareholders of the Fund or Funds effected
thereby, authorizing such issuance of additional Shares
or such reduction, as the case may be, and
(b) An opinion of counsel for the
Corporation with respect to the validity of the Shares
and the status of such Shares under the 1933 Act, and
any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been
registered and that the Registration Statement has
become effective, or, if exempt, the specific grounds
therefor).
D. Recapitalization or Capital Adjustment.
1. In the case of any negative stock split,
recapitalization or other capital adjustment requiring
a change in the form of Share certificates, Sunstone
will issue Share certificates in the new form in
exchange for, or upon transfer of, outstanding Share
certificates in the old form, upon receiving:
(a) A Certificate, signed by any Officer,
authorizing the issuance of the Share certificates in
the new form;
(b) A certified copy of any amendment to
the Articles of Incorporation with respect to the
change;
<PAGE>
(c) In the event the Corporation issues
Share certificates, specimen Share certificates for
each class of Shares in the new form approved by the
Board of Directors of the Corporation, with a
Certificate signed by the Secretary of the Corporation
as to such approval; and
(d) An opinion of counsel for the
Corporation with respect to the validity of the Shares
in the new form and the status of such Shares under the
1933 Act, and any other applicable federal law or
regulation (i.e., if subject to registration, that the
Shares have been registered and that the Registration
Statement has become effective or, if exempt, the
specific grounds therefor.)
2. In the event the Corporation issues Share
certificates, the Corporation at its expense shall
furnish Sunstone with a sufficient supply of blank
Share certificates in the new form and from time to
time will replenish such supply upon the request of
Sunstone. Such blank Share certificates shall be
compatible with Sunstone's system and shall be properly
signed by facsimile or otherwise by Officers of the
Corporation authorized by law or by the By-Laws to sign
Share certificates and, if required, shall bear the
corporate Seal or facsimile thereof. The Corporation
agrees to indemnify and exonerate, save and hold
Sunstone harmless, from and against any and all claims
or demands that may be asserted against Sunstone with
respect to the genuineness of any Share certificate
supplied to Sunstone pursuant to this section.
ARTICLE IV
CONCERNING THE CORPORATION
A. Representations. The Corporation represents
and warrants to Sunstone that:
(a) It is a corporation duly organized and
existing under the laws of the State of Maryland.
(b) It is empowered under applicable laws and
by its Articles of Incorporation and By-Laws to enter
into and perform this Agreement.
(c) All requisite corporate proceedings have
been taken to authorize it to enter into and perform
this Agreement.
(d) It is an investment company registered
under the 1940 Act.
(e) A registration statement under the 1933
Act, with respect to the Shares is effective. The
Corporation shall notify Sunstone if such registration
statement or any state securities registrations have
been terminated or a stop order has been entered with
respect to the Shares.
B. Covenants.
<PAGE>
1. The Corporation will file with Sunstone
copies of all material amendments to its Articles of
Incorporation and By-laws made after the date of this
Agreement. Each copy of the Articles of Incorporation
of the Corporation and copies of all amendments thereto
shall be certified by the Secretary of State (or other
appropriate official) of the state of organization, and
if such Articles of Incorporation and/or amendments are
required by law also to be filed with a county or other
officer or official body, a certificate of such filing
shall be filed with a certified copy submitted to
Sunstone. Each copy of the By-Laws and copies of all
amendments thereto, and copies of resolutions of the
Board of Directors of the Fund, shall be certified by
the Secretary of the Corporation.
2. The Corporation shall promptly deliver to
Sunstone written notice of any change in the Officers
authorized to sign Share certificates, if any,
notifications or requests, or provide oral
instructions, together with a specimen signature of
each new Officer. In the event any Officer who shall
have signed manually or whose facsimile signature shall
have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such
Share certificates, Sunstone may issue such Share
certificates of the Corporation notwithstanding such
death, resignation or removal, and the Corporation
shall promptly deliver to Sunstone such approval,
adoption or ratification as may be required by law.
3. The Corporation shall deliver to Sunstone
the Funds' currently effective Prospectus and, for
purposes of this Agreement, Sunstone shall not be
deemed to have notice of any information contained in
such Prospectus until five (5) business days after it
is actually received by Sunstone.
4. All requisite steps will be taken by the
Corporation from time to time when and as necessary to
register the Corporation's shares for sale in all
states in which Corporation's shares shall at the time
be offered for sale and require registration. If at
any time the Corporation receives notice of any stop
order or other proceeding in any such state affecting
such registration or the sale of the Corporation's
shares, or of any stop order or other proceeding under
the federal securities laws affecting the sale of the
Corporation's shares, the Corporation will give prompt
notice thereof to Sunstone.
5. The Corporation will comply with all
applicable requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the
1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction over the
Corporation and its activities.
ARTICLE V
CONCERNING THE TRANSFER AGENT
A. Representations. Sunstone represents and
warrants to the Corporation that:
(a) It is a corporation duly organized and
existing under the laws of the State of Wisconsin.
<PAGE>
(b) It is empowered under applicable law and by
its Articles of Incorporation and By-Laws to enter into
and perform this Agreement.
(c) All requisite corporate proceedings have
been taken to authorize it to enter into and perform
this Agreement.
(d) It is duly registered as a transfer agent
under Section 17A of the 1934 Act.
B. Limitation of Liability.
1. Sunstone shall not be liable for any loss
or damage, including counsel fees, resulting from its
actions or omissions to act or otherwise, except for
any loss or damage arising out of its bad faith,
willful misfeasance, negligence or reckless disregard
of its duties under this Agreement.
2. Sunstone shall not be liable and shall be
indemnified in acting upon any oral instructions, or
any writing or document reasonably believed by it to be
genuine and to have been signed or made, by an Officer
or other person designated by the Corporation to act on
behalf of the Funds and shall not be held to have any
notice of any change of authority of any person until
receipt of written notice thereof from the Corporation
or such person. It shall also be protected in
processing Share certificates, if any, which bear the
proper countersignature of Sunstone and which it
reasonably believes to bear the proper manual or
facsimile signature of the Officers.
3. Sunstone shall not be liable to the
Corporation with respect to any redemption draft on
which the signature of the drawer is forged and which
the Corporation's custodian or cash management bank has
advised Sunstone to honor the redemption; nor shall
Sunstone be liable for any material alteration or
absence or forgery of any endorsement, it being
understood that Sunstone's sole responsibility with
respect to inspecting redemption drafts is to use
reasonable care to verify the drawer's signature
against signatures on file.
4. There shall be excluded from the
consideration of whether Sunstone has been negligent or
has breached this Agreement, any period of time, and
only such period of time, during which Sunstone's
performance is materially affected, by reason of
circumstances beyond its reasonable control
(collectively, "Causes"), including, without limitation
(except as provided below), (a) any interruption, loss,
malfunction or breakdowns of equipment (including any
alternative power supply, the System and other
operating systems hardware or software) provided,
however, that Sunstone shall use reasonable efforts to
mitigate the adverse effects of any of the foregoing
and shall use reasonable efforts to recommence services
as promptly as possible; and (b) flood or catastrophe,
acts of God or public enemy, failures of
transportation, communication or power supply, strikes,
inability to obtain labor, material, equipment or
transportation, delay in mails, government or exchange
action, statute, ordinance, rulings, regulations or
direction, war, riot, emergency, civil disturbance,
vandalism, explosions, labor disputes, freezes, fires,
tornados, lockouts, work stoppages or other similar
circumstances.
<PAGE>
5. IN NO EVENT AND UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO
ANYONE, INCLUDING, WITHOUT LIMITATION TO THE OTHER
PARTY, FOR CONSEQUENTIAL OR PUNITIVE DAMAGES FOR ANY
ACT OR FAILURE TO ACT UNDER ANY PROVISION OF THIS
AGREEMENT EVEN IF ADVISED OF THE POSSIBILITY THEREOF.
C. Indemnification.
1. The Corporation shall indemnify and
exonerate, save and hold harmless Sunstone from and
against any and all claims (whether with or without
basis in fact or law), demands, expenses (including
reasonable attorney's fees) and liabilities of any and
every nature which the Indemnified Party (as defined
below) may sustain or incur or which may be asserted
against the Indemnified Party by any person by reason
of or as a result of any action taken or omitted to be
taken by any prior transfer agent of the Corporation or
as a result of any action taken or omitted to be taken
by the Indemnified Party in good faith and without
negligence or willful misconduct or in reliance upon
(i) any provision of this Agreement; (ii) the
Prospectus; (iii) any instrument, order or Share
certificate reasonably believed by it to be genuine and
to be signed, countersigned or executed by any Officer;
(iv) any Certificate or other instructions of an
Officer; or (v) any opinion of legal counsel for the
Corporation or, if approved by the Corporation, for the
Indemnified Party. The Corporation shall indemnify and
exonerate, save and hold the Indemnified Party harmless
from and against any and all claims (whether with or
without basis in fact or law), demands, expenses
(including reasonable attorney's fees) and liabilities
of any and every nature which the Indemnified Party may
sustain or incur or which may be asserted against the
Indemnified Party by any person by reason of or as a
result of any action taken or omitted to be taken by
the Indemnified Party in good faith in connection with
its appointment or in reliance upon any law, act,
regulation or any interpretation of the same even
though such law, act or regulation may thereafter have
been altered, changed, amended or repealed.
2. Sunstone shall indemnify and hold the
Corporation harmless from and against any and all
losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or
attributable to any action or failure or omission to
act by Sunstone as a result of the Sunstone's lack of
good faith, negligence or willful misconduct.
3. The party seeking indemnification under
this Section (C) (the "Indemnified Party") shall not
settle any claim, demand, expense or liability to which
it may seek indemnity (each, an "Indemnifiable Claim")
without the express written consent of the party
against which indemnification is sought (the
"Indemnifying Party"). The Indemnified Party shall
notify the Indemnifying Party promptly after receipt of
notification of an Indemnifiable Claim, provided that
the failure to furnish such notification shall not
impair the Indemnified Party's right to seek
indemnification unless the Indemnifying Party is unable
to adequately defend the Indemnifiable Claim as a
result of such failure, and further provided, that if
as a result of the failure to provide timely notice of
the institution of litigation a judgment by default is
entered, prior to seeking indemnification, the
Indemnified Party, at its own cost and expense, shall
open such judgment. The Indemnifying Party shall have
the right to defend any Indemnifiable Claim at its own
expense, provided that such defense shall be
<PAGE>
conducted
by counsel selected by the Indemnifying Party and
reasonably acceptable to the Indemnified Party. The
Indemnified Party may join in such defense at its own
expense, but to the extent that it shall so desire the
Indemnifying Party shall direct such defense. The
Indemnifying Party shall not settle any Indemnifiable
Claim without the express written consent of the
Indemnified Party if the Indemnified Party determines
that such settlement would have an adverse effect on
the Indemnified Party beyond the scope of this
Agreement. In such event, each of the Indemnifying
Party and the Indemnified Party shall be responsible
for their own defense at their own cost and expense,
and such claim shall not be deemed an Indemnifiable
Claim hereunder. If the Indemnifying Party shall fail
or refuse to defend an Indemnifiable Claim, the
Indemnified Party may provide its own defense at the
cost and expense of the Indemnifying Party. Anything
in this Agreement to the contrary notwithstanding, the
Indemnifying Party shall not indemnify the Indemnified
Party against any liability or expense arising out of
the Indemnified Party's willful misfeasance, bad faith,
negligence or reckless disregard of its duties and
obligations under this Agreement.
4. The indemnity and defense provisions
provided hereunder shall indefinitely survive the
termination of this Agreement.
D. Records.
1. Sunstone shall keep such records as are
specified in Exhibit D hereto in the form and manner,
and for such period, as it may deem advisable and is
agreeable to the Corporation but not inconsistent with
the rules and regulations of appropriate government
authorities, in particular Rules 31a-2 and 31a-3 under
the 1940 Act. Sunstone acknowledges that such records
are the property of the Corporation. Sunstone may
deliver to the Corporation from time to time at its
discretion, for safekeeping or disposition by the
Corporation in accordance with law, such records,
papers, and documents accumulated in the execution of
its duties as transfer agent and dividend disbursing
agent, as Sunstone may deem expedient, other than those
which Sunstone is itself required to maintain pursuant
to applicable laws and regulations. The Corporation
shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled
Share certificate, or other document so returned, if
and when required. The records specified in Exhibit D
hereto maintained by Sunstone, which have not been
previously delivered to the Corporation pursuant to the
foregoing provisions of this paragraph, shall be
considered to be the property of the Corporation, shall
be made available upon request for inspection by the
officers, employees, and auditors of the Corporation,
and records shall be delivered to the Corporation
promptly upon request and in any event upon the date of
termination of this Agreement in the form and manner
kept by Sunstone on such date of termination or such
earlier date as may be requested by the Corporation.
2. In case of any requests or demands for the
inspection of the shareholder records of the
Corporation, Sunstone will endeavor to notify the
Corporation promptly and to secure instructions from an
Officer as to such inspection. Sunstone reserves the
right, however, to exhibit the shareholder records to
any person whenever it receives advice from its counsel
that there is a reasonable likelihood that Sunstone
will be held liable for the failure to exhibit the
shareholder records to such person; provided, however,
that in
<PAGE>
connection with any such disclosure Sunstone
shall promptly notify the Corporation that such
disclosure is to be made.
3. Sunstone shall only be responsible for the
safekeeping and maintenance of transfer agency records,
cancelled certificates, if any, and correspondence of
the Corporation created or produced prior to the time
of conversion which are under its control and
acknowledged in a writing to the Corporation to be in
its possession. Any expenses or liabilities incurred
by Sunstone as a result of shareholder inquiries,
regulatory compliance or audits related to such records
and not caused as a result of Sunstone's bad faith,
willful misfeasance or negligence shall be the
responsibility of the Corporation.
E. Procedures.
1. At any time Sunstone may apply to an
Officer of the Corporation for written instructions
with respect to any matter arising in connection with
Sunstone's duties and obligations under this Agreement,
and Sunstone shall not be liable for any action taken
or permitted by it in good faith in accordance with
such written instructions. Such application by
Sunstone for written instructions from an Officer of
the Corporation may set forth in writing any action
proposed to be taken or omitted by Sunstone with
respect to its duties or obligations under this
Agreement and the date on and/or after which such
action shall be taken. Sunstone shall not be liable
for any action taken or omitted in accordance with a
proposal included in any such application on or after
the date specified therein unless, prior to taking or
omitting any such action, Sunstone has received written
instructions in response to such application specifying
the action to be taken or omitted. Sunstone may
consult counsel of the Corporation, or upon notice and
approval from the Corporation, its own counsel, at the
expense of the Corporation and shall be fully protected
with respect to anything done or omitted by it in good
faith in accordance with the advice or opinion of
counsel to the Corporation or its own counsel.
2. In the event the Corporation issues Share
certificates, Sunstone may issue new Share certificates
in place of certificates represented to have been lost,
stolen, or destroyed upon receiving written
instructions from the shareholder accompanied by proof
of an indemnity or surety bond issued by a recognized
insurance institution specified by the Corporation or
Sunstone. If Sunstone receives written notification
from the shareholder or broker dealer that the
certificate issued was never received, and such
notification is made within 30 days of the date of
issuance, Sunstone may reissue the certificate without
requiring a surety bond. Sunstone may also reissue
certificates which are represented as lost, stolen, or
destroyed without requiring a surety bond provided that
the notification is in writing and accompanied by an
indemnification signed on behalf of a member firm of
the New York Stock Exchange and signed by an officer of
said firm with the signature guaranteed.
Notwithstanding the foregoing, Sunstone will reissue a
certificate upon written authorization from an Officer
of the Corporation.
3. At the request of an Officer of the
Corporation Sunstone will address and mail such
appropriate notices to shareholders as the Corporation
may direct and provide.
<PAGE>
4. Notwithstanding any of the foregoing
provisions of this Agreement, Sunstone shall be under
no duty or obligation under this Agreement to inquire
into, and shall not be liable for:
(a) The legality of the issue or sale of
any Shares, the sufficiency of the amount to be
received therefor, or the authority of the Corporation,
as the case may be, to request such sale or issuance;
(b) The legality of a transfer of Shares,
or of a redemption of any Shares, the propriety of the
amount to be paid therefor, or the authority of the
Corporation, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any
dividend by the Corporation, on behalf of a Fund or
Funds, or the legality of the issue of any Shares in
payment of any stock dividend; or
(d) The legality of any recapitalization or
readjustment of Shares.
ARTICLE V
TERMINATION
1. This Agreement shall remain in full force
and effect for a period of one year from the date
hereof, the initial term, and thereafter shall
automatically extend for additional, successive twelve
(12) month terms unless earlier terminated as provided
below. Each party, in addition to any other rights and
remedies, shall have the right to terminate this
Agreement at any time upon the material breach of this
Agreement by the other party. In the event of a
material breach, the non-breaching party shall notify
the breaching party in writing of such breach and upon
receipt of, such notice, the breaching party shall have
45 days to remedy the breach or the non-breaching party
may forthwith terminate this Agreement upon the
expiration of said period.
2. Either of the parties hereto may terminate
this Agreement only after the initial term, except as
noted in paragraph 1 above, by giving to the other
party a notice in writing specifying the date of such
termination, which shall be not less than 60 days after
the date of receipt of such notice. In the event such
notice is given by the Corporation, it shall be
accompanied by a copy of a resolution of the Board of
Directors of the Corporation, certified by the
Secretary or any Assistant Secretary, electing to
terminate this Agreement and designating the successor
transfer agent or transfer agents. In the event such
notice is given by Sunstone, the Corporation shall on
or before the termination date, deliver to Sunstone a
copy of a resolution of its Board of Directors
certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer
agents. In the absence of such designation by the
Corporation, the Corporation shall upon the date
specified in the notice of termination of this
Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and
Sunstone shall thereby be relieved of all duties and
<PAGE>
responsibilities pursuant to this Agreement. In the
event of termination, the Corporation will promptly pay
Sunstone all amounts due to Sunstone hereunder.
3. In the event this Agreement is terminated
as provided herein, Sunstone, upon the written request
of the Corporation, shall deliver the records of the
Corporation on electromagnetic media to the Corporation
or its successor transfer agent. The Corporation shall
be responsible to Sunstone for all out-of-pocket
expenses and for the reasonable costs and expenses
associated with the preparation and delivery of such
media, including: (a) any custom programming requested
by the Corporation in connection with the preparation
of such media; (b) transportation of forms and other
Corporation materials used in connection with the
processing of transactions by Sunstone on behalf of the
Corporation; and (c) transportation of the
Corporation's records and files in the possession of
Sunstone. Sunstone shall not reduce the level of
service provided to the Corporation following notice of
termination by the Corporation.
ARTICLE VI
MISCELLANEOUS
A. Notices.
1. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to
the Corporation shall be sufficiently given if
addressed to the Corporation and mailed or delivered to
the President at 225 West Wacker Drive, Suite 2400,
Chicago, Illinois, 60606, or at such other place as the
Corporation may from time to time designate in writing.
Any notice or other instrument in writing, authorized
or required by this Agreement to be given to Sunstone
shall be sufficiently given if addressed to Sunstone
and mailed or delivered to the President at 207 East
Buffalo Street, Suite 400, Milwaukee, Wisconsin, 53202,
or at such other place as Sunstone may from time to
time designate in writing.
2. The Corporation agrees that prior to
effecting any change in the prospectus which would
increase or alter the duties and obligations of
Sunstone hereunder, it shall advise Sunstone of such
proposed change at least 30 days prior to the intended
date of the same, and shall proceed with such change
only if it shall have received the written consent of
Sunstone thereto, which shall not be unreasonably
withheld.
B. Amendments/Assignments.
1. This Agreement may not be amended or
modified in any manner except by a written agreement
executed by both parties with the formality of this
Agreement.
2. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective
successors and assigns. This Agreement shall not be
assignable by either party without the written consent
of the other party except that Sunstone may assign this
Agreement to an affiliate with advance written notice
to the Corporation; provided,
<PAGE>
however, that the
personnel of the affiliate have the same or better
qualifications and experience as Sunstone.
C. Wisconsin Law. This Agreement shall be
governed by and construed in accordance with the laws
of the State of Wisconsin. If any part, term or
provision of this Agreement is determined by the courts
or any regulatory authority having jurisdiction over
the issue to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and
the rights and obligations of the parties shall be
construed and enforced as if the Agreement did not
contain the particular part, term or provision held to
be illegal or invalid.
D. Counterparts. This Agreement may be executed
in any number of counterparts each of which shall be
deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
E. Back-up Facility. During the terms of this
Agreement, Sunstone shall provide a facility capable of
safeguarding the transfer agency and dividend
disbursing records of the Corporation in case of damage
to the primary facility providing those services (the
"Back-Up Facility"). Transfer of the transfer agency
and dividend records of the Corporation to the Back-Up
Facility shall commence promptly after damage to the
primary facility results in an inability to provide the
transfer agency and dividend disbursing services, and
shall be completed within 72 hours of commencement.
After the primary facility has recovered, Sunstone
shall again utilize it to provide the transfer agency
and dividend disbursing services to the Corporation.
Sunstone shall use reasonable efforts to provide the
services described in this Agreement from the Back-Up
Facility.
F. Prior Transfer Agent(s). Sunstone will
endeavor to assist in resolving shareholder inquiries
and errors relating to the period during which prior
transfer agents acted as such for the Corporation. Any
such inquiries or errors which cannot be expediently
resolved by Sunstone will be referred to the
Corporation.
G. Captions. The captions in the Agreement are
included for convenience of reference only, and in no
way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective
corporate officer, thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as
the day and year first above written.
SUNSTONE FINANCIAL GROUP, INC. ICAP FUNDS, INC.
By: /s/ Miriam M. Allison By: /s/ Pamela H. Conroy
--------------------- --------------------
(Signature) (Signature)
<PAGE>
Miriam M. Allison Pamela H. Conroy
----------------- ----------------
(Name) (Name)
President Vice President
------------------ -----------------
(Title) (Title)
10-24-95 10-20-95
------------------ ------------------
(Date Signed) (Date Signed)
<PAGE>
EXHIBIT A
ICAP Equity Fund
ICAP Discretionary Equity Fund
<PAGE>
EXHIBIT B
SERVICES
Maintenance of shareholder accounts
Maintain records for each shareholder account;
Scan account documents for electronic storage;
Issue customer statements;
Record changes to shareholder account
information;
Maintain account documentation files for each
shareholder; and
Establish and maintain IRA accounts.
Shareholder servicing and shareholder transactions
Respond to written and telephone (recorded
line) inquiries from shareholders for
information about their accounts;
Process shareholder purchase and redemption
orders, including those of automatic investment
and systematic withdrawal plans;
Set up account information, including address,
dividend options, taxpayer identification
numbers and wire instructions;
Issue transaction confirmations;
Process transfers and exchanges; and
Process dividend and capital gain distributions
by check, wire or ACH or purchase new shares
through dividend reinvestment.
Tax Reporting
Compliance reporting and proxy processing
Provide required reports to the Securities and
Exchange Commission, the National Association
of Securities Dealers and the states in which
each fund is registered;
Prepare and distribute required Internal
Revenue Service forms relating to earned income
and capital gains to fund and shareholders;
<PAGE>
Issue tax withholding reports to the Internal
Revenue Service; and
Dealer/load processing (if applicable)
Provide dealer access through NSCC's FundSERV;
Provide reports for tracking Rights of
Accumulation and purchases made under Letters
of Intent;
Account for separation of shareholder
investments from transaction sale charges for
purchases of fund shares;
Calculate fees due under 12b-1 plans for
distribution and marketing expenses; and
Track sales and commissions by dealer and
provide for payment of commissions on direct
shareholder purchases in load funds.
Telephone service representatives on-line access
Respond to shareholder or dealer inquiries
related to:
Account registration;
Share balances;
Account options;
Dividend and capital gain distribution
status;
Withholding status;
Transaction dates and types;
Shares traded;
Social security number/tax ID number;
External account number;
Address;
Customer or account type;
Dealer, branch and rep information;
Dollars available/not available in the account;
<PAGE>
Shares purchased/redeemed today;
Dividend accrual, current dividend period;
and
Market value of shares.
Standard reports
Shareholder base analysis (monthly)
New account listing (weekly)
Purchases, redemptions, exchanges (monthly)
Servicing summary (monthly)
Commission and 12b-1 reports for load funds
(monthly)
Specialized needs
Front-end load calculations*
Back-end load calculations*
12b-1 fee calculations*
LOI/ROA processing*
Asset allocation and re-allocation processing
in real time*
Multiple account look-up options
Cross-fund account queries
Cross-account queries
On-line transaction list
Comprehensive reporting by various criteria*
Consolidated statements
Duplicate statements to third parties
Multiple address option
<PAGE>
Labels to all shareholders or selected groups*
Mail, process and tabulate proxies*
Broker-dealer reporting
Remote system access*
Cross-fund dividend reinvestment
User-defined transaction descriptions
User-defined transaction rules
Fund-level processing options
Systematic withdrawals
Automatic periodic purchases and automatic
investment plans
Correspondence system capabilities
*available at additional cost
<PAGE>
EXHIBIT C
FEE SCHEDULE
Base fees for equity funds
Shareholder account fee: $12.00 open accounts
2.50 closed accounts
Minimum annual fee per fund:
$650 per month for six months
$750 per month for next six months
$14,000 per year after one year
The base fee assumes a single class of shares; no
load or 12b-1 plan; availability of automatic
investment plans and systematic withdrawal plans
(using Sunstone's regular processing date);
transaction confirmations; quarterly dividend
distributions; annual capital gain distributions;
telephone privileges and all standard reports.
Additional fees to be added to base fee
Type of Service of Annual Shareholder Minimum Annual
Fund Function Account Fee Fee Per Fund
Front-end load $1.50 $2,000
CDSC or back-end load 2.00 3,000
12b-1 plan 1.00 1,000
Monthly dividends 2.00 2,000
Check writing privilege 2.00 2,000
Asset allocation program 1.00 2,000
Remote access user charge 150 per month (first
password); $100 per month
(each additional password)
One-time set-up fees
Conversion from SSC's transfer agent system $3,000 per fund
NSCC FundSERV set-up 2,500 per fund group
NSCC networking 2,500 per fund group
Asset allocation program (optional) 5,000
Remote access set-up 500
<PAGE>
Account maintenance and processing fees
Shareholder account set-up 2.00
AIP/SWP account set-up 2.50
AIP/SWP processing .50
AIP/SWP processing alternate date 1.50
Check writing signature verification .25 to .75
Omnibus account transaction 2.50
Certificate issuance 4.00
Locating lost shareholders - per name 8.00
Taxpayer ID number solicitation 1.25
Additional fees which may be charged the
shareholders
Outgoing wire fee per bank
Telephone exchange fee $ 5.00
Check writing - per transaction
stop payments 12.50
non-sufficient funds 25.00
check copy 2.50
Asset allocation transactions
(purchases, redemptions, rebalancing) 1.00
Account transcripts older than 2 years 5.00 per year
Returned check NSF per bank
IRA/SEP processing
annual maintenance or custodial
fee per account 15.00
transfer or rollover out 15.00
Out-of-pocket expenses, including but not limited
to the following:
Check processing (dividend, capital gain,
redemption) $ .25 each
Statement and confirm processing .25 each
Tax form processing .15 each
Printing of labels for proxy or
marketing purposes .05 per label
Production of ad hoc reports 10.00
Bulk mailings
Bank account service fees and any other bank
charges
Check stock
Statement paper
Envelopes
<PAGE>
Tax forms
Postage and express delivery charges
Telephone and long distance charges
Fax charges
P.O. box rental
800-phone number
Inventory and record storage
FundSERV transaction charges
Programming
Additional fees may apply for special programming
to meet your servicing requirements or to create
custom reports.
<PAGE>
EXHIBIT D
RECORDS MAINTAINED BY SUNSTONE
Account applications
Cancelled certificates plus stock powers and supporting
documents
Checks including check registers, reconciliation
records, any adjustment records and tax withholding
documentation
Indemnity bonds for replacement of lost or missing
stock certificates and checks
Liquidation, redemption, withdrawal and transfer
requests including stock powers, signature guarantees
and any supporting documentation
Shareholder correspondence
Exhibit 9.2(b)
AMENDMENT TO THE
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
BY AND BETWEEN
ICAP FUNDS, INC.
AND
SUNSTONE FINANCIAL GROUP, INC.
This Amendment, dated as of January 1, 1996, is
entered into between ICAP FUNDS, INC. (the
"Corporation"), a Maryland corporation, and Sunstone
Financial Group, Inc., a Wisconsin corporation
("Administrator").
WHEREAS, the Corporation and Administrator have
entered into an Administration and Fund Accounting
Agreement dated December 30, 1994 (the "Agreement")
pursuant to which the Corporation appointed
Administrator to act as administrator and fund
accountant for the Equity Portfolio and the
Discretionary Equity Portfolio (the "Funds"); and
WHEREAS, the Corporation on behalf of each of the
Funds and Administrator desire to amend the fees
payable under the Agreement as provided herein.
NOW, THEREFORE, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Revised Fee Schedule.
The first sentence in the first paragraph of
Section 3 of the Agreement is hereby replaced in its
entirety by the following sentence:
In consideration of the services rendered pursuant
to this Agreement, the Corporation will pay the
Administrator fees, computed daily and payable
monthly, at the annual rates specified on Schedule
B attached hereto, plus out-of-pocket expenses.
In addition, a new Schedule B is hereby added to the
Agreement to read as attached hereto.
2. Miscellaneous.
Except to the extent amended hereby, the Agreement
shall remain unchanged and in full force and effect,
and it is hereby ratified and confirmed in all respects
as amended hereby. This Amendment shall be effective
as of the day and year first above written.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed
this Amendment as of the day and year first above
written.
ICAP FUNDS, INC. SUNSTONE
FINANCIAL GROUP, INC.
("Corporation")
("Administrator")
By: /s/ Pamela H. Conroy By:/s/ Miriam M. Allison
Schedule B
to the
Administration and Fund Accounting Agreement
by and between
ICAP FUNDS, INC.
and
Sunstone Financial Group, Inc.
Name of Fund Annual Fees
Equity Portfolio Up to $50 Million 17.5
basis points
$50 Million to $100 Million
10.0 basis points
Over $100 Million 5.0
basis points
Discretionary Equity Portfolio Up to
$50 Million 17.5 basis points
$50 Million to $ 100 Million
10.0 basis points
Over $100 Million 5.0
basis points
Fees shall be applied separately to each of the Funds
as indicated. The Corporation shall also pay/reimburse
the Administrator's out-of-pocket expenses as described
in the Agreement. Fees for additional funds or classes
of funds shall be separately established and agreed
upon by the parties.
Dated: November 8, 1996.
ICAP FUNDS, INC. SUNSTONE
FINANCIAL GROUP, INC.
By: /s/ Pamela H. Conroy By:
Miriam M. Allison
Miriam M.
Allison
President
10211F21
4/22/96
3<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of the ICAP Funds, Inc.
We consent to the inclusion in Post-Effective
Amendment No. 4 to the Registration Statement on Form
N-1A of the ICAP Funds, Inc. of our report dated
January 19, 1996, on our audit of the financial
statements and financial highlights of the ICAP
Discretionary Equity Portfolio and the ICAP Equity
Portfolio, which constitute ICAP Funds, Inc., which
report is included in the Annual Report for the year
ended December 31, 1995 which is also included in the
Registration Statement. We also consent to the
reference to our Firm under the caption, "INDEPENDENT
ACCOUNTANTS" in the Statement of Additional
Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
April 24, 1996
Exhibit 16
ICAP FUNDS, INC.
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS
COMPOUNDED ANNUAL
TOTAL RETURN
A. Formula
_____
P(1 + T)n = ERV OR T = \n/ERV/P - 1
Where: P = a hypothetical initial payment of
$10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $10,000 payment made
at the beginning of the 1, 5 or 10
year periods at the end of the 1, 5
or 10 year periods (or fractional
portion thereof)
B. Calculation
_____
T = \n/ERV/P - 1
Discretionary Equity Portfolio
One-year period 12-31-94 through 12-31-95
_____________________
35.21% = 1\1/13,521.17 - 10,000.00 - 1
Equity Portfolio
One-year period 12-31-94 through 12-31-95
_____________________
38.85% = 1\1/13,885.30 - 10,000.00 - 1
