February 8, 1996
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: ICAP Funds, Inc. (the Fund);
(Registration Nos.: 33-86006; 811-8850)
Gentlemen:
On behalf of the Fund, we hereby file the Fund's Annual Report to Shareholders
for the period ended December 31, 1995 pursuant to Rule 30b2-1 and Section
24(b) under the Investment Company Act of 1940, as amended.
If you have any questions regarding this filing, please do not hesitate to
contact me.
Sincerely,
/S/ Lea E. Grunig
Lea E. Grunig
Client Services and Tax Manager
LEG/jv
cc: Pamela H. Conroy (paper copy)
Carol A. Gehl (paper copy)
Tim Brown (paper copy)
ICAP
Annual
Report
December 31, 1995
ICAP Funds
Discretionary
Equity
Portfolio
Equity
Portfolio
Table of Contents
page
Letter to Shareholders 2
Investment Highlights 4
Schedules of Investments
Discretionary Equity Portfolio 6
Equity Portfolio 10
Statements of Assets and Liabilities 14
Statements of Operations 15
Statements of Changes in Net Assets 16
Financial Highlights 17
Notes to Financial Statements 18
Report of Independent Accountants 21
January 1996
Dear Shareholder:
The ICAP Funds closed its first fiscal year on a very successful note. The
Discretionary Equity Portfolio finished in the top quartile of the Lipper Growth
and Income category with a 35.21% total return, while the Equity Portfolio with
its 38.85% of total return, finished in the top decile of the same category.
<F1>These returns compare to the S&P 500's total return for the period of
37.58%.<F2>
The U.S. financial scene in 1995 was characterized by a sharp, and sustained,
drop in interest rates as the economy performed worse than expected. As interest
rates fell, U.S. stocks rose as the competition from fixed income alternatives
melted away. However, despite solid gains in all of the major market averages,
many individual stocks performed badly, as the weaker than expected economy had
a negative impact on their earnings prospects. The strong performance of the
ICAP Funds was the result of good bottom-up stock selection on the part of our
team of investment managers.
Moving through 1996, we anticipate that the global economy should experience an
acceleration in growth as conditions in the U.S. and in key countries such as
Japan, Germany and Mexico improve. However, global inflation is expected to
remain very subdued as a result of competitive pressures. The combination of
respectable (2-3%) growth with very low inflation should yield nominal growth in
the global economy remaining well below the levels of the 1970s and 1980s. Such
low nominal growth may make it feel like a recession even though business
fundamentals are relatively solid. In this environment, market share battles
will continue to intensify in many industries, which will likely be tough on
corporate profits. However, this same low inflation environment will likely lead
to a continuation of monetary easing on the part of the world's key central
banks, which will boost liquidity and create a favorable backdrop for equity
prices.
At ICAP we are focused on developing strategies that will allow us to find
profitable investments in this more challenging environment. In particular, we
are focusing on major corporate restructurings - especially those where a
company is able to reconfigure its business mix in a way which highlights a
"crown jewel," which is otherwise obscured by a collection of weaker
properties. We are much less interested in investing in poorly positioned
businesses, surrounded by strong competition, which are nevertheless
restructuring (for instance, we have avoided a K-Mart-type situation). By being
very selective in making these investments on your behalf, we expect to continue
our tradition of highlighting lower risk, but higher reward opportunities. We
have made broadly diversified investments in companies ranging from ITT, to
McDonnell Douglas, to Ciba-Geigy which qualify under the restructuring theme.
In 1996, we will continue to focus on our theme that the global "content"
providers are one of the chief beneficiaries of the Communications Revolution.
Movies, books, records and other media products increasingly will be distributed
more broadly and more cheaply as a result of technological changes, ranging from
the satellite to the Internet. The producers of such "content" can achieve
economic benefit by distributing each product through multiple channels (box
office, commercial TV, pay-per-view, VCR, the new digital video disk, etc.). The
global "content" business will also be driven by favorable demographics -
massive numbers of young consumers around the world with rising real incomes and
a desire to absorb American culture. In the competitive economic environment
that we outlined earlier, our investments in this industry - Time-Warner, News
Corp., Capital Cities/ABC (in anticipation of a merger with Disney) and Philips
Electronics - should be well positioned to achieve strong earnings as a result
of their leadership in this area.
As in 1995, a good part of the return we hope to achieve is just as likely to
come from what we don't own, as what we do own. We at ICAP have a long heritage
of avoiding problems. This heritage is rooted in our well-defined sell
discipline. Given the subdued outlook for corporate profits in 1996, there will
be plenty of problem stocks. Our job is to keep them out of the ICAP Funds.
We are looking forward to continuing to serve you in 1996.
Yours truly,
/s/ Robert H. Lyon
Robert H. Lyon
President
<F1> Source, Lipper Analytical Services.
<F2> Past performance is no guarantee of future results. In the absence of
existing fee waivers, total returns would be reduced. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Investment Highlights
ICAP Discretionary Equity Portfolio
Total Return
----------------------------------------------
ICAP Discretionary S&P 500
Equity Portfolio Stock Index
------------------ -----------
12/31/94 $100,000 $100,000
1/31/95 101,150 102,593
2/28/95 106,250 106,591
3/31/95 108,812 109,737
4/30/95 112,114 112,968
5/31/95 118,518 117,484
6/30/95 122,345 120,213
7/31/95 127,826 124,199
8/31/95 126,921 124,511
9/30/95 131,898 129,765
10/31/95 129,172 129,302
11/30/95 134,876 134,978
12/31/95 135,212 137,578
Cumulative Total Return
FOR THE PERIOD ENDED 12/31/95
SINCE COMMENCEMENT
(12/31/94) 35.21%
This chart assumes an initial gross investment of $100,000 made on 12/31/94
(commencement). Returns shown include the reinvestment of all dividends. Past
performance is not predictive of future results. Investment return and principal
value will fluctuate, so that shares, when redeemed, may be worth more or less
than the original cost. In the absence of existing fee waivers, total return
would be reduced.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The Index is heavily
weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
Sector Breakdown
ICAP Discretionary S&P 500
Equity Portfolio Stock Index
------------------ -----------
Basic Industries 10.1% 6.0%
Capital Goods 4.1% 7.8%
Consumer Durables 0.6% 3.5%
Consumer Services 13.0% 4.7%
Consumer Staples 9.0% 13.0%
Energy 7.9% 10.0%
Financial 14.8% 12.7%
Health Care 12.2% 10.4%
Miscellaneous 7.5% 3.3%
Retail 2.0% 4.9%
Technology 8.6% 13.2%
Transportation 7.2% 1.6%
Utilities 3.0% 8.9%
Investment Highlights
ICAP Equity Portfolio
Total Return
---------------------------------------------
ICAP S&P 500
Equity Portfolio Stock Index
---------------- -----------
12/31/94 $100,000 $100,000
1/31/95 101,350 102,593
2/28/95 106,700 106,591
3/31/95 109,246 109,737
4/30/95 112,601 112,968
5/31/95 119,310 117,484
6/30/95 123,851 120,213
7/31/95 130,131 124,199
8/31/95 129,076 124,511
9/30/95 134,728 129,765
10/31/95 131,904 129,302
11/30/95 138,055 134,978
12/31/95 138,853 137,578
Cumulative Total Return
FOR THE PERIOD ENDED 12/31/95
SINCE COMMENCEMENT
(12/31/94)38.85%
This chart assumes an initial gross investment of $100,000 made on 12/31/94
(commencement). Returns shown include the reinvestment of all dividends. Past
performance is not predictive of future results. Investment return and principal
value will fluctuate, so that shares, when redeemed, may be worth more or less
than the original cost. In the absence of existing fee waivers, total return
would be reduced.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The Index is heavily
weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
Sector Breakdown
ICAP S&P 500
Equity Portfolio Stock Index
---------------- -----------
Basic Industries 10.1% 6.0%
Capital Goods 3.9% 7.8%
Consumer Durables 0.7% 3.5%
Consumer Services 13.8% 4.7%
Consumer Staples 9.3% 13.0%
Energy 6.6% 10.0%
Financial 16.5% 12.7%
Health Care 12.2% 10.4%
Miscellaneous 7.9% 3.3%
Retail 2.1% 4.9%
Technology 8.9% 13.2%
Transportation 7.1% 1.6%
Utilities 0.9% 8.9%
Discretionary Equity Portfolio
Schedule of Investments
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
15,500 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<F3> 196,000
---------
Electronics 1.72%
12,400 Texas Instruments 641,700
---------
Entertainment 4.85%
11,100 Circus Circus Enterprises, Inc. <F3> 309,412
9,875 ITT Corp. <F3> 523,375
25,900 Time Warner, Inc. 980,963
---------
1,813,750
---------
Foods 3.40%
9,030 Unilever N.V. 1,270,973
---------
Hospital Management 1.04%
18,700 Tenet Healthcare Corp. <F3> 388,025
---------
Insurance 3.38%
20,260 Allstate Corp. 833,192
8,875 ITT Hartford Group<F3> 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 Philips Electronics N.V. 1,167,731
---------
Office Equipment 4.93%
11,225 Compaq Computer Corp. <F3> 538,800
10,000 International Business Machines Corp. 917,500
14,000 Silicon Graphics, Inc. <F3> 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
---------
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. <F3> 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
----------
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.
<F3>Non-income producing
Equity Portfolio
Schedule of Investments
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. <F4> 416,174
13,450 ITT Corp. <F4> 712,850
36,250 Time Warner, Inc. 1,372,969
---------
2,501,993
---------
Foods 3.37%
11,215 Unilever N.V. 1,578,511
---------
Hospital Management 1.25%
28,150 Tenet Healthcare Corp. <F4> 584,112
---------
Insurance 4.05%
30,295 Allstate Corp. 1,245,882
13,450 ITT Hartford Group<F4> 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. <F4> 704,160
14,820 International Business Machines Corp. 1,359,735
3,700 Silicon Graphics, Inc. <F4> 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
---------
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. <F4> 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
----------
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.
<F4>Non-income producing
ICAP Funds, Inc.
Statements of Assets and Liabilities
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.
ICAP Funds, Inc.
Statements of Operations
For the Year Ended December 31, 1995
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
--------- ---------
INVESTMENT INCOME:
Dividends $ 344,203<F5> $ 503,950<F6>
Interest 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
========== ==========
<F5> Net of $4,666 in foreign withholding taxes.
<F6> Net of $4,846 in foreign withholding taxes.
See notes to financial statements.
ICAP Funds, Inc.
Statements of Changes in Net Assets
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.
ICAP Funds, Inc.
Financial Highlights
For the Year Ended December 31, 1995
DISCRETIONARY
EQUITY EQUITY
(For a share outstanding throughout the year) PORTFOLIO<F7> PORTFOLIO<F7>
------------- -------------
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<F8> 0.80% 0.80%
Ratio of net investment income to average
net assets<F8> 1.71% 1.49%
Portfolio turnover rate 102% 105%
<F7> Commencement of operations January 1, 1995.
<F8> 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.
Notes to Financial Statements
December 31, 1995
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.
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.
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.
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
ICAP FUNDS, INC.
225 WEST WACKER DRIVE
SUITE 2400
CHICAGO, IL 60606
