Sunstone Financial Group
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
(414) 271-5885
August 20, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: The ICAP Funds, Inc. Semi-Annual Report
Filing Pursuant to Rule 30b2-1
under the Investment Company Act of 1940
SEC File No. 811-8850, 33-86006
Dear Sir/Madam:
On behalf of the ICAP Funds Inc. (the "Funds"), transmitted herewith for filing
pursuant to Rule 30b2-1 under the Investment Company Act of 1940, as amended,
is the Fund's Semi-Annual Report to shareholders for the six months ended
June 30, 1996.
Questions regarding this filing should be directed to the undersigned.
Sincerely,
/s/ Lea E. Grunig
Lea E. Grunig
Client Services and Tax Manager
LEG/sb
Encl.
ICAP
Semi-Annual
Report
June 30, 1996
ICAP Funds
Discretionary
Equity
Portfolio
Equity
Portfolio
T a b l e o f C o n t e n t s
page
----
Letter to Shareholders 1
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
Discretionary Equity Portfolio 16
Equity Portfolio 17
Financial Highlights
Discretionary Equity Portfolio 18
Equity Portfolio 19
Notes to Financial Statements 20
July 1996
Dear Shareholder:
Each portfolio of the ICAP Funds had solid first half performance in 1996. The
Equity Portfolio achieved a 9.80% gain, while the Discretionary Equity Portfolio
was up 9.66%. These returns compare to a total return of 10.10% for the S&P 500
and 8.67% for the Lipper Growth and Income category.<F1> Since inception, the
Equity Portfolio has had an annualized return of 32.50% while the Discretionary
Equity Portfolio has had a 30.06% annualized return. Both of these performances
are in the top quartile of all funds in the Lipper Growth and Income category
for this same period. <F1><F2>
The U.S. stock market fared well in the first half of 1996, despite a
significant backup in long-term interest rates. The benchmark U.S. Treasury 30
year bond increased in yield from 6% to 7% during the first half of the year.
The stock market was buoyed by better than expected corporate earnings, as well
as a record level of merger and acquisition activity. The backup in U.S.
interest rates was caused by stronger than expected economic performance,
despite short-term dislocations from the government shutdown, frigid weather and
strikes at both General Motors and Boeing. The economy drew its strength from
healthy employment increases and solid wage gains, which translated into
improved real purchasing power. These positive income trends resulted in better-
than-expected gains in the retail, auto and housing sectors. With consumption
renewed, inventories have been substantially reduced. We feel that this has set
the stage for good economic progress in the second half of 1996.
The positive tone in U.S. employment has led to some spot labor shortages and a
modest, but noticeable, reacceleration in wages. However, in an environment
characterized by "cereal wars," plunging metals prices and slack operating
rates on a global scale, we would only expect a small uptick in reported
inflation. Consequently, while we firmly expect short-term interest rates to
move up domestically, the type of global monetary tightening that might
seriously upset the "equity applecart" is not expected to ensue.
Despite a forecast of steady growth and relatively low inflation, we would
characterize the outlook for the U.S. stock market as only neutral. On the
negative side of the ledger, we would expect profit margins to contract as
higher wage costs are not totally passed through in an intensely competitive
global environment. In addition, there are signs of a less benign regulatory
environment and valuations can only be described as stretched. More importantly,
the nearly 50% increase in the major stock market averages over the past 18
months has spawned a rush of speculative activity in new issues that are, in the
words of an earlier period, "unseasoned and in weak hands." In response to
strong demand, Wall Street has geared up its manufacturing machine and produced
a record amount of new paper (much of which is of dubious quality). If interest
rates increase by more than a modest amount, and as the young companies
experience growing pains, there will be many casualties. Such issues will not be
found in your portfolio today, or tomorrow.
In this environment we at ICAP remain focused on identifying individual stocks
with a specific catalyst, that are selling at reasonable valuations, where
earnings trends are intact. We also remain firmly committed to our sell
discipline which focuses on realizing profits when full potential has been
achieved, while honestly recognizing our mistakes when they are still small.
Given this economic backdrop, we have focused primarily on corporate
restructurings as a source of opportunity in this market.
As discussed in my January letter, we are particularly interested in investing
in situations where a major corporation is reconfiguring its business mix in a
significant way. Shareholder value can be increased by the elimination of
underperforming units, or by the separation of more richly valued subsidiaries.
In order to illustrate this point, listed below are a dozen of your largest
investments where restructuring is the key catalyst. This list is representative
of the philosophy we have employed in your whole portfolio. In our view, each of
these investments has significant upside potential with below average risk, as a
result of the corporation's inherently strong asset position, and its
restructuring profile.
Dun & Bradstreet Allstate
Union Pacific General Motors
Wells Fargo Hoechst
DuPont Mobil
Pacific Telesis Philips Electronics
Ciba-Geigy Loews Corp.
I want to emphasize that our view of restructurings is concentrated on a
relatively narrow segment of the market. The days of massive downsizing are
politically, and economically, behind us. Likewise, for political/regulatory
reasons, large mergers which are economically attractive (i.e., anti-
competitive) will be more difficult to achieve. Consequently, we have narrowed
our focus among restructuring candidates to the several remaining U.S. and
European companies which meet the criteria laid out above.
The second half of the year is likely to be complicated. After over a year of
easing, the Federal Reserve is in the early stage of what is likely to be a
series of tightenings. Earlier optimism in regard to the cutting (and even
indexing) of capital gains taxes has evaporated, and many companies are caught
in a pincer between rising costs and a competitive environment that is not
amenable to price increases. We at ICAP will remain diligent during this period
in looking for the favorable restructuring situations we have outlined - while
minimizing fundamental mistakes - and steering well clear of the extreme
speculative excess in the small cap/IPO sector.
Thank you for your investment in the ICAP Funds. We look forward to continuing
to serve you in the future.
Very truly yours,
/s/ Robert H. Lyon
Robert H. Lyon
President
P.S. A respected competitor of ours, who also manages a large fund in the Lipper
Growth & Income category, recently commented in Barron's that of the 300+ funds
in that universe, over 40 had minimal yield and another 125 had a yield of less
than 1%. His point is that such funds should not be included in this category.
Our Fund's yield, which approximates that of the S&P 500, is philosophically
attuned to our objective. We are adamant about sticking to our philosophy, and
we feel that many mutual fund investors are misled by the description of a
fund's objective, versus the underlying reality of what is in their actual
portfolio.
<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
Equity S&P 500
Portfolio Stock Index
------------- -----------
12/31/94 100,000.00 100,000.00
3/31/95 108,812.40 109,736.55
6/30/95 122,344.81 120,212.78
9/30/95 131,897.91 129,765.13
12/31/95 135,211.67 137,577.90
3/31/96 145,950.45 144,962.49
6/30/96 148,276.59 151,467.82
Portfolio Total Return
FOR THE PERIOD ENDED 6/30/96
- --------------------------------
ONE YEAR 21.20%
AVERAGE ANNUAL
SINCE COMMENCEMENT 30.06%
This chart assumes an initial gross investment of $100,000 made on 12/31/94.
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
Equity S&P 500
Portfolio Stock Index
------------- -----------
Basic Industries 7.2% 5.9%
Capital Equipment-Technology 7.1% 10.9%
Capital Spending 3.7% 8.0%
Consumer Durables 5.0% 3.2%
Consumer Services 16.5% 7.2%
Consumer Staples 10.6% 13.1%
Energy 5.2% 9.8%
Financial 13.4% 13.7%
Health Care 13.5% 10.5%
Retail 2.4% 5.5%
Transportation 8.6% 1.6%
Utilities 6.8% 10.6%
Investment Highlights
ICAP Equity Portfolio
Total Return
-----------------------------------------
ICAP
Equity S&P 500
Portfolio Stock Index
------------- -----------
12/31/94 100,000.00 100,000.00
3/31/95 109,246.40 109,736.55
6/30/95 123,850.87 120,212.78
9/30/95 134,727.64 129,765.13
12/31/95 138,853.01 137,577.90
3/31/96 150,466.83 144,962.49
6/30/96 152,460.84 151,467.82
Portfolio Total Return
FOR THE PERIOD ENDED 6/30/96
- --------------------------------
ONE YEAR 23.10%
AVERAGE ANNUAL
SINCE COMMENCEMENT 32.50%
This chart assumes an initial gross investment of $100,000 made on 12/31/94.
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
Equity S&P 500
Portfolio Stock Index
------------- -----------
Basic Industries 7.3% 5.9%
Capital Equipment-Technology 7.6% 10.9%
Capital Spending 3.1% 8.0%
Consumer Durables 4.6% 3.2%
Consumer Services 15.0% 7.2%
Consumer Staples 11.1% 13.1%
Energy 6.0% 9.8%
Financial 12.9% 13.7%
Health Care 14.8% 10.5%
Retail 2.3% 5.5%
Transportation 8.6% 1.6%
Utilities 6.7% 10.6%
Discretionary Equity Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
- --------- ----------
COMMON STOCKS 88.25%
Autos & Trucks 4.60%
57,700 General Motors Corp. $ 3,022,037
44,425 ITT Industries, Inc. 1,116,178
-----------
4,138,215
-----------
Banks 6.51%
32,495 Citicorp 2,684,899
33,022 KeyCorp 1,279,603
7,900 Wells Fargo & Co. 1,887,112
-----------
5,851,614
-----------
Chemicals 4.27%
33,392 Du Pont (E.I.) de Nemours & Co. 2,642,142
16,950 Grace (W.R.) & Co. 1,201,331
-----------
3,843,473
-----------
Computer Systems 5.22%
24,188 Compaq Computer Corp. <F3> 1,191,259
25,592 International Business Machines Corp. 2,533,608
40,450 Silicon Graphics, Inc. <F3> 970,800
-----------
4,695,667
-----------
Defense 3.07%
22,350 Boeing Co. 1,947,244
11,900 Northrop Grumman Corp. 810,687
-----------
2,757,931
-----------
Drugs & Supplies 12.44%
20,494 American Home Products Corp. 1,232,202
31,350 Bristol-Myers Squibb 2,821,500
66,018 Ciba-Geigy AG-ADR 4,021,816
92,225 Hoechst AG-ADR 3,113,517
-----------
11,189,035
-----------
Entertainment 5.53%
50,144 Carnival Cruise Lines, Inc. 1,447,908
27,400 Harrah's Entertainment, Inc. <F3> 774,050
7,700 Marriott International, Inc. 413,875
59,616 Time Warner, Inc. 2,339,928
-----------
4,975,761
-----------
See notes to financial statements.
Discretionary Equity Portfolio
Schedule of Investments (cont'd.)
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
--------- ----------
Financial - Miscellaneous 2.53%
49,875 Travelers Group, Inc. $2,275,547
----------
Food, Tobacco & Beverage 7.65%
42,950 Loews Corp. 3,387,681
33,625 Philip Morris Companies, Inc. 3,497,000
----------
6,884,681
----------
Healthcare - Miscellaneous 1.02%
42,950 Tenet Healthcare Corp. <F3> 918,056
----------
Household Products 1.03%
21,500 Duracell International, Inc. 927,187
----------
Insurance 3.90%
76,793 Allstate Corp. 3,503,681
----------
Media 3.86%
55,550 Dun and Bradstreet Corp. 3,471,875
----------
Metals 2.48%
37,100 Allegheny Ludlum Corp. 700,262
26,650 Aluminum Company of America 1,529,044
----------
2,229,306
----------
Oils 5.21%
32,366 Amoco Corp. 2,342,489
20,943 Mobil Corp. 2,348,234
----------
4,690,723
----------
Retail 2.25%
50,042 Federated Department Stores, Inc. <F3> 1,707,683
8,000 Kroger Co. <F3> 316,000
----------
2,023,683
----------
Telephone 6.44%
49,400 AT&T Corp. 3,062,800
81,000 Pacific Telesis Group 2,733,750
----------
5,796,550
----------
See notes to financial statements.
Discretionary Equity Portfolio
Schedule of Investments (cont'd.)
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
--------- ----------
Toys 2.27%
32,700 Hasbro, Inc. $ 1,169,025
30,353 Mattel, Inc. 868,855
----------
2,037,880
----------
Transportation 7.97%
28,234 Burlington Northern Santa Fe Corp. 2,283,425
24,600 Conrail, Inc. 1,632,825
25,900 Trans World Airlines <F3> 369,075
41,260 Union Pacific Corp. 2,883,043
----------
7,168,368
----------
Total Common Stocks
(cost $72,944,213) 79,379,233
----------
PREFERRED STOCKS 5.04%
Communications 1.68%
40,900 Nokia Corp. Preferred ADS 1,513,300
----------
Media 3.36%
150,175 News Corp. Ltd. Preferred ADR 3,022,272
----------
Total Preferred Stocks
(cost $4,446,869) 4,535,572
----------
See notes to financial statements.
Discretionary Equity Portfolio
Schedule of Investments (cont'd.)
June 30, 1996 (Unaudited)
PRINCIPAL
AMOUNT VALUE
--------- ----------
SHORT-TERM INVESTMENTS 7.13%
Commercial Paper 1.66%
$ 500,000 Ford Motor Credit, 5.33%, 7/12/96 $ 498,953
1,000,000 Walt Disney, 5.26%, 8/1/96 995,549
-----------
1,494,502
-----------
Money Market 5.47%
4,922,081 Money Market Fiduciary 4,922,081
-----------
Total Short-term Investments
(cost $6,416,583) 6,416,583
-----------
Total Investments 100.42%
(cost $83,807,665) 90,331,388
-----------
Liabilities, less Cash
and Other Assets (0.42)% (383,493)
-----------
NET ASSETS 100.00% $89,947,895
===========
See notes to financial statements.
<F3> Non-income producing
Equity Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
--------- -----
COMMON STOCKS 91.27%
Autos & Trucks 4.36%
55,800 General Motors Corp. $ 2,922,525
36,450 ITT Industries, Inc. 915,806
-----------
3,838,331
-----------
Banks 6.80%
34,805 Citicorp 2,875,763
34,328 KeyCorp 1,330,210
7,450 Wells Fargo & Co. 1,779,619
-----------
5,985,592
-----------
Chemicals 4.39%
33,208 Du Pont (E.I.) de Nemours & Co. 2,627,583
17,450 Grace (W.R.) & Co. 1,236,769
-----------
3,864,352
-----------
Computer Systems 5.58%
26,212 Compaq Computer Corp.<F4> 1,290,941
27,308 International Business Machines Corp. 2,703,492
38,100 Silicon Graphics, Inc.<F4> 914,400
-----------
4,908,833
-----------
Defense 2.85%
19,300 Boeing Co. 1,681,513
1,246 McDonnell Douglas Corp. 60,431
11,300 Northrop Grumman Corp. 769,813
-----------
2,511,757
-----------
Drugs & Supplies 13.55%
47,000 Abbott Laboratories 2,044,500
15,806 American Home Products Corp. 950,336
31,200 Bristol-Myers Squibb 2,808,000
50,832 Ciba-Geigy AG-ADR 3,096,685
89,775 Hoechst AG-ADR 3,030,804
-----------
11,930,325
-----------
Entertainment 7.20%
52,106 Carnival Cruise Lines, Inc. 1,504,561
26,900 Harrah's Entertainment, Inc.<F4> 759,925
5,300 Marriott International, Inc. 284,875
See notes to financial statements.
Equity Portfolio
Schedule of Investments (cont'd.)
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
--------- -----
Entertainment 7.20% (cont'd.)
34,030 Philips Electronics N.V. $1,110,229
68,184 Time Warner, Inc. 2,676,222
-----------
6,335,812
-----------
Financial - Miscellaneous 2.61%
50,325 Travelers Group, Inc. 2,296,075
-----------
Food, Tobacco & Beverage 7.42%
41,500 Loews Corp. 3,273,313
31,325 Philip Morris Companies, Inc. 3,257,800
-----------
6,531,113
-----------
Forest, Paper & Containers 0.07%
1,550 Champion International 64,713
-----------
Healthcare - Miscellaneous 1.02%
42,100 Tenet Healthcare Corp. <F4> 899,887
-----------
Household Products 1.04%
21,200 Duracell International, Inc. 914,250
-----------
Insurance 2.99%
57,750 Allstate Corp. 2,634,844
-----------
Media 3.73%
52,500 Dun and Bradstreet Corp. 3,281,250
-----------
Metals 2.50%
35,000 Allegheny Ludlum Corp. 660,625
26,850 Aluminum Company of America 1,540,519
-----------
2,201,144
-----------
Oils 5.93%
33,534 Amoco Corp. 2,427,023
24,907 Mobil Corp. 2,792,697
-----------
5,219,720
-----------
Retail 2.14%
46,108 Federated Department Stores, Inc. <F4> 1,573,436
7,800 Kroger Co. <F4> 308,100
-----------
1,881,536
-----------
See notes to financial statements.
Equity Portfolio
Schedule of Investments (cont'd.)
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
--------- -----
Telephone 6.68%
48,900 AT&T Corp. $ 3,031,800
81,450 Pacific Telesis Group 2,748,938
3,900 TeleDanmark A/S-ADR 98,962
-----------
5,879,700
-----------
Toys 2.35%
33,000 Hasbro, Inc. 1,179,750
31,073 Mattel, Inc. 889,465
-----------
2,069,215
-----------
Transportation 8.06%
28,266 Burlington Northern Santa Fe Corp. 2,286,013
24,900 Conrail, Inc. 1,652,738
25,800 Trans World Airlines <F4> 367,650
39,890 Union Pacific Corp. 2,787,314
-----------
7,093,715
-----------
Total Common Stocks
(cost $74,047,968) 80,342,164
-----------
PREFERRED STOCKS 4.72%
Communications 1.63%
38,850 Nokia Corp. Preferred ADS 1,437,450
-----------
Media 3.09%
135,275 News Corp. Ltd. Preferred ADR 2,722,409
-----------
Total Preferred Stocks
(cost $4,106,835) 4,159,859
-----------
See notes to financial statements.
Equity Portfolio
Schedule of Investments (cont'd.)
June 30, 1996 (Unaudited)
PRINCIPAL
AMOUNT VALUE
--------- -----
SHORT-TERM INVESTMENTS 4.32%
Money Market 4.32%
$3,806,329 Money Market Fiduciary $ 3,806,329
-----------
Total Short-term Investments
(cost $3,806,329) 3,806,329
-----------
Total Investments 100.31%
(cost $81,961,132) 88,308,352
-----------
Liabilities, less Cash
and Other Assets (0.31)% (277,566)
-----------
NET ASSETS 100.00% $88,030,786
===========
See notes to financial statements.
<F4> Non-income producing
ICAP Funds, Inc.
Statements of Assets and Liabilities
June 30, 1996 (Unaudited)
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
--------- ---------
ASSETS:
Investments, at fair value
(cost $83,807,665 and $81,961,132,
respectively) $90,331,388 $88,308,352
Interest and dividends receivable 119,223 98,610
Deferred organization costs 25,412 25,412
Prepaid expenses 16,842 15,782
----------- -----------
Total Assets 90,492,865 88,448,156
----------- -----------
LIABILITIES:
Dividend payable 442,022 318,861
Payable to adviser 38,721 35,848
Accrued expenses 64,227 62,661
----------- -----------
Total Liabilities 544,970 417,370
----------- -----------
NET ASSETS $89,947,895 $88,030,786
=========== ===========
NET ASSETS CONSIST OF:
Capital stock $ 32,525 $ 30,983
Paid-in-capital in excess of par 81,416,029 79,517,005
Distributions in excess of book
net investment income (3,562) (4,522)
Undistributed net realized gain
on investments 1,979,180 2,140,100
Net unrealized appreciation on
investments 6,523,723 6,347,220
----------- -----------
NET ASSETS $89,947,895 $88,030,786
=========== ===========
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000 100,000,000
Issued and outstanding 3,252,533 3,098,260
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $27.65 $28.41
====== ======
See notes to financial statements.
ICAP Funds, Inc.
Statements of Operations
For the Six Months Ended June 30, 1996 (Unaudited)
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
--------- --------
INVESTMENT INCOME:
Dividends $ 873,594<F5> $ 717,842<F6>
Interest 145,866 38,386
--------- ---------
1,019,460 756,228
--------- ---------
EXPENSES:
Investment advisory fees 317,095 270,000
Fund administration and accounting fees 59,073 53,169
Federal and state registration fees 22,678 20,710
Custody fees 9,536 8,791
Shareholder servicing 8,764 8,798
Legal fees 8,492 8,169
Directors' fees 7,539 7,531
Reports to shareholders 5,024 4,555
Audit fees 4,913 4,913
Amortization of organization costs 3,621 3,620
Other 2,114 1,267
--------- ---------
Total expenses before waiver 448,849 391,523
Waiver of expenses by adviser (131,754) (121,523)
--------- ---------
Net expenses 317,095 270,000
--------- ---------
NET INVESTMENT INCOME 702,365 486,228
--------- ---------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 1,997,595 2,154,385
Change in unrealized appreciation on investments 4,246,566 2,766,827
--------- ---------
Net gain on investments 6,244,161 4,921,212
--------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $6,946,526 $5,407,440
========== ==========
<F5> Net of $43,373 in foreign withholding taxes.
<F6> Net of $27,280 in foreign withholding taxes.
See notes to financial statements.
ICAP Funds, Inc.
Statements of Changes in Net Assets
(Unaudited)
DISCRETIONARY DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DEC. 31, 1995
------------- -------------
OPERATIONS:
Net investment income $ 702,365 $ 303,024
Net realized gain on investments 1,997,595 1,751,535
Change in unrealized appreciation
on investments 4,246,566 2,277,157
---------- ----------
Net increase in net assets
resulting from operations 6,946,526 4,331,716
---------- ----------
DISTRIBUTIONS PAID FROM:
Net investment income (708,566) (300,886)
In excess of book net investment income (3,562) -
Net realized gain on investments - (1,751,535)
In excess of book net realized gain
on investments - (18,415)
---------- ----------
Net decrease in net assets resulting from
distributions paid (712,128) (2,070,836)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 49,329,208 33,190,611
Shares issued to holders in reinvestment
of distributions 268,125 1,982,225
Shares redeemed (3,246,269) (170,283)
---------- ----------
Net increase in net assets resulting from
capital share transactions 46,351,064 35,002,553
---------- ----------
TOTAL INCREASE IN NET ASSETS 52,585,462 37,263,433
NET ASSETS:
Beginning of period 37,362,433 99,000
----------- -----------
End of period $89,947,895 $37,362,433
=========== ===========
See notes to financial statements.
ICAP Funds, Inc.
Statements of Changes in Net Assets
(Unaudited)
EQUITY EQUITY
PORTFOLIO PORTFOLIO
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DEC. 31, 1995
------------- -------------
OPERATIONS:
Net investment income $ 486,228 $ 356,342
Net realized gain on investments 2,154,385 2,362,765
Change in unrealized appreciation
on investments 2,766,827 3,580,393
---------- ----------
Net increase in net assets resulting
from operations 5,407,440 6,299,500
---------- ----------
DISTRIBUTIONS PAID FROM:
Net investment income (486,279) (356,342)
In excess of book net investment income (4,522) (4,012)
Net realized gain on investments - (2,362,765)
In excess of book net realized gain
on investments - (14,285)
---------- ----------
Net decrease in net assets resulting from
distributions paid (490,801) (2,737,404)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 46,033,349 42,888,716
Shares issued to holders in
reinvestment of distributions 148,629 2,429,267
Shares redeemed (9,855,449) (2,093,461)
---------- ----------
Net increase in net assets resulting from
capital share transactions 36,326,529 43,224,522
---------- ----------
TOTAL INCREASE IN NET ASSETS 41,243,168 46,786,618
NET ASSETS:
Beginning of period 46,787,618 1,000
---------- ----------
End of period $88,030,786 $46,787,618
=========== ===========
See notes to financial statements.
ICAP Funds, Inc.
Financial Highlights
(Unaudited)
DISCRETIONARY DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
(For a share outstanding SIX MONTHS ENDED YEAR ENDED
throughout the period) JUNE 30, 1996 DEC. 31, 1995 <F7>
- ------------------------ ------------- ------------------
Net asset value, beginning of period $25.42 $20.00
Income from investment operations:
Net investment income 0.22 0.31
Net realized and unrealized gain
on investments 2.23 6.70
------ ------
Total income from investment operations 2.45 7.01
Less distributions:
From net investment income (0.22) (0.31)
From net realized gain on investments - (1.27)
In excess of book net realized gain
on investments - (0.01)
------ ------
Total distributions (0.22) (1.59)
------ ------
Net asset value, end of period $27.65 $25.42
====== ======
Total return <F8> 9.66% 35.21%
Supplemental data and ratios:
Net assets, end of period (in thousands) $89,948 $37,362
Ratio of expenses to average net
assets<F9><F10> 0.80% 0.80%
Ratio of net investment income
to average net assets<F9><F10> 1.77% 1.71%
Portfolio turnover rate<F8> 70% 102%
Average commission rate paid on portfolio
investment transactions $0.0313 N/A
<F7> Commencement of operations January 1, 1995.
<F8> Not annualized for the six months ended June 30, 1996.
<F9> Net of waivers by ICAP. Without waivers of expenses, the ratio of expenses
to average net assets would have been 1.13% and 1.56%, and the ratio of net
investment income to average net assets would have been 1.44% and 0.95% for the
six months ended June 30, 1996, and the year ended December 31, 1995,
respectively.
<F10> Annualized.
See notes to financial statements.
ICAP Funds, Inc.
Financial Highlights
(Unaudited)
EQUITY EQUITY
PORTFOLIO PORTFOLIO
(For a share outstanding SIX MONTHS ENDED YEAR ENDED
throughout the period) JUNE 30, 1996 DEC. 31, 1995 <F11>
- ------------------------ ------------- ------------------
Net asset value, beginning of period $26.03 $20.00
Income from investment operations:
Net investment income 0.17 0.28
Net realized and unrealized gain
on investments 2.38 7.45
------ ------
Total income from investment operations 2.55 7.73
Less distributions:
From net investment income (0.17) (0.28)
From net realized gain on investments - (1.41)
In excess of book net realized gain
on investments - (0.01)
------ ------
Total distributions (0.17) (1.70)
------ ------
Net asset value, end of period $28.41 $26.03
====== ======
Total return<F12> 9.80% 38.85%
Supplemental data and ratios:
Net assets, end of period (in thousands) $88,031 $46,788
Ratio of expenses to average
net assets <F13><F14> 0.80% 0.80%
Ratio of net investment income to average
net assets <F13><F14> 1.44% 1.49%
Portfolio turnover rate<F12> 62% 105%
Average commission rate paid on portfolio
investment transactions $0.0328 N/A
<F11> Commencement of operations January 1, 1995.
<F12> Not annualized for the six months ended June 30, 1996.
<F13> Net of waivers by ICAP. Without waivers of expenses, the ratio of expenses
to average net assets would have been 1.16% and 1.44%, and the ratio of net
investment income to average net assets would have been 1.08% and 0.85%, for the
six months ended June 30, 1996, and the year ended December 31, 1995,
respectively.
<F14> Annualized.
See notes to financial statements.
Notes to Financial Statements
June 30, 1996 (Unaudited)
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.
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 were as follows:
Discretionary
Equity Equity
Portfolio Portfolio
----------------------- --------------------
Six months Year Six months Year
Ended Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31,
1996 1995 1996 1995
--------- --------- --------- ---------
Shares sold 1,890,393 1,392,981 1,662,843 1,783,850
Shares issued to holders in
reinvestment of
distributions 9,803 78,723 5,282 94,610
Shares redeemed (117,237) (7,080) (367,358) (81,017)
---------- ---------- ---------- ----------
Net increase 1,782,959 1,464,624 1,300,767 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 six
months ended June 30, 1996 are summarized below:
Discretionary
Equity Equity
Portfolio Portfolio
---------- --------
Purchases $93,020,660 $75,405,079
Sales $49,745,587 $41,775,219
There were no purchases or sales of U.S. government obligations. At June 30,
1996, gross unrealized appreciation and depreciation of investment for the
Discretionary Equity and Equity Portfolios, respectively, were as follows:
Discretionary
Equity Equity
Portfolio Portfolio
---------- ----------
Appreciation $7,524,872 $7,678,979
Depreciation (1,001,149) (1,331,759)
---------- ----------
Net appreciation on
investments $6,523,723 $6,347,220
========== ==========
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.
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
This financial statement is submitted for the general information
of the shareholders of the ICAP Funds. It is not authorized
for distribution to prospective investors unless preceded
or accompanied by an effective prospectus.
ICAP Funds, Inc. 225 West Wacker Drive Suite 2400 Chicago, Il 60606
