As filed with the Securities and Exchange Commission on April 29, 1997
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
Institutional Capital Corporation
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 ending December 31, 1997 will be filed on
or before February 28, 1998.
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, 1997 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
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 How to Purchase Shares;
Being 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 **
PART B - INFORMATION REQUIRED IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Included in Prospectus
and History under the heading
Organization
13. Investment Objectives and Investment Restrictions;
Policies Investment Policies and
Techniques
14. Management of the Fund Directors and Officers
<PAGE>
15. Control Persons and Principal Principal Shareholders;
Holders of Securities Directors and Officers;
Investment Adviser
16. Investment Advisory and Investment Adviser;
Other Services Management (in
Prospectus); Custodian;
Dividend-Disbursing and
Transfer Agent;
Independent Accountants
17. Brokerage Allocation and Portfolio Transactions
Other Practices and Brokerage
18. Capital Stock and Other Included in Prospectus
Securities under the heading
Organization
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under the headings How to
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.
<PAGE>
PROSPECTUS
April 30, 1997
ICAP FUNDS, INC.
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
1-888-221-ICAP
(1-888-221-4227)
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 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 each Portfolio 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 U.S. dollar-denominated equity
securities of 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, 1997, 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
ICAP Funds, Inc., c/o Sunstone Investor Services, LLC,
P.O. Box 2160, Milwaukee, Wisconsin 53201-2160 or by
calling 1-888-221-ICAP (1-888-221-4227).
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.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY 4
Investment Objective 4
Investment Adviser 4
Purchases and Redemptions 4
Shareholder Services 4
SUMMARY OF PORTFOLIO EXPENSES 5
Fee Tables 5
Example 5
FINANCIAL HIGHLIGHTS 6
INVESTMENT OBJECTIVES AND POLICIES 7
DISCRETIONARY EQUITY PORTFOLIO 7
Investment Objective 7
Investment Policies 7
EQUITY PORTFOLIO 8
Investment Objective 8
Investment Policies 8
INVESTMENT TECHNIQUES AND RISKS 8
Investment Grade Debt Securities 8
Short-Term Fixed Income Securities 8
When-Issued Securities 9
Illiquid Securities 9
ADRs 9
Options and Futures Transactions 10
Portfolio Turnover 10
INVESTMENT RESTRICTIONS 10
MANAGEMENT 11
HOW TO PURCHASE SHARES 11
Initial Investment - Minimum $100,000 12
Subsequent Investments - Minimum $1,000 12
Wire Instructions 12
HOW TO REDEEM SHARES 13
Written Redemption 13
Systematic Withdrawal Plan 13
Signature Guarantees 14
EXCHANGE PRIVILEGE 14
TAX-SHELTERED RETIREMENT PLANS 14
Individual Retirement Account 14
Simplified Employee Pension Plan 15
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX
TREATMENT 15
DETERMINATION OF NET ASSET VALUE 16
SHAREHOLDER REPORTS 16
ORGANIZATION 16
ADMINISTRATOR AND FUND ACCOUNTANT 17
CUSTODIAN AND TRANSFER AGENT 17
COMPARISON OF INVESTMENT RESULTS 17
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.
<PAGE>
SUMMARY
Investment Objective
The investment objective of both the Discretionary
Equity Portfolio and the Equity Portfolio, each being a
separate portfolio 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 U.S. dollar-denominated equity
securities of 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 $7.0 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 each Portfolio 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
Company. 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. See "EXCHANGE PRIVILEGE."
Shareholder Services
Questions regarding either of the Portfolios may
be directed to the Company at the address and telephone
number below:
ICAP Funds, Inc.
c/o Sunstone Investor Services, LLC
P.O. Box 2160
Milwaukee, Wisconsin 53201-2160
1-888-221-ICAP
(1-888-221-4227)
<PAGE>
SUMMARY OF PORTFOLIO EXPENSES
The purpose of the following Fee Tables and
Example is to assist an investor in understanding the
various costs and expenses that an investor in one or
both of the Portfolios will bear directly (shareholder
transaction expenses) or indirectly (annual fund
operating 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)
For the year ended December 31, 1996, the
Portfolios' investment adviser, ICAP, 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 exceeded 0.80% of that Portfolio's
average daily net assets. Absent these reimbursements,
Other Expenses and Total Operating Expenses for the
Discretionary Equity Portfolio would have been 0.31%
and 1.11%, respectively; Other Expenses and Total
Operating Expenses for the Equity Portfolio would have
been 0.32% and 1.12%, respectively. ICAP has
voluntarily agreed to continue this
waiver/reimbursement policy for the year ending
December 31, 1997, and for an indefinite amount of time
beyond that date. 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 $10.00 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
<PAGE>
The Example is based on the Total Operating
Expenses specified in the Annual Operating Expenses
table. 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, 1996. 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 at ICAP Funds, Inc., c/o
Sunstone Investor Services, LLC, P.O. Box 2160,
Milwaukee, Wisconsin 53201-2160, 1-888-221-ICAP (1-888-
221-4227). Both Portfolios commenced operations on
January 1, 1995.
Discretionary
Equity Equity
Portfolio Portfolio
December 31, December 31,
(For a share outstanding
throughout the year) 1996 1995 1996 1995
Net asset value, beginning of year $25.42 $20.00 $26.03 $20.00
Income from investment operations:
Net investment income 0.36 0.31 0.31 0.28
Net realized and unrealized gain on
investments 6.09 6.70 6.49 7.45
Total income from investment operations 6.45 7.01 6.80 7.73
Less distributions:
From net investment income (0.36) (0.31) (0.30) (0.28)
From net realized gain on investments (1.96) (1.27) (1.37) (1.41)
In excess of book net realized gain
on investments -- (0.01) -- (0.01)
Total distributions (2.32) (1.59) (1.67) (1.70)
Net asset value, end of year $29.55 $25.42 $31.16 $26.03
Total return 25.55% 35.21% 26.26% 38.85%
Supplemental data and ratios:
Net assets, end of year (in thousands) $110,280 $37,362 $149,125 $46,788
Ratio of expenses to average net assets(1) 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to
average net assets(1) 1.35% 1.71% 1.15% 1.49%
Portfolio turnover rate 138% 102% 125% 105%
Average commission rate paid on portfolio $0.0356 N/A $0.0365 N/A
investment transactions
_______________
(1) Net of waivers by ICAP. Without waivers of
expenses, the ratio of expenses to average net
assets for the Discretionary Equity Portfolio would
have been 1.11% and 1.56%, and the ratio of net
investment income to
<PAGE>
average net assets would have
been 1.04% and 0.95% for the years ended December
31, 1996 and December 31, 1995, respectively.
Without waivers of expenses, the ratio of expenses
to average net assets for the Equity Portfolio would
have been 1.12% and 1.44%, and the ratio of net
investment income to average net assets would have
been 0.83% and 0.85% for the years ended December
31, 1996 and December 31, 1995, respectively.
INVESTMENT OBJECTIVES AND POLICIES
The initial step in the investment process focuses
on top-down research. 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.
The key to the investment process is bottom-up
stock selection and the identification of a catalyst.
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 the 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 U.S. dollar-denominated equity securities of
companies with market capitalizations of at least $500
million, which include, but are not limited to, common
stocks; preferred stocks; warrants
<PAGE>
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 U.S. dollar-denominated equity securities of
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, D&P or
Fitch 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
<PAGE>
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; and 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 liquid 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 (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. The Board of Directors has adopted
guidelines and delegated this determination to ICAP.
ADRs
Each of the Portfolios may invest without
limitation in ADRs or other foreign 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 investments. 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
<PAGE>
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 a
Portfolio's total assets. In addition, neither
Portfolio will enter into options and futures
transactions if more than 30% of a 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 other liquid
securities. For a further discussion of options and
futures transactions, please see the Statement of
Additional Information.
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
<PAGE>
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 is responsible for managing the Company's
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. For the year ended December 31,
1996, ICAP 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 exceeded 0.80% of
the Portfolio's average daily net assets. ICAP has
voluntarily agreed to continue this
waiver/reimbursement policy for the year ending
December 31, 1997 and for an indefinite amount of time
beyond that date. 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 for the time any such
amounts were waived and/or reimbursed. For the year
ended December 31, 1996, after waivers and
reimbursements, these expenses totaled 0.80% of each
Portfolio's average net assets.
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 several times each
week 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, 1997, ICAP had approximately $7.0 billion
under management. Mr. Robert H. Lyon, President of
ICAP, owns shares representing 51% of the voting rights
of ICAP, which constitutes a controlling interest.
HOW TO PURCHASE SHARES
Shares of the Portfolios are offered and sold on a
continuous basis at the next offering price calculated
after receipt of the purchase order by the Portfolio.
This price is the net asset value of the Portfolio and
is determined as of the close of trading (generally
4:00 p.m., Eastern Standard Time, or the close of the
New York Stock Exchange (the "NYSE") if different) on
each day the NYSE 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 and
accepts your request. A confirmation indicating the
details of the transaction will be sent to
<PAGE>
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. The Company 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.
Payment may be delayed for up to seven business
days on redemption requests for recent purchases made
by check in order to ensure that the check has cleared.
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 (which can be obtained by
calling 1-888-221-ICAP (1-888-221-4227)) and mailing it
along with a check or money order payable to "ICAP
Funds" to: ICAP Funds, Inc., c/o Sunstone Investor
Services, LLC (the Transfer Agent), P.O. Box 2160,
Milwaukee, Wisconsin 53201-2160. For overnight
deliveries, please use 207 East Buffalo Street, Suite
315, Milwaukee, Wisconsin 53202-5712. Purchases must
be made in U.S. dollars and all checks must be drawn on
a U.S. bank. Cash, credit cards, third-party checks
and credit card checks will not be accepted. 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 purchase shares by wire
transfer, please follow the wire instructions listed on
page 13.
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
and send both the check and the form to ICAP Funds,
Inc., c/o Sunstone Investor Services, LLC, P.O. Box
2160, Milwaukee, Wisconsin 53201-2160. For overnight
deliveries, please use 207 East Buffalo Street, Suite
315, Milwaukee, Wisconsin 53202-5712. To make an
additional purchase by wire, please follow the wire
instructions listed on page 13.
Wire Instructions
To establish a new account by wire transfer,
please call the Transfer Agent at 1-888-221-ICAP (1-888-
221-4227). The Transfer Agent will assign an account
number to you at that time.
Initial and subsequent investments should be wired
through the Federal Reserve System as follows:
<PAGE>
UMB Bank, n.a.
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 taxpayer identification number)
(identify which Portfolio to purchase)
Wired funds are considered received and accepted on the
day they are deposited in the Portfolio's account if
they reach the account by the Portfolio's cut-off time
for purchases and all required information is provided
in the wire instructions. The Portfolios are not
responsible for the consequences of delays resulting
from the banking or Federal Reserve wire system.
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, payment may be delayed for up to
seven business days on redemption requests for recent
purchases made by check in order to ensure that the
check has cleared. 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
For all redemption requests, you must furnish a
written, unconditional request to: ICAP Funds, Inc.,
c/o Sunstone Investor Services, LLC, P.O. Box 2160,
Milwaukee, Wisconsin 53201-2160. For redemption
requests sent via overnight delivery, please use 207
East Buffalo Street, Suite 315, Milwaukee, Wisconsin
53202-5712. If your redemption request is
inadvertently sent to ICAP, the investment adviser to
the Portfolios, it will be forwarded to Sunstone
Investor Services, LLC, but the effective date of
redemption will be delayed until the request is
received by Sunstone Investor Services, LLC. 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. In
case of any questions concerning the nature of such
documentation, Sunstone Investor Services, LLC should
be contacted at 1-888-221-ICAP (1-888-221-4227).
Redemption proceeds may be wired to a commercial bank
authorized on your account application. However, you
will be charged a $10.00 service fee for such
redemptions.
Systematic Withdrawal Plan
You may set up automatic withdrawals from your
Portfolio account at regular intervals. To begin
distributions, you must have an initial balance of
$100,000 in your account and withdraw at least $10,000
per payment. To establish the Systematic Withdrawal
Plan, you must complete a Systematic Withdrawal Plan
Application and return it to ICAP Funds, Inc., c/o
Sunstone Investor Services, LLC, P.O. Box 2160,
Milwaukee, Wisconsin 53201-2160. Redemptions will
take place on the 5th and/or 20th day of the month (or
the following business day) as indicated on your
Systematic Withdrawal Plan Application. Depending upon
the size of the account and the withdrawals requested
(and fluctuations in the net asset value of the shares
redeemed), redemptions for the purpose of satisfying
such withdrawals may reduce or even exhaust your
account. If the amount remaining in your account is
not sufficient to meet a plan payment, the remaining
amount will be redeemed and the plan will be
terminated.
<PAGE>
Signature Guarantees
As a protection to both you and the Company, the
Company requires a signature guarantee for all
authorized owners of an account: (i) if you request
that redemption proceeds be mailed or wired to a person
other than the registered owner(s) of the shares; (ii)
if you request that redemption proceeds be mailed or
wired to other than the address of record; or (iii) if
you submit a redemption request within 30 days of an
address change. 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. Please note that a notary public stamp or seal
is not acceptable.
Your account may be terminated by the Company 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 and acceptance 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 Investor Services, LLC, P.O. Box 2160,
Milwaukee, Wisconsin 53201-2160. For exchange requests
sent via overnight delivery, please use 207 East
Buffalo Street, Suite 315, Milwaukee, Wisconsin 53202-
5712. 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.
TAX-SHELTERED RETIREMENT PLANS
The Company offers through its Custodian, UMB
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"). For
taxable years beginning after 1996, in the case of a
married couple filing a joint return, up to $2,000 can
be contributed to each spouse's IRA, even if one spouse
has little or no compensation or earned income.
The Portfolios offer a prototype IRA plan which
may be adopted by individuals to establish a new IRA or
to rollover 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.
<PAGE>
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 as well
as a description of the applicable service fees may be
obtained by calling 1-888-221-ICAP (1-888-221-4227) or
writing to ICAP Funds, Inc., c/o Sunstone Investor
Services, LLC, at P.O. Box 2160, Milwaukee, Wisconsin
53201-2160. 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 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 Investor
Services, LLC, P.O. Box 2160, Milwaukee, Wisconsin
53201-2160. For overnight deliveries, please use 207
East Buffalo Street, Suite 315, Milwaukee, Wisconsin
53202-5712. Such notice must be received at least five
days prior to the record date of any dividend or
capital gain distribution. Income dividends and
capital gains distributions received in cash may only
be sent by wire if in amounts of $500 or more.
If you do not furnish a Portfolio with your
correct social security number or taxpayer
identification number, the Portfolio is required by
federal law to withhold federal income tax from your
distributions and redemption proceeds at a rate of 31%.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state or
local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
<PAGE>
DETERMINATION OF NET ASSET VALUE
Each Portfolio's net asset value per share is
determined as of the close of trading (generally 4:00
p.m., Eastern Standard Time, unless the NYSE closes at
a different time) on each day the NYSE is open for
business. Purchase orders received or shares tendered
for redemption on a day the NYSE is open for trading,
prior to the close of trading on that day, will be
valued as of the close of trading on that day.
Applications for purchase of shares and requests for
redemption of shares received after the close of
trading on the NYSE will be valued as of the close of
trading on the next day the NYSE is open. 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 and securities not listed on a national securities
exchange or Nasdaq are valued at the most recent bid
prices. Other exchange traded securities (generally
foreign securities) will be valued based on market
quotations. Securities quoted in foreign currency will
be valued in US dollars at the foreign currency
exchange rates that are prevailing at the time the
daily net asset value per share is determined. 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 or its delegate. 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 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 fair
value of a security.
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), the
Portfolios or the Company, you should call the
Portfolios' Transfer Agent at 1-888-221-ICAP (1-888-221-
4227) or write to ICAP Funds, Inc., c/o Sunstone
Investor Services, LLC, P.O. Box 2160, Milwaukee,
Wisconsin 53201-2160.
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 are held
separately by the Custodian, and if the Company
<PAGE>
were to
issue additional series, each additional series would
be held separately. In effect, each series would be a
separate portfolio.
Each share, irrespective of Portfolio, is entitled
to one vote on all questions, except that certain
matters must be voted on separately by the Portfolio of
shares affected, and matters affecting only one
Portfolio are voted upon only by that Portfolio.
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,
1997, 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
UMB Bank, n.a., 928 Grand Avenue, Kansas City,
Missouri 64141 acts as Custodian of each Portfolio's
assets. Sunstone Investor Services, LLC, 207 East
Buffalo Street, Suite 315, 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 Company.
<PAGE>
The Company reserves the right to change any of the
policies, practices and procedures described in this
Prospectus with respect to either Portfolio, including
the Statement of Additional Information, without
shareholder approval except in those instances where
shareholder approval is expressly required.
<PAGE>
DIRECTORS
Pamela H. Conroy
Dr. James A. Gentry
Joseph A. Hays
Robert H. Lyon
Gary S. Maurer
Harold W. Nations
Donald D. Niemann
Barbara C. Schanmier
OFFICERS
Robert H. Lyon
President
Pamela H. Conroy
Vice President and Treasurer
Donald D. Niemann
Vice President and Secretary
INVESTMENT ADVISER
Institutional Capital Corporation
225 West Wacker Drive, Suite 2400
Chicago, IL 60606
CUSTODIAN
UMB Bank, n.a.
928 Grand Avenue
Kansas City, MO 64141
DIVIDEND-DISBURSING AND TRANSFER AGENT
Sunstone Investor Services, LLC
207 East Buffalo Street, Suite 315
P.O. Box 2160
Milwaukee, WI 53201-2160
ADMINISTRATOR AND FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202-5712
<PAGE>
AUDITORS
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ICAP FUNDS, INC.
ICAP Discretionary Equity Portfolio
ICAP Equity Portfolio
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
1-888-221-ICAP
(1-888-221-4227)
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, 1997. Requests for copies of the Prospectus
should be made by writing to the Company at the address
listed above; or by calling 1-888-221-ICAP.
This Statement of Additional Information is dated April 30, 1997.
<PAGE>
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
Effect of Interest Rates and Economic
Changes 9
Payment Expectations 9
Credit Ratings 9
Liquidity and Valuation 10
Legislation 10
Hedging Strategies 10
General Description of Hedging
Strategies 10
General Limitations on Futures and
Options Transactions 11
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 13
Options on Futures 14
Federal Tax Treatment of Futures
Contracts 15
Lending of Portfolio Securities 15
DIRECTORS AND OFFICERS 16
PRINCIPAL SHAREHOLDERS 17
INVESTMENT ADVISER 19
PORTFOLIO TRANSACTIONS AND BROKERAGE 20
CUSTODIAN 21
DIVIDEND-DISBURSING AND TRANSFER AGENT 21
TAXES 21
DETERMINATION OF NET ASSET VALUE 21
<PAGE>
SHAREHOLDER MEETINGS 22
PERFORMANCE INFORMATION 22
INDEPENDENT ACCOUNTANTS 24
FINANCIAL STATEMENTS 24
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, 1997,
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.
The following investment policies may be changed
by the Board of Directors of the Company (the "Board of
Directors") without shareholder approval.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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.
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"
<PAGE>
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.
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 other 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
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
<PAGE>
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 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.
<PAGE>
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.
Legislation
Legislation has been adopted, and from time to
time, proposals have been discussed, 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. 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.
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 and the Commodity Futures
Trading Commission (the "CFTC"). 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 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
<PAGE>
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, liquid
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 average of the bid and asked
prices 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 average of the bid and asked prices 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.
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
<PAGE>
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 transactions, 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, 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
<PAGE>
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
average of the bid and asked prices of the index on 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 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.
<PAGE>
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 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 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
<PAGE>
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.
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.
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.
<PAGE>
*Robert H. Lyon, President and a Director of the
Company (DOB 3/5/50).
Mr. Lyon joined ICAP in 1988 and has been the
President, Chief Investment Officer, and a
Director of ICAP since 1992. Since June 1996, Mr.
Lyon has also served as a member of the Board of
Trustees of the Nuveen Investment Trust, an open-
end management investment company which currently
offers three separate investment portfolios,
including the Nuveen Growth and Income Stock Fund,
the Nuveen Balanced Stock and Bond Fund and the
Nuveen Balanced Municipal and Stock Fund. 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 (DOB 12/23/61).
Ms. Conroy has been the Senior Vice President of
ICAP since joining the Company in August of 1994,
and a Director of ICAP since March 1995. As
Senior Vice President, 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 (DOB 2/27/43).
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.
Dr. James A. Gentry, a Director of the Company (DOB
11/22/30).
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, 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.
Joseph A. Hays, a Director of the Company (DOB 6/3/30).
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.
<PAGE>
*Gary S. Maurer, a Director of the Company (DOB
9/26/47).
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.
Harold W. Nations, a Director of the Company (DOB
3/14/54).
Mr. Nations is a partner with the law firm of
Shefsky & Froelich Ltd. in Chicago, Illinois. He
has been with Shefsky & Froelich 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
Northwestern University Law School. Mr. Nations
has served as a Director of the Company since its
inception in December 1994.
*Barbara C. Schanmier, a Director of the Company (DOB
3/29/50).
Ms. Schanmier, who joined ICAP in 1981, currently
serves as Vice President for Trading and is a
Director of ICAP. Previously, Ms. Schanmier
served as an investment officer and trader at
Harris Trust & Savings Bank. Prior to that, Ms.
Schanmier served as an equity trader at First
Wisconsin Trust. She studied accounting at the
University of Wisconsin. Ms. Schanmier has served
as a Director of the Company since its inception
in December 1994.
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, 1997, officers and directors of the
Company beneficially owned 53,580 shares of common
stock or 1.3% 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 $3,750 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, 1997, 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
a Portfolio:
Name and Address Portfolio No. Shares Percentage
Marshall & Ilsley Trust Discretionary 355,006 8.52%
Trustee FBO Rite-Hite Corp. Equity
Retirement Savings
1000 N. Water Street
Milwaukee, WI 53202
<PAGE>
Wells Fargo Bank N.A. Discretionary 209,288 5.02%
Trustee FBO Chapman University Equity
P.O. Box 9800
Calabasas, CA 91302
Marshall & Ilsley Trust Co. Discretionary 250,577 6.01%
Trustee FBO Oil Gear Co. Equity
1000 N. Water Street
Milwaukee, WI 53202
Bank of America Discretionary 233,010 5.59%
Trustee FBO Presbyterian Equity
Intercommunity Hospital
Defined Benefit Retirement Plan
P.O. Box 3577
Los Angeles, CA 90051
Wendel & Co. Discretionary 644,601 15.47%
Trustee FBO Presbyterian Equity
Intercommunity Hospital
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Mitra & Co. Discretionary 284,244 6.82%
1000 N. Water Street Equity
Attn: Mutual Funds
Milwaukee, WI 53202
Northern Trust Company Discretionary 328,042 7.87%
Trustee FBO Sun Times Company Equity
Master Retirement Trust
P. O. Box 42956
Chicago, IL 60675
Wendel & Co. Equity 325,680 5.53%
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Pennsylvania State Education Equity 413,971 7.03%
Association Pension Plan
400 North 3rd Street, Box 1724
Harrisburg, PA 17105
Pondview & Company Equity 462,803 7.86%
State Street Bank & Trust
Trust FBO Dade International
Pension Trust
One Enterprise Drive
North Quincy, MA 02171
<PAGE>
As of April 1, 1997, 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 and a director of ICAP, and both
Mr. Niemann and Mr. Maurer are Executive Vice
Presidents and directors of ICAP. Ms. Schanmier is a
Vice President and director of 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 had an initial term of two years and
is now 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 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 initially approved by the vote of a
majority of the Company's directors who were 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. Most recently, the Advisory Agreement was
approved by the directors, including the disinterested
directors, on November 14, 1996. 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 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 0.80% 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. For the year ended December
31, 1996, ICAP 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
exceeded 0.80% of the respective Portfolio's average
daily net assets, and ICAP has voluntarily agreed to
continue this waiver/reimbursement policy for the year
ending December 31, 1997. During the years ended
December 31, 1995 and 1996, ICAP received $7,820 and
$434,716 from the Discretionary Equity Portfolio,
respectively, and $36,319 and $436,868 from the Equity
Portfolio, respectively, as compensation for its
services under the Advisory Agreement. The amounts
received by ICAP for such services would have been
$141,845 and $715,273 for the Discretionary Equity
Portfolio, respectively, and $190,793 and $723,879 from
the Equity Portfolio, respectively, had ICAP not waived
a portion of its fees during the years ended December
31, 1995 and 1996.
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. Reimbursement of expenses in excess of
the applicable limitation will be
<PAGE>
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-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 Portfolio for the years
ended December 31, 1995 and 1996 was $44,543 and
$197,710, respectively, and the aggregate amount of
brokerage commissions paid by the Equity Portfolio for
the years ended December 31, 1995 and 1996 was $51,101
and $220,706, 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
<PAGE>
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 Portfolio's portfolio
turnover rate for the years ended December 31, 1995 and
1996 was 102% and 138%, respectively, and the Equity
Portfolio's portfolio turnover rate for the years ended
December 31, 1995 and 1996 was 105% and 125%,
respectively. Each Portfolio anticipates that its
portfolio turnover rate will not exceed 150%, and is
generally 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 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, UMB 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.
DIVIDEND-DISBURSING AND TRANSFER AGENT
Sunstone Investor Services, LLC ("Sunstone") acts
as dividend-disbursing and transfer agent for the
Portfolios. Sunstone is compensated based on an annual
fee per open account of $12.00 (subject to a minimum of
$14,000 per year) 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
Company's 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.
<PAGE>
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the same
caption, the net asset value per share of each
Portfolio is 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 yearly accounting period. Shares of the
Portfolios are offered and sold on a continuous basis
at a price equal to the net asset value per share as
determined in accordance with the foregoing provisions.
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.
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 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:
P(1+T)n = 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.
<PAGE>
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 for the years ended December 31, 1995 and
1996 was 35.21% and 25.55%, respectively, and the total
return for the Equity Portfolio for the years ended
December 31, 1995 and 1996 was 38.85% and 26.26%,
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 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
<PAGE>
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, 1996
are contained herein:
(a) Schedules of Investments.
(b) Statements of Assets and Liabilities.
(c) Statements of Operations.
(d) Statements of Changes in Net Assets.
(e) Financial Highlights.
(f) Notes to Financial Statements.
(g) Report of Independent Accountants.
<PAGE>
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1996
__________________________________________________________________
Number
of Shares Value
__________________________________________________________________
COMMON STOCKS 93.89%
AUTOS & TRUCKS 2.77%
54,700 General Motors Corp. $ 3,049,525
BANKS & FINANCE 9.31%
56,100 Banc One Corp. 2,412,300
25,795 Citicorp 2,656,885
82,800 CS Holdings - ADR 2,119,680
11,400 Wells Fargo & Co. 3,075,150
10,264,015
CHEMICALS 6.76%
35,650 Dow Chemical Co. 2,794,069
29,292 Du Pont (E.I.) de Nemours & Co. 2,764,432
36,700 Grace (W.R.) & Co. 1,899,225
7,457,726
COMMUNICATIONS 1.92%
34,550 Motorola, Inc. 2,120,506
COMPUTER SYSTEMS 2.52%
18,442 International Business Machines Corp. 2,784,742
DEFENSE 7.16%
32,000 Boeing Co. 3,404,000
25,450 Northrop Grumman Corp. 2,105,988
49,500 Raytheon Co. 2,382,188
7,892,176
DRUGS & SUPPLIES 10.96%
44,194 American Home Products Corp. 2,590,873
26,600 Bristol-Myers Squibb 2,892,750
65,512 Novartis AG - ADR 3,739,425
84,600 Rhone-Poulenc SA - ADR 2,865,825
12,088,873
ELECTRONICS 1.07%
54,700 General Instrument Corp.<F4> 1,182,888
See notes to financial statements.
<PAGE>
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
December 31, 1996
__________________________________________________________________
Number
of Shares Value
__________________________________________________________________
ENTERTAINMENT 6.24%
72,100 Host Marriott International Corp.<F4> $1,153,600
49,500 ITT Corp.<F4> 2,147,063
89,500 Philips Electronics N.V. 3,580,000
6,880,663
FINANCIAL - MISCELLANEOUS 2.52%
61,166 Travelers Group, Inc. 2,775,407
FOOD, TOBACCO & BEVERAGE 2.15%
25,150 Loews Corp. 2,370,387
HEALTHCARE - MISCELLANEOUS 3.40%
26,200 Aetna, Inc. 2,096,000
75,550 Tenet Healthcare Corp.<F4> 1,652,656
3,748,656
INSURANCE 2.71%
51,693 Allstate Corp. 2,991,732
MEDIA 2.80%
63,050 Dun and Bradstreet Corp. 1,497,437
45,400 Scripps (E.W.) Co. 1,589,000
3,086,437
METALS 0.74%
35,400 Allegheny Teledyne Corp. 814,200
OILS 5.86%
37,816 Amoco Corp. 3,044,188
75,500 Elf Aquitaine - ADR 3,416,375
6,460,563
RETAIL 4.26%
64,642 Federated Department Stores, Inc.<F4> 2,205,908
108,900 Wal-Mart Stores, Inc. 2,491,088
4,696,996
SERVICES - MISCELLANEOUS 3.57%
76,300 Peninsular & Oriental - ADR 1,540,497
73,600 WMX Technologies, Inc. 2,401,200
3,941,697
See notes to financial statements.
<PAGE>
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
December 31, 1996
_________________________________________________________________
Number
of Shares Value
_________________________________________________________________
TELEPHONE 8.42%
81,800 MCI Communications Corp. $ 2,673,838
68,200 Nynex Corp. 3,282,125
90,700 Pacific Telesis Group 3,333,225
9,289,188
TOYS 1.90%
37,800 Hasbro, Inc. 1,469,475
22,553 Mattel, Inc. 625,846
2,095,321
TRANSPORTATION 6.85%
23,800 AMR Corp.<F4> 2,097,375
29,034 Burlington Northern Santa Fe Corp. 2,507,812
49,010 Union Pacific Corp. 2,946,726
7,551,913
TOTAL COMMON STOCKS
(cost $88,477,800) 103,543,611
PREFERRED STOCK 1.51%
COMMUNICATIONS 1.51%
29,000 Nokia Corp. Preferred ADS 1,667,500
TOTAL PREFERRED STOCK
(cost $1,084,927) 1,667,500
See notes to financial statements.
<PAGE>
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
December 31, 1996
_________________________________________________________________
Principal
Amount Value
_________________________________________________________________
SHORT-TERM INVESTMENTS 4.56%
DISCOUNTED COMMERCIAL PAPER 2.44%
$2,700,000 Lucent Technologies, 5.35%, 1/29/97 $ 2,689,026
MONEY MARKET 2.12%
2,336,565 Money Market Fiduciary 2,336,565
TOTAL SHORT-TERM INVESTMENTS
(cost $5,025,591) 5,025,591
TOTAL INVESTMENTS 99.96%
(cost $94,588,318) 110,236,702
Cash and Other Assets,
less Liabilities 0.04% 43,125
NET ASSETS 100.00% $110,279,827
See notes to financial statements.
<F4> Non-income producing
<PAGE>
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1996
_________________________________________________________________
Number
of Shares Value
_________________________________________________________________
COMMON STOCKS 93.01%
AUTOS & TRUCKS 3.35%
89,500 General Motors Corp. $ 4,989,625
BANKS & FINANCE 8.95%
69,200 Banc One Corp. 2,975,600
36,605 Citicorp 3,770,315
103,400 CS Holdings - ADR 2,647,040
14,650 Wells Fargo & Co. 3,951,838
13,344,793
BUILDING 0.49%
10,500 Armstrong World Industries, Inc. 729,750
CHEMICALS 6.44%
45,550 Dow Chemical Co. 3,569,981
38,958 Du Pont (E.I.) de Nemours & Co. 3,676,661
45,600 Grace (W.R.) & Co. 2,359,800
9,606,442
COMMUNICATIONS 1.86%
45,300 Motorola, Inc. 2,780,288
COMPUTER SYSTEMS 3.55%
35,058 International Business Machines Corp. 5,293,758
DEFENSE 6.86%
41,200 Boeing Co. 4,382,650
31,900 Northrop Grumman Corp. 2,639,725
66,600 Raytheon Co. 3,205,125
10,227,500
DRUGS & SUPPLIES 10.77%
59,056 American Home Products Corp. 3,462,158
40,400 Bristol-Myers Squibb 4,393,500
82,113 Novartis AG - ADR 4,687,010
103,700 Rhone-Poulenc SA - ADR 3,512,838
16,055,506
See notes to financial statements.
<PAGE>
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
December 31, 1996
_________________________________________________________________
Number
of Shares Value
_________________________________________________________________
ELECTRONICS 1.04%
71,700 General Instrument Corp.<F5> $1,550,512
ENTERTAINMENT 5.71%
97,200 Host Marriott International Corp.<F5> 1,555,200
59,900 ITT Corp.<F5> 2,598,163
109,230 Philips Electronics N.V. 4,369,200
8,522,563
FINANCIAL - MISCELLANEOUS 2.59%
85,100 Travelers Group, Inc. 3,861,412
FOOD, TOBACCO & BEVERAGE 2.56%
40,450 Loews Corp. 3,812,412
HEALTHCARE - MISCELLANEOUS 3.28%
35,250 Aetna, Inc. 2,820,000
94,900 Tenet Healthcare Corp.<F5> 2,075,938
4,895,938
INSURANCE 2.84%
73,150 Allstate Corp. 4,233,556
MEDIA 2.86%
81,500 Dun and Bradstreet Corp. 1,935,625
61,500 New York Times Co., Class A 2,337,000
4,272,625
METALS 0.84%
54,300 Allegheny Teledyne Corp. 1,248,900
NON-DEFENSE CAPITAL SPENDING 1.83%
95,500 AGCO Corp. 2,733,687
OILS 2.94%
97,000 Elf Aquitaine - ADR 4,389,250
RETAIL 4.39%
93,608 Federated Department Stores, Inc.<F5> 3,194,373
146,500 Wal-Mart Stores, Inc. 3,351,188
6,545,561
See notes to financial statements.
<PAGE>
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
December 31, 1996
_________________________________________________________________
Number
of Shares Value
_________________________________________________________________
SERVICES - MISCELLANEOUS 3.54%
101,300 Peninsular & Oriental - ADR $ 2,045,247
99,100 WMX Technologies, Inc. 3,233,138
5,278,385
TELEPHONE 7.93%
128,100 MCI Communications Corp. 4,187,269
86,600 Nynex Corp. 4,167,625
94,350 Pacific Telesis Group 3,467,362
11,822,256
TOYS 1.98%
48,600 Hasbro, Inc. 1,889,325
38,273 Mattel, Inc. 1,062,076
2,951,401
TRANSPORTATION 6.41%
31,550 AMR Corp.<F5> 2,780,344
36,166 Burlington Northern Santa Fe Corp. 3,123,838
60,690 Union Pacific Corp. 3,648,986
9,553,168
TOTAL COMMON STOCKS
(cost $120,836,433) 138,699,288
PREFERRED STOCK 2.10%
COMMUNICATIONS 2.10%
54,550 Nokia Corp. Preferred ADS 3,136,625
TOTAL PREFERRED STOCK
(cost $2,160,368) 3,136,625
See notes to financial statements.
<PAGE>
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
December 31, 1996
__________________________________________________________________
Principal
Amount Value
__________________________________________________________________
SHORT-TERM INVESTMENTS 4.81%
MONEY MARKET 4.81%
$7,170,249 Money Market Fiduciary $ 7,170,249
TOTAL SHORT-TERM INVESTMENTS
(cost $7,170,249) 7,170,249
TOTAL INVESTMENTS 99.92%
(cost $130,167,050) 149,006,162
Cash and Other Assets,
less Liabilities 0.08% 118,448
NET ASSETS 100.00% $149,124,610
See notes to financial statements.
<F5> Non-income producing
<PAGE>
ICAP FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
___________________________________________________________________
Discretionary
Equity Equity
Portfolio Portfolio
___________________________________________________________________
ASSETS:
Investments, at value (cost $94,588,318
and $130,167,050, respectively) $110,236,702 $149,006,162
Interest and dividends receivable 156,786 203,909
Deferred organization costs 21,776 21,775
Prepaid blue sky fees 18,234 17,230
Total Assets 110,433,498 149,249,076
LIABILITIES:
Accrued expenses 57,909 69,229
Accrued investment advisory fee 43,660 55,237
Other liabilities 52,102 -
Total Liabilities 153,671 124,466
NET ASSETS $110,279,827 $149,124,610
NET ASSETS CONSIST OF:
Capital stock $ 37,318$ 47,855
Paid-in-capital in excess of par 95,128,555 130,536,547
Undistributed net investment income 38,117 40,435
Distributions in excess of book net
realized gain on investments (572,547) (339,339)
Net unrealized appreciation on
investments 15,648,384 18,839,112
NET ASSETS $110,279,827 $149,124,610
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000 100,000,000
Issued and outstanding 3,731,749 4,785,550
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $29.55 $31.16
See notes to financial statements.
<PAGE>
ICAP FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
____________________________________________________________________
Discretionary
Equity Equity
Portfolio Portfolio
_____________________________________________________________________
INVESTMENT INCOME:
Dividends $1,671,155<F6> $1,655,907<F7>
Interest 252,813 103,162
1,923,968 1,759,069
EXPENSES:
Investment advisory fees 715,273 723,879
Fund administration and accounting fees 126,877 127,854
Federal and state registration fees 47,850 53,030
Directors' fees and expenses 21,499 21,517
Legal fees 21,243 21,251
Shareholder servicing 17,469 17,211
Custody fees 16,695 17,629
Audit fees 9,863 9,863
Amortization of organization costs 7,257 7,257
Reports to shareholders 6,784 6,551
Other 5,020 4,848
Total expenses before waiver 995,830 1,010,890
Waiver of expenses by adviser (280,557) (287,011)
Net expenses 715,273 723,879
NET INVESTMENT INCOME 1,208,695 1,035,190
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 6,299,055 5,779,806
Change in unrealized appreciation
on investments 13,371,227 15,258,719
Net gain on investments 19,670,282 21,038,525
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $20,878,977 $22,073,715
<F6> Net of $47,016 in foreign withholding taxes.
<F7> Net of $30,827 in foreign withholding taxes.
See notes to financial statements.
<PAGE>
ICAP FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
__________________________________________________________________________
Discretionary Discretionary
Equity Equity
Portfolio Portfolio
Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995
___________________________________________________________________________
OPERATIONS:
Net investment income $ 1,208,695 $ 303,024
net realized gain on investments 6,299,055 1,751,535
Change in unrealized appreciation
on investments 13,371,227 2,277,157
Net increase in net assets resulting
from operations 20,878,977 4,331,716
DISTRIBUTIONS PAID FROM:
Net investment income (1,180,843) (300,886)
Net realized gain on investments (6,853,187) (1,751,535)
In excess of book net realized gain
on investments - (18,415)
Net decrease in net assets resulting
from distributions paid (8,034,030) (2,070,836)
CAPITAL SHARE TRANSACTIONS:
Shares sold 60,577,180 33,190,611
Shares issued to holders in reinvestment
of distributions 7,940,201 1,982,225
Shares redeemed (8,444,934) (170,283)
Net increase in net assets resulting from
capital share transactions 60,072,447 35,002,553
TOTAL INCREASE IN NET ASSETS 72,917,394 37,263,433
NET ASSETS:
Beginning of year 37,362,433 99,000
End of year $110,279,827 $37,362,433
See notes to financial statements.
<PAGE>
ICAP FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
___________________________________________________________________________
Equity Equity
Portfolio Portfolio
Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995
____________________________________________________________________________
OPERATIONS:
Net investment income $ 1,035,190 $ 356,342
Net realized gain on investments 5,779,806 2,362,765
Change in unrealized appreciation
on investments 15,258,719 3,580,393
Net increase in net assets resulting
from operations 22,073,715 6,299,500
DISTRIBUTIONS PAID FROM:
Net investment income (998,870) (356,342)
In excess of book net investment income - (4,012)
Net realized gain on investments (6,104,860) (2,362,765)
In excess of book net realized gain
on investments - (14,285)
Net decrease in net assets resulting from
distributions paid (7,103,730) (2,737,404)
CAPITAL SHARE TRANSACTIONS:
Shares sold 101,599,973 42,888,716
Shares issued to holders in reinvestment
of distributions 6,875,245 2,429,267
Shares redeemed (21,108,211) (2,093,461)
Net increase in net assets resulting from
capital share transactions 87,367,007 43,224,522
TOTAL INCREASE IN NET ASSETS 102,336,992 46,786,618
NET ASSETS:
Beginning of year 46,787,618 1,000
End of year $149,124,610 $46,787,618
See notes to financial statements.
<PAGE>
ICAP FUNDS, INC.
FINANCIAL HIGHLIGHTS
__________________________________________________________________________
Discretionary Discretionary
Equity Equity
Portfolio Portfolio
Year Ended Year Ended
(For a share outstanding throughout the year)Dec. 31, 1996 Dec. 31, 1995<F8>
____________________________________________________________________________
Net asset value, beginning of year $25.42 $20.00
Income from investment operations:
Net investment income 0.36 0.31
Net realized and unrealized gain on
investments 6.09 6.70
Total income from investment operations 6.45 7.01
Less distributions:
From net investment income (0.36) (0.31)
From net realized gain on investments (1.96) (1.27)
In excess of book net realized
gain on investments - (0.01)
Total distributions (2.32) (1.59)
Net asset value, end of year $29.55 $25.42
Total return 25.55% 35.21%
Supplemental data and ratios:
Net assets, end of year (in thousands) $110,280 $37,362
Ratio of expenses to average net assets<F9> 0.80% 0.80%
Ratio of net investment income to average
net assets<F9> 1.35% 1.71%
Portfolio turnover rate 138% 102%
Average commission rate paid on portfolio
investment transactions $0.0356 N/A
<F8> Commencement of operations January 1, 1995.
<F9> Net of waivers by ICAP. Without waivers of
expenses, the ratio of expenses to average net assets
would have been 1.11% and 1.56%, and the ratio of net
investment income to average net assets would have been
1.04% and 0.95% for the years ended December 31, 1996
and December 31, 1995, respectively.
See notes to financial statements.
<PAGE>
ICAP FUNDS, INC.
FINANCIAL HIGHLIGHTS
__________________________________________________________________________
Equity Equity
Portfolio Portfolio
Year Ended Year Ended
(For a share outstanding throughout the year)Dec. 31, 1996 Dec. 31, 1995<F10>
___________________________________________________________________________
Net asset value, beginning of year $26.03 $20.00
Income from investment operations:
Net investment income 0.31 0.28
Net realized and unrealized gain on
investments 6.49 7.45
Total income from investment operations 6.80 7.73
Less distributions:
From net investment income (0.30) (0.28)
From net realized gain on investments (1.37) (1.41)
In excess of book net realized
gain on investments - (0.01)
Total distributions (1.67) (1.70)
Net asset value, end of year $31.16 $26.03
Total return 26.26% 38.85%
Supplemental data and ratios:
Net assets, end of year (in thousands) $149,125 $46,788
Ratio of expenses to average net assets<F11> 0.80% 0.80%
Ratio of net investment income to average
net assets<F11> 1.15% 1.49%
Portfolio turnover rate 125% 105%
Average commission rate paid on portfolio
investment transactions $0.0365 N/A
<F10> Commencement of operations January 1, 1995.
<F11> Net of waivers by ICAP. Without waivers of
expenses, the ratio of expenses to average net assets
would have been 1.12% and 1.44%, and the ratio of net
investment income to average net assets would have been
0.83% and 0.85% for the years ended December 31, 1996
and December 31, 1995, respectively.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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.
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 and Excise Taxes - It is each
Portfolio's policy to meet the requirements of the
Internal Revenue Code applicable to regulated
investment companies and to distribute
substantially all investment company net taxable
income and net capital gains to shareholders in a
manner which results in no tax cost to the
Portfolio. Therefore, no federal income or excise
tax provision is required.
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,
1996, reclassifications were recorded from
undistributed net investment income to reduce paid-
in capital by $4,064 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
<PAGE>
with the net sale
proceeds. Dividend income is recognized on the ex-
dividend date and interest income is recognized on
an accrual basis. The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date
of the financial statements, and the reported
amounts of increases and decreases in net assets
from operations during the reporting period.
Actual results could differ from those estimates.
3. Capital Share Transactions
Transactions in shares of the Portfolios were as
follows:
Discretionary
Equity Equity
Portfolio Portfolio
Year Year Year Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec.31, Dec. 31,
1996 1995 1996 1995
Shares sold 2,292,674 1,392,981 3,514,078 1,783,850
Shares issued to
holders in
reinvestment of
distributions 271,211 78,723 222,754 94,610
Shares redeemed (301,710) (7,080) (748,775) (81,017)
Net increase 2,262,175 1,464,624 2,988,057 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, 1996 are summarized below:
Discretionary
Equity Equity
Portfolio Portfolio
Purchases $164,745,702 $186,468,500
Sales $113,677,828 $111,724,339
There were no purchases or sales of U.S. government
obligations. At December 31, 1996, gross unrealized
appreciation and depreciation of investments, based on
cost for federal income tax purposes of $95,160,869 and
$130,506,391 for the Discretionary Equity and Equity
Portfolios, respectively, were as follows:
Discretionary
Equity Equity
Portfolio Portfolio
Appreciation $15,741,387 $19,489,660
Depreciation (665,554) (989,889)
Net appreciation on
investments $15,075,833 $18,499,771
For the year ended December 31, 1996, 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. 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 has agreed to voluntarily 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 "Fund")
(comprising, respectively, the Discretionary Equity and
the Equity Portfolios), including the schedules of
investments in securities, as of December 31, 1996, and
the related statements of operations for the year then
ended, and the statements of changes in net assets and
the financial highlights for each of the two years in
the period 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, 1996 by
correspondence with the custodian. 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, 1996, the results of their
operations for the year then ended, and the changes in
their net assets and the financial highlights for each
of the two years in the period then ended, in
conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
January 24, 1997
<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' the
<PAGE>
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.
<PAGE>
Baa - Bonds which are rated Baa are considered as
medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such Bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered
as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes
Bonds in this class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of
other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may
be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent
obligations which are speculative in a high degree.
Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
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 is modest, but may
AA vary slightly from time to time because
of economic conditions.
AA-
_______________________________________________________
A+ Protection factors are average but
adequate. However, risk factors are more
A variable and greater in periods of
economic stress.
A-
_______________________________________________________
BBB+ Below average protection factors but
still considered sufficient for prudent
BBB investment. Considerable variability in
risk during economic cycles.
BBB-
_______________________________________________________
BB+ Below investment grade but deemed likely
to meet obligations when due.
BB Present or prospective financial
protection factors fluctuate according to
BB- 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 will not be met
B when due. Financial protection factors
will fluctuate widely according to
B- 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 scheduled 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.
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.
<PAGE>
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
Schedules of Investments
Statements of Assets and Liabilities
Statements 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.*
(9.2) (a) Administration and
Fund Accounting Agreement with
Sunstone Financial Group, Inc.
(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.
<PAGE>
(11) Consent of Coopers & Lybrand L.L.P.
(12) None
(13) Subscription Agreements
(14) (a) Individual Retirement Trust Account
(b) Supplement to IRA Disclosure Statement and
Custodial Agreement
(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 April
29, 1996.
** Incorporated by reference from Registrant's N-SAR
as filed with the Securities and Exchange
Commission on February 27, 1997.
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 April 1, 1996
Common Stock, $.01 par value 247
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 these 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.
<PAGE>
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 UMB Bank, n.a., 928 Grand
Avenue, Kansas City, Missouri 64141, relating to its
function as custodian, (2) records held and maintained
by Sunstone Financial Group, Inc., 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202, relating
to its function as administrator and fund accountant
and (3) records held and maintained by Sunstone
Investor Services, LLC, relating to its function as
transfer agent, 207 East Buffalo Street, Suite B-15,
Milwaukee, Wisconsin 53202.
Item 31. Management Services
All management-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
shareholders 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 1996 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. 5 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 28th day of April, 1997.
ICAP FUND, 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 agent 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, and any other documents in connection
therewith, with the Securities and Exchange Commission
and 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, may
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. 5 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/ Pamela H. Conroy Vice President, Treasurer April 28, 1997
- ----------------------- and a Director
Pamela H. Conroy
/s/ Dr. James A. Gentry Director April 28, 1997
- -----------------------
Dr. James A. Gentry
- ---------------------- Director April__, 1997
Joseph Andrew Hays
/s/ Robert H. Lyon President and a Director April 28, 1997
- ----------------------
Robert H. Lyon
/s/ Gary S. Maurer Director April 28, 1997
- ----------------------
Gary S. Maurer
/s/ Harold W. Nations Director April 28, 1997
- ----------------------
Harold W. Nations
/s/ Donald D. Niemann Vice President, Secretary April 28, 1997
- ----------------------- and a Director
Donald D. Niemann
/s/ Barbara C. Schanmier Director April 28, 1997
- ------------------------
Barbara C. Schanmier
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(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.
(previously filed as Exhibit 9.1 to
Registrant's Post-Effective
Amendment No. 4 to Registration
Statement on Form N-1A, File Nos.
811-8850 and 33-86006)
(9.2) (a) Administration and Fund
Accounting Agreement with
Sunstone Financial Group, Inc.
(b) Amendment to Administration and
Fund Accounting Agreement with
Sunstone Financial Group, Inc.
dated January 1, 1996
(previously filed as Exhibit
9.2(b) to Registrant's Post-
Effective Amendment No. 4 to
Registration Statement on Form
N-1A, File Nos. 811-8850 and
33-86006)
(10) Opinion and Consent of Godfrey & Kahn, S.C.
(11) Consent of Coopers & Lybrand L.L.P.
(12) None
(13) Subscription Agreement
(14) (a) Individual Retirement Trust Account
(b) Supplement to IRA Disclosure Statement and Custodial Agreement
(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, 1997)
(18) Powers of Attorney for Directors and Officers
(see signature page)
ARTICLES OF INCORPORATION
OF
ICAP FUNDS, INC.
ARTICLE I
INCORPORATOR
THE UNDERSIGNED, Pamela M. Krill, whose post
office address is Godfrey & Kahn, S.C., 780 North Water
Street, Milwaukee, Wisconsin 53202, being at least
eighteen (18) years of age, does hereby act as
incorporator to form a corporation under and by virtue
of the Maryland General Corporation Law.
ARTICLE II
NAME
2.1. Name. The name of the corporation is
ICAP Funds, Inc. (the "Corporation").
2.2. Name Reservation. The Corporation
acknowledges that it uses the acronym "ICAP" in its
corporate name and in the name of any series designated
pursuant to Article V hereof only with the permission
of Institutional Capital Corporation ("ICAP") the
Corporation's investment adviser, and agrees that ICAP
shall control the use of the acronym "ICAP" by the
Corporation. The Corporation further agrees that if
ICAP, its successors or assigns should at any time
cease to be the investment adviser to the Corporation,
the Corporation shall, at the written request of ICAP
or its successors or assigns eliminate the acronym
"ICAP" from its corporate name and any materials or
documents referring to the Corporation, and will not
henceforth use the acronym "ICAP" in the conduct of the
Corporation's business, except to any extent
specifically agreed to by ICAP. The Corporation
further acknowledges that ICAP reserves the right to
grant the non-exclusive right to use the acronym "ICAP"
to any other persons or entities, including other
investment companies, whether now in existence or
hereafter created. The provisions of this paragraph
are binding on the Corporation, its successors and
assigns and on its directors, officers, stockholders,
creditors and all other persons claiming under or
through it.
ARTICLE III
CORPORATE PURPOSES AND POWERS
The purpose or purposes for which the Corporation is
formed is to act as an investment company under the
federal Investment Company Act of 1940, and to exercise
and enjoy all the powers, rights and privileges granted
to, or conferred upon, corporations by the General Laws
of the State of Maryland. The Corporation shall
exercise and enjoy all such powers, rights and
privileges to the extent not inconsistent with these
Articles of Incorporation.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal
office of the Corporation in the State of Maryland is
c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202-3242. The name of
the Corporation's resident agent in the State of
Maryland is The Corporation Trust Incorporated, a
corporation of the State of Maryland, and the post
office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202-3242.
ARTICLE V
CAPITAL STOCK
5.1. Authorized Shares. The total number of
shares of capital stock which the Corporation shall
have authority to issue is Five Hundred Million
(500,000,000) shares of the par value of one cent
($0.01) per share and of the aggregate par value of
Five Million Dollars ($5,000,000), all of which shares
are designated Common Stock.
5.2. Authorization of Stock Issuance. The
Board of Directors may authorize the issuance and sale
of capital stock of the Corporation, including stock of
any class or series, from time to time in such amounts
and on such terms and conditions, for such purposes and
for such amount or kind of consideration as the Board
of Directors shall determine, subject to any limits
required by then applicable law. All shares shall be
issued on a fully paid and non-assessable basis.
5.3. Fractional Shares. The Corporation may
issue fractional shares. Any fractional share shall
carry proportionately the rights of a whole share,
excepting the right to receive a certificate evidencing
such fractional share, but including, without
limitation, the right to vote and the right to receive
dividends.
5.4. Power to Classify. The Board of
Directors of the Corporation may classify and
reclassify any unissued shares of capital stock into
one or more additional or other classes or series as
may be established from time to time by setting or
changing in any one or more respects the designations,
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications or terms of such shares of stock and
pursuant to such classification or reclassification to
increase or decrease the number of authorized shares of
stock, or shares of any existing class or series of
stock. Except as otherwise provided herein, all
references herein to capital stock shall apply without
discrimination to the shares of each class or series of
stock. Pursuant to such power, the Board of Directors
has initially designated 100,000,000 shares of its
capital stock into one series of shares of capital
stock of the Corporation and 100,000,000 shares of its
capital stock into another series, the names of which
and the number of shares allocated to each are as
follows:
Name of Series Number of Shares
Initially
Allocated
ICAP Discretionary Equity Portfolio
100,000,000
ICAP Equity Portfolio
100,000,000
5.5. Classes and Series - General. The
relative preferences, conversion and other rights,
voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of
redemption of each class or series of stock of the
Corporation shall be as follows, unless otherwise
provided in Articles Supplementary hereto:
(a) Assets Belonging to Class or
Series. All consideration received by the
Corporation for the issue or sale of stock of a
particular class or series, together with all
assets in which such consideration is invested or
reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that
class or series for all purposes, subject only to
the rights of creditors, and shall be so recorded
on the books of account of the Corporation. Any
assets, income, earnings, profits or proceeds
thereof, funds or payments which are not readily
attributable to a particular class or series shall
be allocated to and among any one or more series
or classes in such manner and on such basis as the
Board of Directors, in its sole discretion, shall
deem fair and equitable, and items so allocated to
a particular series or class shall belong to that
series or class. Each such allocation shall be
conclusive and binding upon the stockholders of
all classes and series for all purposes.
(b) Liabilities Belonging to Class or
Series. The assets belonging to each class or
series shall be charged with the liabilities of
the Corporation in respect of that class or series
and with all expenses, costs, charges and reserves
attributable to that class or series and shall be
so recorded on the books of account of the
Corporation. Any general liabilities, expenses,
costs, charges or reserves of the Corporation
which are not readily identifiable as belonging to
any particular class or series shall be allocated
and charged to and among any one or more of the
classes or series in such manner and on such basis
as the Board of Directors in its sole discretion
deems fair and equitable, and any items so
allocated to a particular class or series shall be
charged to, and shall be a liability belonging to,
that class or series. Each such allocation shall
be conclusive and binding upon the stockholders of
all classes and series for all purposes.
(c) Income. The Board of Directors
shall have full discretion, to the extent not
inconsistent with the General Laws of the State of
Maryland and the Investment Company Act of 1940,
to determine which items shall be treated as
income and which items shall be treated as
capital. Each such determination shall be
conclusive and binding.
(d) Dividends and Distributions. The
holders of each class or series of capital stock
of record as of a date determined by the Board of
Directors from time to time shall be entitled,
from funds or other assets legally available
therefor, to dividends and distributions,
including distributions of capital gains, in such
amounts and at such times as may be determined by
the Board of Directors. Any such dividends or
distributions may be declared payable in cash,
property or shares of the class or series, as
determined by the Board of Directors or pursuant
to a standing resolution or program adopted or
approved by the Board of Directors. Dividends and
distributions may be declared with such frequency,
including daily, as the Board of Directors may
determine and in any reasonable manner, including
by standing resolution, by resolutions adopted
only once or with such frequency as the Board of
Directors may determine, or by formula or other
similar method of determination, whether or not
the amount of the dividend or distribution so
declared can be calculated at the time of such
declaration. The Board of Directors may establish
payment dates for such dividends and distributions
on any basis, including payment that is less
frequent than the effectiveness of such
declarations. The Board of Directors shall have
the discretion to designate for such dividends and
distributions amounts sufficient to enable the
Corporation or any class or series thereof to
qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 or any successor
or comparable statute, and regulations promulgated
thereunder (collectively, the "IRC"), and to avoid
liability of the Corporation or any class or
series for Federal income tax in respect of a
given year and to make other appropriate
adjustments in connection therewith. Nothing in
the foregoing sentence shall limit the authority
of the Board of Directors to designate greater or
lesser amounts for such dividends or
distributions. The amounts of dividends and
distributions declared and paid with respect to
the various classes or series of capital stock and
the timing of declaration and payment of such
dividends and distributions may vary among such
classes and series.
(e) Tax Elections. The Board of
Directors shall have the power, in its discretion,
to make such elections as to the tax status of the
Corporation or any series or class of the
Corporation as may be permitted or required by the
IRC without the vote of stockholders of the
Corporation or any series or class.
(f) Liquidation. At any time there are
no shares outstanding for a particular class or
series, the Board of Directors may liquidate such
class or series in accordance with applicable law.
In the event of the liquidation or dissolution of
the Corporation, or of a class or series thereof
when there are shares outstanding of the
Corporation or of such class or series, as
applicable, the stockholders of such, or of each,
class or series, as applicable, shall be entitled
to receive, when and as declared by the Board of
Directors, the excess of the assets of that class
or series over the liabilities of that class or
series, determined as provided herein and
including assets and liabilities allocated
pursuant to sections (a) and (b) of this Article
5.5. Any such excess amounts will be distributed
to each stockholder of the applicable class or
series in proportion to the number of outstanding
shares of that class or series held by that
stockholder and recorded on the books of the
Corporation. Subject to the requirements of
applicable law, dissolution of a class or series
may be accomplished by distribution of assets to
stockholders of that class or series as provided
herein, by the transfer of assets of that class or
series to another class or series of the Corpora
tion, by the exchange of shares of that class or
series for shares of another class or series of
the Corporation, or in any other legal manner.
(g) Voting Rights. On each matter
submitted to a vote of stockholders, each holder
of a share of capital stock of the Corporation
shall be entitled to one vote for each full share,
and a fractional vote for each fractional share of
stock standing in such holder's name on the books
of the Corporation, irrespective of the class or
series thereof, and all shares of all classes and
series shall vote together as a single class,
provided that (a) when the Maryland General
Corporation Law or the Investment Company Act of
1940 requires that a class or series vote
separately with respect to a given matter, the
separate voting requirements of the applicable law
shall govern with respect to the affected
class[es] and/or series and other classes and
series shall vote as a single class and (b) unless
otherwise required by those laws, no class or
series shall vote on any matter which does not
affect the interest of that class or series.
(h) Quorum. The presence in person or
by proxy of the holders of one-third of the shares
of stock of the Corporation entitled to vote
thereat, without regard to class or series, shall
constitute a quorum at any meeting of the
stockholders, except with respect to any matter
which, under applicable statutes or regulatory
requirements, requires approval by a separate vote
of one or more classes or series of stock, in
which case the presence in person or by proxy of
the holders of one-third of the shares of stock of
each class or series required to vote as a class
on the matter shall constitute a quorum. If at
any meeting of the stockholders there shall be
less than a quorum present, the stockholders
present at such meeting may, without further
notice, adjourn the same from time to time until a
quorum shall be present.
(i) Equality. Each share of each
series or class shall be equal to each other share
of that class or series and shall represent an
equal proportionate interest in the assets
belonging to that series or class, subject to the
liabilities belonging to that series or class.
The Board of Directors may from time to time
divide or combine the shares of any particular
series or class into a greater or lesser number of
shares of that series or class without thereby
changing the proportionate beneficial interest in
the assets belonging to that series or class or in
any way affecting the rights of shares of any
other series or class.
(j) Conversion or Exchange Rights.
Subject to compliance with the requirements of the
Investment Company Act of 1940, the Board of
Directors shall have the authority to provide that
holders of shares of any series or class shall
have the right to convert or exchange such shares
into shares of one or more other series or classes
in accordance with such requirements and
procedures as may be established by the Board of
Directors.
(k) Change of Name. The Board of
Directors shall have the authority to change part
or all of the name of any series created herein or
hereafter.
5.6. Authorizing Vote. Notwithstanding any
provision of the General Laws of the State of Maryland
requiring for any purpose a proportion greater than a
majority of the votes of all classes or series, the
affirmative vote of the holders of a majority of the
total number of shares of the Corporation, or of a
class or series of the Corporation, as applicable,
outstanding and entitled to vote under such
circumstances pursuant to these Articles of
Incorporation and the By-Laws of the Corporation shall
be effective for such purpose, except to the extent
otherwise required by the Investment Company Act of
1940 and rules thereunder; provided that, to the extent
consistent with the General Laws of the State of
Maryland and other applicable law, the By-Laws may
provide for authorization to be by the vote of a
proportion less than a majority of the votes of the
Corporation, or of a class or series.
5.7. Preemptive Rights. No stockholder of
the Corporation shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any
shares of any classes or series, or any other
securities of the Corporation which the Corporation
proposes to issue or sell, and any or all of such
shares or securities of the Corporation, whether now or
hereafter authorized or created, may be issued, or may
be reissued or transferred if the same have been
reacquired, and sold to such persons, firms,
corporations and associations, and for such lawful
consideration, and on such terms as the Board of
Directors in its discretion may determine, without
first offering the same, or any thereof, to any said
stockholder.
5.8. Redemption.
(a) The Board of Directors shall
authorize the Corporation, to the extent it has
funds or other property legally available therefor
and subject to such reasonable conditions as the
directors may determine, to permit each holder of
shares of capital stock of the Corporation, or of
any class or series, to require the Corporation to
redeem all or any part of the shares standing in
the name of such holder on the books of the
Corporation, at the applicable redemption price of
such shares (which may reflect such fees and
charges as the Board of Directors may establish
from time to time) determined in accordance with
procedures established by the Board of Directors
of the Corporation from time to time in accordance
with applicable law.
(b) Without limiting the generality of
the foregoing, the Board of Directors may
authorize the Corporation, at its option and to
the extent permitted by and in accordance with the
conditions of applicable law, to redeem stock of
the Corporation, or of any class or series, owned
by any stockholder under circumstances deemed
appropriate by the Board of Directors in its sole
discretion from time to time, such circumstances
including but not limited to (1) failure to
provide the Corporation with a tax identification
number and (2) failure to maintain ownership of a
specified minimum number or value of shares of any
class or series of stock of the Corporation, such
redemption to be effected at such price, at such
time and subject to such conditions as may be
required or permitted by applicable law.
(c) Payment for redeemed stock shall be
made in cash unless, in the opinion of the Board
of Directors, which shall be conclusive,
conditions exist which make it advisable for the
Corporation to make payment wholly or partially in
securities or other property or assets of the
class or series of the shares being redeemed.
Payment made wholly or partially in securities or
other property or assets may be delayed to such
reasonable extent, not inconsistent with
applicable law, as is reasonably necessary under
the circumstances. No stockholder shall have the
right, except as determined by the Board of
Directors, to have his shares redeemed in such
securities, property or other assets.
(d) All rights of a stockholder with
respect to a share redeemed, including the right
to receive dividends and distributions with
respect to such share, shall cease and determine
as of the time as of which the redemption price to
be paid for such shares shall be fixed, in
accordance with applicable law, except the right
of such stockholder to receive payment for such
shares as provided herein.
(e) Notwithstanding any other provision
of this Article 5.8, the Board of Directors may
suspend the right of stockholders of any or all
classes or series of shares to require the
Corporation to redeem shares held by them for such
periods and to the extent permitted by, or in
accordance with, the Investment Company Act of
1940. The Board of Directors may, in the absence
of a ruling by a responsible regulatory official,
terminate such suspension at such time as the
Board of Directors, in its discretion, shall deem
reasonable, such determination to be conclusive.
(f) Shares of any class or series which
have been redeemed shall constitute authorized but
unissued shares subject to classification and
reclassification as provided in these Articles of
Incorporation.
5.9. Repurchase of Shares. The Board of
Directors may by resolution from time to time authorize
the Corporation to purchase or otherwise acquire,
directly or through an agent, shares of any class or
series of its outstanding stock upon such terms and
conditions and for such consideration as permitted by
applicable law and determined to be reasonable by the
Board of Directors and to take all other steps deemed
necessary in connection therewith. Shares so purchased
or acquired shall have the status of authorized but
unissued shares.
5.10. Valuation. Subject to the
requirements of applicable law, the Board of Directors
may, in its absolute discretion, establish the basis or
method, timing and frequency for determining the value
of assets belonging to each class or series and for
determining the net asset value of each share of each
class or series for purposes of sales, redemptions,
repurchases or otherwise. Without limiting the
foregoing, the Board of Directors may determine that
the net asset value per share of any class or series
should be maintained at a designated constant value and
may establish procedures, not inconsistent with
applicable law, to accomplish that result. Such
procedures may include a requirement, in the event of a
net loss with respect to the particular class or series
from time to time, for automatic pro rata capital
contributions from each stockholder of that class or
series in amounts sufficient to maintain the designated
constant share value.
5.11. Certificates. Subject to the
requirements of the Maryland General Corporation Law,
the Board of Directors may authorize the issuance of
some or all of the shares of any or all classes or
series without certificates and may establish such
conditions as it may determine in connection with the
issuance of certificates.
5.12. Shares Subject to Articles and
By-laws. All persons who shall acquire shares of
capital stock in the Corporation shall acquire the same
subject to the provisions of these Articles of
Incorporation and the By-Laws of the Corporation, as
each may be amended, supplemented and/or restated from
time to time.
ARTICLE VI
BOARD OF DIRECTORS
6.1. Number of Directors. The number of
directors of the Corporation shall be as provided in
the By-Laws and subject to the limitations of the
Maryland General Corporation Law, may fix a different
number of directors and may authorize a majority of the
directors to increase or decrease the number of
directors set by these Articles or the By-Laws within
limits set by the By-Laws and to fill vacancies created
by an increase in the number of directors. Unless
otherwise provided by the By-Laws, the directors of the
Corporation need not be stockholders of the
Corporation. The names of the directors who will serve
until the first annual meeting and until their
successors are elected and qualify are:
Robert H. Lyon
Pamela H. Conroy
Gary S. Maurer
6.2. Removal of Directors. Subject to the
limits of the Investment Company Act of 1940 and unless
otherwise provided by the By-Laws, a director may be
removed, with or without cause, by the affirmative vote
of a majority of (a) the Board of Directors, (b) a
committee of the Board of Directors appointed for such
purpose, or (c) the stockholders by vote of a majority
of the outstanding shares of the Corporation.
6.3. Liability of Directors and Officers.
(a) To the fullest extent permitted by
the Maryland General Corporation Law and the
Investment Company Act of 1940, no director or
officer of the Corporation shall be liable to the
Corporation or to its stockholders for money
damages. No amendment to these Articles of
Incorporation or repeal of any of its provisions
shall limit or eliminate the benefits provided to
directors and officers under this provision with
respect to any act or omission which occurred
prior to such amendment or repeal.
(b) In performance of his duties, a
director is entitled to rely on any information,
opinion, report, or statement, including any
financial statement or other financial data,
prepared by others, to the extent not inconsistent
with the General Laws of the State of Maryland. A
person who performs his duties in accordance with
the standards of Article 2-405.1 of the Maryland
General Corporation Law or otherwise in accordance
with applicable law shall have no liability by
reason of being or having been a director of the
Corporation.
6.4. Powers of Directors. In addition to
any powers conferred herein or in the By-Laws, the
Board of Directors may, subject to any express
limitations contained in these Articles of
Incorporation or in the By-Laws, exercise the full
extent of powers conferred by the General Laws of the
State of Maryland or other applicable law upon
corporations or directors thereof and the enumeration
and definition of particular powers herein or in the By-
Laws shall in no way be deemed to restrict or otherwise
limit those lawfully conferred powers. In furtherance
and without limitation of the foregoing, the Board of
Directors shall have power:
(a) to make, alter, amend or repeal
from time to time the By-Laws of the Corporation
except as otherwise provided by the By-Laws;
(b) subject to requirements of the
Investment Company Act of 1940 and the General
Laws of the State of Maryland, to authorize the
Corporation to enter into contracts with any
person, including any firm, corporation, trust or
association in which a director, officer, employee
or stockholder of the Corporation may be
interested. Such contracts may be for any lawful
purpose, whether or not such purpose involves
delegating functions normally performed by the
board of directors or officers of a corporation,
including, but not limited to, the provision of
investment management for the Corporation's
investment portfolio, the distribution of
securities issued by the Corporation, the
administration of the Corporation's affairs, the
provision of transfer agent services with respect
to the Corporation's shares of capital stock, and
the custody of the Corporation's assets. Any
person (including its affiliates) may be retained
in multiple capacities pursuant to one or more
contracts and may also perform services, including
similar or identical services, for others,
including other investment companies. Subject to
the requirements of applicable law, such contracts
may provide for compensation to be paid by the
Corporation in such amounts, including payments of
multiple amounts for persons (including their
affiliates) acting in multiple capacities, as the
Board of Directors shall determine in its
discretion to be proper and reasonable.
(c) to authorize from time to time the
payment of compensation to the Directors for
services to the Corporation, including fees for
attendance at meetings of the Board of Directors
and committees thereof.
6.5. Determinations by Board of Directors.
Any determination made by or pursuant to the direction
of the Board of Directors and in accordance with the
standards set by the General Laws of the State of
Maryland shall be final and conclusive and shall be
binding upon the Corporation and upon all stockholders,
past, present and future, of each class and series.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
THE POWERS OF THE CORPORATION AND THE DIRECTORS
AND STOCKHOLDERS
7.1. Location of Meetings, Offices and
Books. Both directors and stockholders may hold
meetings within or without the State of Maryland and
abroad, and the Corporation may have one or more
offices and may keep its books within or without the
State of Maryland and abroad at such places as the
directors shall determine.
7.2. Meetings of Shareholders. Except as
otherwise provided in the By-Laws, in accordance with
applicable law, the Corporation shall not be required
to hold an annual meeting of shareholders in any year
unless required by applicable law. Election of
directors, whether by the directors or by stockholders,
need not be by ballot unless the By-Laws so provide.
7.3. Inspection of Records. Stockholders of
the Corporation shall have only such rights to inspect
and copy the records, documents, accounts and books of
the Corporation and to request statements regarding its
affairs as are provided by the Maryland General
Corporation Law, subject to such reasonable
regulations, not contrary to the General Laws of the
State of Maryland, as the Board of Directors may from
time to time adopt regarding the conditions and limits
of such rights.
7.4. Indemnification. The Corporation,
including its successors and assigns, shall indemnify
its directors and officers and make advance payment of
related expenses to the fullest extent permitted, and
in accordance with the procedures required, by the
General Laws of the State of Maryland and the
Investment Company Act of 1940. The By-Laws may
provide that the Corporation shall indemnify its
employees and/or agents in any manner and within such
limits as permitted by applicable law. Such
indemnification shall be in addition to any other right
or claim to which any director, officer, employee or
agent may otherwise be entitled. The Corporation may
purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of
the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust
or other enterprise or employee benefit plan, against
any liability (including, with respect to employee
benefit plans, excise taxes) asserted against and
incurred by such person in any such capacity or arising
out of such person's position, whether or not the
Corporation would have had the power to indemnify
against such liability. The rights provided to any
person by this Article 7.4 shall be enforceable against
the Corporation by such person who shall be presumed to
have relied upon such rights in serving or continuing
to serve in the capacities indicated herein. No
amendment of these Articles of Incorporation shall
impair the rights of any person arising at any time
with respect to events occurring prior to such
amendment.
7.5. Wholly-Owned Subsidiaries. The
Corporation may own all or any portion of the
securities of, make loans to, or contribute to the
costs or other financial requirements of any company
which is wholly owned by the Corporation or by the
Corporation and by one or more other investment
companies and is primarily engaged in the business of
providing, at cost, management, administrative or
related services to the Corporation or to the
Corporation and other investment companies.
7.6. Amendments. The Corporation reserves
the right to amend, alter, change or repeal any
provision of these Articles of Incorporation, and all
rights conferred upon stockholders herein are granted
subject to this reservation.
7.7. References to Statutes, Articles and By-
Laws. All references herein to statutes, to these
Articles of Incorporation or to the By-Laws shall be
deemed to refer to those statutes, Articles or By-Laws
as they are amended and in effect from time to time.
7.8. Specific Powers and Purposes. Without
limiting the foregoing, the Corporation shall have the
following specific powers:
(a) To hold, invest and reinvest its
funds, and in connection therewith, to hold part
or all of its funds in cash, and to purchase,
subscribe for or otherwise acquire, hold for
investment or otherwise, to trade and deal in,
write, sell, assign, negotiate, transfer,
exchange, lend, pledge or otherwise dispose of or
turn to account or realize upon, securities (which
term "securities" shall, for the purposes of these
Articles of Incorporation, without limiting the
generality thereof, be deemed to include any
stocks, shares, bonds, debentures, bills, notes,
mortgages or other obligations or evidences of
indebtedness, and any options, certificates,
receipts, warrants, futures contracts or other
instruments representing rights to receive,
purchase or subscribe for the same, or evidencing
or representing any other rights or interests
therein, or in any property or assets; and any
negotiable or non-negotiable instruments and money
market instruments, including bank certificates of
deposit, finance paper, commercial paper, bankers'
acceptances and all kinds of repurchase and
reverse repurchase agreements) created or issued
by any United States or foreign issuer (which term
"issuer" shall, for the purpose of these Articles
of Incorporation, without limiting the generality
thereof, be deemed to include any persons, firms,
associations, partnerships, corporations,
syndicates, combinations, organizations,
governments or subdivisions, agencies or
instrumentalities of any government); and to
exercise, as owner or holder of any securities,
all rights, powers and privileges in respect
thereof, including the right to vote thereon and
otherwise act with respect thereto and to do any
and all acts and things for the preservation,
protection, improvement and enhancement in value
of any and all such securities.
(b) To issue and sell shares of its own
capital stock in such amounts and on such terms
and conditions, for such purposes and for such
amount or kind of consideration (including,
without limitation, securities) now or hereafter
permitted by the laws of the State of Maryland.
(c) To the extent not inconsistent with
applicable law, to acquire all or any part of the
goodwill, rights, property and business of any
person, firm, association or corporation and to
hold, utilize, enjoy and in any manner dispose of
the whole or any part of the rights, property and
business so acquired, and to assume in connection
therewith any liabilities of any such person,
firm, association or corporation.
(d) To acquire (by purchase, lease or
otherwise) and to hold, use, maintain, develop and
dispose of (by sale or otherwise) any property,
real or personal, and any interest therein.
(e) To borrow money and, in this
connection, to issue notes or other evidence of
indebtedness.
(f) To buy, hold, sell, and otherwise
deal in and with foreign exchange.
(g) To apply for, obtain, purchase or
otherwise acquire, any patents, copyrights,
licenses, trademarks, trade names and the like and
to use, exercise, develop, grant licenses in
respect of, sell and otherwise turn to account,
the same.
(h) To aid by further investment any
issuer, any obligation of or interest in which is
held by the Corporation or in the affairs of which
the Corporation has any direct or indirect
interest; to do all acts and things designed to
protect, preserve, improve or enhance the value of
such obligation or interest; to guarantee or
become surety on any or all of the contracts,
stocks, bonds, notes, debentures and other
obligations of any corporation, company, trust,
association or firm.
(i) To purchase or otherwise acquire,
hold, dispose of, resell, transfer, reissue or
cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its
capital stock in any manner and to the extent now
or hereafter permitted by applicable law and by
these Articles of Incorporation.
(j) To carry out all or any of the
foregoing objects and purposes as principal or
agent, and alone or with associates or, to the
extent now or hereafter permitted by the General
Laws of the State of Maryland, as a member of, or
as the owner or holder of any security of, or
interest in, any firm, association, corporation,
partnership, trust or syndicate; and in connection
therewith to make or enter into such deeds or
contracts with any persons, firms, associations,
corporations, partnerships, syndicates,
governments or political subdivisions or agencies
or instrumentalities thereof and to do such acts
and things and to exercise such powers, as a
natural person could lawfully make, enter into, do
or exercise.
(k) In general to carry on any other
business in connection with or incidental to any
of the foregoing objects and purposes; to have and
exercise all the powers conferred upon
corporations by the General Laws of the State of
Maryland as in force from time to time; to do
everything necessary, suitable or proper for the
accomplishment of any purpose or the attainment of
any object or the furtherance of any power set
forth herein, either alone or in association with
others; and to do every other act or thing
incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes,
objects or powers.
(l) To conduct and carry on its
business, or any part thereof, and to exercise and
enjoy, in Maryland and anywhere else in the world,
all of the powers, rights and privileges granted
to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in
force and by the laws of any other such location
applicable to the Corporation, and the enumeration
of the foregoing powers shall not be deemed to
exclude any powers, rights or privileges so
granted or conferred.
(m) The foregoing objects and purposes
shall, except as otherwise expressly provided, be
in no way limited or restricted by reference to,
or inference from, the terms of any other clause
of this or any other Article of these Articles of
Incorporation, and shall each be regarded as
independent and construed as a power as well as an
object and a purpose, and the enumeration of
specific purposes, objects and powers shall not be
construed to limit or restrict in any manner the
meaning of general terms or the general powers of
the Corporation now or hereafter conferred by the
General Laws of the State of Maryland, nor shall
the expression of one thing be deemed to exclude
another, though it be of like nature, not
expressed; provided, however, that the Corporation
shall not have power to carry on within the State
of Maryland any business whatsoever the carrying
on of which would preclude it from being
classified as an ordinary business corporation
under the laws of said State; nor shall it carry
on any business, or exercise any powers, in any
other state, territory, district or country except
to the extent that the same may lawfully be
carried on or exercised under the laws thereof.
7.9. Merger or Consolidation. In connection
with the acquisition of all or substantially all the
assets or stock of another investment company or
investment trust, the Board of Directors may issue or
cause to be issued shares of capital stock of the
Corporation and accept in payment therefor, in lieu of
cash, such assets at their market value, or such stock
at the market value of the assets held by such
investment company or investment trust, either with or
without adjustment for contingent costs or liabilities,
provided such assets are of the character in which the
Corporation is permitted to invest.
7.10. Liability of Stockholders. The
stockholders of the Corporation shall not be liable
for, and their private property shall not be subject
to, claim, levy or other encumbrance on account of
debts or liabilities of the Corporation, to any extent
whatsoever.
7.11. Owner of Shares. The Corporation shall
be entitled to treat the person in whose name any share
of the capital stock of the Corporation is registered
as the owner thereof for purposes of dividends and
other distributions in the course of business or in the
course of recapitalization, consolidation, merger,
reorganization, liquidation, sale of the property and
assets of the Corporation, or otherwise, and for the
purpose of votes, approvals and consents by
stockholders, and for the purpose of notices to
stockholders, and for all other purposes whatever; and
the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share,
on the part of any other person, whether or not the
Corporation shall have notice thereof, save as
expressly required by law.
IN WITNESS WHEREOF, the undersigned
incorporator of ICAP Funds, Inc. hereby executes the
foregoing Articles of Incorporation and acknowledges
the same to be her act.
Dated this 31st day of October, 1994.
/s/ Pamela M. Krill
-----------------------
Pamela M. Krill
BY-LAWS
FOR
ICAP FUNDS, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal
office of the Corporation in the State of Maryland
shall be in the City of Baltimore.
Section 2. Other Offices. The Corporation
may have such other offices in such places as the Board
of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. Subject to this
Article II, an annual meeting of stockholders for the
election of Directors and the transaction of such other
business as may properly come before the meeting shall
be held at such time and place as the Board of
Directors shall select. The Corporation shall not be
required to hold an annual meeting of its stockholders
in any year in which the election of directors is not
required to be acted upon under the Investment Company
Act of 1940.
Section 2. Special Meetings. Special
meetings of stockholders may be called at any time by
the President, the Secretary or by a majority of the
Board of Directors and shall be held at such time and
place as may be stated in the notice of the meeting.
Special meetings of the stockholders shall be
called by the Secretary upon receipt of written request
of the holders of shares entitled to cast not less than
10% of the votes entitled to be cast at such meeting,
provided that such request shall state the purposes of
such meeting and the matters proposed to be acted on.
Section 3. Place of Meetings. Meetings of
stockholders shall be held at such place within the
United States as the Board of Directors may from time
to time determine.
Section 4. Notice of Meetings; Waiver of
Notice. Notice of the place, date and time of the
holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes
of the meeting, shall be given personally or by mail,
not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to
vote at such meeting and to each other stockholder
entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the
United States mail addressed to the stockholder at his
or her address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall
be deemed waived by any stockholder who shall attend
such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed
waiver of notice which is filed with the records of the
meeting.
Section 5. Quorum, Adjournment of Meetings.
The presence at any stockholders' meeting, in person or
by proxy, of stockholders of one third of the shares of
the stock of the Corporation thereat shall be necessary
and sufficient to constitute a quorum for the
transaction of business, except for any matter which,
under applicable statutes or regulatory requirements,
requires approval by a separate vote of one or more
classes of stock, in which case the presence in person
or by proxy of stockholders of one third of the shares
of stock of each class required to vote as a class on
the matter shall constitute a quorum. The holders of a
majority of shares entitled to vote at the meeting and
present in person or by proxy, whether or not
sufficient to constitute a quorum, or, any officer
present entitled to preside or act as Secretary of such
meeting may adjourn the meeting without determining the
date of the new meeting or from time to time without
further notice to a date not more than 120 days after
the original record date. Any business that might have
been transacted at the meeting originally called may be
transacted at any such adjourned meeting at which a
quorum is present.
Section 6. Organization. At each meeting of
the stockholders, the Chairman of the Board (if one has
been designated by the Board), or in his or her absence
or inability to act, the President, or in the absence
or inability to act of the Chairman of the Board and
the President, a Vice President, shall act as chairman
of the meeting; provided, however, that if no such
officer is present or able to act, a chairman of the
meeting shall be elected at the meeting. The
Secretary, or in his or her absence or inability to
act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep
the minutes thereof.
Section 7. Order of Business. The order of
business at all meetings of the stockholders shall be
as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise
provided by statute or the Articles of Incorporation,
each holder of record of shares of stock of the
Corporation having voting power shall be entitled at
each meeting of the stockholders to one vote for every
full share of such stock, with a fractional vote for
any fractional shares, standing in his or her name on
the record of stockholders of the Corporation as of the
record date determined pursuant to Section 9 of this
Article or if such record date shall not have been so
fixed, then at the later of (i) the close of business
on the day on which notice of the meeting is mailed or
(ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any
meeting of stockholders may authorize another person or
persons to act for him or her by a proxy signed by such
stockholder or his or her attorney-in-fact. No proxy
shall be valid after the expiration of eleven months
from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases
where such proxy states that it is irrevocable and
where the proxy is coupled with an interest in the
stock to be voted under the proxy or another general
interest in the Corporation or its assets or
liabilities. Except as otherwise provided by statute,
the Articles of Incorporation or these By-Laws, any
corporate action to be taken by vote of the
stockholders shall be authorized by a majority of the
total votes validly cast at a meeting of stockholders
at which a quorum is present.
If a vote shall be taken on any question
other than the election of directors, which shall be by
written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by
ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her
proxy, if there be such proxy, and shall state the
number of shares voted.
Section 9. Fixing of Record Date. The Board
of Directors may fix a time not less than 10 nor more
than 90 days prior to the date of any meeting of
stockholders or prior to the last day on which the
consent or dissent of stockholders may be effectively
expressed for any purpose without a meeting, as the
time as of which stockholders entitled to notice of and
to vote at such a meeting or whose consent or dissent
is required or may be expressed for any purpose, as the
case may be, shall be determined; and all persons who
were holders of record of voting stock at such time and
no other shall be entitled to notice of and to vote at
such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the
record date for the determination of stockholders
entitled to notice of or to vote at a meeting of
stockholders shall be the later of the close of
business on the day on which notice of the meeting is
mailed or the thirtieth day before the meeting, or, if
notice is waived by all stockholders, at the close of
business on the tenth day next preceding the day on
which the meeting is held. The Board of Directors may
fix a record date for determining stockholders entitled
to receive payment of a dividend or distribution, but
such date shall be not more than 90 days before the
date on which such payment is made. If no record date
has been fixed, the record date for determining
stockholders entitled to receive dividends or
distributions shall be the close of business on the day
on which the resolution of the Board of Directors
declaring the dividend or distribution is adopted, but
the payment shall not be made more than 60 days after
the date on which the resolution is adopted.
Section 10. Consent of Stockholders in Lieu
of Meeting. Except as otherwise provided by statute or
the Articles of Incorporation, any action required to
be taken at any meeting of stockholders, or any action
which may be taken at any meeting of such stockholders,
may be taken without a meeting, without prior notice
and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous
written consent which sets forth the action and is
signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to
dissent signed by each stockholder entitled to notice
of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. The business and
affairs of the Corporation shall be managed under the
direction of the Board of Directors and all powers of
the Corporation may be exercised by or under authority
of the Board of Directors.
Section 2. Number of Directors. The number
of directors shall be fixed from time to time by
resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided,
however, that the number of Directors shall in no event
be less than three (3) nor more than fifteen (15)
except that the Corporation may have less than three
(3) but no less than one (1) Director if there is no
stock outstanding, and may have a number of Directors
no fewer than the number of stockholders so long as
there are fewer than three (3) stockholders. Any
vacancy created by an increase in Directors may be
filled in accordance with Section 6 of this Article
III. No reduction in the number of Directors shall
have the effect of removing any Director from office
prior to the expiration of his or her term unless such
Director is specifically removed pursuant to Section 5
of this Article III at the time of such decrease.
Directors need not be stockholders.
Section 3. Election and Term of Directors.
Directors shall be elected annually, by written ballot
at the annual meeting of stockholders or a special
meeting held for that purpose; provided, however, that
if no annual meeting of the stockholders of the
Corporation is required to be held in a particular year
pursuant to Section 1 of Article II of these ByLaws,
Directors shall be elected at the next annual meeting
held. The term of office of each Director shall be
from the time of his or her election and qualification
until the election of Directors next succeeding his or
her election and until his or her successor shall have
been elected and shall have qualified.
Section 4. Resignation. A Director of the
Corporation may resign at any time by giving written
notice of his or her resignation to the Board or the
Chairman of the Board or the President or the
Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it
shall become effective shall not be specified therein,
immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5. Removal of Directors. Any
Director of the Corporation may be removed by the
affirmative vote of a majority of (a) the Board of
Directors, (b) a committee of the Board of Directors
appointed for such purpose, or (c) the stockholders by
vote of a majority of the outstanding shares of the
Corporation.
Section 6. Vacancies. If any vacancies
shall occur in the Board of Directors (i) by reason of
death, resignation, removal or otherwise, the remaining
Directors shall continue to act, and, subject to the
provisions of the Investment Company Act of 1940, such
vacancies (if not previously filled by the stock
holders) may be filled by a majority of the remaining
Directors, although less than a quorum, and (ii) by
reason of an increase in the authorized number of
Directors, such vacancies (if not previously filled by
the stockholders) may be filled only by a majority vote
of the entire Board of Directors.
Section 7. Place of Meeting. The Directors
may hold their meetings, have one or more offices, and
keep the books of the Corporation, outside the State of
Maryland, and within or without the United States of
America, at any office or offices of the Corporation or
at any other place as they may from time to time by
resolution determine, or in the case of meetings, as
they may from time to time by resolution determine or
as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 8. Regular Meetings. The Board of
Directors from time to time may provide by resolution
for the holding of regular meetings and fix their time
and place as the Board of Directors may determine.
Notice of such regular meetings need not be in writing,
provided that notice of any change in the time or place
or such fixed regular meetings shall be communicated
promptly to each Director not present at the meeting at
which such change was made in the manner provided in
Section 9 of this Article III for notice of special
meetings. Members of the Board of Directors or any
committee designated thereby may participate in a
meeting of such Board or committee by means of a
conference telephone or similar communications
equipment by means of which all persons participating
in the meeting can hear each other at the same time,
and participation by such means shall constitute
presence in person at a meeting, except where meetings
are required to be held in person pursuant to the
Investment Company Act of 1940.
Section 9. Special Meetings. Special
meetings of the Board of Directors may be held at any
time or place and for any purpose when called by the
President, the Secretary or two or more of the
Directors. Notice of special meetings, stating the
time and place, shall be communicated to each Director
personally by telephone or transmitted to him or her by
telegraph, telefax, telex, cable or wireless at least
one day before the meeting.
Section 10. Waiver of Notice. No notice of
any meeting of the Board of Directors or a committee of
the Board need be given to any Director who is present
at the meeting or who waives notice of such meeting in
writing (which waiver shall be filed with the records
of such meeting), either before or after the time of
the meeting.
Section 11. Quorum and Voting. At all
meetings of the Board of Directors, the presence of one
third of the entire Board of Directors shall constitute
a quorum unless there are only two or three Directors,
in which case two Directors shall constitute a quorum.
If there is only one Director, the sole Director shall
constitute a quorum. At any adjourned meeting at which
a quorum is present, any business may be transacted
which might have been transacted at the meeting as
originally called.
Section 12. Organization. The Board may, by
resolution adopted by a majority of the entire Board,
designate a Chairman of the Board, who shall preside at
each meeting of the Board. In the absence or inability
of the Chairman of the Board to preside at a meeting,
the President, or, in his or her absence or inability
to act, another Director chosen by a majority of the
Directors present, shall act as chairman of the meeting
and preside thereat. The Secretary (or, in his or her
absence or inability to act, any person appointed by
the Chairman) shall act as secretary of the meeting and
keep the minutes thereof.
Section 13. Written Consent of Directors in
Lieu of a Meeting. Subject to the provisions of the
Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the
minutes of the proceedings of the Board or committee.
Section 14. Compensation. Directors may
receive compensation for services to the Corporation in
their capacities as directors or otherwise in such
manner and in such amounts as may be fixed from time to
time by the Board.
ARTICLE IV
Committees
Section 1. Organization. By resolution
adopted by the Board of Directors, the Board may
designate one or more committees, including an
Executive Committee, composed of two or more Directors.
The Chairmen of such committees shall be elected by the
Board of Directors. The Board of Directors shall have
the power at any time to change the members of such
committees and to fill vacancies in the committees.
The Board may delegate to these committees any of its
powers, except the power to authorize the issuance of
stock, declare a dividend or distribution on stock,
recommend to stockholders any action requiring
stockholder approval, amend these By-Laws, or approve
any merger or share exchange which does not require
stockholder approval. If the Board of Directors has
given general authorization for the issuance of stock,
a committee of the Board, in accordance with a general
formula or method specified by the Board by resolution
or by adoption of a stock option or other plan, may fix
the terms of stock subject to classification or
reclassification and the terms on which any stock may
be issued, including all terms and conditions required
or permitted to be established or authorized by the
Board of Directors.
Section 2. Proceedings and Quorum. In the
absence of an appropriate resolution of the Board of
Directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and
manner of acting as it shall deem proper and desirable.
In the event any member of any committee is absent from
any meeting, the members thereof present at the
meeting, whether or not they constitute a quorum, may
appoint a member of the Board of Directors to act in
the place of such absent member.
ARTICLE V
Officers, Agents and Employees
Section 1. General. The officers of the
Corporation shall be a Chairman, a President, a
Secretary and a Treasurer, and may include one or more
additional Vice Presidents, Assistant Secretaries or
Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section
8 of this Article.
Section 2. Election, Tenure and
Qualifications. The officers of the Corporation,
except those appointed as provided in Section 8 of this
Article V, shall be elected by the Board of Directors
at its first meeting and thereafter annually at an
annual meeting. If any officers are not chosen at any
annual meeting, such officers may be chosen at any
subsequent regular or special meeting of the Board.
Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold
office until the next annual meeting of the Board of
Directors and until his or her successor shall have
been elected and qualified. Any person may hold one or
more offices of the Corporation except the offices of
President and Vice President.
Section 3. Removal and Resignation.
Whenever in the judgment of the Board of Directors the
best interest of the Corporation will be served
thereby, any officer may be removed from office by the
vote of a majority of the members of the Board of
Directors at any regular meeting or at a special
meeting called for such purpose. Any officer may
resign his office at any time by delivering a written
resignation to the Board of Directors, the President,
the Secretary, or any Assistant Secretary. Unless
otherwise specified therein, such resignation shall
take effect upon delivery.
Section 4. Chairman. Subject to supervision
of the Board of Directors, the Chairman shall have
general charge of the business, affairs and property of
the Corporation and general supervision over its
officers, employees and agents. Except as the Board of
Directors may otherwise order, he or she may sign in
the name and on behalf of the Corporation all deeds,
bonds, contracts, or agreements. He or she shall
exercise such other powers and perform such other
duties as from time to time may be assigned to him or
her by the Board of Directors.
Section 5. President. The President shall
be the chief executive officer of the Corporation.
Except as the Board of Directors may otherwise order,
he or she may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts, or agreements.
He or she shall exercise such other powers and perform
such other duties as from time to time may be assigned
to him or her by the Board of Directors.
Section 6. Vice President. The Board of
Directors may from time to time elect one or more Vice
Presidents who shall have such powers and perform such
duties as from time to time may be assigned to them by
the Board of Directors or the President. At the
request or in the absence or disability of the
President, the Vice President (or, if there are two or
more Vice Presidents, then the more senior of such
officers present and able to act) may perform all the
duties of the President and, when so acting, shall have
all the powers of and be subject to all the
restrictions upon the President. Any Vice President
may perform such duties as the Board of Directors may
assign.
Section 7. Treasurer and Assistant
Treasurer. The Treasurer shall be the principal
financial and accounting officer of the Corporation and
shall have general charge of the finances and books of
account of the Corporation. Except as otherwise
provided by the Board of Directors, he or she shall
have general supervision of the funds and property of
the Corporation and of the performance by the Custodian
of its duties with respect thereto. He or she shall
render to the Board of Directors, whenever directed by
the Board, an account of the financial condition of the
Corporation and of all his or her transactions as
Treasurer; and as soon as possible after the close of
each fiscal year he or she shall make and submit to the
Board of Directors a like report for such fiscal year.
He or she shall perform all acts incidental to the
Office of Treasurer, subject to the control of the
Board of Directors.
Any Assistant Treasurer may perform such
duties of the Treasurer as the Treasurer or the Board
of Directors may assign, and, in the absence of the
Treasurer, the Assistant Treasurer (or if there are two
or more Assistant Treasurers, then the more senior of
such officers present and able to act) may perform all
of the duties of the Treasurer.
Section 8. Secretary and Assistant
Secretaries. The Secretary shall attend to the giving
and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the
stockholders and Directors in books to be kept for that
purpose. He or she shall keep in safe custody the seal
of the Corporation, and shall have charge of the
records of the Corporation, including the stock books
and such other books and papers as the Board of
Directors may direct and such books, reports,
certificates and other documents required by law to be
kept, all of which shall at all reasonable times be
open to inspection by any Director. He or she shall
perform such other duties as appertain to his or her
office or as may be required by the Board of Directors.
Any Assistant Secretary may perform such
duties of the Secretary as the Secretary of the Board
of Directors may assign, and, in the absence of the
Secretary, he or she may perform all the duties of the
Secretary.
Section 9. Subordinate Officers. The Board
of Directors from time to time may appoint such other
officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such
period, have such authority and perform such duties as
the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more
officers or agents the power to appoint any such
subordinate officers or agents and to prescribe their
rights, terms of office, authorities and duties.
Section 10. Remuneration. The salaries or
other compensation of the officers of the Corporation
shall be fixed from time to time by resolution of the
Board of Directors, except that the Board of Directors
may be resolution delegate to any person or group of
persons the power to fix the salaries or other
compensation of any subordinate officers or agents
appointed in accordance with the provisions of Section
8 of this Article V.
Section 11. Surety Bonds. The Board of
Directors may require any officer or agent of the
Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company
Act of 1940, as amended, and the rules and regulations
of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or
sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his or her
duties to the Corporation, including responsibility for
negligence and for the accounting of any of the
corporation's property, funds or securities that may
come into his or her hands.
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 these 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.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. The interest
of each stockholder of the Corporation may be evidenced
by certificates for shares of stock in such form as the
Board of Directors may from time to time prescribe.
The certificates representing shares of stock shall be
signed by or in the name of the Corporation by the
President or a Vice President and countersigned by the
Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer. Certificates may be sealed
with the actual corporate seal or a facsimile of it or
in any other form. Any or all of the signatures or the
seal on the certificate may be manual or a facsimile.
In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the
Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the
date of issue unless written instructions of the
Corporation to the contrary are delivered to such
officer, transfer agent or registrar.
Section 2. Stock Ledgers. The stock ledgers
of the Corporation, containing the names and addresses
of the stockholders and the number of shares held by
them respectively, shall be kept at the principal
offices of the Corporation or, if the Corporation
employs a transfer agent, at the offices of the
transfer agent of the Corporation.
Section 3. Transfers of Shares. Transfers
of shares of stock of the Corporation shall be made on
the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney
thereunto authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate
or certificates, if issued, for such shares properly
endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, with
such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require and
the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name
any share or shares stand on the record of stockholders
as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive
dividends or other distributions, and to vote as such
owner, and the Corporation shall not be bound to
recognize any equitable or legal claim to or interest
in any such share or shares on the part of any other
person. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it
may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the
Corporation.
Section 4. Transfer Agents and Registrars.
The Board of Directors may from time to time appoint or
remove transfer agents and/or registrars of transfers
of shares of stock of the Corporation, and it may
appoint the same person as both transfer agent and
registrar. Upon any such appointment being made all
certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such
transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both
transfer agent and registrar, only one countersignature
by such person shall be required.
Section 5. Lost, Destroyed or Mutilated
Certificates. The holder of any certificates
representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss,
destruction or mutilation of such certificate, and the
Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which
the owner thereof shall allege to have been lost or
destroyed or which shall have been mutilated, and the
Board may, in its discretion, require such owner or his
or her legal representatives to give to the Corporation
a bond in such sum, limited or unlimited, and in such
form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify
the Corporation against any claim that may be made
against it on account of the alleged loss or
destruction of any such certificate, or issuance of a
new certificate. Anything herein to the contrary
notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the
State of Maryland.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular
in form and shall bear, in addition to any other emblem
or device approved by the Board of Directors, the name
of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Maryland." The form of
the seal may be altered by the Board of Directors.
Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other
manner reproduced. Any Officer or Director of the
Corporation shall have the authority to affix the
corporate seal of the Corporation to any document
requiring the same.
ARTICLE IX
Fiscal Year
The fiscal year of the Company shall be determined by
resolution of the Board of Directors.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the
Corporation shall be deposited with such banks or other
depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and
other investments shall be deposited in the safe
keeping of such banks or other companies as the Board
of Directors of the Corporation may from time to time
determine. Every arrangement entered into with any
bank or other company for the safe keeping of the
securities and investments of the Corporation shall
contain provisions complying with the Investment
Company Act of 1940, as amended, and the general rules
and regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc.
Checks, notes, drafts, acceptances, bills of exchange
and other orders obligations for the payment of money
shall be signed by such officer or officers or person
or persons as the Board of Directors by resolution
shall from time to time designate or as these By-Laws
provide.
Section 2. Sale or Transfer of Securities.
Stock certificates, bonds or other securities at any
time owned by the Corporation may be held on behalf of
the Corporation or so, transferred or otherwise
disposed of subject to any limits imposed by these By-
Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the
Corporation or sold, transferred or otherwise disposed
of, may be transferred from the name of the Corporation
by the signature of the President, any Vice President
or the Treasurer or pursuant to any procedure approved
by the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
The Corporation shall employ an independent
public accountant or a firm of independent public
accountants as its accountants to examine the accounts
of the Corporation and to sign and certify financial
statements filed by the Corporation.
ARTICLE XIII
Amendments
These By-Laws or any of them may be amended,
altered or repealed at any regular meeting of the
stockholders or at any special meeting of the
stockholders at which a quorum is present or
represented, provided that notice of the proposed
amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also
be amended, altered or repealed by the affirmative vote
of a majority of the Board of Directors at any regular
or special meeting of the Board of Directors, except
any particular By-Law which is specified as not subject
to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company
Act of 1940, as amended.
ICAP FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
This Agreement, entered into as of
,December 30, 1994, is between ICAP FUNDS, INC.,
a Maryland corporation (the "Corporation"), and
INSTITUTIONAL CAPITAL CORPORATION, a Delaware
corporation ("ICAP").
WHEREAS, the Corporation is an open-end
investment company registered under the Investment
Company Act of 1940, as amended (the "Act"). The
Corporation is authorized to create separate series,
each with its own separate investment portfolio (the
"Portfolios"), and the beneficial interest in each such
series will be represented by a separate series of
shares (the "Shares").
WHEREAS, ICAP is a registered investment
adviser, engaged in the business of rendering
investment advisory and management services.
WHEREAS, in managing the Corporation's
assets, as well as in the conduct of certain of its
affairs, the Corporation seeks the benefit of the
services of ICAP and its assistance in performing
certain managerial functions. ICAP desires to furnish
such services and to perform the functions assigned to
it under this Agreement for the consideration provided
for herein.
Accordingly, the parties have agreed as
follows:
1. Appointment. The Corporation hereby
appoints ICAP as investment adviser for each of the
Portfolios of the Corporation on whose behalf the
Corporation executes an Exhibit to this Agreement, and
ICAP, by execution of each such Exhibit, accepts the
appointments. Subject to the direction of the Board of
Directors (the "Directors") of the Corporation, ICAP
shall manage the investment and reinvestment of the
assets of each Portfolio in accordance with the
Portfolio's investment objective and policies and
limitations, for the period and upon the terms herein
set forth. The investment of funds shall also be
subject to all applicable restrictions of the Articles
of Incorporation and Bylaws of the Corporation as may
from time to time be in force.
2. Management Functions. In addition to
the expenses which ICAP may incur in the performance of
its investment advisory functions under this Agreement,
and the expenses which it may expressly undertake to
incur and pay, ICAP shall incur and pay the following
expenses:
(a) Reasonable compensation, fees and
related expenses of the Corporation's officers and
its Directors, except for such Directors who are
not interested persons (as that term is defined in
Section 2(a)(19) of the Act) of ICAP;
(b) Rental of offices of the
Corporation; and
(c) All expenses of promoting the sale
of Shares of the Portfolios other than expenses
incurred in complying with federal and state laws
and the law of any foreign country applicable to
the issue, offer, or sale of Shares of the
Portfolios.
3. Investment Advisory Functions. In its
capacity as investment adviser, ICAP shall have the
following responsibilities:
(a) To furnish continuous advice and
recommendations to the Portfolios, as to the
acquisition, holding or disposition of any or all
of the securities or other assets which the
Portfolios may own or contemplate acquiring from
time to time;
(b) To cause its officers to attend
meetings and furnish oral or written reports, as
the Corporation may reasonably require, in order
to keep the Directors and appropriate officers of
the Corporation fully informed as to the condition
of the investments of the Portfolios, the
investment recommendations of ICAP, and the
investment considerations which have given rise to
those recommendations; and
(c) To supervise the purchase and sale
of securities or other assets as directed by the
appropriate officers of the Corporation.
The services of ICAP are not to be deemed exclusive and
ICAP shall be free to render similar services to others
as long as its services for others does not in any way
hinder, preclude or prevent ICAP from performing its
duties and obligations under this Agreement. In the
absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or
duties hereunder on the part of ICAP, ICAP shall not be
subject to liability to the Corporation, the
Portfolios, or to any shareholder for any act or
omission in the course of, or connected with, rendering
services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any
security.
4. Obligations of the Corporation. The
Corporation shall have the following obligations under
this Agreement:
(a) To keep ICAP continuously and fully
informed as to the composition of the Portfolios'
investments and the nature of all of its assets
and liabilities;
(b) To furnish ICAP with a copy of any
financial statement or report prepared for it by
certified or independent public accountants, and
with copies of any financial statements or reports
made to the Portfolios' shareholders or to any
governmental body or securities exchange;
(c) To furnish ICAP with any further
materials or information which ICAP may reasonably
request to enable it to perform its functions
under this Agreement; and
(d) To compensate ICAP for its services
in accordance with the provisions of paragraph 5
hereof.
5. Compensation. Each Portfolio shall pay
to ICAP for its services a monthly fee, as set forth on
the Exhibits hereto, payable on the last day of each
month during which or during part of which this
Agreement is in effect. For the month during which
this Agreement becomes effective and any month during
which it terminates, however, there shall be an appro
priate proration of the fee payable for such month
based on the number of calendar days of such month
during which this Agreement is effective. ICAP may
from time to time and for such periods as it deems
appropriate reduce its compensation (and/or assume
expenses) for one or more of the Portfolios.
6. Expenses Paid by Corporation.
(a) Except as provided in this
paragraph, nothing in this Agreement shall be
construed to impose upon ICAP the obligation to
incur, pay, or reimburse the Corporation for any
expenses not specifically assumed by ICAP under
paragraph 2 above. Each Portfolio shall pay or
cause to be paid all of its expenses and the
Portfolio's allocable share of the Corporation's
expenses, including, but not limited to,
investment adviser fees; any compensation, fees,
or reimbursements which the Corporation pays to
its Directors who are not interested persons (as
that phrase is defined in Section 2(a)(19) of the
Act) of ICAP; fees and expenses of the custodian,
transfer agent, registrar or dividend disbursing
agent; current legal, accounting and printing
expenses; administrative, clerical, recordkeeping
and bookkeeping expenses; brokerage commissions
and all other expenses in connection with the
execution of portfolio transactions; interest; all
federal, state and local taxes (including stamp,
excise, income and franchise taxes); expenses of
shareholders' meetings and of preparing, printing
and distributing proxy statements, notices and
reports to shareholders; expenses of preparing and
filing reports and tax returns with federal and
state regulatory authorities; and all expenses
incurred in complying with all federal and state
laws and the laws of any foreign country
applicable to the issue, offer, or sale of Shares
of the Portfolios, including but not limited to,
all costs involved in the registration or
qualification of Shares of the Portfolios for sale
in any jurisdiction and all costs involved in
preparing, printing and distributing prospectuses
and statements of additional information to
existing shareholders of the Portfolios.
(b) If expenses borne by a Portfolio in
any fiscal year (including ICAP's fee, but
excluding interest, taxes, fees incurred in
acquiring and disposing of portfolio securities
and, to the extent permitted, extraordinary
expenses), exceed those set forth in any statutory
or regulatory formula prescribed by any state in
which Shares of a Portfolio are registered at such
time, ICAP will reimburse the Portfolio for any
excess.
7. Brokerage Commissions. For purposes of
this Agreement, brokerage commissions paid by a
Portfolio upon the purchase or sale of securities shall
be considered a cost of the securities of the Portfolio
and shall be paid by the respective Portfolios. ICAP
is authorized and directed to place portfolio
transactions only with brokers and dealers who render
satisfactory service in the execution of orders at the
most favorable prices and at reasonable commission
rates, provided, however, that ICAP may pay a broker or
dealer an amount of commission for effecting a
securities transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting that transaction, if ICAP determines in
good faith that such amount of commission was
reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer
viewed in terms of either that particular transaction
or the overall responsibilities of ICAP. In placing
portfolio business with such broker-dealers, ICAP shall
seek the best execution of each transaction, and all
such brokerage placement shall be made in compliance
with Section 28(e) of the Securities Exchange Act of
1934 and other applicable state and federal laws.
Notwithstanding the foregoing, the Corporation shall
retain the right to direct the placement of all
portfolio transactions, and the Directors may establish
policies or guidelines to be followed by ICAP in
placing portfolio transactions for the Portfolios
pursuant to the foregoing provisions.
8. Proprietary Rights. ICAP has proprietary
rights in each Portfolio's name and the Corporation's
name. ICAP may withdraw the use of such names from the
Portfolio or the Corporation.
9. Termination. This Agreement may be
terminated at any time, without penalty, by the
Directors of the Corporation or by the shareholders of
a Portfolio acting by the vote of at least a majority
of its outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the Act), provided in
either case that 60 days' written notice of termination
be given to ICAP at its principal place of business.
This Agreement may be terminated by ICAP at any time by
giving 60 days' written notice of termination to the
Corporation, addressed to its principal place of
business.
10. Assignment. This Agreement shall
terminate automatically in the event of any assignment
(as the term is defined in Section 2(a)(4) of the Act)
of this Agreement.
11. Term. This Agreement shall begin for
each Portfolio as of the date of execution of the
applicable Exhibit and shall continue in effect with
respect to each Portfolio presently set forth on an
Exhibit (and any subsequent Portfolios added pursuant
to an Exhibit during the initial term of this Agreement
for two years from the date of this Agreement and
thereafter for successive periods of one year, subject
to the provisions for termination and all of the other
terms and conditions hereof if such continuation shall
be specifically approved at least annually by the vote
of a majority of the Directors of the Corporation,
including a majority of the Directors who are not
parties to this Agreement or interested persons of any
such party (other than as Directors of the
Corporation), cast in person at a meeting called for
that purpose. If a Portfolio is added after the first
approval by the Directors as described above, this
Agreement will be effective as to that Portfolio upon
execution of the applicable Exhibit and will continue
in effect until the next annual approval of this
Agreement by the Directors and thereafter for
successive periods of one year, subject to approval as
described above.
12. Amendments. This Agreement may be
amended by the mutual consent of the parties, provided
that the terms of each such amendment shall be approved
by the Directors or by of the affirmative vote of a
majority of the outstanding voting securities (as that
phrase is defined in Section 2(a)(42) of the Act) of
each Portfolio.
This Agreement will become binding on the
parties hereto upon their execution of the Exhibits to
this Agreement.
EXHIBIT A
to the
Investment Advisory Agreement
ICAP Discretionary Equity Portfolio
For all services rendered by ICAP hereunder,
the above-named Portfolio of the Corporation shall pay
ICAP and ICAP agrees to accept as full compensation for
all services rendered hereunder, an annual investment
advisory fee equal to .80 of 1% of the average daily
net assets of the Portfolio.
The portion of the fee based upon the average
daily net assets of the Portfolio shall be accrued
daily at the rate of 1/365th of .80 of 1% applied to
the daily net assets of the Portfolio.
The advisory fee so accrued shall be paid to
ICAP monthly.
Executed this 30th day of December, 1994.
INSTITUTIONAL CAPITAL
CORPORATION
By:/s/ Robert H. Lyon
------------------------
Robert H. Lyon, President
ICAP FUNDS, INC.
By:/s/ Pamela H. Conroy
-------------------------
Pamela H. Conroy
Vice President and Treasurer
EXHIBIT B
to the
Investment Advisory Agreement
ICAP Equity Portfolio
For all services rendered by ICAP hereunder,
the above-named Portfolio of the Corporation shall pay
ICAP and ICAP agrees to accept as full compensation for
all services rendered hereunder, an annual investment
advisory fee equal to .80 of 1% of the average daily
net assets of the Portfolio.
The portion of the fee based upon the average
daily net assets of the Portfolio shall be accrued
daily at the rate of 1/365th of .80 of 1% applied to
the daily net assets of the Portfolio.
The advisory fee so accrued shall be paid to
ICAP monthly.
Executed this 30th day of December, 1994.
INSTITUTIONAL CAPITAL
CORPORATION
By:/s/ Robert H. Lyon
--------------------------
Robert H. Lyon, President
ICAP FUNDS, INC.
By:/s/ Pamela H. Conroy
--------------------------
Pamela H. Conroy
Vice President and Treasurer
MW1-33455-1
CUSTODY AGREEMENT
Dated December 30, 1994
Between
UMB BANK, N.A.
and
ICAP FUNDS, INC.
Prototype Custody Agreement
for
Registered Investment Company
TABLE OF CONTENTS
SECTION PAGE
1. APPOINTMENT OF CUSTODIAN 1
2. DEFINITIONS 1
(a) Securities 1
(b) Assets 1
(c)(1) Instructions 1
(c)(2) Special Instructions 2
3. DELIVERY OF CORPORATE DOCUMENTS 2
POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC
SUBCUSTODIAN 3
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 5
(d) Exchange of Securities 5
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 8
(j) Depositary Receipts 9
(k) Corporate Actions, Put Bonds, Called
Bonds, Etc. 9
(1) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions Other than
as Principal 10
(n) Pledges or Loans of Securities 10
(o) Stock Dividends, Rights, Etc. 11
(p) Routine Dealings 11
(q) Collections 11
(r) Bank Accounts 12
(s) Dividends, Distributions and Redemptions 12
(t) Proceeds from Shares Sold 12
(u) Proxies and Notices; Compliance with the
Shareholders Communication Act of 1985 13
(v) Books and Records 13
(w) Opinion of Fund's Independent Certified
Public Accountants 13
(x) Reports by Independent Certified Public
Accountants 14
(y) Bills and Other Disbursements 14
5. SUBCUSTODIANS 14
(a) Domestic Subcustodians 14
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 15
(d) Special Subcustodians 16
(e) Termination of a Subcustodian 16
(f) Certification Regarding Foreign
Subcustodians 16
6. STANDARD OF CARE 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law,
Events Beyond Custodian's Control, Armed
Conflict, Sovereign Risk, Etc. 17
(c) Mitigation by Custodian 17
(d) Liability for Past Records 18
(e) Advice of Counsel 18
(f) Advice of the Fund and Others 18
(g) Instructions Appearing to be Genuine 18
(h) Exceptions from Liability 18
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF
OTHERS 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of
Foreign Subcustodians 19
(c) Securities Systems, Interim
Subcustodians, Special Subcustodians,
Securities Depositories and Clearing
Agencies 19
(d) Defaults or Insolvencies of Brokers,
Banks, Etc. 19
(e) Reimbursement of Expenses 20
8. INDEMNIFICATION 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 20
9. ADVANCES 20
10. LIENS 21
11. COMPENSATION 21
12. POWERS OF ATTORNEY 22
13. TERMINATION AND ASSIGNMENT 22
14. NOTICES 22
15 MISCELLANEOUS 23
CUSTODY AGREEMENT
This agreement made as of this 30th day of
December, 1994, between ICAP Funds, Inc. with its
principal place of business located at 225 W. Wacker
Drive, Suite 2400, Chicago, IL, 60606 (hereinafter
"Fund"), and UMB Bank, n.a., a national banking
association with its principal place of business
located at Kansas City, Missouri (hereinafter
"Custodian").
WITNESSETH:
WHEREAS, the Fund is registered as an open-end
management investment company under the Investment
Company Act of 1940, as amended; and
WHEREAS, the Fund desires to appoint Custodian as
its custodian for the custody of Assets (as hereinafter
defined) owned by the Fund which Assets are to be held
in such accounts as the Fund may establish from time to
time; and
WHEREAS, Custodian is willing to accept such
appointment on the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual
promises contained herein, the parties hereto,
intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
The Fund hereby constitutes and appoints the
Custodian as custodian of Assets belonging to the Fund
which have been or may be from time to time deposited
with the Custodian. Custodian accepts such appointment
as a custodian and agrees to perform the duties and
responsibilities of Custodian as set forth herein on
the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following
terms shall have the meanings so indicated:
(a) "Security" or "Securities" shall mean
stocks, bonds, bills, rights, scrip, warrants,
interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities
and other instruments or obligations.
(b) "Assets" shall mean Securities, monies
and other property held by the Custodian for the
benefit of the Fund.
(c)(1) "Instructions," as used herein,
shall mean: (i) a tested telex, a written
(including, without limitation, facsimile
transmission) request, direction, instruction or
certification signed or initialed by or on behalf
of the Fund by an Authorized Person; (ii) a
telephonic or other oral communication from a
person the Custodian reasonably believes to be an
Authorized Person; or (iii) a communication
effected directly between an electro-mechanical or
electronic device or system (including, without
limitation, computers) on behalf of the Fund.
Instructions in the form of oral communications
shall be confirmed by the Fund by tested telex or
in writing in the manner set forth in clause (i)
above, but the lack of such confirmation shall in
no way affect any action taken by the Custodian in
reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. The
Fund authorizes the Custodian to record any and
all telephonic or other oral Instructions
communicated to the Custodian.
(2) "Special Instructions," as used herein,
shall mean Instructions countersigned or confirmed
in writing by the Treasurer or any Assistant
Treasurer of the Fund or any other person
designated by the Treasurer of the Fund in
writing, which countersignature or confirmation
shall be included on the same instrument
containing the Instructions or on a separate
instrument relating thereto.
(3) Instructions and Special Instructions
shall be delivered to the Custodian at the address
and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the
Custodian and the Fund.
(4) Where appropriate, Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents
that its execution does not violate any of the
provisions of its respective charter, articles of
incorporation, articles of association or bylaws and
all required corporate action to authorize the
execution and delivery of this Agreement has been
taken.
The Fund has furnished the Custodian with copies,
properly certified or authenticated, with all
amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or
equivalent document) of the Fund as in effect on
the date hereof;
(b) By-Laws of the Fund as in effect on the
date hereof;
(c) Resolutions of the Board of Directors of
the Fund appointing the Custodian and approving
the form of this Agreement; and
(d) The Fund's current prospectus and
statements of additional information.
The Fund shall promptly furnish the Custodian with
copies of any updates, amendments or supplements to the
foregoing documents.
In addition, the Fund has delivered or will
promptly deliver to the Custodian, copies of the
Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly
certified or authenticated, designating certain
officers or employees of the Fund who will have
continuing authority to certify to the Custodian: (a)
the names, titles, signatures and scope of authority of
all persons authorized to give Instructions or any
other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund, and
(b) the names, titles and signatures of those persons
authorized to countersign or confirm Special
Instructions on behalf of the Fund (in both cases
collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such
Resolutions and certificates may be accepted and relied
upon by the Custodian as conclusive evidence of the
facts set forth therein and shall be considered to be
in full force and effect until delivery to the
Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes
or does not include the name(s) of a person previously
authorized to give Instructions or to countersign or
confirm Special Instructions, such persons shall no
longer be considered an Authorized Person authorized to
give Instructions or to countersign or confirm Special
Instructions. Unless the certificate specifically
requires that the approval of anyone else will first
have been obtained, the Custodian will be under no
obligation to inquire into the right of the person
giving such Instructions or Special Instructions to do
so. Notwithstanding any of the foregoing, no
Instructions or Special Instructions received by the
Custodian from the Fund will be deemed to authorize or
permit any director, trustee, officer, employee, or
agent of the Fund to withdraw any of the Assets of the
Fund upon the mere receipt of such authorization,
Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC
SUBCUSTODIAN.
Except for Assets held by any Subcustodian
appointed pursuant to Sections 5(b), (c), or (d) of
this Agreement, the Custodian shall have and perform
the powers and duties hereinafter set forth in this
Section 4. For purposes of this Section 4 all
references to powers and duties of the "Custodian"
shall also refer to any Domestic Subcustodian appointed
pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of
the Fund which are delivered to it from time to
time. The Custodian shall not be responsible for
any property of the Fund held or received by the
Fund and not delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold
Securities of the Fund either: (i) by physical
possession of the share certificates or other
instruments representing such Securities in
registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter
defined) in accordance with the provisions of sub-
paragraph (3) below.
(2) The Custodian may hold registrable
portfolio Securities which have been delivered to
it in physical form, by registering the same in
the name of the Fund or its nominee, or in the
name of the Custodian or its nominee, for whose
actions the Fund and Custodian, respectively,
shall be fully responsible. Upon the receipt of
Instructions, the Custodian shall hold such
Securities in street certificate form, so called,
with or without any indication of fiduciary
capacity. However, unless it receives
Instructions to the contrary, the Custodian will
register all such portfolio Securities in the name
of the Custodian's authorized nominee. All such
Securities shall be held in an account of the
Custodian containing only assets of the Fund or
only assets held by the Custodian as a fiduciary,
provided that the records of the Custodian shall
indicate at all times the Fund or other customer
for which such Securities are held in such
accounts and the respective interests therein.
(3) The Custodian may deposit and/or
maintain domestic Securities owned by the Fund in,
and the Fund hereby approves use of: (a) The
Depository Trust Company; (b) The Participants
Trust Company; and (c) any book-entry system as
provided in (i) Subpart O of Treasury Circular No.
300, 31 CFR 306.115, (ii) Subpart B of Treasury
Circular Public Debt Series No. 27-76, 31 CFR
350.2, or (iii) the book-entry regulations of
federal agencies substantially in the form of 3l
CFR 306.115. Upon the receipt of Special
Instructions, the Custodian may deposit and/or
maintain domestic Securities owned by the Fund in
any other domestic clearing agency registered with
the Securities and Exchange Commission ("SEC")
under Section 17A of the Securities Exchange Act
of 1934 (or as may otherwise be authorized by the
SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets
of investment companies) which acts as a
Securities depository. Each of the foregoing
shall be referred to in this Agreement as a
"Securities System," and all such Securities
Systems shall be listed on the attached Appendix
A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject
to the following provisions:
(i) The Custodian may deposit the
Securities directly or through one or more
agents or Subcustodians which are also
qualified to act as custodians for investment
companies.
(ii) The Custodian shall deposit and/or
maintain the Securities in a Securities
System, provided that such Securities are
represented in an account ("Account") of the
Custodian in the Securities System that
includes only assets held by the Custodian as
a fiduciary, custodian or otherwise for
customers.
(iii) The books and records of the
Custodian shall at all times identify those
Securities belonging to the Fund which are
maintained in a Securities System.
(iv) The Custodian shall pay for
Securities purchased for the account of the
Fund only upon (a) receipt of advice from the
Securities System that such Securities have
been transferred to the Account of the
Custodian in accordance with the rules of the
Securities System, and (b) the making of an
entry on the records of the Custodian to
reflect such payment and transfer for the
account of the Fund. The Custodian shall
transfer Securities sold for the account of
the Fund only upon (a) receipt of advice from
the Securities System that payment for such
Securities has been transferred to the
Account of the Custodian in accordance with
the rules of the Securities System, and (b)
the making of an entry on the records of the
Custodian to reflect such transfer and
payment for the account of the Fund. Copies
of all advices from the Securities System
relating to transfers of Securities for the
account of the Fund shall be maintained for
the Fund by the Custodian. The Custodian
shall deliver to the Fund on the next
succeeding business day daily transaction
reports which shall include each day's
transactions in the Securities System for the
account of the Fund. Such transaction
reports shall be delivered to the Fund or any
agent designated by the Fund pursuant to
Instructions, by computer or in such other
manner as the Fund and Custodian may agree.
(v) The Custodian shall, if requested
by the Fund pursuant to Instructions, provide
the Fund with reports obtained by the
Custodian or any Subcustodian with respect to
a Securities System's accounting system,
internal accounting control and procedures
for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special
Instructions, the Custodian shall terminate
the use of any Securities System on behalf of
the Fund as promptly as practicable and shall
take all actions reasonably practicable to
safeguard the Securities of the Fund
maintained with such Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this
Agreement and except as provided in Section 3
hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery
of Assets, provided such Assets are on hand and
available, in connection with the Fund's
transactions and to transfer such Assets to such
broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in
such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian
will exchange portfolio Securities held by it for
the Fund for other Securities or cash paid in
connection with any reorganization,
recapitalization, merger, consolidation, or
conversion of convertible Securities, and will
deposit any such Securities in accordance with the
terms of any reorganization or protective plan.
Without Instructions, the Custodian is
authorized to exchange Securities held by it in
temporary form for Securities in definitive form,
to surrender Securities for transfer into a name
or nominee name as permitted in Section 4(b)(2),
to effect an exchange of shares in a stock split
or when the par value of the stock is changed, to
sell any fractional shares, and, upon receiving
payment therefor, to surrender bonds or other
Securities held by it at maturity or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance
with Instructions, the Custodian shall, with
respect to a purchase of Securities, pay for such
Securities out of monies held for the Fund's
account for which the purchase was made, but only
insofar as monies are available therein for such
purpose, and receive the portfolio Securities so
purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment
will be made only upon receipt of Securities by
the Custodian, a clearing corporation of a
national securities exchange of which the
Custodian is a member, or a Securities System in
accordance with the provisions of Section 4(b)(3)
hereof. Notwithstanding the foregoing, upon
receipt of Instructions: (i) in connection with a
repurchase agreement, the Custodian may release
funds to a Securities System prior to the receipt
of advice from the Securities System that the
Securities underlying such repurchase agreement
have been transferred by book-entry into the
Account maintained with such Securities System by
the Custodian, provided that the Custodian's
instructions to the Securities System require that
the Securities System may make payment of such
funds to the other party to the repurchase
agreement only upon transfer by book-entry of the
Securities underlying the repurchase agreement
into such Account; (ii) in the case of Interest
Bearing Deposits, currency deposits, and other
deposits, foreign exchange transactions, futures
contracts or options, pursuant to Sections 4(g),
4(h), 4(l), and 4(m) hereof, the Custodian may
make payment therefor before receipt of an advice
of transaction; and (iii) in the case of
Securities as to which payment for the Security
and receipt of the instrument evidencing the
Security are under generally accepted trade
practice or the terms of the instrument
representing the Security expected to take place
in different locations or through separate
parties, such as commercial paper which is indexed
to foreign currency exchange rates, derivatives
and similar Securities, the Custodian may make
payment for such Securities prior to delivery
thereof in accordance with such generally accepted
trade practice or the terms of the instrument
representing such Security.
(2) Other Assets Purchased. Upon receipt of
Instructions and except as otherwise provided
herein, the Custodian shall pay for and receive
other Assets for the account of the Fund as
provided in Special Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with
Instructions, the Custodian will, with respect to
a sale, deliver or cause to be delivered the
Securities thus designated as sold to the broker
or other person specified in the Instructions
relating to such sale. Unless the Custodian has
received Special Instructions to the contrary,
such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash,
certified check, bank cashier's check, bank
credit, or bank wire transfer; (b) credit to the
account of the Custodian with a clearing
corporation of a national securities exchange of
which the Custodian is a member; or (c) credit to
the Account of the Custodian with a Securities
System, in accordance with the provisions of
Section 4(b)(3) hereof. Notwithstanding the
foregoing, Securities held in physical form may be
delivered and paid for in accordance with "street
delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a
receipt for such Securities, provided that the
Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or
return of, such Securities by the broker or its
clearing agent, and provided further that the
Custodian shall not be responsible for the
selection of or the failure or inability to
perform of such broker or its clearing agent or
for any related loss arising from delivery or
custody of such Securities prior to receiving
payment therefor.
(2) Other Assets Sold. Upon receipt of
Instructions and except as otherwise provided
herein, the Custodian shall receive payment for
and deliver other Assets for the account of the
Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to
the purchase of an option or sale of a covered
call option, the Custodian shall: (a) receive and
retain confirmations or other documents, if any,
evidencing the purchase or writing of the option
by the Fund; (b) if the transaction involves the
sale of a covered call option, deposit and
maintain in a segregated account the Securities
(either physically or by book-entry in a
Securities System) subject to the covered call
option written on behalf of the Fund; and (c) pay,
release and/or transfer such Securities, cash or
other Assets in accordance with any notices or
other communications evidencing the expiration,
termination or exercise of such options which are
furnished to the Custodian by the Options Clearing
Corporation (the "OCC"), the securities or options
exchanges on which such options were traded, or
such other organization as may be responsible for
handling such option transactions.
(2) Upon receipt of Instructions relating to
the sale of a naked option (including but not
limited to, stock index and commodity options),
the Custodian, the Fund and the broker-dealer
shall enter into an agreement to comply with the
rules of the OCC or of any registered national
securities exchange or similar organizations(s).
Pursuant to that agreement and the Fund's
Instructions, the Custodian shall: (a) receive and
retain confirmations or other documents, if any,
evidencing the writing of the option; (b) deposit
and maintain in a segregated account, Securities
(either physically or by book-entry in a
Securities System), cash and/or other Assets; and
(c) pay, release and/or transfer such Securities,
cash or other Assets in accordance with any such
agreement and with any notices or other
communications evidencing the expiration,
termination or exercise of such option which are
furnished to the Custodian by the OCC, the
securities or options exchanges on which such
options were traded, or such other organization as
may be responsible for handling such option
transactions. The Fund and the broker-dealer
shall be responsible for determining the quality
and quantity of assets held in any segregated
account established in compliance with applicable
margin maintenance requirements and the
performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian
shall enter into a futures margin procedural
agreement among the Fund, the Custodian and the
designated futures commission merchant (a
"Procedural Agreement"). Under the Procedural
Agreement the Custodian shall: (a) receive and
retain confirmations, if any, evidencing the
purchase or sale of a futures contract or an
option on a futures contract by the Fund; (b)
deposit and maintain in a segregated account cash,
Securities and/or other Assets designated as
initial, maintenance or variation "margin"
deposits intended to secure the Fund's performance
of its obligations under any futures contracts
purchased or sold, or any options on futures
contracts written by the Fund, in accordance with
the provisions of any Procedural Agreement
designed to comply with the provisions of the
Commodity Futures Trading Commission and/or any
commodity exchange or contract market (such as the
Chicago Board of Trade), or any similar
organization(s), regarding such margin deposits;
and (c) release Assets from and/or transfer Assets
into such margin accounts only in accordance with
any such Procedural Agreements. The Fund and such
futures commission merchant shall be responsible
for determining the type and amount of Assets held
in the segregated account or paid to the broker-
dealer in compliance with applicable margin
maintenance requirements and the performance of
any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian
shall establish and maintain on its books a
segregated account or accounts for and on behalf
of the Fund, into which account or accounts may be
transferred Assets of the Fund, including
Securities maintained by the Custodian in a
Securities System pursuant to Paragraph (b)(3) of
this Section 4, said account or accounts to be
maintained (i) for the purposes set forth in
Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by the Fund with the
procedures required by the SEC Investment Company
Act Release Number 10666 or any subsequent
release, releases, or no-action or interpretive
letters relating to the maintenance of segregated
accounts by registered investment companies, or
(iii) for such other purposes as may be set forth,
from time to time, in Special Instructions. The
Custodian shall not be responsible for the
determination of the type or amount of Assets to
be held in any segregated account referred to in
this paragraph, or for compliance by the Fund with
required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian
shall surrender or cause to be surrendered
Securities to the depositary used for such
Securities by an issuer of American Depositary
Receipts or International Depositary Receipts, or
other U.S. dollar denominated receipts
(hereinafter referred to, collectively, as
"ADRs"), against a written receipt therefor
adequately describing such Securities and written
evidence satisfactory to the organization
surrendering the same that the depositary has
acknowledged receipt of instructions to issue ADRs
with respect to such Securities in the name of the
Custodian or a nominee of the Custodian, for
delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian
shall surrender or cause to be surrendered ADRs to
the issuer thereof, against a written receipt
therefor adequately describing the ADRs
surrendered and written evidence satisfactory to
the organization surrendering the same that the
issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver
the Securities underlying such ADRs in accordance
with such instructions.
(k) Corporate Actions, Put Bonds, Called
Bonds, Etc.
Upon receipt of Instructions, the Custodian
shall: (a) deliver warrants, puts, calls, rights
or similar Securities to the issuer or trustee
thereof (or to the agent of such issuer or
trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other
Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and
(b) deposit Securities upon invitations for
tenders thereof, provided that the consideration
for such Securities is to be paid or delivered to
the Custodian, or the tendered Securities are to
be returned to the Custodian.
Notwithstanding any provision of this
Agreement to the contrary, the Custodian shall
take all necessary action, unless otherwise
directed to the contrary in Instructions, to
comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions,
or similar rights of security ownership, and shall
notify the Fund of such action in writing by
facsimile transmission or in such other manner as
the Fund and Custodian may agree in writing.
The Fund agrees that if it gives an
Instruction for the performance of an act on the
last permissible date of a period established by
any optional offer or on the last permissible date
for the performance of such act, the Fund shall
hold the Bank harmless from any adverse
consequences in connection with acting upon or
failing to act upon such Instructions.
(1) Interest Bearing Deposits.
Upon receipt of Instructions directing the
Custodian to purchase interest bearing fixed-term
and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for
the account of the Fund, the Custodian shall
purchase such Interest Bearing Deposits in the
name of the Fund with such banks or trust
companies, including the Custodian, any
Subcustodian or any subsidiary or affiliate of the
Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as the Fund
may direct pursuant to Instructions. Such
Interest Bearing Deposits may be denominated in
U.S. Dollars or other currencies, as the Fund may
determine and direct pursuant to Instructions.
The responsibilities of the Custodian to the Fund
for Interest Bearing Deposits issued by the
Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing
Deposits other than those issued by the Custodian,
(a) the Custodian shall be responsible for the
collection of income and the transmission of cash
to and from such accounts; and (b) the Custodian
shall have no duty with respect to the selection
of the Banking Institution or for the failure of
such Banking Institution to pay upon demand.
(m) Foreign Exchange Transactions Other than
as Principal.
(1) Upon receipt of Instructions, the
Custodian shall settle foreign exchange contracts
or options to purchase and sell foreign currencies
for spot and future delivery on behalf of and for
the account of the Fund with such currency brokers
or Banking Institutions as the Fund may determine
and direct pursuant to Instructions. The Fund
accepts full responsibility for its use of third
party foreign exchange brokers and for execution
of said foreign exchange contracts and understands
that the Fund shall be responsible for any and all
costs and interest charges which may be incurred
as a result of the failure or delay of its third
party broker to deliver foreign exchange. The
Custodian shall have no responsibility with
respect to the selection of the currency brokers
or Banking Institutions with which the Fund deals
or, so long as the Custodian acts in accordance
with Instructions, for the failure of such brokers
or Banking Institutions to comply with the terms
of any contract or option.
(2) Notwithstanding anything to the contrary
contained herein, upon receipt of Instructions the
Custodian may, in connection with a foreign
exchange contract, make free outgoing payments of
cash in the form of U.S. Dollars or foreign
currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the
countervalue currency completing such contract has
been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from the
Fund, the Custodian will release or cause to be
released Securities held in custody to the
pledgees designated in such Instructions by way of
pledge or hypothecation to secure loans incurred
by the Fund with various lenders including but not
limited to UMB Bank, n.a.; provided, however, that
the Securities shall be released only upon payment
to the Custodian of the monies borrowed, except
that in cases where additional collateral is
required to secure existing borrowings, further
Securities may be released or delivered, or caused
to be released or delivered for that purpose upon
receipt of Instructions. Upon receipt of
Instructions, the Custodian will pay, but only
from funds available for such purpose, any such
loan upon re-delivery to it of the Securities
pledged or hypothecated therefor and upon
surrender of the note or notes evidencing such
loan. In lieu of delivering collateral to a
pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged
Securities to a segregated account for the benefit
of the pledgee.
(2) Upon receipt of Special Instructions,
and execution of a separate Securities Lending
Agreement, the Custodian will release Securities
held in custody to the borrower designated in such
Instructions and may, except as otherwise provided
below, deliver such Securities prior to the
receipt of collateral, if any, for such borrowing,
provided that, in case of loans of Securities held
by a Securities System that are secured by cash
collateral, the Custodian's instructions to the
Securities System shall require that the
Securities System deliver the Securities of the
Fund to the borrower thereof only upon receipt of
the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any
loss arising from the delivery of Securities prior
to the receipt of collateral. Upon receipt of
Instructions and the loaned Securities, the
Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all
stock dividends, rights, and other items of like
nature and, upon receipt of Instructions, take
action with respect to the same as directed in
such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all
routine and mechanical matters in accordance with
industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or
other dealings with Securities or other property
of the Fund except as may be otherwise provided in
this Agreement or directed from time to time by
Instructions from the Fund. The Custodian may
also make payments to itself or others from the
Assets for disbursements and out-of-pocket
expenses incidental to handling Securities or
other similar items relating to its duties under
this Agreement, provided that all such payments
shall be accounted for to the Fund.
(q) Collections.
The Custodian shall (a) collect amounts due
and payable to the Fund with respect to portfolio
Securities and other Assets; (b) promptly credit
to the account of the Fund all income and other
payments relating to portfolio Securities and
other Assets held by the Custodian hereunder upon
Custodian's receipt of such income or payments or
as otherwise agreed in writing by the Custodian
and the Fund; (c) promptly endorse and deliver any
instruments required to effect such collection;
and (d) promptly execute ownership and other
certificates and affidavits for all federal,
state, local and foreign tax purposes in
connection with receipt of income or other
payments with respect to portfolio Securities and
other Assets, or in connection with the transfer
of such Securities or other Assets; provided,
however, that with respect to portfolio Securities
registered in so-called street name, or physical
Securities with variable interest rates, the
Custodian shall use its best efforts to collect
amounts due and payable to the Fund. The
Custodian shall notify the Fund in writing by
facsimile transmission or in such other manner as
the Fund and Custodian may agree in writing if any
amount payable with respect to portfolio
Securities or other Assets is not received by the
Custodian when due. The Custodian shall not be
responsible for the collection of amounts due and
payable with respect to portfolio Securities or
other Assets that are in default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open
and operate a bank account or accounts on the
books of the Custodian; provided that such bank
account(s) shall be in the name of the Custodian
or a nominee thereof, for the account of the Fund,
and shall be subject only to draft or order of the
Custodian. The responsibilities of the Custodian
to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for
a similar deposit.
(s) Dividends, Distributions and
Redemptions.
To enable the Fund to pay dividends or other
distributions to shareholders of the Fund and to
make payment to shareholders who have requested
repurchase or redemption of their shares of the
Fund (collectively, the "Shares"), the Custodian
shall release cash or Securities insofar as
available. In the case of cash, the Custodian
shall, upon the receipt of Instructions, transfer
such funds by check or wire transfer to any
account at any bank or trust company designated by
the Fund in such Instructions. In the case of
Securities, the Custodian shall, upon the receipt
of Special Instructions, make such transfer to any
entity or account designated by the Fund in such
Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds
representing cash payments received for shares
issued or sold from time to time by the Fund, and
shall credit such funds to the account of the
Fund. The Custodian shall notify the Fund of
Custodian's receipt of cash in payment for shares
issued by the Fund by facsimile transmission or in
such other manner as the Fund and the Custodian
shall agree. Upon receipt of Instructions, the
Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for shares as
may be set forth in such Instructions and at a
time agreed upon between the Custodian and the
Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time
to time by the Fund and the Custodian, in the
amount of checks received in payment for shares
which are deposited to the accounts of the Fund.
(u) Proxies and Notices; Compliance with the
Shareholders Communication Act of 1985.
The Custodian shall deliver or cause to be
delivered to the Fund all forms of proxies, all
notices of meetings, and any other notices or
announcements affecting or relating to Securities
owned by the Fund that are received by the
Custodian, any Subcustodian, or any nominee of
either of them, and, upon receipt of Instructions,
the Custodian shall execute and deliver, or cause
such Subcustodian or nominee to execute and
deliver, such proxies or other authorizations as
may be required. Except as directed pursuant to
Instructions, neither the Custodian nor any
Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon,
or give any consent or take any other action with
respect thereto.
The Custodian will not release the identity
of the Fund to an issuer which requests such
information pursuant to the Shareholder
Communications Act of 1985 for the specific
purpose of direct communications between such
issuer and the Fund unless the Fund directs the
Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records
relating to its activities under this Agreement as
are required to be maintained by Rule 31a-1 under
the Investment Company Act of 1940 ("the 1940
Act") and to preserve them for the periods
prescribed in Rule 31a-2 under the 1940 Act.
These records shall be open for inspection by duly
authorized officers, employees or agents
(including independent public accountants) of the
Fund during normal business hours of the
Custodian.
The Custodian shall provide accountings
relating to its activities under this Agreement as
shall be agreed upon by the Fund and the
Custodian.
(w) Opinion of Fund's Independent Certified
Public Accountants.
The Custodian shall take all reasonable
action as the Fund may request to obtain from year
to year favorable opinions from the Fund's
independent certified public accountants with
respect to the Custodian's activities hereunder
and in connection with the preparation of the
Fund's periodic reports to the SEC and with
respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public
Accountants.
At the request of the Fund, the Custodian
shall deliver to the Fund a written report
prepared by the Custodian's independent certified
public accountants with respect to the services
provided by the Custodian under this Agreement,
including, without limitation, the Custodian's
accounting system, internal accounting control and
procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other
Assets deposited and/or maintained in a Securities
System or with a Subcustodian. Such report shall
be of sufficient scope and in sufficient detail as
may reasonably be required by the Fund and as may
reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian
shall pay, or cause to be paid, all bills,
statements, or other obligations of the Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant
provisions of this Agreement, the Custodian may appoint
one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim
Subcustodians (as each are hereinafter defined) to act
on behalf of the Fund. A Domestic Subcustodian, in
accordance with the provisions of this Agreement, may
also appoint a Foreign Subcustodian, Special
Subcustodian, or Interim Subcustodian to act on behalf
of the Fund. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians and Interim Subcustodians shall be
referred to collectively as "Subcustodians."
(a) Domestic Subcustodians.
The Custodian may, at any time and from time
to time, appoint any bank as defined in Section
2(a)(5) of the 1940 Act or any trust company or
other entity, any of which meet the requirements
of a custodian under Section 17(f) of the 1940 Act
and the rules and regulations thereunder, to act
for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding Assets of the
Fund and performing other functions of the
Custodian within the United States (a "Domestic
Subcustodian"). The Fund shall approve in writing
the appointment of the proposed Domestic
Subcustodian; and the Custodian's appointment of
any such Domestic Subcustodian shall not be
effective without such prior written approval of
the Fund. Each such duly approved Domestic
Subcustodian shall be listed on Appendix A
attached hereto, as it may be amended, from time
to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint, any
bank, trust company or other entity meeting the
requirements of an "eligible foreign custodian"
under Section 17(f) of the 1940 Act and the rules
and regulations thereunder to act for the
Custodian on behalf of the Fund as a subcustodian
or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of
the Fund and performing other functions of the
Custodian in countries other than the United
States of America (hereinafter referred to as a
"Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that
the Custodian shall have obtained written
confirmation from the Fund of the approval of the
Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole
discretion of such Board of Directors or other
governing body or entity) with respect to (i) the
identity of any proposed Foreign Subcustodian
(including branch designation), (ii) the country
or countries in which, and the securities
depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"),
if any, through which, the Custodian or any
proposed Foreign Subcustodian is authorized to
hold Securities and other Assets of the Fund, and
(iii) the form and terms of the subcustodian
agreement to be entered into with such proposed
Foreign Subcustodian. Each such duly approved
Foreign Subcustodian and the countries where and
the Securities Depositories and Clearing Agencies
through which they may hold Securities and other
Assets of the Fund shall be listed on Appendix A
attached hereto, as it may be amended, from time
to time. The Fund shall be responsible for
informing the Custodian sufficiently in advance of
a proposed investment which is to be held in a
country in which no Foreign Subcustodian is
authorized to act, in order that there shall be
sufficient time for the Custodian, or any Domestic
Subcustodian, to effect the appropriate
arrangements with a proposed Foreign Subcustodian,
including obtaining approval as provided in this
Section 5(b). In connection with the appointment
of any Foreign Subcustodian, the Custodian shall,
or shall cause the Domestic Subcustodian to, enter
into a subcustodian agreement with the Foreign
Subcustodian in form and substance approved by the
Fund. The Custodian shall not consent to the
amendment of, and shall cause any Domestic
Subcustodian not to consent to the amendment of,
any agreement entered into with a Foreign
Subcustodian, which materially affects the Fund's
rights under such agreement, except upon prior
written approval of the Fund pursuant to Special
Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event
that the Fund shall invest in an Asset to be held
in a country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify the
Fund in writing by facsimile transmission or in
such other manner as the Fund and Custodian shall
agree in writing of the unavailability of an
approved Foreign Subcustodian in such country; and
upon the receipt of Special Instructions from the
Fund, the Custodian shall, or shall cause its
Domestic Subcustodian to, appoint or approve an
entity (referred to herein as an "Interim
Subcustodian") designated in such Special
Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the
Custodian shall, on behalf of the Fund, appoint
one or more banks, trust companies or other
entities designated in such Special Instructions
to act for the Custodian on behalf of the Fund as
a subcustodian for purposes of: (i) effecting
third-party repurchase transactions with banks,
brokers, dealers or other entities through the use
of a common custodian or subcustodian; (ii)
providing depository and clearing agency services
with respect to certain variable rate demand note
Securities, (iii) providing depository and
clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any
other transactions designated by the Fund in such
Special Instructions. Each such designated
subcustodian (hereinafter referred to as a
"Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended
from time to time. In connection with the
appointment of any Special Subcustodian, the
Custodian shall enter into a subcustodian
agreement with the Special Subcustodian in form
and substance approved by the Fund in Special
Instructions. The Custodian shall not amend any
subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such
agreement, except upon prior approval pursuant to
Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its
discretion upon prior notification to the Fund,
terminate any Subcustodian of the Fund in
accordance with the termination provisions under
the applicable subcustodian agreement, and upon
the receipt of Special Instructions, the Custodian
will terminate any Subcustodian in accordance with
the termination provisions under the applicable
subcustodian agreement.
(f) Certification Regarding Foreign
Subcustodians.
Upon request of the Fund, the Custodian shall
deliver to the Fund a certificate stating: (i) the
identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in
which and the Securities Depositories and Clearing
Agencies through which each such Foreign
Subcustodian is then holding cash, Securities and
other Assets of the Fund; and (iii) such other
information as may be requested by the Fund, and
as the Custodian shall be reasonably able to
obtain, to evidence compliance with rules and
regulations under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to the Fund for
all losses, damages and reasonable costs and
expenses suffered or incurred by the Fund
resulting from the gross negligence or willful
misfeasance of the Custodian; provided, however,
in no event shall the Custodian be liable for
special, indirect or consequential damages arising
under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law,
Events Beyond Custodian's Control,
Sovereign Risk, Etc.
In no event shall the Custodian or any
Domestic Subcustodian incur liability hereunder if
the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System,
Securities Depository or Clearing Agency utilized
by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian
(individually, a "Person") is prevented, forbidden
or delayed from performing, or omits to perform,
any act or thing which this Agreement provides
shall be performed or omitted to be performed, by
reason of: (i) any provision of any present or
future law or regulation or order of the United
States of America, or any state thereof, or of any
foreign country, or political subdivision thereof
or of any court of competent jurisdiction (and
neither the Custodian nor any other Person shall
be obligated to take any action contrary thereto);
or (ii) any event beyond the control of the
Custodian or other Person such as armed conflict,
riots, strikes, lockouts, labor disputes,
equipment or transmission failures, natural
disasters, or failure of the mails,
transportation, communications or power supply; or
(iii) any "Sovereign Risk." A "Sovereign Risk"
shall mean nationalization, expropriation,
devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or
enactment, promulgation, imposition or enforcement
by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or
other charges affecting the Fund's Assets; or acts
of armed conflict, terrorism, insurrection or
revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Mitigation by Custodian.
Upon the occurrence of any event which causes
or may cause any loss, damage, or expense to the
Fund, (i) the Custodian shall, (ii) the Custodian
shall cause any applicable Domestic Subcustodian
to, and (iii) the Custodian shall use its best
efforts to cause any applicable Foreign
Subcustodian, Special Subcustodian or Interim
Subcustodian to, use all commercially reasonable
efforts to take all reasonable steps under the
circumstances to mitigate the effects of such
event and to avoid continuing harm to the Fund.
(d) Liability for Past Records.
Neither the Custodian nor any Domestic
Subcustodian shall have any liability in respect
of any loss, damage or expense suffered by the
Fund, insofar as such loss, damage or expense
arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records
that were maintained for the Fund by entities
other than the Custodian or any Domestic
Subcustodian prior to the Custodian's employment
hereunder.
(e) Advice of Counsel.
The Custodian and all Domestic Subcustodians
shall be entitled to receive and act upon advice
of counsel of its own choosing on all matters.
The Custodian and all Domestic Subcustodians shall
be without liability for any actions taken or
omitted in good faith pursuant to the advice of
counsel.
(f) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian
may rely upon the advice of the Fund and upon
statements of the Fund's accountants and .other
persons believed by it in good faith to be expert
in matters upon which they are consulted, and
neither the Custodian nor any Domestic
Subcustodian shall be liable for any actions taken
or omitted, in good faith, pursuant to such advice
or statements.
(g) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians
shall be fully protected and indemnified in acting
as a custodian hereunder upon any Resolutions of
the Board of Directors or Trustees, Instructions,
Special Instructions, advice, notice, request,
consent, certificate, instrument or paper
appearing to it to be genuine and to have been
properly executed and shall, unless otherwise
specifically provided herein, be entitled to
receive as conclusive proof of any fact or matter
required to be ascertained from the Fund hereunder
a certificate signed by any officer of the Fund
authorized to countersign or confirm Special
Instructions.
(h) Exceptions from Liability.
Without limiting the generality of any other
provisions hereof, neither the Custodian nor any
Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any
Securities purchased by or for the Fund, the
legality of the purchase thereof or evidence
of ownership required to be received by the
Fund, or the propriety of the decision to
purchase or amount paid therefor;
(ii) the legality of the sale of any
Securities by or for the Fund, or the
propriety of the amount for which the same
were sold; or
(iii) any other expenditures,
encumbrances of Securities, borrowings or
similar actions with respect to the Fund's
Assets;
and may, until notified to the contrary, presume
that all Instructions or Special Instructions
received by it are not in conflict with or in any
way contrary to any provisions of the Fund's
Declaration of Trust, Partnership Agreement,
Articles of Incorporation or By-Laws or votes or
proceedings of the shareholders, trustees,
partners or directors of the Fund, or the Fund's
currently effective Registration Statement on file
with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF
OTHERS.
(a) Domestic Subcustodians.
The Custodian shall be liable for the acts or
omissions of any Domestic Subcustodian to the same
extent as if such actions or omissions were
performed by the Custodian itself.
(b) Liability for Acts and Omissions of
Foreign Subcustodians.
The Custodian shall be liable to the Fund for
any loss or damage to the Fund caused by or
resulting from the acts or omissions of any
Foreign Subcustodian to the extent that, under the
terms set forth in the subcustodian agreement
between the Custodian or a Domestic Subcustodian
and such Foreign Subcustodian, the Foreign
Subcustodian has failed to perform in accordance
with the standard of conduct imposed under such
subcustodian agreement.
(c) Securities Systems, Interim
Subcustodians, Special Subcustodians,
Securities Depositories and Clearing
Agencies.
The Custodian shall not be liable to the Fund
for any loss, damage or expense suffered or
incurred by the Fund resulting from or occasioned
by the actions or omissions of a Securities
System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and
Clearing Agency unless such loss, damage or
expense is caused by, or results from, the gross
negligence or willful misfeasance of the
Custodian.
(d) Defaults or Insolvencies of Brokers,
Banks, Etc.
The Custodian shall not be liable for any
loss, damage or expense suffered or incurred by
the Fund resulting from or occasioned by the
actions, omissions, neglects, defaults or
insolvency of any broker, bank, trust company or
any other person with whom the Custodian may deal
(other than any of such entities acting as a
Subcustodian, Securities System or Securities
Depository and Clearing Agency, for whose actions
the liability of the Custodian is set out
elsewhere in this Agreement) unless such loss,
damage or expense is caused by, or results from,
the gross negligence or willful misfeasance of the
Custodian.
(e) Reimbursement of Expenses.
The Fund agrees to reimburse the Custodian
for all out-of-pocket expenses incurred by the
Custodian in connection with this Agreement, but
excluding salaries, usual overhead expenses, and
expenses occasioned by or resulting from the
negligence or willful misconduct of the Custodian.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this
Agreement, the Fund agrees to indemnify and hold
harmless the Custodian and its nominees from all
losses, damages and expenses (including reasonable
attorneys' fees) suffered or incurred by the
Custodian or its nominee caused by or arising from
actions taken by the Custodian, its employees or
agents in the performance of its duties and
obligations under this Agreement, including, but
not limited to, any indemnification obligations
undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that
such indemnity shall not apply to the extent the
Custodian is liable under Sections 6 or 7 hereof.
If the Fund requires the Custodian to take
any action with respect to Securities, which
action involves the payment of money or which may,
in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund
being liable for the payment of money or incurring
liability of some other form, the Fund, as a
prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the
Custodian in an amount and form satisfactory to
it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this
Agreement and in addition to the obligations
provided in Sections 6 and 7, the Custodian agrees
to indemnify and hold harmless the Fund from all
losses, damages and expenses suffered or incurred
by the Fund caused by the gross negligence or
willful misfeasance of the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the
Custodian or any Subcustodian, Securities System, or
Securities Depository or Clearing Agency acting either
directly or indirectly under agreement with the
Custodian (each of which for purposes of this Section 9
shall be referred to as "Custodian"), makes any payment
or transfer of funds on behalf of the Fund as to which
there would be, at the close of business on the date of
such payment or transfer, insufficient funds held by
the Custodian on behalf of the Fund, the Custodian may,
in its discretion without further Instructions, provide
an advance ("Advance") to the Fund in an amount
sufficient to allow the completion of the transaction
by reason of which such payment or transfer of funds is
to be made. In addition, in the event the Custodian is
directed by Instructions to make any payment or
transfer of funds on behalf of the Fund as to which it
is subsequently determined that the Fund has overdrawn
its cash account with the Custodian as of the close of
business on the date of such payment or transfer, said
overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on demand by Custodian,
unless otherwise agreed by the Fund and the Custodian,
and shall accrue interest from the date of the Advance
to the date of payment by the Fund to the Custodian at
a rate agreed upon in writing from time to time by the
Custodian and the Fund. It is understood that any
transaction in respect of which the Custodian shall
have made an Advance, including but not limited to a
foreign exchange contract or transaction in respect of
which the Custodian is not acting as a principal, is
for the account of and at the risk of the Fund, and
not, by reason of such Advance, deemed to be a
transaction undertaken by the Custodian for its own
account and risk. The Custodian and the Fund
acknowledge that the purpose of Advances is to meet
emergency expenses not reasonably foreseeable by the
Fund. The Custodian shall promptly notify the Fund of
any Advance. Such notification shall be sent by
facsimile transmission or in such other manner as the
Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the
Custody Account to secure payment of fees and expenses
for the services rendered under this Agreement. If the
Bank advances cash or securities to the Fund for any
purpose or in the event that the Bank or its nominee
shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in
connection with the performance of its duties
hereunder, except such as may arise from its or its
nominee's negligent action, negligent failure to act or
willful misconduct, any Property at any time held for
the Custody Account shall be security therefor and the
Fund hereby grants a security interest therein to the
Bank. The Fund shall promptly reimburse the Bank for
any such advance of cash or securities or any such
taxes, charges, expenses, assessments, claims or
liabilities upon request for payment, but should the
Fund fail to so reimburse the Bank, the Bank shall be
entitled to dispose of such Property to the extent
necessary to obtain reimbursement. The Bank shall be
entitled to debit any account of the Fund with the Bank
including, without limitation, the Custody Account, in
connection with any such advance and any interest on
such advance as the Bank deems reasonable.
11. COMPENSATION.
The Fund will pay to the Custodian such
compensation as is agreed to in writing by the
Custodian and the Fund from time to time as set forth
on Appendix B, Fee Schedule. Such compensation,
together with all amounts for which the Custodian is to
be reimbursed in accordance with Section 7(e), shall be
billed to the Fund and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or
desirable in connection with the performance by the
Custodian or any Subcustodian of their respective
obligations under this Agreement or any applicable
subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
The Fund or the Custodian may terminate this
Agreement by notice in writing, delivered or mailed,
postage prepaid (certified mail, return receipt
requested) to the other not less than 60 days prior to
the date upon which such termination shall take effect.
Upon termination of this Agreement, the Fund shall pay
to the Custodian such fees as may be due the Custodian
hereunder as well as its reimbursable disbursements,
costs and expenses paid or incurred. Upon termination
of this Agreement, the Custodian shall deliver, at the
terminating party's expense, all Assets held by it
hereunder to the Fund or as otherwise designated by the
Fund by Special Instructions. Upon such delivery, the
Custodian shall have no further obligations or
liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring
prior to the effective date of termination.
This Agreement may not be assigned by the
Custodian or the Fund without the respective consent of
the other, duly authorized by a resolution by its Board
of Directors or Trustees.
14. NOTICES.
Notices, requests, instructions and other writings
delivered to the Fund at 225 W. Wacker Drive, Suite
2400, Chicago, IL 60606, Attention: Pamela H. Conroy,
postage prepaid, or to such other address as the Fund
may have designated to the Custodian in writing, shall
be deemed to have been properly delivered or given to
the Fund.
Notices, requests, instructions and other writings
delivered to the Securities Administration Department
of the Custodian at its office at 928 Grand Avenue,
Kansas City, Missouri, or mailed postage prepaid, to
the Custodian's Securities Administration Department,
Post Office Box 226, Kansas City, Missouri 64141, or to
such other addresses as the Custodian may have
designated to the Fund in writing, shall be deemed to
have been properly delivered or given to the Custodian
hereunder; provided, however, that procedures for the
delivery of Instructions and Special Instructions shall
be governed by Section 2(c) hereof.
15 MISCELLANEOUS.
(a) This Agreement is executed and delivered
in the State of Missouri and shall be governed by
the laws of such state.
(b) All of the terms and provisions of this
Agreement shall be binding upon, and inure to the
benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be
amended, modified or waived, in any manner except
in writing, properly executed by both parties
hereto; provided, however, Appendix A may be
amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special
Subcustodians, and Securities Depositories and
Clearing Agencies are approved or terminated
according to the terms of this Agreement.
(d) The captions in this 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.
(e) This Agreement shall be effective as of
the date of execution hereof.
(f) This Agreement may be executed
simultaneously in two or more counterparts, each
of which will be deemed an original, but all of
which together will constitute one and the same
instrument.
(g) The following terms are defined terms
within the meaning of this Agreement, and the
definitions thereof are found in the following
sections of the Agreement:
Term Section
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(l)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(l)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and 5(b)(ii)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this
Agreement is held to be illegal, in conflict with
any law or otherwise invalid by any court of
competent jurisdiction, the remaining portion or
portions shall be considered severable and shall
not be affected, and the rights and obligations of
the parties shall be construed and enforced as if
this Agreement did not contain the particular
part, term or provision held to be illegal or
invalid.
(i) This Agreement constitutes the entire
understanding and agreement of the parties hereto
with respect to the subject matter hereof, and
accordingly supersedes, as of the effective date
of this Agreement, any custodian agreement
heretofore in effect between the Fund and the
Custodian.
IN WITNESS WHEREOF, the parties hereto have caused
this Custody Agreement to be executed by their duly
respective authorized officers.
ICAP FUNDS, INC.
ATTEST:
By: /s/ Pamela H. Conroy
- ---------------------------- -----------------------------
Title: Senior Vice President
UMB BANK, N.A.
ATTEST:
By: /s/ Patricia A. Peterson
- ---------------------------- ---------------------------
Title: Senior Vice President
APPENDIX A
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Brown Brothers Harriman & Company (Foreign
Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS AND CLEARING AGENCIES
Euroclear
ICAP FUNDS, INC. UMB Bank, n.a.
By: /s/ Pamela H. Conroy By:/s/ Patricia A. Peterson
- ----------------------------- -------------------------------
Title: Senior Vice President Title: Senior Vice President
Date: 12/30/94
APPENDIX B
UMB Bank, n.a.
Institutional Custody Services - U.S. Domestic
Schedule of Fees
Net Asset Value Charges
A fee to be computed as of month end and payable
on the last day of each month of the portfolios'
fiscal year, at the annual rate of:
1.00 basis point on the combined net assets
up to $250,000,000;
.75 basis points on the next $250,000,000 of
combined net assets;
.50 basis points on the combined net assets
in excess of $500,000,000;
subject to a $100.00 per month minimum per
portfolio.
Portfolio Transaction Fees
DTC* $5.00
PTC* 12.00
Fed Book Entry* 8.00
Physical* 20.00
Third Party (Bank Book Entry)* 15.00
Principal & Interest Payments 5.00
Options/Futures 25.00
Corporate Actions/Calls/Reorgs 25.00
*A transaction includes buys, sells, maturities,
or free security movements.
Out-of-Pocket Expenses
Includes, but is not limited to, security transfer
fees, certificate fees, shipping/courier fees or
charges, and remote system access charges.
Earnings Credits
Earnings credits will be computed on all collected
custody balances using the United Missouri Bank
daily Fed Funds rate, less reserve requirements
and FDIC premiums. Overdrafts will be computed
using the Fed Funds rate plus 1.5% (150 basis
points) on each day an overdraft occurs. Positive
and/or negative credits will be monitored daily
and the net positive or negative credit amount(s)
will be included in the monthly fee statement.
Excess credits can be carried forward
indefinitely.
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
THIS AGREEMENT is made as of this 30th day of
December, 1994, by and between ICAP Funds, Inc., a
Maryland corporation (the "Corporation"), and Sunstone
Financial Group, Inc., a Wisconsin corporation (the
"Administrator").
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "Act"). The Corporation is
authorized to create separate series, each with its own
separate investment portfolio, and the beneficial
interest in each such series will be represented by a
separate series of shares; and
WHEREAS, the Corporation and the Administrator
desire to enter into an agreement pursuant to which the
Administrator shall provide administration and fund
accounting services to such investment portfolios of
the Corporation as are listed on Schedule A hereto and
any additional investment portfolios the Corporation
and Administrator may agree upon and include on
Schedule A as such Schedule 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").
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:
1. Appointment
The Corporation hereby appoints the Administrator
as administrator and fund accountant of the Funds for
the period and on the terms set forth in this
Agreement. The Administrator accepts such appointment
and agrees to render the services herein set forth, for
the compensation herein provided.
2. Services as Administrator
(a) Subject to the direction and control of the
Corporation's Board of Directors and utilizing
information provided by the Corporation and its agents,
the Administrator will: (1) provide office space,
facilities, equipment and personnel to carry out its
services hereunder; (2) compile data for and prepare
with respect to the Funds timely Notices to the
Securities and Exchange Commission (the "Commission")
required pursuant to Rule 24f-2 under the Act and Semi-
Annual Reports on Form N-SAR; (3) prepare for execution
by the Corporation and file all federal income and
excise tax returns and state income tax returns (and
such other required tax filings as may be agreed to by
the parties) other than those required to be made by
the Corporation's custodian or transfer agent; (4)
prepare compliance filings relating to the registration
of the securities of the Funds pursuant to state
securities laws with the advice of the Corporation's
counsel; (5) prepare the financial statements for the
Annual and Semi-Annual Reports required pursuant to
Section 30(d) under the Act; (6) assist to the extent
requested by the Corporation with the preparation of
the Registration Statement for the Corporation (on Form
N-1A or any replacement therefor) and any amendments
thereto, and proxy materials; (7) monitor each Fund's
expense accruals and cause all appropriate expenses to
be paid from Corporation assets on proper authorization
from the Corporation; (8) calculate daily net asset
values and income factors of each Fund; (9) maintain
all general ledger accounts and related subledgers;
(10) perform security valuations in accordance with the
terms of the Funds' then current Prospectus and
instructions of the Funds' Board of Directors; (11)
assist in the acquisition of the Corporation's fidelity
bond required by the Act, monitor the amount of the
bond and make the necessary Commission filings related
thereto; (12) from time to time as the Administrator
deems appropriate, check each Fund's compliance with
the policies and limitations of each Fund relating to
the portfolio investments as set forth in the
Prospectus, Statement of Additional Information,
By-laws and Articles of Incorporation and monitor each
Fund's status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as
amended (but this function shall not relieve the
Corporation's investment adviser of its primary day-to-
day responsibility for assuring such compliance); (13)
maintain, and/or coordinate with the other service
providers the maintenance of, the accounts, books and
other documents required pursuant to Rule 31a-1(a) and
(b) under the Act; and (14) generally assist in the
Corporation's administrative operations. The duties of
the Administrator shall be confined to those expressly
set forth herein, and no implied duties are assumed by
or may be asserted against the Administrator hereunder.
(b) The Directors of the Corporation shall cause
the officers, adviser, distributor, if any, legal
counsel, independent accountants, custodian and
transfer agent for the Funds to cooperate with the
Administrator and to provide the Administrator, upon
request, with such information, documents and advice
relating to the Funds and the Corporation as is within
the possession or knowledge of such persons, in order
to enable the Administrator to perform its duties
hereunder. In connection with its duties hereunder,
the Administrator shall be entitled to rely, and shall
be held harmless by the Corporation when acting in
reliance, upon the instruction, advice, information or
any documents relating to the Funds provided to the
Administrator by any of the aforementioned persons.
Fees charged by such persons shall be an expense of the
respective Fund. The Administrator shall be entitled
to rely on any document which it reasonably believes to
be genuine and to have been signed or presented by the
proper party. The Administrator shall not be held to
have notice of any change of authority of any officer,
agent or employee of the Corporation until receipt of
written notice thereof from the Corporation. The
Administrator shall cooperate with the Corporation and
its legal counsel, independent accountants, custodian
and transfer agent upon reasonable request in order to
enable the Corporation's service providers to perform
their duties with respect to the Funds.
(c) In compliance with the requirements of Rule
31a-3 under the Act, the Administrator hereby agrees
that all records which it maintains for the Corporation
are the property of the Corporation and further agrees
to surrender promptly to the Corporation any of such
records upon the Corporation's request free of any
liens and charges. The Administrator further agrees to
preserve for the periods prescribed by Rule 31a-2 under
the Act the records described in (a) above which are
maintained by the Administrator for the Corporation.
(d) The Administrator shall perform its duties
hereunder in compliance with all applicable laws.
3. Fees; Delegation; Expenses
(a) In consideration of the services rendered
pursuant to this Agreement, the Corporation will pay
the Administrator a fee, computed daily and payable
monthly, at the annual rate of twenty-one hundredths of
one percent (0.20%) on the first fifty million dollars
($50,000,000) of the Corporation's average daily net
assets, seventeen and one-half one-hundredths of one
percent (0.175%) on the Corporation's next fifty
million dollars ($50,000,000) of average daily net
assets, ten one-hundredths of one percent (0.10%) on
the Corporation's next one hundred fifty million
dollars ($150,000,000) of average daily net assets,
seven and one-half one-hundredths of one percent
(0.075%) on the Corporation's next two hundred fifty
million dollars ($250,000,000) of average daily net
assets, and five one-hundredths of one percent (0.05%)
on average net assets in excess of five hundred million
dollars ($500,000,000), plus out-of-pocket expenses.
Out-of-pocket expenses include, but are not limited to,
travel, lodging and meals in connection with travel on
behalf of the Corporation, programming and related
expenses (previously incurred or to be incurred by
Administrator) in connection with providing electronic
transmission of data between the Administrator and the
Funds' other service providers, brokers, dealers and
depositories, and photocopying, postage and overnight
delivery expenses. The minimum annual fee to be paid
by the Corporation to the Administrator hereunder
(exclusive of out-of-pocket expenses) shall be $65,000
per year for the first Fund and $55,000 per year for
each Fund thereafter. Fees shall be paid at a rate
that would aggregate at least the applicable minimum
fee. In addition to the foregoing, the Corporation
shall pay to Administrator $30,000 for administrative
organizational services performed by Administrator,
plus out-of-pocket expenses related thereto.
(b) For the purpose of determining fees payable
to the Administrator, net asset value shall be computed
in accordance with the Corporation's Prospectuses and
resolutions of the Corporation's Board of Directors.
The fee for the period from the day of the month this
Agreement is entered into until the end of that month
shall be pro-rated according to the proportion which
such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-
rated according to the proportion which such period
bears to the full monthly period and shall be payable
upon the date of termination of this Agreement. Should
the Corporation be liquidated, merged with or acquired
by another fund or investment company, any accrued fees
shall be immediately payable.
(c) The Administrator will bear all expenses in
connection with the performance of its services under
this Agreement except as otherwise provided herein.
Other costs and expenses to be incurred in the
operation of the Funds, including, but not limited to:
taxes; interest; brokerage fees and commissions, if
any; salaries, fees and expenses of officers and
Directors; Commission fees and state Blue Sky fees;
advisory and administration fees; charges of
custodians, transfer agents; dividend disbursing and
accounting services agents; security pricing services;
insurance premiums; outside auditing and legal
expenses; costs of organization and maintenance of
corporate existence; typesetting, printing, proofing
and mailing of prospectuses, statements of additional
information, supplements, notices and proxy materials
for regulatory purposes and for distribution to current
shareholders; typesetting, printing, proofing and
mailing and other costs of shareholder reports;
expenses incidental to holding meetings of the Fund's
shareholders and Directors; and any extraordinary
expenses; will be borne by the Funds or their
investment adviser. Expenses incurred for distribution
of Fund shares, including the typesetting, printing,
proofing and mailing of prospectuses for persons who
are not shareholders of the Corporation, will be borne
by the Corporation or its investment adviser.
4. Proprietary and Confidential Information
The Administrator agrees on behalf of itself and
its employees to treat confidentially and as
proprietary information of the Corporation all records
and other information relative to the Funds and prior,
present or potential shareholders of the Corporation
(and clients of said shareholders), and not to use such
records and information for any purpose other than
performance of its responsibilities and duties
hereunder, except after prior notification to and
approval in writing by the Corporation, which approval
shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to
civil or criminal proceedings for failure to comply,
when requested to divulge such information by duly
constituted authorities, or when so requested by the
Corporation.
5. Limitation of Liability
The Administrator shall not be liable for any
error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the matters to
which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties
or from reckless disregard by it of its obligations and
duties under this Agreement.
6. Term
(a) This Agreement shall become effective as with
respect to each Fund listed on Schedule A hereof as of
the date hereof and, with respect to each Fund not in
existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is
executed. This Agreement shall continue in effect with
respect to each Fund until December __, 1996 (the
"Initial Term"). Thereafter, if not terminated as
provided herein, this Agreement shall continue
automatically in effect as to each Fund for successive
annual periods.
(b) This Agreement may be terminated with respect
to any one or more particular Funds without penalty
after the Initial Term (i) upon mutual consent of the
parties, or (ii) by either party upon not less than
ninety (90) days' written notice to the other party
(which notice may be waived by the party entitled to
the notice). The terms of this Agreement shall not be
waived, altered, modified, amended or supplemented in
any manner whatsoever except by a written instrument
signed by the Administrator and the Corporation.
7. Non-Exclusivity
The services of the Administrator rendered to the
Corporation are not deemed to be exclusive. The
Administrator may render such services and any other
services to others, including other investment
companies, The Corporation recognizes that from time to
time directors, officers and employees of the
Administrator may serve as directors, trustees,
officers and employees of other corporations or trusts
(including other investment companies), that such other
entities may include the name of the Administrator as
part of their name and that the Administrator or its
affiliates may enter into investment advisory or other
agreements with such other corporations or trusts.
8. Governing Law; Invalidity
This Agreement shall be governed by Wisconsin law.
To the extent that the applicable laws of the State of
Wisconsin, or any of the provisions herein, conflict
with the applicable provisions of the Act, the latter
shall control, and nothing herein shall be construed in
a manner inconsistent with the Act or any rule or order
of the Commission thereunder. Any provision of this
Agreement which may be determined by competent
authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in
any other jurisdiction.
9. Notices
Any notice required or to be permitted to be given
by either party to the other shall be in writing and
shall be deemed to have been given when sent by
registered or certified mail, postage prepaid, return
receipt requested, as follows: Notice to the
Administrator shall be sent to Sunstone Financial
Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, WI, 53202, Attention Miriam M. Allison, and
notice to the Corporation shall be sent to 225 West
Wacker Drive, Suite 2400, Chicago, Illinois, 60606,
Attention Pamela Conroy.
10. Entire Agreement
This Agreement constitutes the entire Agreement of
the parties hereto.
11. Counterparts
This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an
original agreement but such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer as of the day and year first above written.
ICAP FUNDS, INC.
By:/s/ Pamela H. Conroy
--------------------------------
Pamela H. Conroy, Vice-President
SUNSTONE FINANCIAL GROUP,INC.
("Administrator")
By:/s/ Miriam M. Allison
--------------------------------
President
Schedule A
to the
Administration and Fund Accounting Agreement
by and between
ICAP Funds, Inc.
and
Sunstone Financial Group, Inc.
Name of Fund Effective Date
ICAP Discretionary Equity Portfolio December 31, 1994
ICAP Equity Portfolio December 31, 1994
Dated: December 30, 1994
ICAP FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By:/s/ Pamela H. Conroy By:/s/ Miriam M. Allison
- ----------------------------- --------------------------
Pamela H. Conroy, Vice-President President
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
PHONE (414) 273-3500 FAX (414) 273-5198
December 12, 1994
ICAP Funds, Inc.
225 W. Wacker, Suite 2400
Chicago, IL 60606
Ladies and Gentlemen:
We have acted as your counsel in connection
with the preparation of a Registration Statement on
Form N-1A (Registration Nos. 33-86006 and 811-08850)
(the "Registration Statement") relating to the sale by
you of an indefinite number of shares of ICAP Funds,
Inc. (the "Company") common stock, $0.01 par value (the
"Shares"), in the manner set forth in the Registration
Statement (and the prospectus included therein).
We have examined: (a) the Registration
Statement (and the prospectus included therein), (b)
the Company's Articles of Incorporation, and By-Laws,
(c) certain resolutions of the Company's Board of
Directors, and (d) such other proceedings, documents
and records as we have deemed necessary to enable us to
render this opinion.
Based upon the foregoing, we are of the
opinion that the Shares, when sold as contemplated in
the Registration Statement, will be duly authorized and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an
exhibit to the Registration Statement. In giving this
consent, however, we do not admit that we are "experts"
within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of the ICAP Funds, Inc.
We consent to the inclusion in Post-Effective
Amendment No. 5 to the Registration Statement on Form
N-1A of the ICAP Funds, Inc. of our report dated
January 24, 1997, on our audits 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, 1996, 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 28, 1997
ICAP FUNDS, INC.
STOCK SUBSCRIPTION AGREEMENT
To the Board of Directors of ICAP Funds, Inc.:
The undersigned purchaser (the "Purchaser")
hereby subscribes to 5,000 shares (the "Shares") of
common stock, $.01 par value (the "Common Stock"), of
ICAP Funds, Inc. (the "Company") in consideration for
which the Purchaser agrees to transfer to you upon
demand One Hundred Thousand Dollars ($100,000) in cash.
Of this $100,000, the Purchaser desires to invest
$99,000 in the Discretionary Equity Portfolio and
$1,000 in the Equity Portfolio. Accordingly, the
Purchaser will receive 4,950 Shares of the
Discretionary Equity Portfolio and 50 Shares of the
Equity Portfolio.
It is understood that a certificate
representing the Shares shall not be issued to the
undersigned, but such ownership shall be recorded on
the books and records of the Company's transfer agent.
Notwithstanding the fact that a certificate
representing ownership will not be issued, said Shares
shall be deemed fully paid and nonassessable.
The Purchaser agrees that the Shares are
being purchased for investment with no present
intention of resellling or redeeming said Shares.
The Purchaser acknowledges that costs
incurred by the Company in connection with its
organization, registration and initial public offering
of Shares of the Company have been deferred and are
being amortized over a period of five years from the
date upon which the Company commences its investment
activities.
The Purchaser agrees that in the event any of
the Shares purchased hereunder are redeemed during such
five year period, the Company is authorized to reduce
the redemption proceeds to cover any unamortized
organizational expenses in the same proportion as the
number of Shares being redeemed bears to the number of
Shares outstanding at the time of the redemption. If,
for any reason, said reduction of redemption proceeds
is not infact made by the Company in the event of such
a redemption, the Purchaser agrees to reimburse the
Company immediately for any unamortized organizational
expenses in the proportion stated above.
Dated and effective this 8th day of December, 1994.
INSTITUTIONAL CAPITAL CORPORATION
/s/ Robert H. Lyon
----------------------------
By: Robert H. Lyon
Its: President
ACCEPTANCE
The foregoing subscription is hereby accepted.
Dated and effective as of this 8th day of December,
1994.
ICAP FUNDS, INC.
/s/ Pamela H. Conroy
-----------------------------
By: Pamela H. Conroy
Its: Vice President
/s/ Donald D. Niemann
-----------------------------
Attest: Donald D. Niemann,
Secretary
UMB Individual Retirement Trust Account
(Under Section 408(a) of the Internal Revenue Code)
This Agreement is made between the United Missouri
Bank, n.a., as trustee (hereinafter referred to as
"Trustee") and the individual (hereinafter referred to
as "Grantor") who signs the attached Adoption
Agreement. If the Grantor has previously adopted this
Individual Retirement Trust Account ("IRA") in any
earlier form, by signature to the Adoption Agreement he
or she adopts the amended IRA in the form as hereby
restated.
The Grantor is establishing (or adopting an amendment
to) an individual retirement account (under section
408(a) of the Internal Revenue Code) to provide for his
or her retirement and for the support of his or her
beneficiaries after death. The Trustee has given the
Grantor the disclosure statement required under the
Income Tax Regulations under section 408(i) of the
Code. Unless the attached Adoption Agreement is signed
by Grantor to adopt this amended and restated IRA,
Grantor has made an initial cash contribution to the
IRA concurrently with the execution of the Adoption
Agreement. The Grantor and Trustee make the following
agreement:
ARTICLE I
1. The Trustee may accept additional cash
contributions on behalf of the Grantor for a tax year
of the Grantor. The total cash contributions are
limited to $2,000 for the tax year unless the
contribution is a rollover contribution described in
section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), or 408(d)(3) of the Code or an
employer contribution to a Simplified Employee Pension
plan as described in section 408(k). Rollover
contributions before January 1, 1993, include rollovers
described in section 402(a)(5), 402(a)(6), 402(a)(7),
403(a)(4), 403(b)(8), or 408(d)(3) of the Code or an
employer contribution to a Simplified Employee Pension
plan as described in section 408(k).
ARTICLE II
The Grantor's interest in the balance of the trust
account is nonforfeitable.
ARTICLE III
1. No part of the trust funds may be invested in life
insurance contracts; nor may the assets of the trust
account be commingled with other property except in a
common trust fund or a common investment fund (within
the meaning of section 408(a)(5) of the Code).
2. No part of the trust funds may be invested in
collectibles (within the meaning of section 408(m) of
the Code), except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold
and silver coins issued under the laws of any state.
ARTICLE IV
1. Not withstanding any provision of this agreement
to the contrary, the distribution of the Grantor's
interest in the trust account shall be made in
accordance with the following requirements and shall
otherwise comply with section 408(a)(6) and Proposed
Regulations section 1.408-8, including the incidental
death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions
are required to begin to the Grantor under paragraph 3,
or to the surviving spouse under paragraph 4, other
than in the case of a life annuity, life expectancies
shall be recalculated annually. Such election shall be
irrevocable as to the Grantor and the surviving spouse
and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be
recalculated.
3. The Grantor's entire interest in the trust account
must be or begin to be, distributed by the Grantor's
required beginning date, the April 1 following the
calendar year in which the Grantor reaches age 70 1/2.
By that date, the Grantor may elect, in a manner
acceptable to the Trustee, to have the balance in the
trust account distributed in :
(a) A single sum payment.
(b) An annuity contract that provides equal or
substantially equal monthly, quarterly or annual
payments over the life of the Grantor.
(c) An annuity contract that provides equal or
substantially equal monthly, quarterly or annual
payments over the joint and last survivor lives of the
Grantor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over
a specified period that may not be longer than the
Grantor's life expectancy.
(e) Equal or substantially equal annual payments over
a specified period that may not be longer than the
joint life and last survivor expectancy of the Grantor
and his or her designated beneficiary.
4. If the Grantor dies before his or her entire
interest is distributed to him or her, the entire
remaining interest will be distributed as follows:
(a) If the Grantor dies on or after distribution of
his or her interest has begun, distribution must
continue to be made in accordance with paragraph 3.
(b) If the Grantor dies before distribution or his or
her interest has begin, the entire remaining interest
will, at the election of the Grantor, or if the Grantor
has not so elected, at the election of the beneficiary
or beneficiaries, either
i) Be distributed by December 31 of the year
containing the fifth anniversary of the Grantor's
death, or
ii) Be distributed in equal or substantially equal
payments over the life or life expectancy of the
designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the
Grantor's death. If, however, the beneficiary is the
Grantor's surviving spouse, then this distribution is
not required to begin before December 31 of the year in
which the Grantor would have turned age 70 1/2.
(c) Except where distribution in the form of an
annuity meeting the requirements of section 408(b)(3)
and its related regulations has irrevocably commenced,
distributions are treated as having begun on the
Grantor's required beginning date, even though payments
may actually have been made before the date.
(d) If the Grantor dies before his or her entire
interest has been distributed and if the beneficiary is
other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted
in the account.
5. In the case of distribution over life expectancy
in equal or substantially equal annual payments, to
determine the minimum annual payment of each year,
divide the Grantor's entire interest in the trust as of
the close of business on December 31 of the preceding
year by the life expectancy of the Grantor (or the
joint life and last survivor expectancy of the Grantor
and Grantor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever
applies). In the case of distributions under paragraph
(3), determine the initial life expectancy (or joint
life and last survivor expectancy) using the attained
ages of the Grantor and designated beneficiary as of
their birthdays in the year the Grantor reaches age 70
1/2. In the case of distribution in accordance with
paragraph (4)(b)(ii), determine life expectancy using
the attained age of the designated beneficiary as of
the beneficiary's birthday in the year distributions
are required to commence.
6. The owner of two or more individual retirement
accounts may use the "alternate method" described in
Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum
distribution requirements described above. This method
permits an individual to satisfy these requirements by
taking from one individual retirement account the
amount required to satisfy the requirement of another.
ARTICLE V
1. The Grantor agrees to provide the Trustee with
information necessary for the Trustee to prepare any
reports required under section 408(i) of the Code and
Regulations sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the
Internal Revenue Service and the Grantor as prescribed
by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added
or incorporated, the provisions of Articles I through
III and this sentence will be controlling. Any
additional articles that are not consistent with
Section 408(a) of the Code and related regulations will
be invalid.
ARTICLE VII
This agreement will be amended, from time to time, to
comply with the provisions of the Code and related
regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
ARTICLE VIII
SECTION 1 - INVESTMENT OF ACCOUNT
1. The Grantor has the sole authority and discretion,
fully and completely, to select and to direct the
investment of all assets in the trust account. The
Grantor accepts full and sole responsibility for the
success or failure of any selection he or she makes.
The Grantor accepts full responsibility to vote all
certificates of stock held hereunder and to vote
special or general proxies. The Trustee shall not be
liable for the acts or omissions of the Grantor or have
any responsibility or any liability for any loss of
income or of capital, or for any unusual expense which
the Trustee may incur, relating to any investment or to
the sale or exchange of any asset which the Grantor
directs the Trustee to make.
2. If the Grantor's initial contribution to the trust
is in the form of cash, the Trustee may invest the
contribution in its own bank savings account or other
fixed income investment medium of its discretionary
selection, pending further investment unless the
Trustee has received other instructions from the
Grantor. If the initial contribution is in the form of
assets in kind, the Trustee shall retain the assets
pending instructions from the Grantor.
3. Subject to the right and duty of the Grantor to
direct the investments of his or her trust account, the
Trustee shall have full authority and power:
(a) To invest and reinvest the trust account in such
evidences of indebtedness, evidences of ownership,
securities, other personal property and real property
as the Grantor shall in his or her absolute discretion
select including, but not by way of limitation,
beneficial interests in mutual investment funds,
without regard to any of the restrictions of the law of
any jurisdiction applicable to investment of
fiduciaries, provided that the Trustee shall not invest
any part of the trust account in units of its common
trust funds, nor engage in any transaction of the
nature described and prohibited by paragraph 5 hereof.
(b) To maintain such part of the trust account in cash
and unproductive of income as may be deemed advisable
or expedient (with no requirement to pay interest on
such cash balances nor on cash in its hands pending
investment); and to invest all or part of the assets of
the trust account in deposits in its own banking
department, or in any other bank or similar financial
institution supervised by the United States or any
State, provided that such deposits bear a reasonable
rate of interest;
(c) To sell, assign, exchange, convey or otherwise
transfer, lease, mortgage or otherwise encumber,
improve, abandon, alter, or raze any part or all of the
securities or other property of the trust account upon
such terms and conditions as the Grantor shall deem to
be in the best interest or advantage of the trust
account, and no person dealing with the Trustee shall
be bound to see to the application of the purchase
money or inquire into the validity, expediency, or
propriety of any such transaction;
(d) To exercise any conversion privilege or
subscription right available in connection with any
securities or property of the trust account, and to
consent to, and participate in, the reorganization,
consolidation, merger or readjustment of the finances
of any corporation, company, association, partnership,
or other issuer of any of the securities which may be
held hereunder, and to exercise any option or options
and make any agreement or subscription and pay
expenses, assessments or subscriptions in connection
therewith;
(e) To sue or defend any suit or legal proceeding by
or against the trust account and to compromise, settle,
submit to arbitration, or adjust any suit or legal
proceeding, claim, debt, damage, or undertaking due or
owing from or to the trust account but the Trustee
shall not be obligated to take any action which would
subject it to expense or liability unless it be first
indemnified in an amount and manner satisfactory to it
or be furnished with funds sufficient, in its sole
judgment, to cover the same;
(f) To acquire and hold any securities or other
property of the trust account without disclosing its
fiduciary capacity, or in the name of any other person,
with or without a power of attorney for transfer
thereto attached;
(g) To employ attorneys, accountants, and others as it
may deem advisable for the best interest of the Trust
Account, and to pay their reasonable expenses and
compensation out of the trust account;
(h) To make, execute and deliver, as Trustee, any and
all instruments in writing necessary or proper for the
effective exercise of any of the Trustee's powers as
stated herein or otherwise necessary to accomplish the
purpose of the trust account;
(i) To borrow money from the others, upon such terms
and conditions as it may deem to be for the advantage
or in the best interest of the trust account, and for
the sum or sums so borrowed or advanced to issue its
promissory note as Trustee and to secure the repayment
thereof by the pledging of any securities or other
property of the trust account, and to pay interest at a
reasonable rate on any moneys borrowed from others or
advanced by it for the benefit of the trust account;
and
(j) To determine what is principal and what is income
of the trust account and to allocate or apportion
receipts, gains, losses, and expenses as between
principal and income;
(k) To sell options to purchase any security held in
the trust account, to purchase options to buy any
security ("call options"), and to purchase the right to
sell any security, whether or not held in the trust
account ("put options"), provided, however, that the
authority and power granted hereunder shall not be
construed to include the power to sell to another the
right to sell to the trust any security.
4. The following shall constitute charges upon the
trust account and shall be paid by the Trustee out of
the trust account unless, and to the extent, paid by
the Grantor:
(a) All taxes of whatever kind or character that may
be imposed, levied or assessed under existing or future
laws upon or in respect of the trust account, or upon
the Trustee in its capacity as such, or upon the assets
or income of the trust account;
(b) All expenses incurred by the Trustee in the
performance of its duties hereunder, including the fees
of attorneys, accountants and other persons engaged by
the Trustee for services in connection with the trust
account; and
(c) The fees and other compensation of the Trustee for
its services hereunder, in the amounts agreed upon from
time to time by the Grantor and Trustee.
5. The Grantor shall not borrow any money from the
trust account nor pledge any part thereof as security
for a loan. Furthermore, neither the Grantor nor the
Trustee shall engage, either directly or indirectly, in
any of the following transactions:
(a) The sale or exchange, or leasing, of any property
between the trust account and a Disqualified Person;
(b) The lending of money or other extension of credit
between the trust account and a Disqualified Person;
(c) The furnishings of goods, services or facilities
between the trust account and a Disqualified Person;
(d) The transfer to, or use by or for the benefit of,
a Disqualified Person of the income or assets of the
Trust Account;
(e) An act by a Disqualified Person who is a fiduciary
whereby he deals with the income or assets of the trust
account in his own interest or for his own account; or
(f) Receipt of any consideration for his own personal
account by any Disqualified Person who is a fiduciary
from any party dealing with the trust account in
connection with a transaction involving the income or
assets of the trust account.
For purposes of this paragraph, "Disqualified Person"
shall have the meaning ascribed to that term under
section 4975(e)(2) of the Code.
SECTION 2 - BENEFICIARY DESIGNATIONS
1. At any time and from time to time the Grantor
shall have the right to designate one or more
beneficiaries to whom distribution of his or her trust
account, or the previously undistributed portion
thereof, shall be made in the event of his or her death
prior to the complete distribution of his or her trust
account. This right shall extend to Grantor's
surviving spouse in the event he or she dies while
receiving distributions under the provisions of Section
3(e) or 4(b) of Article IV. Any such beneficiary
designation shall be deemed legally valid only when
submitted fully complete, duly executed, and on a form
provided by or acceptable to the Trustee. Subject to
the foregoing sentence, any such beneficiary
designation shall be effective upon receipt by the
Trustee. Any such beneficiary designation may be
revoked by the Grantor at any time, and shall be
automatically revoked upon receipt by the Trustee of a
subsequent beneficiary designation or beneficiary
designations in valid form bearing a later execution
date.
2. In the absence of a valid beneficiary designation
on file with the Trustee at the time of the Grantor's
death, the Trustee shall, upon receipt of notice of the
death of the Grantor supported by a certified copy of
the death certificate or other appropriate evidence of
the fact of death satisfactory to the Trustee, make
distribution of the Grantor's trust account to the
beneficiary or beneficiaries of the Grantor in the
following order of preference:
(a) To the Grantor's legal spouse; but if no such
legal spouse shall survive the Grantor, then to
(b) The surviving natural and adoptive children of the
Grantor in equal shares per capita and not per stirpes;
but if there shall be no such surviving child or
children, then to
(c) The personal representative of the Grantor,
provided, however, that the Trustee shall have no duty,
obligation or responsibility to make any inquiry or
conduct any investigation concerning the
identification, address, or legal status of any
individual or individuals alleging the status of
beneficiary (designated or otherwise) nor to make
inquiry or investigation concerning the possible
existence of any beneficiary not reported to the
Trustee within a reasonable period after the
notification of the Grantor's death (or that of his or
her surviving spouse) and previous to the distribution
of the trust account. The Trustee may conclusively
rely upon the veracity and accuracy of all matters
reported to it by any source ordinarily presumed to be
knowledgeable respecting the matters so reported. With
respect to any distribution made by reason of the death
of the Grantor (or his or her surviving spouse) the
Trustee shall have no higher duty than the exercise of
good faith, shall incur no liability by reason of any
action taken in reliance upon erroneous, inaccurate or
fraudulent information reported by any source assumed
to be reliable, or by reason of incomplete information
in its possession at the time of such distribution.
Upon full and complete distribution of the trust
account pursuant to the provisions of this Section, the
Trustee shall be fully and forever discharged from all
liability respecting such trust account.
3. Any distribution pursuant to the provisions of
this Section may be made in cash or in kind or partly
in both, at the sole discretion of the Trustee, and
shall be made within thirty days following receipt by
the Trustee of information deemed by it sufficient upon
which to base such distribution; provided, however,
that the Trustee shall incur no liability respecting
fluctuations in the value of the trust account in the
event of a delay occasioned by Trustee's good faith
decision to await additional evidence or information
bearing on the beneficiary or beneficiaries.
4. Whenever any distribution hereunder is payable to
a minor or to a person known by the Trustee to be under
a legal disability, the Trustee in its absolute
discretion may make all or any part of such
distribution to (a) a legal guardian or conservator for
such person, (b) a custodian under the Uniform
Transfers to Minors Act, (c) a parent of such person,
or (d) such person directly.
5. Anything to the contrary herein notwithstanding,
in the event of reasonable doubt respecting the proper
course of action to be taken, the Trustee may in its
sole and absolute discretion resolve such doubt by
judicial determination which shall be binding on all
parties claiming any interest in the trust account. In
such event all court costs, legal expenses, reasonable
compensation for the time expended by the Trustee in
the performance of its duties, and other appropriate
and pertinent expenses and costs, shall be collected by
the Trustee from the trust account.
SECTION 3 - MISCELLANEOUS
1. The Trustee may make further amendments to this
Agreement, in order to make said Agreement acceptable
in form to the Secretary of the Treasury and the
Secretary of Labor, or for any other purpose. Any such
amendments shall be effective without the signature of
the Grantor to a new Adoption Agreement and shall, if
for the purpose of initially qualifying the trust
account pursuant to the Code, be retroactively
effective to the date of the captioned Agreement. The
Trustee will mail a copy of any such amendment to the
Grantor.
2. The Trustee shall deliver, or cause to be executed
and delivered to the Grantor all proxies, prospectuses
and notices pertaining to securities held in the
Account. The Trustee shall not vote any such
securities except pursuant to written instructions from
the Grantor. Any notice sent from the Trustee to the
Grantor shall be effective, if sent by mail to the
Grantor's last address of record.
3. The Trustee, within thirty days after the close of
each calendar year, shall provide the Grantor a record
of activity in the trust account during such year,
including the date and the dollar amount of
contributions, any earnings on such contributions, the
date and dollar amount of any distributions, a
beginning balance and an ending balance. The Trustee
may meet its recordkeeping and reporting requirements
by adopting the records of any investment facility
permitted by this Agreement, and it may delegate
ministerial duties of keeping such records to such
facilities or their managers.
4. Confirmation of transactions and records or
statements of activity in the Grantor's account shall
be conclusive if Grantor does not object within ten
days of mailing to Grantor. In such case, the Trustee
and its officers and employees shall be forever
released and discharged from any liability with respect
to any claim arising out of any action or omission
reflected on such confirmation or record.
5. The Grantor shall have the sole power, right and
duty to direct the Trustee from time to time with
respect to the investment and reinvestment of the
assets of the trust account. The Trustee shall comply
promptly with all such directions, providing such
directions are clearly stated in writing executed by
the Grantor, and in form acceptable to the Trustee.
The Trustee shall have neither the right nor duty to
inquire into the propriety of any such direction nor
into its effect upon the trust account or the
beneficiary or beneficiaries thereof, nor to apply to a
court for instructions notwithstanding the fact that
the Trustee has, or with reasonable inquiry should
have, actual or constructive notice that any action
taken or omitted pursuant to, or as a result of, the
exercise of such directive power constitutes, or may
constitute, a breach of terms of the trust account or a
violation of any law applicable to the investment of
the funds held hereunder. Any such direction so given
the Trustee shall be deemed to be continuing until
revoked or modified by a subsequent direction in
writing, notwithstanding the occurrence of any event or
other development of which the Trustee has or should
have knowledge. The Trustee shall not be liable or
responsible for any loss resulting to the trust account
or to any present or future beneficiary thereof by
reason of:
(a) Any sale or investment made or other action taken
pursuant to and in accordance with the direction of
Grantor; or
(b) The retention of any asset, including cash, the
acquisition or retention of which has been directed by
the Grantor.
6. The Trustee does not guarantee the trust account
from loss or depreciation. The liability of the
Trustee to make any payment from the trust account at
any time is limited to the then available assets of the
trust account.
7. This Agreement shall be binding upon all persons
entitled to benefits under the trust account, their
respective heirs and legal representatives, and upon
the Trustee and its successors.
8. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of
the Agreement dictates, the plural shall be read as the
singular and the singular as the plural.
9. As the context requires, the term "Grantor" shall
be deemed to include any beneficiary of this Account
following the death of the Grantor.
10. All questions arising with respect to the
provisions of this Agreement shall be determined by
application of the laws of the State of Missouri except
to the extent Federal statutes supersede Missouri law.
To the extent permitted by law, none of the creditors
of Grantor or any beneficiary shall have any power to
execute any levy, lien, assignment, garnishment,
alienation, attachment or other voluntary or
involuntary transfer on any of the assets of the IRA;
and all sums payable to Grantor or any beneficiary
shall be free and clear of all liabilities for debts,
levies, attachments and proceedings of any kind, at law
or in equity.
11. The Trustee shall receive reasonable annual
compensation as may be agreed upon from time to time
between the Grantor and Trustee. The Trustee shall pay
all expenses reasonably incurred by it in its
administration from the trust account unless the
Grantor pays the expenses.
12. The Trustee may resign at any time for any reason,
including but not limited to the determination in the
Trustee's sole discretion that the account cannot be
managed on a profitable basis, upon thirty days' notice
in writing to the Grantor and may be removed by the
Grantor at any time upon thirty days' notice in writing
to the Trustee. Upon such resignation or removal, the
Grantor shall appoint a successor Trustee, which
successor shall be a bank or other qualified person as
required by the Internal Revenue Code so as to permit
the trust account to continue as qualified under the
Internal Revenue Code. Upon receipt by the Trustee of
written acceptance of such appointment by the successor
Trustee, the Trustee shall transfer and pay over to
such successor Trustee the assets of the trust account
and all records pertaining thereto. The Trustee is
authorized, however, to retain from the assets of the
trust account such amounts as it may deem advisable for
payment of all its fees, compensation, costs and
expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the
trust account or on or against the Trustee, with any
balance of such reserve remaining after the payment of
all such items to be paid over to the successor
Trustee. The successor Trustee shall hold the assets
paid over to it under terms similar to those of this
Agreement that qualify under the Internal Revenue Code.
If, within thirty days after the Trustee's resignation
or removal, the Grantor has not appointed a successor
Trustee, which has accepted such appointment, the
Trustee may pay the Grantor's interest to the Grantor.
13. The Trustee shall not be responsible for
determining the permissible amount of contributions to
the Account, or for the amount or timing of
distributions from the Account, or for any other
actions taken at the request of the Grantor. The
Grantor shall indemnify and hold the Trustee harmless
from any and all liability, claims and expenses arising
from any actions taken at the Grantor's request or in
connection with this Agreement, except for any
liability, claims or expenses caused by the negligence
of the Trustee.
ICAP FUNDS, INC.
Supplement to IRA Disclosure Statement and
Custodial Agreement
On January 1, 1997, new IRA legislation became
effective. The following supplements and revises were
appropriate your Disclosure Statement. Please keep this
Supplement with your Disclosure Statement for future
reference.
Spousal IRAs
If your spouse is employed, he or she can
establish his or her own IRA subject to the same rules
as are applicable to your IRA. If you file a joint
return with a spouse who either has no compensation for
the taxable year or elects to be treated as having
none, the maximum contribution amount is the lesser of
$4,000 or 100% of the total compensation of you and
your spouse for the year. In such case the amount
contributed can be divided between your IRA and the
spousal IRA in any manner you desire, provided that no
more than $2,000 can be contributed to either IRA. No
contributions may be made to a spousal IRA during or
after the year in which he or she reaches age 70-1/2.
However, if you are ineligible to make contributions to
your own IRA because of age, you may (if you have
sufficient compensation) nevertheless make
contributions of up to $2,000 to an IRA for your non-
earning spouse if he or she has not reached age 70-1/2.
Simplified Employee Pension Plan
An IRA may also be used in connection with a SEP
plan established by your employer (or by you if you are
self-employed). Under a SEP plan, your employer may
make a contribution to your IRA, and an IRA for all
other employees, of up to 15% of compensation (limited
to $160,000) or $30,000, whichever is less. It is your
responsibility and that of your employer to see that
contributions are made under and in accordance with a
valid SEP plan.
Savings Incentive Match Plan for Employees
of Small Employers ("SIMPLE")
An IRA may also be used in connection with a
SIMPLE plan established by your employer (or by you if
you are self-employed). Under a SIMPLE plan, you may
elect to have your employer make salary reduction
contributions of up to $6,000 per year to your SIMPLE
IRA. The $6,000 limit applies for 1997 and is adjusted
periodically for cost of living increases. In
addition, your employer will contribute certain amounts
to your SIMPLE IRA, either as a matching contribution
to those participants who make salary reduction
contributions or as a non-elective contribution to all
eligible participants whether or not making salary
reduction contributions. A number of special rules
apply to SIMPLE plans, including: (1) a SIMPLE plan
generally is available only to employers with 100 or
fewer employees; (2) contributions must be made on
behalf of all employees of the employer (other than non
resident aliens and bargaining unit employees) who
satisfy certain minimum participation requirements; (3)
contributions are made to a special SIMPLE IRA that is
separate and apart from your other IRAs; (4) if you
withdraw from your SIMPLE IRA during the two year
period during which you first began participation in
the SIMPLE plan, the early distribution excise tax (if
otherwise applicable) is increased to 25%; and (5)
during this two year period, any amount withdrawn may
be rolled over tax-free only into another SIMPLE IRA
(and not to a "regular" IRA). It is your
responsibility and that of your employer to see that
contributions in excess of normal IRA limits are made
under and in accordance with a valid SIMPLE plan.
Estate Taxation
An excess retirement accumulation exists if, at
the time of your death, the value of all your interests
in qualified plans, tax-sheltered annuities and IRAs
exceeds the present value of an annuity with annual
payments of $160,000 (adjusted periodically for
inflation) payable over your life expectancy
immediately before your death.
Withdrawals Prior to Age 59-1/2
A withdrawal from your IRA before you reach age 59-
1/2 will not be subject to the penalty tax if it is
made on account of your permanent and total disability,
death, a qualifying rollover, a direct transfer, the
timely withdrawal of an excess contribution, to pay for
medical expenses incurred by you, your spouse or your
dependent to the extent that the medical expenses
exceed 7.5% of your adjusted gross income, in certain
situations, to pay for medical insurance premiums if
you are unemployed, or if the distribution is a part of
a series of substantially equal periodic payments (at
least annually) made over your life (or life
expectancy) or the joint lives (or joint life
expectancies) of you and your beneficiary.
Excess Distribution Penalty
This tax is suspended for distributions in 1997,
1998 and 1999.
Toll-Free Telephone Number
Effective January 1, 1997, the toll-free number of ICAP Funds,
Inc. ("Company") has changed. The telephone number which prior
to January 1, 1997 was 1-800-645-2457, has changed to 1-888-
221-ICAP or 1-888-221-4227. Accordingly, on and after January 1,
1997, all inquiries regarding the Company, the ICAP Equity
Portfolio, the ICAP Discretionary Equity Portfolio, shareholder
accounts and telephone transactions, may be directed to the
Company at this new telephone number.
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
For the one year period ended December 31, 1996
Total Return = (Ending Redeemable Value/Initial Value) - 1
Total return = 25.55%
25.55% = (125,550.59/100,000) - 1
For the period from December 31, 1994 (commencement of
operations) to December 31, 1996
Cumulative Total Return = (Ending Redeemable Value/Initial Value) - 1
Total return = 69.76%
69.76% = $169,759.05/100,000) - 1
1/n
Total Return - (Ending Redeemable Value/Initial Value) - 1
Total return = 30.29%
1/2
30.29% = (169,759.05/100,000) - 1
Equity Portfolio
For the one year period ended December 31, 1996
Total Return = (Ending Redeemable Value/Initial Value) - 1
Total return = 26.26%
26.26% = (126,258.45/100,000) - 1
For the period from December 31, 1994 (commencement of
operations) to December 31, 1996
Cumulative Total Return = (Ending Redeemable Value/Initial Value) - 1
Total return = 75.31%
75.31% = $175,313.64/100,000) - 1
1/n
Total Return - (Ending Redeemable Value/Initial Value) - 1
Total return = 32.41%
1/2
32.41% = (175,313.64/100,000) - 1
