ICAP
SEMI-ANNUAL
REPORT
June 30, 1997
ICAP Funds
Discretionary
Equity
Portfolio
Equity
Portfolio
Table of Contents
page
Letter to Shareholders 1
Investment Highlights 4
Schedules of Investments
Discretionary Equity Portfolio 6
Equity Portfolio 10
Statements of Assets and Liabilities 14
Statements of Operations 15
Statements of Changes in Net Assets
Discretionary Equity Portfolio 16
Equity Portfolio 17
Financial Highlights
Discretionary Equity Portfolio 18
Equity Portfolio 19
Notes to Financial Statements 20
This page intentionally left blank.
July 1997
Dear Shareholder:
The first half of 1997 produced much higher returns for equities than we
anticipated going into the year. It was actually a very simple story: profits
were better than expected, interest rates were lower than we expected and there
was a record amount of merger and acquisition activity (both here and abroad).
While many managers had difficulty keeping up with this appreciation, the ICAP
Equity Portfolio returned 21.7%, and the Discretionary Portfolio was up 20.8%,
versus 20.6% for the S&P 500 for the first half of 1997. Your returns were well
within the top quartile of all money managers for this time period. Moreover,
the ICAP Equity Portfolio is the only fund in the Lipper Growth & Income
universe that beat the S&P in 1995, again in 1996 and followed through by
besting the market in the first half of 1997. <F1><F2>
Despite my reference to the story of 1997's first half as being a simple one,
there is actually a more complex phenomenon at work. Currently a global stock
market battle is being waged between two opposing schools of thought. On the one
hand, there is a school that says that we have entered a new "golden age," and
on the other hand, there are the traditionalists who see a looming crunch in
resource utilization (which would lead to higher interest rates and lower stock
prices). Currently, the battle is being won by the believers in the new order.
The case for the new order rests on sustained growth without inflation. The crux
of this case rests on the following tenets:
1) Productivity growth in the US is very strong, and under-reported, as a result
of massive investments during the 1990s in highly effective new technology.
Consequently, even the low rates of currently reported inflation are being
overstated.
2) Strong demand in the US and selected other countries is being more than
offset by slack operating rates in Europe and Japan, as well as by strong output
growth in South East Asia (including China).
3) A modest upturn in Japan and Germany in 1998 will be met by reduced growth in
the US, allowing for a continuation of noninflationary growth.
4) Developed countries are generally pursuing tighter fiscal policies (the
French elections notwithstanding) and easy monetary policies. This background is
favorable for equities.
5) Economic crises in Latin America and Eastern Europe (including Russia) are
receding, and these countries are beginning to show balanced growth with
investment and exports now better-matched with domestic consumption.
6) The demographic profile of aging baby boomers all around the world calls for
less consumption and more savings (primarily in the form of packaged mutual fund
products), which will likely provide for more demand for equities.
As acceptance of this case advanced, the first half of 1997 produced nearly
ideal conditions for equities. Solid growth, declining inflation, and better-
than-expected profits, led to an expansion in P/Es to near record levels. While
we acknowledge many of the tenets of this "new order," we would still count
ourselves as "traditionalists," and we are concerned about the current levels
of valuation which leave little margin for error. However, given the low level
of current inflation, we feel that it is too soon to significantly reduce equity
exposure.
At ICAP we have long believed that "tight money," or reduced liquidity for
equities, is the signal to take a more conservative stance - a position that we
have adopted many times in the past. At this juncture, despite valuations which
are very stretched, there is little evidence that conditions will be moving
shortly to a period of reduced liquidity. Despite distinct signs of tightness in
US labor markets, Greenspan, Rubin and Clinton seem to have endorsed the "new
order" and they will need more evidence of a wider spread of inflation before
short-circuiting expansion that is supposed to provide socio-economic benefits
along all rungs of the economic ladder. Moreover, many warning signs of
inflation, including trends in gold, commodity prices and the dollar, are all
relatively benign.
Consequently, while market returns have more than met our initial expectations
for the year, we see only a modest chance of severe tightening in the short run.
While our predilection is to err on the side of conservatism, we can still find
many individual stocks which meet the three criteria which are central to our
investment process:
a) 15% or more under valuation relative to the S&P 500;
b) an earnings revision trend that is not overly negative; and
c) the presence of important macro or stock-specific catalysts.
Most of the stocks that we find which meet these criteria fall in the category
of corporate restructurings. As we have written to you before, our view is that
restructurings are particularly appropriate for today's market. Restructuring
candidates have generally been poor market performers over the past several
years, thereby implying that they have less risk. Moreover, new managements can
frequently jump-start the earnings of a company and generate a large rate of
change - even in a macro environment where the rate of corporate profit growth
is slowing. Such improvement is frequently rewarded with a higher P/E, even in a
market where the P/E is high or perhaps falling. The combination of these
factors can provide superior reward potential on a bottom-up basis. Your
portfolio continues to have many opportunities of this nature, including Philips
Electronics, Novartis and Rhone-Poulenc, which significantly aided performance
in the first half of this year.
Thank you for your continuing support of the ICAP Funds.
Very truly yours,
/s/ Robert H. Lyon
Robert H. Lyon
President
<F1> Source, Lipper Analytical Services.
<F2> Past performance is no guarantee of future results. In the absence of
existing fee waivers, total returns would be reduced. Investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
INVESTMENT HIGHLIGHTS
ICAP Discretionary Equity Portfolio
Total Return
Portfolio Total Return
FOR THE PERIOD ENDED 6/30/97
- - ----------------------------
ONE YEAR 38.2%
AVERAGE ANNUAL
SINCE COMMENCEMENT 33.3%
<TABLE>
<CAPTION>
12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96
<S> <C> <C> <C> <C> <C> <C>
ICAP Discretionary
Equity Portfolio 100,000.00 108,812.40 122,344.82 131,897.92 135,211.67 145,950.46
S&P 500 Stock Index 100,000.00 109,736.55 120,212.78 129,765.13 137,577.90 144,962.49
</TABLE>
<TABLE>
<CAPTION>
6/30/96 9/30/96 12/31/96 3/31/97 6/30/97
<C> <C> <C> <C> <C>
ICAP Discretionary
Equity Portfolio 148,276.61 153,348.78 169,759.05 176,494.69 204,979.02
S&P 500 Stock Index 151,467.82 156,149.13 169,165.68 173,701.05 204,025.67
</TABLE>
This chart assumes an initial gross investment of $100,000 made on 12/31/94.
Returns shown include the reinvestment of all dividends. Past performance is not
predictive of future results. Investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than the
original cost. In the absence of existing fee waivers, total return would be
reduced.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The Index is heavily
weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. A direct investment in the S&P 500 Stock Index is not possible.
SECTOR BREAKDOWN
ICAP Discretionary
Equity Portfolio S&P 500 Stock Index
Basic Industries 7.1% 5.6%
Capital Equipment-
Technology 13.5% 13.3%
Capital Spending 11.6% 9.5%
Consumer Durables 6.3% 2.7%
Consumer Services 13.8% 5.1%
Consumer Staples 4.6% 13.0%
Energy 2.2% 9.5%
Financial 9.3% 15.5%
Healthcare 11.6% 11.4%
Retail 3.6% 5.0%
Transportation 7.3% 0.9%
Utilities 9.1% 8.5%
INVESTMENT HIGHLIGHTS
ICAP Equity Portfolio
Total Return
Portfolio Total Return
FOR THE PERIOD ENDED 6/30/97
- - ----------------------------
ONE YEAR 40.0%
AVERAGE ANNUAL
SINCE COMMENCEMENT 35.5%
<TABLE>
<CAPTION>
12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96
<S> <C> <C> <C> <C> <C> <C>
ICAP Equity Portfolio 100,000.00 109,246.39 123,850.87 134,727.64 138,853.00 150,466.83
S&P 500 Stock Index 100,000.00 109,736.55 120,212.78 129,765.13 137,577.90 144,962.49
</TABLE>
<TABLE>
<CAPTION>
6/30/96 9/30/96 12/31/96 3/31/97 6/30/97
<C> <C> <C> <C> <C>
ICAP Equity Portfolio 152,460.84 157,784.04 175,313.64 182,012.06 213,374.41
S&P 500 Stock Index 151,467.82 156,149.13 169,165.68 173,701.05 204,025.67
</TABLE>
This chart assumes an initial gross investment of $100,000 made on 12/31/94.
Returns shown include the reinvestment of all dividends. Past performance is not
predictive of future results. Investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than the
original cost. In the absence of existing fee waivers, total return would be
reduced.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The Index is heavily
weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. A direct investment in the S&P 500 Stock Index is not possible.
SECTOR BREAKDOWN
ICAP Equity Portfolio S&P 500 Stock Index
Basic Industries 6.9% 5.6%
Capital Equipment-
Technology 12.7% 13.3%
Capital Spending 11.3% 9.5%
Consumer Durables 7.9% 2.7%
Consumer Services 13.1% 5.1%
Consumer Staples 4.4% 13.0%
Energy 2.1% 9.5%
Financial 9.3% 15.5%
Healthcare 12.6% 11.4%
Retail 3.8% 5.0%
Transportation 7.1% 0.9%
Utilities 8.8% 8.5%
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)
NUMBER
OF SHARES VALUE
---------- -----
COMMON STOCKS 91.67%
AUTOS & TRUCKS 5.72%
114,800 Ford Motor Co. $ 4,333,700
71,650 General Motors Corp. 3,990,009
------------
8,323,709
------------
BANKS 4.40%
71,700 Banc One Corp. 3,472,969
10,850 Wells Fargo & Co. 2,924,075
------------
6,397,044
------------
CHEMICALS 4.55%
45,650 Akzo Nobel N.V. ADR 3,155,556
55,084 Du Pont (E.I.) de Nemours & Co. 3,463,407
------------
6,618,963
------------
COMPUTER SYSTEMS 4.74%
45,884 International Business Machines Corp. 4,138,163
74,200 Sun Microsystems, Inc.* 2,761,631
------------
6,899,794
------------
DEFENSE 8.46%
74,500 Boeing Co. 3,953,156
42,700 Northrop Grumman Corp. 3,749,594
90,100 Raytheon Co. 4,595,100
------------
12,297,850
------------
DRUGS & SUPPLIES 7.27%
47,294 American Home Products Corp. 3,617,991
37,051 Novartis AG - ADR 2,968,526
95,700 Rhone-Poulenc SA - ADR 3,983,512
------------
10,570,029
------------
ELECTRONICS 6.12%
28,400 Advanced Micro Devices, Inc.* 1,022,400
86,050 Philips Electronics N.V. 6,184,844
21,250 SGS - Thomson Microelectronics N.V.* 1,700,000
------------
8,907,244
------------
See notes to financial statements.
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
June 30, 1997 (Unaudited)
NUMBER
OF SHARES VALUE
- - --------- -----
ENTERTAINMENT 3.23%
109,700 Host Marriott Corp.* $1,954,031
44,800 ITT Corp.* 2,735,600
------------
4,689,631
------------
FINANCIAL - MISCELLANEOUS 1.13%
38,000 Morgan Stanley, Dean Witter, Discover & Co. 1,636,375
------------
FOOD, TOBACCO & BEVERAGE 1.83%
68,000 Grand Metropolitan PLC - ADR 2,664,750
------------
HEALTHCARE - MISCELLANEOUS 3.39%
30,700 Aetna, Inc. 3,142,912
60,550 Tenet Healthcare Corp.* 1,790,009
------------
4,932,921
------------
INSURANCE 2.82%
56,262 Allstate Corp. 4,107,126
------------
MEDIA 4.43%
100,950 Dun and Bradstreet Corp. 2,649,937
29,050 Tribune Co. 1,396,216
118,750 U S WEST Media Group* 2,404,688
------------
6,450,841
------------
METALS 1.97%
40,200 Reynolds Metals Co. 2,864,250
------------
NATURAL GAS 1.39%
81,100 Union Pacific Resources Group 2,017,363
------------
NON-DEFENSE CAPITAL SPENDING 2.19%
46,150 Case Corp. 3,178,581
------------
OIL 0.68%
19,200 Ashland Inc. 890,400
2,000 Elf Aquitaine - ADR 108,875
------------
999,275
------------
See notes to financial statements.
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
June 30, 1997 (Unaudited)
NUMBER
OF SHARES VALUE
- - --------- -----
RETAIL 3.17%
37,500 Dillard's, Inc. $ 1,298,438
76,992 Federated Department Stores, Inc.* 2,675,472
32,800 Office Depot, Inc.* 637,550
------------
4,611,460
------------
SERVICES - MISCELLANEOUS 4.92%
33,900 AMR Corp.* 3,135,750
25,700 Continental Airlines, Inc. - Class B* 897,894
13,200 HFS, Inc.* 765,600
117,567 Peninsular & Oriental - ADR 2,347,807
------------
7,147,051
------------
SOFTWARE & SERVICES 1.84%
60,800 First Data Corp. 2,671,400
------------
TELEPHONE 8.32%
108,500 MCI Communications Corp. 4,153,516
79,100 Nynex Corp. 4,558,137
64,500 Sprint Corp. 3,394,313
------------
12,105,966
------------
TOYS 2.42%
76,900 Hasbro, Inc. 2,182,037
39,335 Mattel, Inc. 1,332,473
------------
3,514,510
------------
TRANSPORTATION 6.68%
43,484 Burlington Northern Santa Fe Corp. 3,908,125
84,700 Canadian Pacific, Ltd. 2,408,656
48,210 Union Pacific Corp. 3,398,805
------------
9,715,586
------------
TOTAL COMMON STOCKS
(cost $106,156,216) 133,321,719
------------
See notes to financial statements.
DISCRETIONARY EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
June 30, 1997 (Unaudited)
PRINCIPAL
AMOUNT VALUE
- - --------- -----
SHORT-TERM INVESTMENTS 8.99%
DISCOUNTED COMMERCIAL PAPER 6.58%
$2,500,000 Minnesota Mining & Manufacturing Co.,
5.43%, 7/15/97 $ 2,494,876
1,600,000 Pepsico, Inc., 5.50%, 7/23/97 1,594,771
5,500,000 Walt Disney Co., 5.45%, 7/24/97 5,481,488
------------
9,571,135
------------
MONEY MARKET 2.41%
3,503,046 Money Market Fiduciary 3,503,046
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $13,074,181) 13,074,181
------------
TOTAL INVESTMENTS 100.66%
(cost $119,230,397) 146,395,900
Liabilities, less Cash
and Other Assets (0.66)% (957,620)
------------
NET ASSETS 100.00% $145,438,280
============
See notes to financial statements.
* Non-income producing
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)
NUMBER
OF SHARES VALUE
- - --------- -----
COMMON STOCKS 96.40%
AUTOS & TRUCKS 5.91%
228,700 Ford Motor Co. $ 8,633,425
143,300 General Motors Corp. 7,980,019
------------
16,613,444
------------
BANKS 4.81%
151,800 Banc One Corp. 7,352,813
22,850 Wells Fargo & Co. 6,158,075
------------
13,510,888
------------
BUILDING 1.71%
65,500 Armstrong World Industries, Inc. 4,806,062
------------
CHEMICALS 4.55%
85,500 Akzo Nobel N.V. ADR 5,910,188
109,416 Du Pont (E.I.) de Nemours & Co. 6,879,531
------------
12,789,719
------------
COMPUTER SYSTEMS 4.84%
92,616 International Business Machines Corp. 8,352,806
141,100 Sun Microsystems, Inc.* 5,251,566
------------
13,604,372
------------
DEFENSE 8.76%
145,700 Boeing Co. 7,731,206
87,900 Northrop Grumman Corp. 7,718,719
179,850 Raytheon Co. 9,172,350
------------
24,622,275
------------
DRUGS & SUPPLIES 8.66%
104,606 American Home Products Corp. 8,002,359
103,719 Novartis AG - ADR 8,309,966
193,000 Rhone-Poulenc SA - ADR 8,033,625
------------
24,345,950
------------
ELECTRONICS 5.92%
57,600 Advanced Micro Devices, Inc.* 2,073,600
158,730 Philips Electronics N.V. 11,408,719
39,500 SGS - Thomson Microelectronics N.V.* 3,160,000
------------
16,642,319
------------
See notes to financial statements.
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
June 30, 1997 (Unaudited)
NUMBER
OF SHARES VALUE
- - --------- -----
ENTERTAINMENT 3.31%
209,250 Host Marriott Corp.* $ 3,727,266
91,350 ITT Corp.* 5,578,059
------------
9,305,325
------------
FINANCIAL - MISCELLANEOUS 1.18%
77,300 Morgan Stanley, Dean Witter, Discover & Co. 3,328,731
------------
FOOD, TOBACCO & BEVERAGE 1.87%
133,800 Grand Metropolitan PLC - ADR 5,243,287
------------
HEALTHCARE - MISCELLANEOUS 3.51%
63,450 Aetna, Inc. 6,495,694
114,100 Tenet Healthcare Corp.* 3,373,081
------------
9,868,775
------------
INSURANCE 2.75%
105,715 Allstate Corp. 7,717,195
------------
MEDIA 4.26%
207,100 Dun and Bradstreet Corp. 5,436,375
33,950 Tribune Co. 1,631,722
241,450 U S WEST Media Group* 4,889,362
------------
11,957,459
------------
METALS 2.13%
83,950 Reynolds Metals Co. 5,981,437
------------
NATURAL GAS 1.35%
152,100 Union Pacific Resources Group 3,783,488
------------
NON-DEFENSE CAPITAL SPENDING 2.10%
164,500 AGCO Corp. 5,911,719
------------
OIL 0.71%
38,700 Ashland Inc. 1,794,712
3,950 Elf Aquitaine - ADR 215,028
------------
2,009,740
------------
See notes to financial statements.
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
June 30, 1997 (Unaudited)
NUMBER
OF SHARES VALUE
- - --------- -----
RETAIL 3.51%
92,000 Dillard's, Inc. $ 3,185,500
155,058 Federated Department Stores, Inc.* 5,388,266
66,900 Office Depot, Inc.* 1,300,369
------------
9,874,135
------------
SERVICES - MISCELLANEOUS 5.01%
64,000 AMR Corp.* 5,920,000
52,300 Continental Airlines, Inc. - Class B* 1,827,231
26,600 HFS, Inc.* 1,542,800
239,589 Peninsular & Oriental - ADR 4,784,593
------------
14,074,624
------------
SOFTWARE & SERVICES 1.79%
114,250 First Data Corp. 5,019,859
------------
TELEPHONE 8.53%
224,600 MCI Communications Corp. 8,597,969
152,200 Nynex Corp. 8,770,525
125,400 Sprint Corp. 6,599,175
------------
23,967,669
------------
TOYS 2.41%
142,625 Hasbro, Inc. 4,046,984
80,048 Mattel, Inc. 2,711,626
------------
6,758,610
------------
TRANSPORTATION 6.82%
85,266 Burlington Northern Santa Fe Corp. 7,663,282
172,700 Canadian Pacific, Ltd. 4,911,156
93,340 Union Pacific Corp. 6,580,470
------------
19,154,908
------------
TOTAL COMMON STOCKS
(cost $225,864,431) 270,891,990
------------
See notes to financial statements.
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D.)
June 30, 1997 (Unaudited)
PRINCIPAL
AMOUNT VALUE
- - --------- -----
SHORT-TERM INVESTMENTS 6.72%
DISCOUNTED COMMERCIAL PAPER 2.49%
$7,000,000 AT&T Corp., 5.48%, 7/1/97 $ 7,000,000
------------
MONEY MARKET 4.23%
11,880,518 Money Market Fiduciary 11,880,518
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $18,880,518) 18,880,518
------------
TOTAL INVESTMENTS 103.12%
(cost $244,744,949) 289,772,508
Liabilities, less Cash
and Other Assets (3.12)% (8,780,320)
------------
NET ASSETS 100.00% $280,992,188
============
See notes to financial statements.
* Non-income producing
ICAP FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
--------- ---------
ASSETS:
Investments, at value
(cost $119,230,397 and
$244,744,949, respectively) $146,395,900 $289,772,508
Receivable for securities sold 1,029,994 2,038,598
Interest and dividends receivable 236,510 452,584
Prepaid blue sky fees 22,867 20,471
Deferred organization costs 18,178 18,177
------------ ------------
Total Assets 147,703,449 292,302,338
------------ ------------
LIABILITIES:
Payable for securities purchased 1,320,836 9,919,906
Dividend payable 836,068 1,196,601
Accrued investment advisory fee 68,166 143,879
Accrued expenses 40,099 49,764
------------ ------------
Total Liabilities 2,265,169 11,310,150
------------ ------------
NET ASSETS $145,438,280 $280,992,188
============ ============
NET ASSETS CONSIST OF:
Capital stock $ 41,115 $ 74,595
Paid-in-capital in excess of par 106,431,763 220,281,660
Undistributed net investment income 2,017 2,015
Undistributed net realized gain
on investments 11,797,882 15,606,359
Net unrealized appreciation on
investments 27,165,503 45,027,559
------------ ------------
NET ASSETS $145,438,280 $280,992,188
============ ============
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000 100,000,000
Issued and outstanding 4,111,450 7,459,502
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $35.37 $37.67
====== ======
See notes to financial statements.
ICAP FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
--------- ---------
INVESTMENT INCOME:
Dividends $ 1,454,097<F1> $ 2,249,384<F2>
Interest 251,949 197,817
------------ ------------
1,706,046 2,447,201
------------ ------------
EXPENSES:
Investment advisory fees 523,927 825,437
Fund administration and accounting fees 76,136 94,980
Federal and state registration fees 21,718 23,612
Directors' fees and expenses 11,256 11,434
Custody fees 10,870 11,256
Legal fees 10,624 10,623
Shareholder servicing 10,018 10,586
Audit fees 6,800 6,800
Amortization of organization costs 3,598 3,598
Reports to shareholders 3,255 3,347
Other 2,655 2,582
------------ ------------
Total expenses before waiver 680,857 1,004,255
Waiver of expenses by adviser (156,930) (178,818)
------------ ------------
Net expenses 523,927 825,437
------------ ------------
NET INVESTMENT INCOME 1,182,119 1,621,764
------------ ------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments 12,370,429 15,945,698
Change in unrealized appreciation
on investments 11,517,119 26,188,447
------------ ------------
Net gain on investments 23,887,548 42,134,145
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $25,069,667 $43,755,909
============ ============
<F1> Net of $48,809 in foreign withholding taxes.
<F2> Net of $78,533 in foreign withholding taxes.
See notes to financial statements.
DISCRETIONARY EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1997 DEC. 31, 1996
------------- -------------
OPERATIONS:
Net investment income $ 1,182,119 $ 1,208,695
Net realized gain on investments 12,370,429 6,299,055
Change in unrealized appreciation
on investments 11,517,119 13,371,227
------------ ------------
Net increase in net assets
resulting from operations 25,069,667 20,878,977
------------ ------------
DISTRIBUTIONS PAID FROM:
Net investment income (1,220,234) (1,180,843)
Net realized gain on investments -- (6,853,187)
------------ ------------
Net decrease in net assets resulting
from distributions paid (1,220,234) (8,034,030)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 19,626,095 60,577,180
Shares issued to holders in
reinvestment of distributions 375,046 7,940,201
Shares redeemed (8,692,121) (8,444,934)
------------ ------------
Net increase in net assets resulting
from capital share transactions 11,309,020 60,072,447
------------ ------------
TOTAL INCREASE IN NET ASSETS 35,158,453 72,917,394
NET ASSETS:
Beginning of period 110,279,827 37,362,433
------------ ------------
End of period $145,438,280 $110,279,827
============ ============
See notes to financial statements.
EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1997 DEC. 31, 1996
------------- -------------
OPERATIONS:
Net investment income $ 1,621,764 $ 1,035,190
Net realized gain on investments 15,945,698 5,779,806
Change in unrealized appreciation
on investments 26,188,447 15,258,719
------------ ------------
Net increase in net assets resulting
from operations 43,755,909 22,073,715
------------ ------------
DISTRIBUTIONS PAID FROM:
Net investment income (1,662,199) (998,870)
Net realized gain on investments -- (6,104,860)
------------ ------------
Net decrease in net assets resulting
from distributions paid (1,662,199) (7,103,730)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 100,259,299 101,599,973
Shares issued to holders in
reinvestment of distributions 436,044 6,875,245
Shares redeemed (10,921,475) (21,108,211)
------------ ------------
Net increase in net assets resulting
from capital share transactions 89,773,868 87,367,007
------------ ------------
TOTAL INCREASE IN NET ASSETS 131,867,578 102,336,992
NET ASSETS:
Beginning of period 149,124,610 46,787,618
------------ ------------
End of period $280,992,188 $149,124,610
============ ============
See notes to financial statements.
DISCRETIONARY EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(Unaudited)
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
(For a share outstanding JUNE 30, 1997 DEC. 31, 1996 DEC. 31, 1995<F1>
throughout the period) ------------- ------------- ----------------
Net asset value, beginning
of period $29.55 $25.42 $20.00
Income from investment
operations:
Net investment income 0.29 0.36 0.31
Net realized and unrealized
gain on investments 5.83 6.09 6.70
------ ------ ------
Total income from investment
operations 6.12 6.45 7.01
------ ------ ------
Less distributions:
From net investment income (0.30) (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 (0.30) (2.32) (1.59)
------ ------ ------
Net asset value, end of period $35.37 $29.55 $25.42
====== ====== ======
Total return<F2> 20.75% 25.55% 35.21%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $145,438 $110,280 $37,362
Ratio of expenses to average
net assets<F3><F4> 0.80% 0.80% 0.80%
Ratio of net investment income
to average net assets<F3><F4> 1.79% 1.35% 1.71%
Portfolio turnover rate<F2> 61% 138% 102%
Average commission rate paid on
portfolio investment
transactions $0.0376 $0.0356 N/A
<F1> Commencement of operations January 1, 1995.
<F2> Not annualized for the six months ended June 30, 1997.
<F3> Net of waivers by ICAP. Without waivers of expenses, the ratio of expenses
to average net assets would have been 1.03%, 1.11% and 1.56%, and the ratio
of net investment income to average net assets would have been 1.56%, 1.04%
and 0.95%, respectively.
<F4> Annualized.
See notes to financial statements.
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(Unaudited)
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
(For a share outstanding JUNE 30, 1997 DEC. 31, 1996 DEC. 31, 1995<F1>
throughout the period) ------------- ------------- ----------------
Net asset value, beginning
of period $31.16 $26.03 $20.00
Income from investment
operations:
Net investment income 0.23 0.31 0.28
Net realized and unrealized
gain on investments 6.52 6.49 7.45
------ ------ ------
Total income from
investment operations 6.75 6.80 7.73
------ ------ ------
Less distributions:
From net investment income (0.24) (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 (0.24) (1.67) (1.70)
------ ------ ------
Net asset value, end of period $37.67 $31.16 $26.03
====== ====== ======
Total return<F2> 21.71% 26.26% 38.85%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $280,992 $149,125 $46,788
Ratio of expenses to average
net assets<F3><F4> 0.80% 0.80% 0.80%
Ratio of net investment income
to average net assets<F3><F4> 1.56% 1.15% 1.49%
Portfolio turnover rate<F2> 51% 125% 105%
Average commission rate paid on
portfolio investment
transactions $0.0370 $0.0365 N/A
<F1> Commencement of operations January 1, 1995.
<F2> Not annualized for the six months ended June 30, 1997.
<F3> Net of waivers by ICAP. Without waivers of expenses, the ratio of expenses
to average net assets would have been 0.97%, 1.12% and 1.44%, and the ratio
of net investment income to average net assets would have been 1.39%, 0.83%
and 0.85%, respectively.
<F4> Annualized.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
1. Organization
ICAP Funds, Inc. ("ICAP") was incorporated on November 1, 1994 under the laws
of the State of Maryland and is registered as an open-end management investment
company under the Investment Company Act of 1940. Both the Discretionary Equity
and Equity Portfolios (the "Portfolios") are diversified portfolios of ICAP.
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 a 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 June 30, 1997, reclassifications were recorded from
undistributed net investment income to reduce paid-in-capital by $2,015 for both
the Discretionary Equity and Equity Portfolios.
d) Short-Term Investments - The Portfolios maintain uninvested cash in a bank
overnight investment vehicle at their custodian. This may present credit risk
to the extent the custodian fails to perform in accordance with the custody
agreement. The creditworthiness of the custodian is monitored and this
investment is considered to present minimal credit risk by the Portfolios'
Adviser.
e) Other - Investment transactions are accounted for on the trade date plus one.
The Portfolios determine the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with the
net sale proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis. 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
-------------------------- -------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1997 DEC. 31, 1996 JUNE 30, 1997 DEC. 31, 1996
------------- ------------- ------------- -------------
Shares sold 637,116 2,292,674 2,981,361 3,514,078
Shares issued to
holders in
reinvestment of
distributions 12,244 271,211 13,512 222,754
Shares redeemed (269,659) (301,710) (320,921) (748,775)
--------- --------- --------- ---------
Net increase 379,701 2,262,175 2,673,952 2,988,057
========= ========= ========= =========
4. Investment Transactions
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government obligations, for the Portfolios for the six
months ended June 30, 1997 are summarized below:
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
------------ ---------
Purchases $78,443,721 $188,394,626
Sales $74,259,785 $101,524,016
There were no purchases or sales of U.S. government obligations. At June 30,
1997, gross unrealized appreciation and depreciation of investments, based on
cost for federal income tax purposes of $119,873,866 and $245,136,413 for the
Discretionary Equity and Equity Portfolios, respectively, were as follows:
DISCRETIONARY
EQUITY EQUITY
PORTFOLIO PORTFOLIO
------------- ---------
Unrealized appreciation $27,058,448 $45,961,433
Unrealized depreciation (536,414) (1,325,338)
----------- -----------
Net unrealized appreciation
on investments $26,522,034 $44,636,095
=========== ===========
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.
DIRECTORS
Pamela H. Conroy
Senior Vice President and Director,
Institutional Capital Corp.
Dr. James A. Gentry
Professor of Finance,
University of Illinois
Joseph A. Hays
Retired Vice President/Corporate Relations,
Tribune Company
Robert H. Lyon
President, Chief Investment Officer
and Director,
Institutional Capital Corp.
Gary S. Maurer
Executive Vice President and Director,
Institutional Capital Corp.
Harold W. Nations
Partner,
Shefsky & Froelich Ltd.
Donald D. Niemann
Executive Vice President and Director,
Institutional Capital Corp.
Barbara C. Schanmier
Senior Vice President and Director,
Institutional Capital Corp.
OFFICERS
Robert H. Lyon
President
Pamela H. Conroy
Vice President and Treasurer
Donald D. Niemann
Vice President and Secretary
INVESTMENT ADVISER
Institutional Capital Corporation
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606-1229
CUSTODIAN
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64141-6226
DIVIDEND-DISBURSING AND TRANSFER AGENT
Sunstone Investor Services, LLC
P.O. Box 2160
Milwaukee, Wisconsin 53201-2160
ADMINISTRATOR AND
FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202-5712
AUDITORS
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-9905
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202-3590
This report is submitted for the general information of shareholders of the ICAP
Funds. It is not authorized for distribution to prospective investors unless
accompanied or preceded by an effective prospectus for the Portfolios. The
Prospectus includes more complete information about management fees and
expenses, investment objectives, risks and operating policies of the Portfolios.
Please read the Prospectus carefully.
ICAP Funds, Inc. 225 West Wacker Drive Suite 2400 Chicago, IL 60606
