ICAP FUNDS
Annual Report
DECEMBER 31, 1998
- ------------------------------
DISCRETIONARY EQUITY PORTFOLIO
EQUITY PORTFOLIO
SELECT EQUITY PORTFOLIO
EURO SELECT EQUITY PORTFOLIO
<LOGO>
ICAP
INSTITUTIONAL CAPITAL(R)
Table of Contents
Letter to Investors......................................................1
Investment Highlights
Discretionary Equity Portfolio.........................................5
Equity Portfolio.......................................................6
Select Equity Portfolio................................................7
Euro Select Equity Portfolio...........................................8
Schedules of Investments
Discretionary Equity Portfolio.........................................9
Equity Portfolio......................................................13
Select Equity Portfolio...............................................17
Euro Select Equity Portfolio..........................................19
Statements of Assets and Liabilities....................................22
Statements of Operations................................................23
Statements of Changes in Net Assets
Discretionary Equity Portfolio........................................24
Equity Portfolio......................................................25
Select Equity Portfolio...............................................26
Euro Select Equity Portfolio..........................................27
Financial Highlights
Discretionary Equity Portfolio........................................28
Equity Portfolio......................................................29
Select Equity Portfolio...............................................30
Euro Select Equity Portfolio..........................................31
Notes to Financial Statements...........................................32
Report of Independent Accountants.......................................36
JANUARY 25, 1999
TO ALL ICAP FUNDS INVESTORS:
1998 turned out to be one of the most bizarre years in recent investment
history. In the beginning, conventional wisdom called for a global slump in the
first half followed by an Asian-led rebound in the second half. Expectations for
equities were low. In reality, first half growth in the U.S. was better than
expected as inflation, helped by declining oil prices, was low and employment
was strong. Despite numerous profit warnings, the S&P 500 was up 18% in the
first half of the year.
However, beginning in July conditions began to deteriorate. The Japanese
elections came and went with no real mandate for structural change, despite an
increasingly gloomy outlook. Then in August the real bombshell dropped: the
Russians defaulted on their government debt. This set off twin seismic shocks -
along one fault line were hedge funds, investment banks and commercial banks who
owned the now worthless Russian debt (on margin), and along the other fault line
were all the other lower quality credits ranging from emerging market sovereign
debt to domestic unsecured loans. These massive cracks converged in a sharp
widening in credit spreads, which led to huge systemic paper losses. As the
gigantic margin call went out, it was clear that some heavily leveraged funds
would not be able to meet their obligations without dumping securities on the
market - which would set off another iteration of the vicious circle. By this
time the S&P's gain for the year had been wiped out and many, many stocks were
more than 50% off their twelve-month highs.
In previous eras this would have led to a total debacle, but taking a page out
of the Bank of England's 19th century playbook, the Fed and other central banks
rode to the rescue. Salvation came in the form of globally coordinated easings,
as well as a Fed scripted bail-out of the largest, and most leveraged hedge fund
Long Term Capital Management (LTCM). While Greenspan, Rubin & Co. and other
government officials again saved the world's financial system, they have run the
risk of violating the Old Testament proverb of "spare the rod and spoil the
child." Speculators (including supposedly conservative commercial banks funded
partially by federally insured deposits) need to know that high emerging market
returns, magnified through leverage and derivatives, are not a one-way street.
From the market low on October 14, despite continued difficult conditions in
Russia, Japan and Brazil, the S&P 500 (and global markets generally) roared back
to life rising by over 25% by year-end. To put this psychological swing in
perspective, in early October the esteemed firm of Goldman Sachs had to pull its
public offering, something that their partners had anguished over for years
before finally giving the go-ahead. Shortly thereafter that same firm did an IPO
for an unseasoned security, eBay, which went on to multiply from its offering
price by over 10 times by year-end. An equally dramatic mood swing saw Bankers
Trust, rumored to be bankrupt in October, acquired by Deutsche Bank in November
at a price double where it had been a few weeks before.
However, although the S&P 500 finished the year up 29% (small potatoes compared
to the Nasdaq 100 which climbed 89%), the fruits were not equally divided. The
unweighted S&P was up only 15%, and twelve companies accounted for fully 50% of
the entire gain of the five hundred companies in the average. Smaller-
capitalization companies did even worse as the Russell 2000 index was actually
down by 3% for the year. By the very end of the year, despite the onset of bad
weather, the tulips were in full bloom. A virtually unknown company - Skymall -
went from $6 to over $40 in a matter of days on the basis of $2mm of business on
their Web site, although TOTAL sales of the company were only up 7% for the year
(including their "net" business!). In quiet post-Christmas trading the stock's
volume was over 10x its float on ONE day. Apparently more than one neophyte got
their copy of "How to Get Started in Electronic Day Trading" under their cyber-
tree!
What caused this phenomena? In essence it has been a huge increase in liquidity
in a time of deflation. In a period of quiet industrial activity, the huge
increase in global money spawned by the 60+ central bank interest rate cuts in
the fourth quarter has had no place to go but the stock market (especially with
commodity prices declining and fixed income rates in the low single digits).
Deflation has led to a focus on growth. This began with the somewhat sensible
notion that in a period of subdued global profits it was a good idea to pay up
for assured growth, but then Coca-Cola, Gillette, Procter & Gamble, 3M and
Disney (etc.) disappointed. Then it seemed like an even better idea to pay up
for REAL growth - the Internet - even if it was unclear who was actually making
money. Meanwhile, "value" stocks generally had some connection with the
unprecedented (at least since the 1930's) decline in commodity prices. Even
winners such as AMR Corp. (parent company of American Airlines), which saw its
EPS estimate rise as the price of oil fell, massively underperformed stocks like
Texas Instruments which went up 91% on a 37% decline in their 1998 EPS estimate.
Needless to say, our 1998 strategy of focusing on restructuring candidates did
not fare well in the relative performance derby.
For the year the ICAP Funds provided the following returns:
ICAP DISCRETIONARY EQUITY 10.2%
ICAP EQUITY 11.4%
ICAP SELECT EQUITY 15.3%
ICAP EURO SELECT EQUITY 27.4%
While our two traditional domestic funds lagged the S&P 500 by a substantial
amount, the absolute returns were better than we anticipated at the beginning of
the year and they were only modestly below the median of our Peer Universes
(Morningstar Large Value and Lipper Growth & Income) and slighly below the S&P
Barra Value Index.We were true to our style, and investment philosophy, but a
conservative approach to managing fiduciary assets was not what the market was
looking for in 1998. On the other hand, the performance of the EuroSelect Equity
Portfolio was quite solid (more on this later).
Where do we go from here? The preconditions for better global growth are being
laid as both monetary and fiscal policies are being eased. We have had 60+
central bank rate cuts and fiscal policy is becoming more stimulative in Japan,
Europe and the U.S. Still, 1999 is likely to be a tricky year:
a)the S&P 500 stands at record valuation levels in terms of price to earnings,
price-to-book and price-to-sales, while yields are microscopic;
b)while the U.S. economy remains robust, Europe is slowing;
c)although the Korean and Thai financial systems appear to be stabilizing,
Japan remains weak and China's growth has slowed; moreover Japan's banks are
a mess;
d)Russia is a basket case, and the important Brazilian government/economy has a
serious credibility issue;
e)Japanese government bonds may become more attractive on a yield basis for
that country's savers (traditionally big buyers of our debt) - this may cause
problems down the road as the U.S. continues to pump out massive trade
deficits (estimated to be $300 billion in 1999!); and
f)the U.S. consumer has sharply reduced savings, and weakness in the stock
market averages could be bad for confidence.
ICAP's strategy for this "tricky" period should sound familiar: focusing on
VALUE remains job "A." Despite the lofty levels of the market averages, this is
not as impossible as it might seem. The narrowness of the market advance has
left many companies at inexpensive levels (P/E's of 10-20x), versus 10-year
government bond yields below 5%. As the Fed and other central banks continue to
ease to fight off the global over-supply that affects many industries,
confidence in improved profits should begin to build in the second half of 1999
and into 2000. But stock market winners will probably show up more frequently in
this environment of global oversupply when capacity is curtailed and companies
focus on their strongest franchises. Consequently, ICAP analysts will continue
to focus on those companies where management is taking a more proactive approach
to solving its own problems: by curtailing inefficient capacity, by spinning off
better divisions which would likely be valued more highly by the market, or by
divesting weaker units which are a drag on the corporation.
In addition, ICAP was quick to exploit the "silver lining" to the August-October
stock market correction. During that period many premier franchises became
available at value prices compared to the levels of their mega-cap rivals. For
instance, ICAP was able to take positions in Dayton-Hudson (Target) at a steep
discount to Wal-Mart, Northern Telecom at half of the valuation of Lucent, and
Gannett - which has a billion dollars of real earnings - at a TOTAL
CAPITALIZATION less than half that of nascent advertising titan Yahoo! We also
used this period of market weakness to deploy nearly all of the cash reserves we
had built up in the Discretionary Equity Portfolio. We feel these moves have
positioned us well for 1999.
The ICAP Select Equity Portfolio, where we focus on a handful of stocks, enters
1999 with large positions in BankAmerica, Waste Management, News Corp. and
Hoechst. While these are significant holdings in the Equity and Discretionary
Equity Portfolios - they constitute over 40% of this focused Fund. While this
Fund is concentrated, and has more potential risk, it represents the purest form
of ICAP stock picking.
The ICAP Euro Select Equity Portfolio had a strong first year - fully
participating in the healthy run that most European markets experienced. Europe
benefited from many of the positive trends we anticipated in launching this
Fund: interest rates converged at lower levels - culminating in the coordinated
central bank cut in December which reduced short rates to the 3% level; cross-
border merger and acquisition activity was at record levels, and share buybacks,
while still well below U.S. levels, began to ramp-up. Importantly, we feel that
these positive forces will continue to play out over the next several years. In
addition, European equity prices should benefit from a huge increase in demand
as European investors - both institutional and retail - shift their asset
allocation from fixed-income products to stocks. Non-European investors are also
likely to be interested in increasing their exposure to both the Euro (as a
currency), and to the many large companies that are extensively RESTRUCTURING to
improve their returns. The ICAP Euro Select Equity Portfolio is also a "focused"
fund where we apply the same process we have traditionally employed in
identifying interesting U.S. turnaround situations to a short list of European
companies engaged in a similar metamorphosis. At year-end the Fund held large
positions in Akzo Nobel, Hoechst, Philips Electronics, Novartis, Telecom Italia,
DaimlerChrysler and several other firms that are undergoing significant,
positive change.
On a final note, while Institutional Capital, the Funds' investment adviser,
continues to manage over $10 billion for over 150 important pension funds,
endowments, public funds and Taft-Hartley accounts - the ICAP Funds pushed over
the important ONE BILLION DOLLAR mark in early January, 1999.
THANK YOU ALL FOR YOUR SUPPORT AND CONFIDENCE IN OUR ORGANIZATION.
Sincerely,
/S/Robert H. Lyon
Robert H. Lyon
President and Chief Investment Officer
Investment Highlights
ICAP DISCRETIONARY EQUITY PORTFOLIO TOTAL RETURN
- --------------------------------------------------------------------------------
- ----------------------------------------------------
Portfolio Total Return for the period ended 12/31/98
- ----------------------------------------------------
One Year 10.2%
Average Annual Since Inception (12/31/94) 24.5%
- ----------------------------------------------------
ICAP S&P
Discretionary 500 Stock
Equity Portfolio Index
------------- -------------
12/31/94 10,000 10,000
12/31/95 13,521 13,758
12/31/96 16,976 16,917
12/31/97 21,831 22,560
12/31/98 24,053 29,008
This chart assumes an initial gross investment of $10,000 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 S&P
Discretionary 500 Stock
Equity Portfolio Index
------------- -------------
Basic Industries 6 3
Capital Goods 5 7
Communications 11 11
Consumer Durables 4 2
Consumer Services 8 5
Consumer Staples 14 10
Energy 5 6
Financial 11 16
Healthcare 17 13
Retail 7 7
Technology 7 19
Transportation 4 1
Investment Highlights
ICAP EQUITY PORTFOLIO TOTAL RETURN
- --------------------------------------------------------------------------------
- ----------------------------------------------------
Portfolio Total Return for the period ended 12/31/98
- ----------------------------------------------------
One Year 11.4%
Average Annual Since Inception (12/31/94) 26.0%
- ----------------------------------------------------
ICAP S&P
Equity 500 Stock
Portfolio Index
------------- -------------
12/31/94 10,000 10,000
12/31/95 13,885 13,758
12/31/96 17,531 16,917
12/31/97 22,630 22,560
12/31/98 25,215 29,008
This chart assumes an initial gross investment of $10,000 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 S&P
Equity 500 Stock
Portfolio Index
------------- -------------
Basic Industries 5 3
Capital Goods 4 7
Communications 11 11
Consumer Durables 5 2
Consumer Services 7 5
Consumer Staples 13 10
Energy 5 6
Financial 14 16
Healthcare 17 13
Retail 7 7
Technology 9 19
Transportation 3 1
Investment Highlights
ICAP SELECT EQUITY PORTFOLIO TOTAL RETURN
- --------------------------------------------------------------------------------
- ----------------------------------------------------
Portfolio Total Return for the period ended 12/31/98
- ----------------------------------------------------
One Year 15.3%
- ----------------------------------------------------
ICAP S&P
Select Equity 500 Stock
Portfolio Index
------------- -------------
12/31/97 10,000 10,000
3/31/98 11,366 11,395
6/30/98 11,698 11,771
9/30/98 9,720 10,600
12/31/98 11,533 12,858
This chart assumes an initial gross investment of $10,000 made on 12/31/97.
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 S&P
Select Equity 500 Stock
Portfolio Index
------------- -------------
Basic Industries 5 3
Capital Goods 16 7
Communications 5 11
Consumer Durables 4 2
Consumer Services 9 5
Consumer Staples 20 10
Energy 2 6
Financial 18 16
Healthcare 9 13
Retail 0 7
Technology 9 19
Transportation 4 1
Investment Highlights
ICAP EURO SELECT EQUITY PORTFOLIO TOTAL RETURN
- --------------------------------------------------------------------------------
- ----------------------------------------------------
Portfolio Total Return for the period ended 12/31/98
- ----------------------------------------------------
One Year 27.4%
- ----------------------------------------------------
Morgan Stanley
ICAP Euro Capital
Select Equity International
Portfolio Europe Index
------------- -------------
12/31/97 10,000 10,000
3/31/98 12,120 12,030
6/30/98 13,368 12,649
9/30/98 10,257 10,826
12/31/98 12,740 12,853
This chart assumes an initial gross investment of $10,000 made on 12/31/97.
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 MorganStanley Capital International Europe Index is the aggregate of 15
individual European country indicies. A direct investment in the Morgan Stanley
Capital International Europe Index is not possible.
SECTOR BREAKDOWN
Morgan Stanley
ICAP Euro Capital
Select Equity International
Portfolio Europe Index
------------- -------------
Basic Industries 12 5
Capital Goods 0 3
Communications 6 10
Consumer Durables 4 6
Consumer Services 17 9
Consumer Staples 7 9
Energy 4 6
Financial 13 26
Healthcare 17 11
Retail 0 4
Technology 5 3
Transportation 3 2
Utilities 11 6
Discretionary Equity Portfolio
Schedule of Investments
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS 98.51%
AUTOS, TRUCKS 3.69%
105,800 General Motors Corp. $ 7,571,312
------------
BANKS 3.88%
132,500 BankAmerica Corp. 7,966,563
------------
BUILDING 0.36%
25,400 Masco Corp. 730,250
------------
CHEMICALS 4.76%
129,100 Akzo Nobel N.V. ADR 5,761,088
187,900 IMC Global, Inc. 4,016,362
------------
9,777,450
------------
COMMUNICATIONS - EQUIPMENT 3.41%
54,400 Newbridge Networks Corp.<F1> 1,652,400
106,800 Northern Telecom Ltd. 5,353,350
------------
7,005,750
------------
DRUGS, SUPPLIES 16.10%
137,288 American Home Products Corp. 7,731,031
96,650 Baxter International, Inc. 6,215,803
54,950 Bristol-Myers Squibb Co. 7,352,997
186,000 Hoechst AG ADR 7,626,000
87,000 Monsanto Co. 4,132,500
------------
33,058,331
------------
ELECTRONICS 3.25%
98,500 Philips Electronics N.V. 6,667,219
------------
FOOD, TOBACCO & BEVERAGE 5.07%
150,300 Philip Morris Cos., Inc. 8,041,050
62,200 Seagram Co. Ltd. 2,363,600
------------
10,404,650
------------
FOREST & PAPER, CONTAINERS 1.31%
95,800 UPM-Kymmene Corp. ADR 2,686,701
------------
See notes to financial statements.
<F1> Non-income producing.
Discretionary Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
HEALTHCARE - MISCELLANEOUS 0.75%
86,900 Humana, Inc.<F1> $ 1,547,906
------------
HOUSEHOLD PRODUCTS 2.48%
93,500 Kimberly-Clark Corp. 5,095,750
------------
INSURANCE 6.75%
130,700 Allstate Corp. 5,048,288
74,750 CIGNA Corp. 5,779,109
55,450 Hartford Financial Services Group, Inc. 3,042,819
------------
13,870,216
------------
LEISURE 2.89%
21,740 Crestline Capital Corp.<F1> 317,948
217,400 Host Marriott Corp. 3,002,838
62,800 Royal Caribbean Cruises Ltd. 2,323,600
13,000 Starwood Hotels & Resorts 294,937
------------
5,939,323
------------
LONG DISTANCE 5.04%
187,100 Tele-Communications Inc. - TCI Group<F1> 10,348,969
------------
MEDIA 5.10%
327,900 News Corp. Ltd. ADR, Class A 8,095,031
105,810 R.H. Donnelley Corp. 1,540,858
35,600 TCI Ventures Group<F1> 838,825
------------
10,474,714
------------
OIL 2.78%
100,950 Elf Aquitaine ADR 5,716,294
------------
OIL SERVICES 2.07%
92,200 Schlumberger Ltd. 4,252,725
------------
POLLUTION CONTROL 4.60%
70,200 United States Filter Corp.<F1> 1,605,825
168,350 Waste Management, Inc. 7,849,319
------------
9,455,144
------------
See notes to financial statements.
<F1> Non-income producing.
Discretionary Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
PUBLISHING 3.81%
142,450 Dun & Bradstreet Corp. $ 4,496,078
50,200 Gannett, Inc. 3,322,613
------------
7,818,691
------------
REGIONAL BELL OPERATING COMPANIES 6.28%
136,600 Bell Atlantic Corp. 7,760,587
95,900 SBC Communications, Inc. 5,142,637
------------
12,903,224
------------
RETAIL 6.99%
53,000 Circuit City Stores - Circuit City Group 2,646,688
111,800 Dayton Hudson Corp. 6,065,150
129,692 Federated Department Stores, Inc.<F1> 5,649,708
------------
14,361,546
------------
SERVICES - MISCELLANEOUS 0.97%
52,400 Service Corporation International 1,994,475
------------
SOFTWARE & SERVICES 0.59%
28,600 Computer Associates International, Inc. 1,219,075
------------
TOYS 1.51%
85,600 Hasbro, Inc. 3,092,300
------------
TRANSPORTATION 4.07%
60,550 AMR Corp.<F1> 3,595,156
141,102 Burlington Northern Santa Fe Corp. 4,762,192
------------
8,357,348
------------
TOTAL COMMON STOCKS
(cost $170,205,918) 202,315,926
------------
See notes to financial statements.
<F1> Non-income producing.
Discretionary Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 1.45%
MONEY MARKET 1.45%
$2,977,012 UMB Bank Money Market Fiduciary $ 2,977,012
------------
TOTAL SHORT-TERM INVESTMENT
(cost $2,977,012) 2,977,012
------------
TOTAL INVESTMENTS 99.96%
(cost $173,182,930) 205,292,938
Cash and Other Assets,
less Liabilities 0.04% 75,932
------------
NET ASSETS 100.00% $205,368,870
============
See notes to financial statements.
<F1> Non-income producing.
Equity Portfolio
Schedule of Investments
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS 97.23%
AUTOS, TRUCKS 4.09%
410,425 General Motors Corp. $ 29,371,039
------------
BANKS 4.54%
541,200 BankAmerica Corp. 32,539,650
------------
BUILDING 0.35%
88,200 Masco Corp. 2,535,750
------------
CHEMICALS 3.67%
439,500 Akzo Nobel N.V. ADR 19,612,688
314,000 IMC Global, Inc. 6,711,750
------------
26,324,438
------------
COMMUNICATIONS - EQUIPMENT 3.32%
187,200 Newbridge Networks Corp.<F1> 5,686,200
362,000 Northern Telecom Ltd. 18,145,250
------------
23,831,450
------------
COMPUTER SYSTEMS 2.11%
81,750 International Business Machines Corp. 15,103,312
------------
DRUGS, SUPPLIES 15.44%
378,762 American Home Products Corp. 21,329,035
305,900 Baxter International, Inc. 19,673,194
224,800 Bristol-Myers Squibb Co. 30,081,050
593,150 Hoechst AG ADR 24,319,150
322,700 Monsanto Co. 15,328,250
------------
110,730,679
------------
ELECTRONICS 3.04%
322,555 Philips Electronics N.V. 21,832,942
------------
FINANCIAL - MISCELLANEOUS 2.39%
431,800 Household International, Inc. 17,110,075
------------
FOOD, TOBACCO & BEVERAGE 5.23%
554,700 Philip Morris Cos., Inc. 29,676,450
206,000 Seagram Co. Ltd. 7,828,000
------------
37,504,450
------------
See notes to financial statements.
<F1> Non-income producing.
Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
FOREST & PAPER, CONTAINERS 1.06%
272,000 UPM-Kymmene Corp. ADR $ 7,628,213
------------
HEALTHCARE - MISCELLANEOUS 0.74%
296,300 Humana, Inc.<F1> 5,277,844
------------
HOUSEHOLD PRODUCTS 1.38%
182,200 Kimberly-Clark Corp. 9,929,900
------------
INSURANCE 6.92%
441,050 Allstate Corp. 17,035,556
279,200 CIGNA Corp. 21,585,650
200,700 Hartford Financial Services Group, Inc. 11,013,412
------------
49,634,618
------------
LEISURE 2.67%
71,655 Crestline Capital Corp.<F1> 1,047,954
716,550 Host Marriott Corp. 9,897,347
194,400 Royal Caribbean Cruises Ltd. 7,192,800
43,800 Starwood Hotels & Resorts 993,713
------------
19,131,814
------------
LONG DISTANCE 4.71%
610,200 Tele-Communications Inc. - TCI Group<F1> 33,751,688
------------
MEDIA 5.01%
1,190,450 News Corp. Ltd. ADR, Class A 29,389,234
244,960 R.H. Donnelley Corp. 3,567,230
125,500 TCI Ventures Group<F1> 2,957,094
------------
35,913,558
------------
OIL 2.56%
324,170 Elf Aquitaine ADR 18,356,126
------------
OIL SERVICES 1.82%
283,700 Schlumberger Ltd. 13,085,662
------------
POLLUTION CONTROL 4.22%
224,500 United States Filter Corp.<F1> 5,135,437
538,800 Waste Management, Inc. 25,121,550
------------
30,256,987
------------
See notes to financial statements.
<F1> Non-income producing.
Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
PUBLISHING 3.10%
335,050 Dun & Bradstreet Corp. $ 10,575,016
176,300 Gannett, Inc. 11,668,856
------------
22,243,872
------------
REGIONAL BELL OPERATING COMPANIES 6.37%
489,650 Bell Atlantic Corp. 27,818,241
332,900 SBC Communications, Inc. 17,851,763
------------
45,670,004
------------
RETAIL 6.55%
160,100 Circuit City Stores - Circuit City Group 7,994,994
384,700 Dayton Hudson Corp. 20,869,975
416,308 Federated Department Stores, Inc.<F1> 18,135,417
------------
47,000,386
------------
SERVICES - MISCELLANEOUS 0.96%
181,200 Service Corporation International 6,896,925
------------
SOFTWARE & SERVICES 0.58%
97,300 Computer Associates International, Inc. 4,147,412
------------
TOYS 1.31%
259,575 Hasbro, Inc. 9,377,147
------------
TRANSPORTATION 3.09%
187,800 AMR Corp.<F1> 11,150,625
327,248 Burlington Northern Santa Fe Corp. 11,044,620
------------
22,195,245
------------
TOTAL COMMON STOCKS
(cost $600,284,009) 697,381,186
------------
See notes to financial statements.
<F1> Non-income producing.
Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 2.74%
MONEY MARKET 2.74%
$19,661,854 UMB Bank Money Market Fiduciary $ 19,661,854
------------
TOTAL SHORT-TERM INVESTMENT
(cost $19,661,854) 19,661,854
------------
TOTAL INVESTMENTS 99.97%
(cost $619,945,863) 717,043,040
Cash and Other Assets,
less Liabilities 0.03% 223,734
------------
NET ASSETS 100.00% $717,266,774
============
See notes to financial statements.
<F1> Non-income producing.
Select Equity Portfolio
Schedule of Investments
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS 96.63%
AUTOS, TRUCKS 4.33%
5,800 General Motors Corp. $ 415,063
------------
BANKS 12.55%
20,000 BankAmerica Corp. 1,202,500
------------
CHEMICALS 4.66%
10,000 Akzo Nobel N.V. ADR 446,250
------------
COMMUNICATIONS - EQUIPMENT 4.45%
8,500 Northern Telecom Ltd. 426,063
------------
DRUGS, SUPPLIES 4.28%
10,000 Hoechst AG ADR 410,000
------------
ELECTRONICS 4.24%
6,000 Philips Electronics N.V. 406,125
------------
FINANCIAL - MISCELLANEOUS 4.55%
11,000 Household International, Inc. 435,875
------------
FOOD, TOBACCO & BEVERAGE 3.91%
7,000 Philip Morris Cos., Inc. 374,500
------------
HEALTHCARE - MISCELLANEOUS 4.09%
22,000 Humana, Inc.<F1> 391,875
------------
LEISURE 4.62%
2,900 Crestline Capital Corp.<F1> 42,413
29,000 Host Marriott Corp. 400,562
------------
442,975
------------
LONG DISTANCE 4.62%
8,000 Tele-Communications Inc. - TCI Group<F1> 442,500
------------
MEDIA 15.64%
43,000 News Corp. Ltd. ADR, Class A 1,061,563
30,000 R.H. Donnelley Corp. 436,875
------------
1,498,438
------------
See notes to financial statements.
<F1> Non-income producing.
Select Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
OIL SERVICES 1.97%
4,100 Schlumberger Ltd. $ 189,112
------------
POLLUTION CONTROL 15.00%
18,000 United States Filter Corp.<F1> 411,750
22,000 Waste Management, Inc. 1,025,750
------------
1,437,500
------------
PUBLISHING 3.95%
12,000 Dun & Bradstreet Corp. 378,750
------------
TRANSPORTATION 3.77%
21,000 Wisconsin Central Transportation Corp.<F1> 360,937
------------
TOTAL COMMON STOCKS
(cost $8,058,813) 9,258,463
------------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENT 3.11%
MONEY MARKET 3.11%
$297,656 UMB Bank Money Market Fiduciary 297,656
------------
TOTAL SHORT-TERM INVESTMENT
(cost $297,656) 297,656
------------
TOTAL INVESTMENTS 99.74%
(cost $8,356,469) 9,556,119
Cash and Other Assets,
less Liabilities 0.26% 24,730
------------
NET ASSETS 100.00% $9,580,849
============
See notes to financial statements.
<F1> Non-income producing.
Euro Select Equity Portfolio
Schedule of Investments
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS 99.45%
AUTOS, TRUCKS 4.26%
12,441 DaimlerChrysler AG<F1> $1,195,114
------------
BANKS 8.62%
19,329 ING Groep N.V. ADR 1,202,022
3,950 UBS AG 1,213,630
------------
2,415,652
------------
CHEMICALS 8.56%
43,600 Akzo Nobel N.V. ADR 1,945,650
16,700 BOC Group plc ADR 455,075
------------
2,400,725
------------
DRUGS, SUPPLIES 17.00%
37,000 Hoechst AG ADR 1,517,000
17,300 Novartis AG ADR 1,700,424
30,800 Rhone-Poulenc SA ADR 1,547,700
------------
4,765,124
------------
ELECTRIC POWER 7.01%
37,900 Endesa S.A. ADR 1,023,300
17,200 RWE Aktiengesellschaft AG ADR 942,348
------------
1,965,648
------------
ELECTRONICS 4.91%
20,350 Philips Electronics, N.V. 1,377,441
------------
LEISURE 4.55%
72,200 Granada Group plc 1,276,337
------------
FOOD, TOBACCO & BEVERAGE 7.44%
26,400 Diageo plc ADR 1,221,000
43,200 Tomkins plc ADR 864,000
------------
2,085,000
------------
FOREST & PAPER, CONTAINERS 2.98%
29,800 UPM-Kymmene Corp. ADR 835,738
------------
INSURANCE 4.50%
17,450 Axa-UAP ADR 1,260,763
------------
See notes to financial statements.
<F1> Non-income producing.
Euro Select Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
MISCELLANEOUS COMMUNICATIONS 5.74%
7,200 Sonera Group plc ADS<F1><F2> $ 511,920
12,600 Telecom Italia SpA ADR 1,096,200
------------
1,608,120
------------
OIL 4.28%
21,200 Elf Aquitaine ADR 1,200,450
------------
PUBLISHING 3.40%
47,800 Pearson plc ADR 952,769
------------
SERVICES - MISCELLANEOUS 8.79%
49,900 Peninsular & Oriental Steam Navigation Co. ADR 1,178,937
20,800 WPP Group plc ADR 1,284,400
------------
2,463,337
------------
TELEPHONE 4.22%
22,800 Vivendi ADR 1,183,671
------------
TRANSPORTATION 3.19%
29,800 KLM Royal Dutch Airlines N.V. 894,000
------------
TOTAL COMMON STOCKS
(cost $23,179,900) 27,879,889
------------
See notes to financial statements.
<F1> Non-income producing.
<F2> Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
Euro Select Equity Portfolio
Schedule of Investments (continued)
December 31, 1998
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 0.56%
MONEY MARKET 0.56%
$157,776 UMB Bank Money Market Fiduciary $ 157,776
------------
TOTAL SHORT-TERM INVESTMENT
(cost $157,776) 157,776
------------
TOTAL INVESTMENTS 100.01%
(cost $23,337,676) 28,037,665
Liabilities, less Cash
and Other Assets (0.01)% (3,842)
------------
NET ASSETS 100.00% $28,033,823
============
At December 31, 1998, ICAP Euro Select Equity Portfolio's investments were
diversified as follows:
COUNTRY %
- ----------------------------------------------------
Finland 4.8%
France 18.6%
Germany 13.1%
Italy 3.9%
Netherlands 19.5%
Spain 3.7%
Switzerland 10.5%
United Kingdom 25.9%
- ----------------------------------------------------
TOTAL 100.0%
- ----------------------------------------------------
See notes to financial statements.
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DISCRETIONARY SELECT EURO SELECT
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
ASSETS:
Investments, at cost $173,182,930 $619,945,863 $8,356,469 $23,337,676
============== ============== ============= ==============
Investments, at value $205,292,938 $717,043,040 $9,556,119 $28,037,665
Dividends and interest receivable 765,261 2,553,184 77,286 8,005
Receivable for securities sold 82,195 280,831 - -
Tax reclaim receivable 24,691 82,903 - 18,449
Other assets 16,659 21,490 9,108 9,417
Receivable from Adviser - - 5,054 -
-------------- -------------- -------------- --------------
Total Assets 206,181,744 719,981,448 9,647,567 28,073,536
-------------- -------------- -------------- --------------
LIABILITIES:
Payable for securities purchased 650,839 2,165,210 42,050 -
Accrued investment advisory fee 104,971 396,200 - 8,921
Accrued expenses and other liabilities 57,064 153,264 24,668 30,792
-------------- -------------- -------------- --------------
Total Liabilities 812,874 2,714,674 66,718 39,713
-------------- -------------- -------------- --------------
NET ASSETS $205,368,870 $717,266,774 $9,580,849 $28,033,823
============== ============== ============== ==============
NET ASSETS CONSIST OF:
Capital stock $ 64,164 $ 185,679 $ 4,208 $ 11,526
Paid-in capital in excess of par 176,111,839 634,171,363 8,757,313 24,423,501
Undistributed net investment income 33,760 110,266 4,352 -
Accumulated net realized
loss on investments and
foreign currency transactions (2,950,901) (14,297,711) (384,674) (1,101,193)
Net unrealized appreciation
on investments 32,110,008 97,097,177 1,199,650 4,699,989
-------------- -------------- -------------- --------------
NET ASSETS $205,368,870 $717,266,774 $9,580,849 $28,033,823
============== ============== =============== ==============
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000 100,000,000 100,000,000 100,000,000
Issued and outstanding 6,416,379 18,567,876 420,833 1,152,607
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $32.01 $38.63 $22.77 $24.32
====== ====== ====== ======
</TABLE>
See notes to financial statements.
Statements of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DISCRETIONARY SELECT EURO SELECT
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
INVESTMENT INCOME:
Dividends<F1> $ 3,743,898 $11,811,334 $146,409 $ 599,902
Interest 898,353 774,870 7,473 50,993
Earnings credits 14,527 39,785 218 897
-------------- -------------- -------------- --------------
4,656,778 12,625,989 154,100 651,792
-------------- -------------- -------------- --------------
EXPENSES:
Investment advisory fees 1,521,894 4,613,552 47,089 242,136
Fund administration and accounting fees 182,618 310,508 55,000 55,000
Federal and state registration fees 42,255 121,597 20,269 25,077
Shareholder servicing 27,249 48,587 20,447 21,516
Custody fees 25,937 57,964 2,837 7,087
Directors' fees and expenses 16,989 16,988 15,076 15,075
Legal fees 15,879 15,878 16,716 18,685
Audit fees 14,504 14,511 6,575 6,574
Reports to shareholders 9,992 9,938 9,841 10,010
Amortization of organization costs 7,256 7,256 - -
Other 4,896 6,231 2,655 3,207
-------------- -------------- -------------- --------------
Total expenses before waivers
and reimbursements 1,869,469 5,223,010 196,505 404,367
Waivers and reimbursements
of expenses by Adviser (347,575) (609,458) (149,416) (162,231)
-------------- -------------- -------------- --------------
Net expenses 1,521,894 4,613,552 47,089 242,136
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME 3,134,884 8,012,437 107,011 409,656
-------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain (loss) on investments 3,179,531 (13,842,012) (384,674) (152,423)
Change in net unrealized appreciation
on investments 13,361,843 63,286,668 1,199,650 4,699,989
-------------- -------------- -------------- --------------
Net gain on investments 16,541,374 49,444,656 814,976 4,547,566
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $19,676,258 $57,457,093 $921,987 $4,957,222
============== ============== ============== ==============
<F1> Net of $91,733, $302,639, $1,651 and $77,790 in foreign withholding taxes, respectively.
</TABLE>
See notes to financial statements.
Discretionary Equity Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,134,884 $ 1,982,461
Net realized gain on investments 3,179,531 29,520,220
Change in net unrealized appreciation
on investments 13,361,843 3,099,781
------------ ------------
Net increase in net assets resulting
from operations 19,676,258 34,602,462
------------ ------------
DISTRIBUTIONS PAID FROM:
Net investment income (3,106,991) (2,016,514)
In excess of book net investment income - (6,886)
Net realized gain on investments (5,568,769) (29,508,774)
------------ ------------
Net decrease in net assets resulting
from distributions paid (8,675,760) (31,532,174)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 57,481,356 27,202,442
Shares issued to holders in
reinvestment of distributions 8,428,247 30,736,909
Shares redeemed (28,677,907) (14,152,790)
------------ ------------
Net increase in net assets resulting
from capital share transactions 37,231,696 43,786,561
------------ ------------
TOTAL INCREASE IN NET ASSETS 48,232,194 46,856,849
NET ASSETS:
Beginning of period 157,136,676 110,279,827
------------ ------------
End of period $205,368,870 $157,136,676
============ ============
See notes to financial statements.
Equity Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,012,437 $ 2,824,874
Net realized gain (loss) on investments (13,842,012) 42,465,810
Change in net unrealized appreciation
on investments 63,286,668 14,971,397
------------ ------------
Net increase in net assets resulting
from operations 57,457,093 60,262,081
------------ ------------
DISTRIBUTIONS PAID FROM:
Net investment income (7,958,317) (2,861,245)
In excess of book net investment income - (3,755)
Net realized gain on investments - (42,465,810)
In excess of book net realized
gain on investments - (68,649)
------------ ------------
Net decrease in net assets resulting
from distributions paid (7,958,317) (45,399,459)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 407,643,663 191,752,572
Shares issued to holders in
reinvestment of distributions 7,620,729 44,264,988
Shares redeemed (118,898,372) (28,602,814)
------------ ------------
Net increase in net assets resulting
from capital share transactions 296,366,020 207,414,746
------------ ------------
TOTAL INCREASE IN NET ASSETS 345,864,796 222,277,368
NET ASSETS:
Beginning of period 371,401,978 149,124,610
------------ ------------
End of period $717,266,774 $371,401,978
============ ============
See notes to financial statements.
Select Equity Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 107,011
Net realized loss on investments (384,674)
Change in net unrealized appreciation
on investments 1,199,650
-----------
Net increase in net assets resulting
from operations 921,987
-----------
DISTRIBUTIONS PAID FROM:
Net investment income (109,221)
-----------
Net decrease in net assets resulting
from distributions paid (109,221)
-----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 10,047,431
Shares issued to holders in
reinvestment of distributions 105,755
Shares redeemed (1,385,103)
-----------
Net increase in net assets resulting
from capital share transactions 8,768,083
-----------
TOTAL INCREASE IN NET ASSETS 9,580,849
NET ASSETS:
Beginning of period -
-----------
End of period $9,580,849
===========
See notes to financial statements.
Euro Select Equity Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 409,656
Net realized loss on investments (152,423)
Change in net unrealized appreciation
on investments 4,699,989
-----------
Net increase in net assets resulting
from operations 4,957,222
-----------
DISTRIBUTIONS PAID FROM:
Net investment income (426,390)
Net realized gain on investments (938,757)
-----------
Net decrease in net assets resulting
from distributions paid (1,365,147)
-----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 38,237,521
Shares issued to holders in
reinvestment of distributions 1,365,033
Shares redeemed (15,160,806)
-----------
Net increase in net assets resulting
from capital share transactions 24,441,748
-----------
TOTAL INCREASE IN NET ASSETS 28,033,823
NET ASSETS:
Beginning of period -
-----------
End of period $28,033,823
===========
See notes to financial statements.
Discretionary Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(For a share outstanding
throughout the year) 1998 1997 1996 1995<F1>
- --------------------------------------------------------------------------------
Net asset value, beginning of year $30.34 $29.55 $25.42 $20.00
Income from investment operations:
Net investment income 0.52 0.48 0.36 0.31
Net realized and unrealized gain on
investments 2.57 7.80 6.09 6.70
-------- -------- -------- --------
Total income from investment
operations 3.09 8.28 6.45 7.01
-------- -------- -------- --------
Less distributions:
From net investment income (0.52) (0.48) (0.36) (0.31)
In excess of book net
investment income - (0.01) - -
From net realized gain on investments (0.90) (7.00) (1.80) (1.27)
In excess of book net realized gain on
investments - - (0.16) (0.01)
-------- -------- -------- --------
Total distributions (1.42) (7.49) (2.32) (1.59)
-------- -------- -------- --------
Net asset value, end of year $32.01 $30.34 $29.55 $25.42
======== ======== ======== ========
Total return 10.17% 28.60% 25.55% 35.21%
Supplemental data and ratios:
Net assets, end of year
(in thousands) $205,369 $157,137 $110,280 $37,362
Ratio of expenses to average
net assets<F2> 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to
average net assets<F2> 1.65% 1.37% 1.35% 1.71%
Portfolio turnover rate 129% 131% 138% 102%
<F1> Commencement of operations after the close of business on December 31,
1994.
<F2> Net of waivers by the Adviser. Without waivers of expenses, the ratio of
expenses to average net assets would have been 0.98%, 1.02%, 1.11% and
1.56%, and the ratio of net investment income to average net assets would
have been 1.47%, 1.15%, 1.04% and 0.95% for 1998, 1997, 1996 and 1995,
respectively.
See notes to financial statements.
Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding YEAR ENDED DECEMBER 31,
throughout the year) 1998 1997 1996 1995<F1>
- --------------------------------------------------------------------------------
Net asset value, beginning of year $35.12 $31.16 $26.03 $20.00
Income from investment operations:
Net investment income 0.50 0.37 0.31 0.28
Net realized and unrealized gain on
investments 3.51 8.57 6.49 7.45
-------- -------- -------- --------
Total income from investment
operations 4.01 8.94 6.80 7.73
-------- -------- -------- --------
Less distributions:
From net investment income (0.50) (0.37) (0.30) (0.28)
In excess of book net investment income - (0.01) - -
From net realized gain on investments - (4.59) (1.30) (1.41)
In excess of book net realized gain on
investments - (0.01) (0.07) (0.01)
-------- -------- -------- --------
Total distributions (0.50) (4.98) (1.67) (1.70)
-------- -------- -------- --------
Net asset value, end of year $38.63 $35.12 $31.16 $26.03
======== ======== ======== ========
Total return 11.42% 29.08% 26.26% 38.85%
Supplemental data and ratios:
Net assets, end of year
(in thousands) $717,267 $371,402 $149,125 $46,788
Ratio of expenses to average
net assets<F2> 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to
average net assets<F2> 1.39% 1.06% 1.15% 1.49%
Portfolio turnover rate 133% 121% 125% 105%
<F1> Commencement of operations after the close of business on December 31,
1994.
<F2> Net of waivers by the Adviser. Without waivers of expenses, the ratio of
expenses to average net assets would have been 0.91%, 0.97%, 1.12% and
1.44%, and the ratio of net investment income to average net assets would
have been 1.28%, 0.89%, 0.83% and 0.85% for 1998, 1997, 1996 and 1995,
respectively.
See notes to financial statements.
Select Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding YEAR ENDED
throughout the year) DECEMBER 31, 1998<F1>
- --------------------------------------------------------------------------------
Net asset value, beginning of year $20.00
Income from investment operations:
Net investment income 0.28
Net realized and unrealized gain on
investments 2.78
--------
Total income from investment
operations 3.06
--------
Less distributions:
From net investment income (0.29)
--------
Total distributions (0.29)
--------
Net asset value, end of year $22.77
========
Total return 15.33%
Supplemental data and ratios:
Net assets, end of year
(in thousands) $9,581
Ratio of expenses to average
net assets<F2> 0.80%
Ratio of net investment income to
average net assets<F2> 1.82%
Portfolio turnover rate 250%
<F1> Commencement of operations after the close of business on December 31,
1997.
<F2> Net of waivers and reimbursements by the Adviser. Without waivers and
reimbursements of expenses, the ratio of
expenses to average net assets would have been 3.34%, and the ratio of net
investment income to average net assets would have been (0.72)%.
See notes to financial statements.
Euro Select Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding YEAR ENDED
throughout the year) DECEMBER 31, 1998<F1>
- --------------------------------------------------------------------------------
Net asset value, beginning of year $20.00
Income from investment operations:
Net investment income 0.35
Net realized and unrealized gain on
investments 5.07
--------
Total income from investment
operations 5.42
--------
Less distributions:
From net investment income (0.37)
From net realized gain on investments (0.73)
--------
Total distributions (1.10)
--------
Net asset value, end of year $24.32
========
Total return 27.40%
Supplemental data and ratios:
Net assets, end of year
(in thousands) $28,034
Ratio of expenses to average
net assets<F2> 1.00%
Ratio of net investment income to
average net assets<F2> 1.69%
Portfolio turnover rate 272%
<F1> Commencement of operations after the close of business on December 31,
1997.
<F2> Net of waivers by the Adviser. Without waivers and reimbursements of
expenses, the ratio of expenses to average net assets would have been
1.67%, and the ratio of net investment income to average net assets would
have been 1.02%.
See notes to financial statements.
Notes to Financial Statements
December 31, 1998
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. ICAP is comprised of four
portfolios, the first two of which are diversified portfolios and the last two
of which are non-diversified portfolios; the Discretionary Equity Portfolio, the
Equity Portfolio, the Select Equity Portfolio and the Euro Select Equity
Portfolio (the "Portfolios"). Institutional Capital Corporation is the
investment adviser (the "Adviser") to the Portfolios. The Discretionary Equity
and Equity Portfolios commenced operations after the close of business on
December 31, 1994 and the Select Equity and Euro Select Equity Portfolios
commenced operations after the close of business on December 31, 1997.
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 recognized U.S. or foreign securities
exchange or Nasdaq on which such securities are primarily traded; however,
securities traded on a recognized U.S. or foreign 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 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) Foreign Currency Translations - Values of investments denominated in foreign
currencies are converted into U.S. dollars using the spot market rate of
exchange at the time of valuation. Purchases and sales of investments and
dividend income are translated into U.S. dollars using the spot market rate of
exchange prevailing on the respective dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses. Foreign denominated
assets may involve greater risks than domestic transactions, including currency,
political and economic, regulatory and market risks.
c) 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.
d) 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, 1998, reclassifications were recorded to
increase undistributed net investment income by $4,626, $51,774, $6,562 and
$16,734; increase accumulated net realized loss on investments by $562, $47,711,
$0 and $10,013; and decrease paid-in capital in excess of par by $4,064, $4,063,
$6,562 and $6,721 for the Discretionary Equity, Equity, Select Equity and Euro
Select Equity Portfolios, respectively.
e) 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.
f) Estimates - 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, the
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.
g) Other - Investment transactions are accounted for on the trade date. The
Portfolios determine the gain or loss realized from the investment transactions
by comparing the identified original cost of the security lot sold with the net
sales proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis. Dividends from foreign
securities are recorded on the ex-dividend date, or as soon as the information
is available. Any noncash dividends are recognized as investment income at the
fair value of the property received.
CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolios were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DISCRETIONARY SELECT EURO SELECT
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Shares sold 1,869,143 840,715 10,993,859 5,274,966 481,241 1,746,129
Shares issued to
holders in
reinvestment of
distributions 262,025 1,026,668 197,225 1,282,704 4,740 58,865
Shares redeemed (893,947) (419,974) (3,197,801) (768,627) (65,148) (652,387)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 1,237,221 1,447,409 7,993,283 5,789,043 420,833 1,152,607
=========== =========== =========== =========== =========== ===========
</TABLE>
INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government obligations, for the Portfolios for the period
ended December 31, 1998, are summarized below:
- ------------------------------------------------------------------------------
DISCRETIONARY SELECT EURO SELECT
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------
Purchases $263,717,468 $1,018,602,364 $22,451,526 $83,412,300
Sales $223,754,731 $735,831,068 $14,008,040 $60,079,977
There were no purchases or sales of U.S. government obligations. At December
31, 1998, gross unrealized appreciation and depreciation of investments, based
on cost for federal income tax purposes of $174,602,076, $625,241,304,
$8,605,823 and $24,362,064 for the Discretionary Equity, Equity, Select Equity
and Euro Select Equity Portfolios, respectively, were as follows:
- ------------------------------------------------------------------------------
DISCRETIONARY SELECT EURO SELECT
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------
Unrealized
appreciation $33,916,625 $109,248,483 $1,106,967 $4,259,012
Unrealized
depreciation (3,225,763) (17,446,747) (156,671) (583,411)
------------ ------------ ------------ ------------
Net unrealized
appreciation
on investments $30,690,862 $91,801,736 $950,296 $3,675,601
============ ============ ============ ============
At December 31, 1998, the Portfolios had net realized capital losses from
transactions between November 1, 1998, and December 31, 1998, which for tax
purposes are deferred and will be recognized in 1999, and capital loss
carryforwards (which are available to offset future capital gains through 2006)
as follows:
- ------------------------------------------------------------------------------
DISCRETIONARY SELECT EURO SELECT
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------
Post-October losses $1,505,431 $7,571,348 - $84,203
Capital loss carryforward - $1,333,712 $135,320 -
For the year ended December 31, 1998, 81%, 100%, 57% and 0% of dividends paid
from net investment income, excluding short-term capital gains, qualifies for
the dividends received deduction available to corporate shareholders of the
Discretionary Equity, Equity, Select Equity and Euro Select Equity Portfolios,
respectively (unaudited). For the year ended December 31, 1998, the
Discretionary Equity Portfolio designated $5,568,769 in capital gain
distributions.
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 Discretionary Equity,
Equity and Select Equity Portfolios will pay the Adviser a monthly fee at the
annual rate of 0.80% of average net assets and the Euro Select Equity Portfolio
will pay the Adviser a monthly fee at the annual rate of 1.00% 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% for the
Discretionary Equity, Equity and Select Equity Portfolios and 1.00% for the Euro
Select Equity Portfolio, the Adviser has agreed to voluntarily reimburse the
Portfolios for the amount of such excess.
Report of Independent Accountants
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF ICAP FUNDS, INC.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Discretionary Equity Portfolio,
Equity Portfolio, Select Equity Portfolio and Euro Select Equity Portfolio
(constituting the ICAP Funds, Inc., hereafter referred to as the "Fund") at
December 31, 1998, and the results of each of their operations, changes in net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereinafter collectively referred to as the
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which required that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 29, 1999
DIRECTORS
Pamela H. Conroy
Senior Vice President, Secretary and Director,
Institutional Capital Corporation
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 Corporation
Gary S. Maurer
Executive Vice President and Director,
Institutional Capital Corporation
Harold W. Nations
Partner, Holleb & Coff
Donald D. Niemann
Executive Vice President and Director,
Institutional Capital Corporation
Barbara C. Schanmier
Senior Vice President and Director,
Institutional Capital Corporation
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 Financial Group, Inc.
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
AUDITOR
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202-9845
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202-3590
This financial statement is submitted for the general information of the
shareholders of the ICAP Funds. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
<LOGO>
ICAP FUNDS
INSTITUTIONAL CAPITAL(R)
225 WEST WACKER DRIVE, SUITE 2400
CHICAGO, IL 60606
(888) 221-ICAP (4227)
WWW.ICAPFUNDS.COM
33-0299-3M
(c) COPYRIGHT 1999 INSTITUTIONAL CAPITAL CORPORATION IC-408-0299
