As filed with the Securities and Exchange Commission on April 27, 2000
Securities Act Registration No. 33-86006
Investment Company Act Registration No. 811-8850
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12
ICAP FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 424-9100
Pamela H. Conroy
Institutional Capital Corporation
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
(Name and Address of Agent for Service)
Copies to:
Carol A. Gehl
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
It is proposed that this filing will become
effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
PROSPECTUS
[ICAP Logo]
May 1, 2000
ICAP FUNDS
ICAP Discretionary Equity Portfolio
ICAP Equity Portfolio
ICAP Select Equity Portfolio
ICAP Euro Select Equity Portfolio
Like all mutual fund shares, the Securities and
Exchange Commission ("SEC") has not approved or
disapproved of these securities or passed upon the
adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
___________________
<PAGE>
Table Of Contents
The Portfolios
Investment Objectives and Principal Investment Strategies 4
Investment Selection Process 4
Types of Investments and Portfolio Policies 5
Risk Factors 6
Performance History 7
Fees and Expenses 9
Financial Highlights 10
Prior Performance of the Adviser 14
Management of the Portfolios
Investment Adviser 16
Investment Team 16
Your Account
How to Contact ICAP 16
Minimum Investments 17
How to Open an Account 17
How to Buy Shares 17
How to Sell Shares 18
Signature Guarantees 20
Special Situations 20
Investments Made Through Financial Services Agents 20
Closing of Accounts 20
Valuation of Portfolio Shares 20
Dividends, Capital Gain Distributions and Taxes 21
Shareholder Reports 21
<PAGE>
The Portfolios
Investment Objectives and Principal Investment Strategies
Discretionary Equity Portfolio. The investment
objective of the Discretionary Equity Portfolio is to
seek a superior total return with only a moderate
degree of risk. The Discretionary Equity Portfolio
seeks to achieve its investment objective by investing
primarily in U.S. dollar-denominated equity securities
of companies with market capitalizations of at least $2
billion. The Discretionary Equity Portfolio seeks to
achieve a total return greater than the Standard &
Poor's 500 Stock Index (the "S&P 500") over a full
market cycle and the Standard & Poor's/BARRA Value
Index (the "S&P/BARRA Value") over shorter periods.
The Discretionary Equity Portfolio may invest up to 35%
of its total assets in cash and cash equivalents for
any purpose, including pending investment or
reinvestment, and may invest up to 100% of its total
assets in such instruments for temporary defensive
purposes when market conditions warrant. To the extent
the Discretionary Equity Portfolio invests for
temporary defensive purposes, it may not achieve its
investment objective. The Discretionary Equity
Portfolio will typically hold between 40 and 45
securities.
Equity Portfolio. The investment objective of the
Equity Portfolio is to seek a superior total return
with only a moderate degree of risk. The Equity
Portfolio seeks to achieve its investment objective by
investing primarily in U.S. dollar-denominated equity
securities of companies with market capitalizations of
at least $2 billion. The Equity Portfolio seeks to
achieve a total return greater than the S&P 500 over a
full market cycle and the S&P/BARRA Value over shorter
periods. The Equity Portfolio may invest in cash and
cash equivalents to meet anticipated redemption
requests, to pay expenses and pending investment or
reinvestment. The Equity Portfolio's investment in
such instruments will generally not exceed 5% of its
total assets. The Equity Portfolio intends to be
virtually fully invested in equity securities at all
times. The Equity Portfolio will typically hold
between 40 and 45 securities.
Select Equity Portfolio. The investment objective
of the Select Equity Portfolio is to seek a superior
total return. The Select Equity Portfolio seeks to
achieve its investment objective by investing primarily
in U.S. dollar-denominated equity securities of
companies with market capitalizations of at least $2
billion. The Select Equity Portfolio seeks to achieve
a total return greater than the S&P 500 over a full
market cycle and the S&P/BARRA Value over shorter
periods. The Select Equity Portfolio may invest up to
35% of its total assets in cash and cash equivalents
for any purpose, including pending investment or
reinvestment, and may invest up to 100% of its total
assets in such instruments for temporary defensive
purposes when market conditions warrant. To the extent
the Select Equity Portfolio invests for temporary
defensive purposes, it may not achieve its investment
objective. While the Discretionary Equity, Equity and
Select Equity Portfolios are similar, the Select Equity
Portfolio will concentrate its investments in fewer
securities than the Discretionary Equity and Equity
Portfolios. The Select Equity Portfolio will typically
hold between 15 and 25 securities.
Euro Select Equity Portfolio. The investment
objective of the Euro Select Equity Portfolio is to
seek a superior total return with income as a secondary
objective. The Euro Select Equity Portfolio seeks to
achieve its investment objective by investing primarily
in equity securities, predominantly American Depositary
Receipts ("ADRs"), of established European companies
with market capitalizations of at least $2 billion.
See page 4 for an explanation of ADRs. The Portfolio
seeks to achieve a total return greater than the Morgan
Stanley Capital International Europe Index (the "MSCI-
Europe Index"). The Euro Select Equity Portfolio may
invest up to 35% of its total assets in cash and cash
equivalents for any purpose, including pending
investment or reinvestment, and may invest up to 100%
of its total assets in such instruments for temporary
defensive purposes when market conditions warrant. To
the extent the Euro Select Equity Portfolio invests for
temporary defensive purposes, it may not achieve its
investment objective. The Euro Select Equity Portfolio
will typically hold between 15 and 25 securities.
Investment Selection Process
[picture of Robert H. Lyon, President and Chief Investment Officer of ICAP]
Institutional Capital Corporation ("ICAP"), the
investment adviser to the Portfolios, uses a team
approach with a value-oriented investment style. ICAP
believes that a team approach to managing assets helps
ensure that its investment style is consistently
applied over time and that the knowledge, experience
and interaction of its investment professionals greatly
enhance the investment decision-making process. ICAP's
investment process involves three key components:
Valuation, Identification of a Catalyst and Research.
<PAGE>
[picture of ICAP investment team]
Valuation. First, ICAP uses its proprietary
valuation models to identify, from a universe of
large- and mid-capitalization companies, those
companies which ICAP believes offer the best
relative values. According to the models, the
stocks of these companies sell below the price-to-
earnings ratio warranted by their prospects. From
these undervalued companies, ICAP then eliminates
from consideration those stocks that exhibit
deteriorating earnings trends. By insisting on
companies with stable-to-improving earnings patterns
and by demanding reasonable valuations, ICAP
attempts to lessen investment risk in the search for
superior returns.
Identification of a Catalyst. Next, ICAP looks
beyond traditional measures of value to find
companies where a catalyst for positive change is
about to occur. Specifically, ICAP focuses on
companies where this catalyst has the potential to
produce stock appreciation of 20% or more relative
to the market over a twelve-to-eighteen month time
period. The catalyst can be thematic (e.g., global
economic recovery) or company specific (e.g., a
corporate restructuring or the introduction of a new
product).
Research. Research is key to the investment
process. ICAP principally employs internally-
generated research to evaluate the financial
condition and business prospects of every company it
considers, focusing on those companies where a
catalyst is about to occur. Once potential
investment candidates are identified, ICAP
communicates with the top management at each of
these companies, and often the customers,
competitors and suppliers of these companies, as
well.
Before a security is added to the Portfolios,
ICAP's investment team thoroughly discusses, evaluates
and approves each recommendation. Using this highly
disciplined process, ICAP's investment team typically
selects 40 to 45 securities for the Discretionary
Equity and Equity Portfolios and 15 to 25 securities
for the Select Equity and Euro Select Equity
Portfolios.
The process does not end with the purchase of a
security. ICAP continuously monitors each security and
eliminates those where their target price is achieved,
the catalyst becomes inoperative or another stock
offers greater opportunity for appreciation.
Types of Investments and Portfolio Policies
In implementing the investment objective of each
Portfolio, ICAP may invest in the following securities
and follow the policies described below. Some of these
securities and portfolio policies involve special
risks, which are described below and in the Statement
of Additional Information.
Common Stocks and Other Equity Securities. The
Portfolios will invest at least 65% of their respective
total assets in common stocks and other equity
securities. Other equity securities may include ADRs,
warrants, Real Estate Investment Trusts ("REITs") and
other securities convertible or exchangeable into
common stock.
American Depositary Receipts. Each Portfolio may
invest in ADRs. ADRs, which are typically issued by a
U.S. financial institution (a "depositary"), evidence
ownership interests in a security or pool of securities
issued by a foreign company which are held by a
depositary. ADRs are denominated in U.S. dollars and
trade in the U.S. securities markets.
Cash and Cash Equivalents; Temporary Strategies.
Cash equivalents are short-term fixed income securities
issued by private and governmental institutions which
are rated Prime-1 or higher by Moody's Investors
Service, A-1 or higher by Standard & Poor's
Corporation, D-2 or higher by Duff & Phelps, Inc., F-2
or higher by Fitch IBCA, Inc. or unrated securities of
comparable quality as determined by ICAP. Such
securities include U.S. government securities,
certificates of deposit (which are issued against funds
deposited in a U.S. or foreign bank or a U.S. savings
and loan association), bank time deposits (which are
monies kept on deposit with U.S. or foreign banks or
U.S. savings and loan associations), bankers'
acceptances, repurchase agreements and commercial
paper.
Options and Futures Transactions. The Portfolios
may invest up to 30% of their respective net assets in
options and futures transactions which are sometimes
referred to as derivative transactions. The
Portfolios' options and futures transactions may
include instruments such as stock options, stock index
options and futures contracts. If these practices are
used, the intent would be primarily to hedge the
Portfolios. A Portfolio may hold a futures or options
position until its expiration, or it can close out such
a position before then at current value if a liquid
secondary market is available.
<PAGE>
Portfolio Turnover. Under normal market
conditions, the Discretionary Equity and Equity
Portfolios anticipate that portfolio turnover rates
will generally not exceed 150%. Because there are
fewer stocks in the Portfolios, the Select Equity and
Euro Select Equity Portfolios anticipate that portfolio
turnover rates will be between 150% and 300%. The
portfolio turnover rate indicates changes in a
Portfolio's securities holdings; generally, if all the
securities in a Portfolio at the beginning of the
period are replaced by the end of the period, the
turnover rate would be 100%. You may realize taxable
gains as a result of such trading of a Portfolio's
assets. In addition, the Portfolios will incur
transaction costs in connection with buying and selling
securities.
Risk Factors
Each Portfolio will invest primarily in equity
securities. Equity securities generally increase or
decrease in value based on the earnings of a company
and on general industry and market conditions. Equity
securities markets may be volatile and are affected by
economic growth and market conditions, interest rate
levels and political events. Therefore, especially in
the short term, each Portfolio's share price will
fluctuate and may, at redemption, be worth more, or
less, than your initial purchase priceaccordingly, you
may lose money on your investment.
In addition, the Select Equity and Euro Select
Equity Portfolios are non-diversified. As a result, a
larger percentage of their assets may be invested in a
particular issuer or in fewer companies than is typical
of other mutual funds. This may increase volatility.
The Select Equity and Euro Select Equity Portfolios
will be more susceptible to adverse economic,
political, regulatory or market developments affecting
a single issuer.
An investment in the Euro Select Equity Portfolio
also entails the special risks of international
investing, including currency exchange fluctuations,
government regulations and the potential for political
and economic instability. The Euro Select Equity
Portfolio's share price may be more volatile than that
of a U.S.-only fund.
Other risks of investing in the Portfolios may
include:
* Management Risk: A strategy used by ICAP may fail
to produce the intended result.
* ADR Risk: Investments in ADRs may entail the
special risks of international investment, including
currency exchange fluctuations, government regulations
and the potential for political and economic
instability.
* Derivative Risk: The use of options and futures
involves risks and special considerations which
include, among others, correlation risk and liquidity
risk. Correlation risk is the risk that there might be
imperfect correlation, or even no correlation, between
price movements of a derivative instrument and price
movements of investments being hedged. Liquidity risk
is the risk that a derivative instrument cannot be
sold, closed out or replaced quickly at or very close
to its fundamental value. Generally, exchange-traded
contracts are very liquid because the exchange
clearinghouse is the counterparty of every contract.
Over-the-counter transactions are less liquid than
exchange-traded derivatives since they often can only
be closed out with the other party to the transaction.
* Interest Rate Risk: Investments in cash
equivalents are subject to interest rate risk. Cash
equivalents will generally decrease in value when
interest rates increase.
<PAGE>
As a result of the foregoing risks, the Portfolios
are suitable for long-term investors only. The
Portfolios are not designed as short-term investment
vehicles. An investment in one or more Portfolios may
be an appropriate investment for you if you:
* seek long-term capital appreciation;
* want to include an equity fund in your investment
portfolio; and
* are willing to accept the risk that your
investment may fluctuate over the short term in
exchange for the potential for superior total returns.
Performance History
The return information provided in the bar charts
and tables below illustrate how each Portfolio's
performance can vary, which is one indication of the
risks of investing in the Portfolios. The information
shows changes in each Portfolio's performance from year
to year and shows how each Portfolio's average annual
returns compare with those of a broad-based measure of
market performance over the life of the Portfolio.
Please keep in mind that past performance is not
necessarily indicative of future returns.
Best and Worst Quarterly Performance-
since Portfolio's inception
Calendar Year
Portfolio Total Returns Best Quarter Worst Quarter
Discretionary Equity 1999 14.85% 16.14% (16.31)%
Portfolio 1998 10.17% 2nd quarter, 1997 3rd quarter, 1998
(inception: 12/31/94) 1997 28.60%
1996 25.55%
1995 35.21%
Equity Portfolio 1999 16.28% 17.23% (17.48)%
(inception: 12/31/94) 1998 11.42% 2nd quarter, 1997 3rd quarter, 1998
1997 29.08%
1996 26.26%
1995 38.85%
Select Equity 1999 27.17% 18.66% (16.91)%
Portfolio 1998 15.33% 4th quarter, 1998 3rd quarter, 1998
(inception: 12/31/97)
Euro Select Equity 1999 22.03% 24.20% (23.27)%
Portfolio 1998 27.40% 4th quarter, 1998 3rd quarter, 1998
(inception: 12/31/97)
<PAGE>
Average Annualized Total Returns
as of December 31, 1999
Portfolio/Index One Year Five Years Since Inception
(12/31/94)
Discretionary Equity
Portfolio 14.85% 22.54% 22.54%
Equity Portfolio 16.28% 24.00% 24.00%
S&P 500 Index(1) 21.04% 28.56% 28.56%
S&P/BARRA Value Index(2) 12.72% 22.94% 22.94%
Portfolio/Index One Year Since Inception
(12/31/97)
Select Equity Portfolio 27.17% 21.10%
S&P 500 Index(1) 21.04% 24.75%
S&P/BARRA Value Index(2) 12.72% 13.69%
Euro Select Equity Portfolio 22.03% 24.69%
MSCI-Europe Index(3) 15.89% 22.05%
____________
(1) The S&P 500 is an unmanaged index generally
representative of the U.S. market for large-
capitalization stocks.
(2) The S&P/BARRAValue Index is an unmanaged index
generally representative of the U.S. market for
large-capitalization stocks with lower price-to-book
ratios, which is the part of the market ICAP
generally focuses on.
(3) The MSCI-Europe Index is an unmanaged index
generally representative of the European market for
large-to mid-capitalization stocks.
<PAGE>
Fees and Expenses
The following table describes the fees and
expenses that you will pay if you buy and hold shares
of the Portfolios.
Discretionary Select Euro Select
Equity Equity Equity Equity
Portfolio Portfolio Portfolio Portfolio
SHAREHOLDER FEES (fees paid
directly from your investment)(1) None None None None
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from
Portfolio assets)(2)
Management fees 0.80% 0.80% 0.80% 1.00%
Distribution and service (12b-1) fees None None None None
Other expenses 0.15% 0.07% 0.73% 0.61%
Total Annual Portfolio
Operating Expenses 0.95% 0.87% 1.53% 1.61%
Less: Fee waiver/expense
reimbursement(3) (0.15)% (0.07)% (0.73)% (0.61)%
Net expenses 0.80% 0.80% 0.80% 1.00%
____________
(1) If you redeem shares by wire, you will be
charged a $10 service fee. See "Your Account How
to Sell Shares" on page 18.
(2) Operating expenses are deducted from Portfolio
assets before computing the daily share price or
making distributions. As a result, they do not
appear on your account statement, but instead reduce
your total return and distributions. These expenses
are expressed as a percentage of average net assets.
(3) Pursuant to an expense cap agreement dated
April 30, 1999, as renewed April 30, 2000, between
ICAP and the Portfolios, ICAP has agreed to waive
its management fee and/or reimburse the operating
expenses of the Portfolios to the extent necessary
to ensure that each of the Discretionary Equity,
Equity and Select Equity Portfolio's total operating
expenses do not exceed 0.80% of that Portfolio's
average net assets and that the Euro Select Equity
Portfolio's total operating expenses do not exceed
1.00% of that Portfolio's average net assets. The
expense cap agreement will terminate on April 30,
2001, unless extended by the mutual agreement of the
parties. For more information, see "- Management of
the Portfolios" on page 16.
Example
The following Example is intended to help you
compare the cost of investing in one or more of the
Portfolios with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in
each Portfolio for the time periods indicated and then
redeem all of your shares at the end of those periods.
The Example also assumes that you have a 5% return each
year, that each Portfolio's total operating expenses
remain the same each year, and that the expense caps
discussed above will not continue beyond their current
term, which expires April 30, 2001. Please note that
the one-year numbers are based on each Portfolio's net
expenses resulting from the expense cap agreement. The
three-, five- and ten-year numbers are based on each
Portfolio's expenses before any waivers or
reimbursements. Although your actual costs may be
higher or lower, based on these assumptions, your costs
would be as follows:
1 Year 3 Years 5 Years 10 Years
Discretionary Equity Portfolio $ 82 $288 $511 $1,153
Equity Portfolio $ 82 $271 $475 $1,066
Select Equity Portfolio $ 82 $412 $765 $1,761
Euro Select Equity Portfolio $102 $448 $819 $1,860
<PAGE>
Financial Highlights
The financial highlights tables are intended to
help you understand the Portfolios' financial
performance from each Portfolio's commencement of
operations to December 31, 1999. The total returns
presented in the table represent the rate that an
investor would have earned on an investment in the
Portfolio for the stated period (assuming reinvestment
of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP, whose
report, along with the financial statements, is
included in the annual report of the Portfolios, which
is available upon request.
Discretionary Equity Portfolio
Year Ended December 31,
(For a share outstanding 1999 1998 1997 1996 1995(1)
throughout the year)
NET ASSET VALUE, BEGINNING OF YEAR $32.01 $30.34 $29.55 $25.42 $20.00
Income from investment operations:
Net investment income 0.46 0.52 0.48 0.36 0.31
Net realized and unrealized gain
on investments 4.26 2.57 7.80 6.09 6.70
Total income from investment operations 4.72 3.09 8.28 6.45 7.01
Less distributions:
From net investment income (0.46) (0.52) (0.48) (0.36) (0.31)
In excess of book net investment
income - - (0.01) - -
From net realized gain on investments (2.58) (0.90) (7.00) (1.80) (1.27)
In excess of book net realized gain
on investments - - - (0.16) (0.01)
Total distributions (3.04) (1.42) (7.49) (2.32) (1.59)
NET ASSET VALUE, END OF YEAR $33.69 $32.01 $30.34 $29.55 $25.42
TOTAL RETURN 14.85% 10.17% 28.60% 25.55% 35.21%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year
(in thousands) $222,111 $205,369 $157,137 $110,280 $37,362
Ratio of expenses to average
net assets:
Before expense reimbursement 0.95% 0.98% 1.02% 1.11% 1.56%
After expense reimbursement 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment
income to average net assets:
Before expense reimbursement 1.16% 1.47% 1.15% 1.04% 0.95%
After expense reimbursement 1.31% 1.65% 1.37% 1.35% 1.71%
Portfolio turnover rate 137% 129% 131% 138% 102%
(1) Commencement of operations after the close of
business on December 31, 1994.
<PAGE>
Financial Highlights
Equity Portfolio
Year Ended December 31,
(For a share outstanding 1999 1998 1997 1996 1995(1)
throughout the year)
NET ASSET VALUE, BEGINNING OF YEAR $38.63 $35.12 $31.16 $26.03 $20.00
Income from investment operations:
Net investment income 0.51 0.50 0.37 0.31 0.28
Net realized and unrealized
gain on investments 5.75 3.51 8.57 6.49 7.45
Total income from investment
operations 6.26 4.01 8.94 6.80 7.73
Less distributions:
From net investment income (0.51) (0.50) (0.37) (0.30) (0.28)
In excess of book net investment
income - - (0.01) - -
From net realized gain on investments (1.24) - (4.59) (1.30) (1.41)
In excess of book net realized gain
on investments - - (0.01) (0.07) (0.01)
Total distributions (1.75) (0.50) (4.98) (1.67) (1.70)
NET ASSET VALUE, END OF YEAR $43.14 $38.63 $35.12 $31.16 $26.03
TOTAL RETURN 16.28% 11.42% 29.08% 26.26% 38.85%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year
(in thousands) $959,527 $717,267 $371,402 $149,125 $46,788
Ratio of expenses to average
net assets:
Before expense reimbursement 0.87% 0.91% 0.97% 1.12% 1.44%
After expense reimbursement 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income
to average net assets:
Before expense reimbursement 1.15% 1.28% 0.89% 0.83% 0.85%
After expense reimbursement 1.22% 1.39% 1.06% 1.15% 1.49%
Portfolio turnover rate 118% 133% 121% 125% 105%
(1) Commencement of operations after the close of
business on December 31, 1994.
<PAGE>
Financial Highlights
Select Equity Portfolio
Year Ended December 31,
(For a share outstanding throughout the year) 1999 1998(1)
NET ASSET VALUE, BEGINNING OF YEAR $22.77 $20.00
Income from investment operations:
Net investment income 0.38 0.28
Net realized and unrealized gain on investments 5.78 2.78
Total income from investment operations 6.16 3.06
Less distributions:
From net investment income (0.39) (0.29)
From net realized gain on investments (0.63) -
Total distributions (1.02) (0.29)
NET ASSET VALUE, END OF YEAR $27.91 $22.77
TOTAL RETURN 27.17% 15.33%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (in thousands) $23,821 $9,581
Ratio of expenses to average net assets:
Before expense reimbursement 1.53% 3.34%
After expense reimbursement 0.80% 0.80%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement 0.90% (0.72)%
After expense reimbursement 1.63% 1.82%
Portfolio turnover rate 375% 250%
(1) Commencement of operations after the close of
business on December 31, 1997.
<PAGE>
Financial Highlights
Euro Select Equity Portfolio
Year Ended December 31,
(For a share outstanding throughout the year) 1999 1998(1)
NET ASSET VALUE, BEGINNING OF YEAR $24.32 $20.00
Income from investment operations:
Net investment income 0.45 0.35
Net realized and unrealized gain on investments 4.80 5.07
Total income from investment operations 5.25 5.42
Less distributions:
From net investment income (0.44) (0.37)
From net realized gain on investments (1.22) (0.73)
Total distributions (1.66) (1.10)
NET ASSET VALUE, END OF YEAR $27.91 $24.32
TOTAL RETURN 22.03% 27.40%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (in thousands) $31,867 $28,034
Ratio of expenses to average net assets:
Before expense reimbursement 1.61% 1.67%
After expense reimbursement 1.00% 1.00%
Ratio of net investment income to average
net assets:
Before expense reimbursement 1.10% 1.02%
After expense reimbursement 1.71% 1.69%
Portfolio turnover rate 245% 272%
(1) Commencement of operations after the close of
business on December 31, 1997.
<PAGE>
Prior Performance of the Adviser
The performance information set forth below for
the private accounts of ICAP has been calculated in
accordance with recommended standards of the
Association of Investment Management and Research
("AIMR"), retroactively applied to all time periods.
All returns presented were calculated on a total return
basis and include, if any, all dividends, interest,
accrued income, and realized and unrealized gains and
losses. Total return is calculated quarterly in
accordance with the "time-weighted" rate of return
method provided for by AIMR standards, accounted for on
a trade-date and accrual basis. AIMR standards for the
calculation of total return differ from the standards
required by the SEC for the calculation of average
annual total return. Principal additions and
withdrawals are weighted in computing the quarterly
returns based on the timing of these transactions.
Annual returns are derived from quarterly returns.
Since 1970, ICAP has managed separate private
accounts (the "Private Accounts") which pursue
substantially the same investment objective, policies
and strategies, and which are managed in the same
manner, as the Discretionary Equity Portfolio, and
since 1991, ICAP has managed Private Accounts which
pursue substantially the same investment objective,
policies and strategies, and which are managed in the
same manner, as the Equity Portfolio. ICAP believes
that it has produced outstanding investment results
over time for its Private Accounts. The Private
Accounts are not subject to the same types of expenses
to which the Discretionary Equity and Equity Portfolios
are subject nor to the specific tax restrictions and
investment limitations imposed on the Portfolios by the
federal tax and securities laws. The following chart
illustrates how the performance of ICAP's Discretionary
Equity Composite (a composite including all of ICAP's
discretionary equity Private Accounts) and its Equity
Composite (a composite including all of ICAP's equity
Private Accounts) compares, where applicable, to the
performance of the S&P 500 and S&P/BARRA Value for the
periods shown. Also included in the chart is the
performance of the Discretionary Equity and Equity
Portfolios. The performance results of the composites
described below could have been adversely affected if
the Private Accounts had been regulated as investment
companies under the federal tax and securities laws.
Calendar Year Total Return
ICAP
Discretionary Discretionary S&P/
Time Equity Equitiy ICAP Equity Equity BARRA
Period Composite Portfolio Composite Portfolio S&P 500 Value
1999 14.93% 14.85% 14.64% 16.28% 21.04% 12.72%
1998 10.26% 10.17% 11.61% 11.42% 28.58% 14.67%
1997 28.48% 28.60% 29.22% 29.08% 33.36% 29.98%
1996 25.31% 25.55% 26.51% 26.26% 22.96% 22.00%
1995 36.95% 35.21% 39.77% 38.85% 37.58% 36.99%
1994 0.99% N/A 0.57% N/A 1.32% (0.64)%
1993 15.52% N/A 19.39% N/A 10.08% 18.61%
1992 6.38% N/A 10.85% N/A 7.62% 10.52%
1991 32.46% N/A N/A N/A 30.47% 22.56%
1990 0.51% N/A N/A N/A (3.11)% (6.85)%
1989 32.36% N/A N/A N/A 31.69% 26.13%
The ICAP composite performance presented above
reflects the performance of the Private Accounts
included in the Discretionary Equity and Equity
Composites reduced by the total operating expenses
(before waivers and/or reimbursements) for the
Discretionary Equity and Equity Portfolios,
respectively, as set forth under "-Fees and Expenses"
on page 9. The performance of the Discretionary Equity
and Equity Portfolios has been reduced by the total
operating expenses actually incurred by each Portfolio
for the periods indicated. The S&P 500 and S&P/BARRA
Value returns assume reinvestment of all dividends paid
by the stocks included in the respective indices, but
do not include brokerage commissions or other fees an
investor would incur by investing in the portfolio of
stocks comprising the indices. The Discretionary
Equity and Equity Composites represent ICAP's past
performance in managing private accounts and should not
be interpreted as indicative of the past or future
performance of the Discretionary Equity or Equity
Portfolios.
<PAGE>
In addition to the Private Accounts, from January
through December 1997, ICAP funded and managed a single
separate account (the "Euro Account") which pursued
substantially the same investment objective, policies
and strategies, and employed the same management style,
as that of the Euro Select Equity Portfolio. After the
close of business on December 31, 1997, all of the
assets in the Euro Account were contributed to the Euro
Select Equity Portfolio in exchange for shares in the
Portfolio. Like the Private Accounts, the Euro Account
was not subject to the same types of expenses to which
the Euro Select Equity Portfolio is subject nor to the
specific tax restrictions and investment limitations
imposed on the Portfolio by the federal tax and
securities laws. The following chart compares the
calendar year performance of the Euro Account for 1997
to the performance of the MSCI-Europe Index for the
same period. The performance results of the Euro
Account described below could have been adversely
affected if the Euro Account had been regulated as an
investment company under the federal tax and securities
laws.
Calendar Year Total Return
Time Period Euro Account MSCI-Europe Index
1997 29.53% 23.80%
The ICAP performance presented above reflects the
performance of the Euro Account reduced by the total
operating expenses (before waivers and/or
reimbursements) for the Euro Select Equity Portfolio as
set forth under "- Fees and Expenses" on page 9. The
MSCI-Europe Index returns assume reinvestment of all
dividends paid by the stocks included in the index net
of foreign withholding taxes, but do not include
brokerage commissions or other fees an investor would
incur by investing in the portfolio of stocks
comprising the index. The Euro Account performance
represents ICAP's past performance in managing a
private account and should not be interpreted as
indicative of the past or future performance of the
Euro Select Equity Portfolio.
The calendar year performance of the Euro Select
Equity Portfolio for 1999 and 1998, as compared to the
performance of the MSCI-Europe Index for the same
periods, is as follows:
Calendar Year Total Return
Euro Select
Time Period Equity Portfolio MSCI-Europe Index
1999 22.03% 15.89%
1998 27.40% 28.53%
The Euro Select Equity Portfolio commenced
operations after the close of business on December 31,
1997. The performance of the Euro Select Equity
Portfolio has been reduced by the total operating
expenses actually incurred by the Portfolio for the
periods indicated.
<PAGE>
Management Of The Portfolios
Investment Adviser
ICAP has been in the investment management
business since 1970, managing money for some of the
world's largest and most respected corporations and
institutions. As of April 1, 2000, ICAP had
approximately $13 billion in assets under management.
ICAP's principal business address is 225 West Wacker
Drive, Suite 2400, Chicago, Illinois 60606-1229.
The Discretionary Equity, Equity and Select Equity
Portfolio each pay ICAP an annual management fee of
0.80% of the Portfolio's average net assets. The
advisory fee is accrued daily and paid monthly.
Pursuant to an expense cap agreement dated April 30,
1999, as renewed April 30, 2000, between ICAP and the
Portfolios, ICAP agreed to waive its management fee
and/or reimburse each Portfolio's operating expenses to
the extent necessary to ensure that each Portfolio's
total operating expenses would not exceed 0.80% of its
average net assets. The expense cap agreement will
terminate on April 30, 2001 unless extended by the
mutual agreement of the parties. Prior to April 30,
1999, ICAP voluntarily reimbursed each Portfolio's
operating expenses to the extent necessary to ensure
that each Portfolio's total operating expenses did not
exceed 0.80% of its average net assets.
The Euro Select Equity Portfolio pays ICAP an
annual management fee of 1.00% of the Portfolio's
average net assets. The advisory fee is accrued daily
and paid monthly. Pursuant to an expense cap
agreement, dated April 30, 1999, as renewed April 30,
2000, between ICAP and the Portfolios, ICAP agreed to
waive its management fee and/or reimburse the
Portfolio's operating expenses to the extent necessary
to ensure that the Portfolio's total operating expenses
would not exceed 1.00% of its average net assets. The
expense cap agreement will terminate on April 30, 2001
unless extended by the mutual agreement of the parties.
Prior to April 30, 1999, ICAP voluntarily reimbursed
the Portfolio's operating expenses to the extent
necessary to ensure that the Portfolio's total
operating expenses did not exceed 1.00% of its average
net assets.
The expense cap agreement has the effect of
lowering the overall expense ratio for the applicable
Portfolio and increasing the overall return to
investors during the term of the agreement.
Investment Team
The investment decisions for each Portfolio are
made through a team approach, with all of the ICAP
investment professionals contributing to the process.
The senior members of the investment team average more
than 22 years of experience in the investment industry,
including more than 18 years with ICAP. Each
investment professional has developed an expertise in
at least one functional investment area, including
equity research, strategy, fixed-income analysis,
quantitative research, technical research and trading.
Moreover, each of the senior members of the investment
team is responsible for monitoring one or more economic
sectors, which has enabled ICAP to develop expertise
across all industries. The other investment
professionals on the investment team provide analytical
support, research and expertise to the entire team.
Formal investment team meetings are generally held
several times each week. At these meetings, a
comprehensive review of each Portfolio's investment
positions is undertaken. The investment strategy, each
asset sector and each individual security holding are
reviewed to verify their continued appropriateness.
Investment recommendations are presented, reviewed and
decided on by the entire team.
Your Account
How to Contact ICAP
For overnight deliveries, use: For regular mail deliveries,use: By telephone:
ICAP Funds, Inc. ICAP Funds,Inc. 888-221-ICAP(4227)
c/o Sunstone Financial Group, Inc. c/o Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 315 P.O. Box 2160
Milwaukee, Wisconsin 53202-5712 Milwaukee, Wisconsin 53201-2160
Web site: www.icapfunds.com
Once your account has been established, you may
review your account online, 24 hours a day, 7 days a
week. Please visit icapfunds.com to learn more about
this feature.
Sunstone Financial Group, Inc. serves as the
Portfolios' transfer agent (the "Transfer Agent").
<PAGE>
Minimum Investments
The minimum investment requirements for each Portfolio are as follows:
* Initial investment: $10,000
* Subsequent investments: $ 1,000
* Automatic Investment Plan ("AIP"): $ 5,000
(to maintain the plan, you must invest
at least $250 per transaction)
The Portfolios may change or waive these minimums
at any time; you will be given at least 30 days notice
of any increase in the minimum dollar amount of
purchases.
How to Open an Account
* Read this Prospectus carefully.
* Complete the appropriate parts of the Purchase
Application, carefully following the instructions. If
you have questions, please contact your investment
professional or call us at 888-221-ICAP (4227).
* Make your initial investment, and any subsequent
investments, following the instructions set forth
below. Send all items to one of the addresses
referenced in "How to Contact ICAP".
* All applications to purchase shares are subject to
acceptance by the Portfolios and are not binding until
so accepted. The Portfolios reserve the right to
decline a Purchase Application in whole or in part.
On the Application, you will be asked to certify
that your Social Security or Taxpayer Identification
Number is correct and that you are not subject to
backup withholding. In order to do this, an original
signed Purchase Application must be on file with the
Transfer Agent. If you are subject to the 31% backup
withholding or you did not certify your Taxpayer
Identification Number, the IRS requires the Portfolios
to withhold 31% of any dividends paid and redemption or
exchange proceeds.
How to Buy Shares
You may pay for your shares by check or wire. You
may also use the AIP or the Exchange privilege. The
share price you receive will be the Portfolio's net
asset value next computed after the time the Transfer
Agent receives your purchase order in proper form. The
Transfer Agent must receive your purchase order by 4:00
p.m., Eastern Time (or by the close of the New York
Stock Exchange (the "NYSE")) for your purchase to be
effected on that day. See "Valuation of Portfolio
Shares" on page 20. A confirmation indicating the
details of each purchase transaction will be sent to
you promptly.
By Check
* To establish a new account, see "How to Open an
Account" on page 17.
* Make out a check (or money order) for the
investment amount, payable to "ICAP Funds." All checks
must be in U.S. dollars and drawn on U.S. banks. Cash,
credit cards, third-party checks and credit card checks
will not be accepted.
* If you wish to make additional purchases, complete
the investment slip that is included with your account
statement, or, if this is not convenient, reference
your name, account number and address on your check.
* Checks are considered received and accepted when
received in good order by the Transfer Agent.
If your check does not clear, you will be charged
a $20 service fee. You will also be responsible for
any losses suffered by the Portfolios as a result.
<PAGE>
By Wire
* To establish a new account by wire transfer,
please call the Transfer Agent at 888-221-ICAP (4227).
The Transfer Agent must assign an account number to you
prior to wiring funds.
* Instruct your bank to use the following instructions
when wiring funds:
Wire to: UMB Bank, n.a.
ABA Number 101000695
Credit: ICAP Funds, Inc.
Account Number 987-0609665
Further credit: ICAP Funds, Inc.
(name of Portfolio being purchased)
(your Account Number)
(your name or account registration)
(your Social Security or Taxpayer
Identification Number)
* The Transfer Agent must receive your wire by 4:00
p.m., Eastern Time (or by the close of the NYSE) for
your purchase to be effected on that day.
* The Portfolios are not responsible for the
consequences of delays resulting from the banking or
Federal Reserve wire system.
By Automatic Investment Plan ("AIP")
* The AIP allows you to make regular, systematic
investments in one or more Portfolios from your bank
account.
* Applications to establish the AIP on an existing
account are available from the Transfer Agent. Please
call 888-221-ICAP (4227) to obtain an Application.
* Under the AIP, you may choose to make additional
investments on the 5th, 10th, 15th, 20th, 25th and/or
last day of the month (or the following business day if
one of these days falls on a weekend or holiday) in
amounts of $250 or more.
* A service fee of $20 will be deducted from your
account for any AIP purchase that does not clear due to
insufficient funds or if you prevent withdrawal of
funds from the designated account, and your purchase
will be cancelled. You will also be responsible for
any losses suffered by the Portfolios as a result.
* Upon a full redemption, any AIP established on
your account will automatically be terminated, unless
otherwise instructed in writing.
By Exchange
* You may exchange your shares in one ICAP Portfolio
for shares in any other ICAP Portfolio at any time by
written or telephone request.
* The value of the shares to be exchanged and the
price of the shares being purchased will be the net
asset value next determined after receipt of
instructions in proper form for exchange. Exchange
requests received in proper form by 4:00 p.m., Eastern
Time (or by the close of the NYSE) will be effected on
that day. Please note that an exchange is not a tax-
free transaction.
* Send written exchange requests to one of the
addresses referenced in "How to Contact ICAP" on
page 16.
* Telephone exchange requests may be subject to
limitations, including those relating to frequency,
that may be established from time to time.
* Accounts opened by exchange will have the same
registration and privileges as the existing account.
How to Sell Shares
You may sell (redeem) all or a portion of your
shares at any time. The share price you receive will
be the Portfolio's net asset value next computed after
the time the Transfer Agent receives your redemption
request in proper form. The Transfer Agent must
receive your redemption request by 4:00 p.m., Eastern
Time (or by the close of the NYSE) for your redemption
request to be effected on that day. See "Valuation of
Portfolio Shares" on page
<PAGE>
21. The Portfolios normally
will mail or wire your redemption proceeds per your
instructions the next business day and, in any event,
no later than seven business days after receipt by the
Transfer Agent of a redemption request in good order.
Redemptions may be made by written or telephone request
as described below. You may also redeem shares using
the Systematic Withdrawal Plan ("SWP") or the Exchange
privilege. A confirmation indicating the details of
each redemption transaction will be sent to you
promptly.
By Written Request
* Write a letter of instruction or complete a
Redemption Request Form indicating the Portfolio name,
your account number, the name(s) in which the account
is registered and the dollar value or number of shares
you wish to sell.
* Include the signatures of all registered account
holders and any additional documents that may be
required. See "Special Situations" on page 20.
* Send your request to one of the addresses
referenced in "How to Contact ICAP" on page 16. If
your redemption request is inadvertently sent to ICAP,
the investment adviser, whose offices are located in
Chicago, it will be forwarded to the Transfer Agent,
but the effective date of redemption will be delayed
until the request is received by the Transfer Agent.
* Redemption proceeds will be mailed or wired per
your request to the name(s) and address in which the
account is registered or bank of record as shown on the
records of the Transfer Agent, or otherwise according
to your letter of instruction if the request is
received in good order. Please note that a $10 fee
will be deducted from your account if you redeem by
wire.
By Telephone
* Telephone redemption privileges must have been
previously established for your account to use this
option.
* To place your redemption request, please call the
Transfer Agent at 888-221-ICAP (4227). Redemption
requests received by 4:00 p.m., Eastern Time (or by the
close of the NYSE) will be effected on that day.
* Redemption requests by telephone are limited to a
minimum of $500 and a maximum of $50,000 per account
per day.
* Proceeds redeemed by telephone will be mailed or
wired per your request only to your address or bank of
record as shown on the records of the Transfer Agent.
Please note that a $10 fee will be deducted from your
account if you redeem by wire.
* In order to arrange for telephone redemptions
after an account has been opened or to change the bank
account or address designated to receive redemption
proceeds, a written request must be sent to the
Transfer Agent. The request must be signed by each
shareholder of the account, with the signatures
guaranteed. Further documentation may be requested
from corporations, executors, administrators, trustees
and guardians. See "Special Situations" on page 20.
* The Portfolios reserve the right to refuse any
request made by telephone and may limit the amount
involved or the number of telephone redemptions.
* Once you place a telephone redemption request, it
cannot be canceled or modified.
* Neither the Portfolios nor the Transfer Agent will
be responsible for the authenticity of redemption
instructions received by telephone. Accordingly, you
bear the risk of loss. However, the Portfolios will
use reasonable procedures to ensure that instructions
received by telephone are genuine, including recording
telephone transactions and sending written confirmation
of such transactions to the investor of record.
* You may experience difficulty in implementing a
telephone redemption during periods of drastic economic
or market changes. If you are unable to contact the
Transfer Agent by telephone, you may also redeem shares
by written request, as noted above.
By Systematic Withdrawal Plan ("SWP")
* The SWP allows you to set up automatic withdrawals
from your account at regular intervals.
* Applications to establish the SWP are available
from the Transfer Agent. Please call 888-221-ICAP
(4227) to obtain an Application.
* To begin withdrawals, you must have an initial
balance of $10,000 in your account and withdraw at
least $1,000 per payment.
* Withdrawals will take place on the 5th, 10th,
15th, 20th, 25th and/or last day of the month (or the
following business day if one of these days falls on a
weekend or holiday), as indicated on your Application.
<PAGE>
* Depending upon the size of the account and the
withdrawals requested (and fluctuations in the net
asset value of the shares redeemed), redemptions for
the purpose of satisfying such withdrawals may reduce
or even deplete your account. If the amount remaining
in your account is not sufficient to meet a plan
payment, the remaining amount will be redeemed, the
plan will be terminated and the proceeds will be sent
to your address of record.
By Exchange
* You may exchange your shares in one ICAP Portfolio
for shares in any other ICAP Portfolio at any time by
written or telephone request.
* The value of the shares to be exchanged and the
price of the shares being purchased will be the net
asset value next determined after receipt of
instructions in proper form for exchange. Exchange
requests received in proper form by 4:00 p.m., Eastern
Time (or by the close of the NYSE) will be effected on
that day. Please note that an exchange is not a tax-
free transaction.
* Send written exchange requests to one of the
addresses referenced in "How to Contact ICAP" on
page 16.
* Telephone exchange requests may be subject to
limitations, including those relating to frequency,
that may be established from time to time.
* Accounts opened by exchange will have the same
registration and privileges as the existing account.
Signature Guarantees
As a protection to both you and the Portfolios,
the Portfolios require a signature guarantee for all
authorized owners of an account: (i) if you request
that redemption proceeds be mailed or wired to a person
other than the registered owner(s) of the shares, (ii)
if you request that redemption proceeds be mailed or
wired to other than the address or bank account of
record or (iii) if you submit a redemption request
within 30 days of an address change. A signature
guarantee may be obtained from any eligible guarantor
institution. These institutions include banks, savings
and loan associations, credit unions, brokerage firms
and others. A notary public stamp or seal is not
acceptable.
Special Situations
Redemption requests from corporate, trust, and
institutional accounts, and executors, administrators,
and guardians, require documents in addition to those
described above, evidencing the authority of the
officers, trustees or others. In order to avoid delays
in processing redemption requests for these accounts,
please call the Transfer Agent at 888-221-ICAP (4227)
before making the redemption request to determine what
additional documents are required.
Investments Made Through Financial Services Agents
If you invest through a financial services agent
(rather than directly with the Portfolios through the
Transfer Agent), the policies and fees may be different
than those described. Financial advisers, financial
supermarkets and other financial services agents may
charge transaction and other fees and may set different
minimum investments or limitations on buying and
selling shares. Consult a representative of your
financial services agent if you have any questions.
Your financial services agent is responsible for
transmitting your orders in a timely manner.
Closing of Accounts
Your account may be closed on not less than 30
days notice if, at the time of any redemption of shares
in your account, the value of the remaining shares in
your account falls below $1,000. If the value of your
account does not reach $1,000 within the 30 days, your
entire account will be redeemed and the proceeds sent
to your address of record. In addition, if you attempt
to redeem more than the current market value remaining
in your account, your account will be redeemed in full
and the proceeds sent to your address of record.
Valuation of Portfolio Shares
The price of Portfolio shares is based on each
Portfolio's net asset value, and is determined as of
the close of trading (generally 4:00 p.m. Eastern Time)
on each day the NYSE is open for business. Net asset
value is calculated by taking the market value of the
Portfolio's total assets, including interest and
dividends accrued but not yet collected, less all
liabilities and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent,
is the net asset value per share. The Portfolios do
not determine net asset value on days the NYSE is
closed. The NYSE is currently closed on New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day,
<PAGE>
Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. In addition, if
any of these holidays fall on a Saturday, the NYSE will
not be open for trading on the preceding Friday, and
when such holiday falls on a Sunday, the NYSE will not
be open for trading on the succeeding Monday, unless
unusual business conditions exist, such as the ending
of a monthly or yearly accounting period. The price at
which a purchase order or redemption request is
effected is based on the next calculation of net asset
value after the order is placed or the request is
received in proper form. Because the Portfolios may
invest in securities that are primarily listed on
foreign exchanges, and therefore may trade on weekends
or other days when the Portfolios do not price their
shares, the net asset value of a Portfolio's shares may
change on days when shareholders will not be able to
purchase or redeem such shares.
Dividends, Capital Gain Distributions and Taxes
The following discussion does not apply to IRA or
other tax-advantaged accounts.
For federal income tax purposes, all dividends and
distributions of net realized short-term capital gains
you receive from the Portfolios are taxable as ordinary
income, whether reinvested in additional shares or
received in cash. Distributions of net realized long-
term capital gains you receive from the Portfolios,
whether reinvested in additional shares or received in
cash, are taxable as a capital gain. The capital gain
holding period (and applicable tax rate) is determined
by the length of time the Portfolios have held the
security and not the length of time you have held
shares in the Portfolios. You will be informed
annually as to the amount and nature of all dividends
and capital gains paid during the prior year. Such
capital gains and dividends may also be subject to
state or local taxes. If you are not required to pay
taxes on your income, you are generally not required to
pay federal income taxes on the amounts distributed to
you.
Dividends are usually distributed quarterly and
capital gains, if any, are usually distributed annually
in December. Please note, however, that the investment
focus of each Portfolio is capital appreciation, not
the production of distributions. You should measure
the success of your investment by the value of your
investment at any given time and not by the
distributions you receive.
All dividends and capital gain distributions will
automatically be reinvested in additional shares at the
then prevailing net asset value unless you specifically
request that dividends or capital gains or both be paid
in cash. The election to receive dividends and capital
gain distributions in cash or to reinvest them in
shares may be changed by writing to one of the
addresses referenced in "How to Contact ICAP" on page
16. Such notice must be received at least five
business days prior to the record date of any dividend
or capital gain distribution.
If you have elected to receive distribution checks
and the postal or other delivery service is unable to
deliver checks to your address of record, your
distribution option will automatically be converted to
having all distributions reinvested in additional
shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks.
Shareholder Reports
Financial reports of the Portfolios will be sent
to you at least semi-annually. Annual reports will
include audited financial statements. These reports
are also available at www.icapfunds.com. In addition,
an account statement will be sent to you by the
Transfer Agent at least quarterly.
<PAGE>
DIRECTORS OFFICERS
Pamela H. Conroy Robert H. Lyon
Senior Vice President, President
Secretary and Director, Pamela H. Conroy
Institutional Capital Vice President and Treasurer
Corporation Donald D. Niemann
Vice President and Secretary
Dr. James A. Gentry
Professor of Finance, INVESTMENT ADVISER
University of Illinois Institutional Capital Corporation
225 West Wacker Drive, Suite 2400
Joseph Andrew Hays Chicago, Illinois 60606-1229
Retired Vice President/
Corporate Relations, CUSTODIAN
Tribune Company UMB Bank, n.a.
928 Grand Boulevard
Robert H. Lyon Kansas City, Missouri 64141-6226
President, Chief Investment Officer
and Director, Institutional DIVIDEND-DISBURSING AND
Capital Corporation TRANSFER AGENT
Sunstone Financial Group, Inc.
Gary S. Maurer P.O. Box 2160
Executive Vice President Milwaukee, Wisconsin 53201-2160
and Director,
Institutional Capital ADMINISTRATOR AND FUND ACCOUNTANT
Corporation Sunstone Financial Group, Inc.
207 East Buffalo Street,
Harold W. Nations Suite 400
Partner, Holleb & Coff Milwaukee, Wisconsin 53202-5712
Donald D. Niemann AUDITOR
Executive Vice President and PricewaterhouseCoopers LLP
Director, 100 East Wisconsin Avenue,
Institutional Capital Suite 1500
Corporation Milwaukee, Wisconsin 53202-9845
Barbara C. Schanmier LEGAL COUNSEL
Senior Vice President Godfrey & Kahn, S.C.
and Director, 780 North Water Street
Institutional Capital Milwaukee, Wisconsin 53202-3590
Corporation
The Statement of Additional Information for the
Portfolios contains additional information about each
Portfolio and is incorporated into this Prospectus by
reference. Additional information about the
Portfolios' investments is contained in the Portfolios'
annual and semi-annual reports to shareholders. The
Portfolios' annual report provides a discussion of the
market conditions and investment strategies that
significantly affected each Portfolio's performance
during its last fiscal year. You may receive the
Statement of Additional Information, annual reports and
semi-annual reports without charge, request other
information about the Portfolios and make shareholder
inquiries by contacting the Portfolios at the address,
toll-free telephone number or Web site noted in this
Prospectus. These documents may also be obtained from
certain financial intermediaries.
Information about the Portfolios (including the
Statement of Additional Information) can be reviewed
and copied at the SEC's Public Reference Room in
Washington, D.C. Please call the SEC at 1-202-942-8090
for information relating to the operation of the Public
Reference Room. Reports and other information about
the Portfolios are also available on the EDGAR Database
on the SEC's Internet Web site located at
http://www.sec.gov. Alternatively, copies of this
information may be obtained, upon payment of a
duplicating fee, by electronic request to the following
e-mail address: [email protected], or by writing the
Public Reference Section of the SEC, Washington, D.C.
20549-0102.
The Portfolios' 1940 Act File Number is 811-8850.
COPYRIGHT 2000 INSTITUTIONAL CAPITAL CORPORATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[ICAP Logo]
ICAP FUNDS, INC.
ICAP Discretionary Equity Portfolio
ICAP Equity Portfolio
ICAP Select Equity Portfolio
ICAP Euro Select Equity Portfolio
225 West Wacker Drive, Suite 2400
Chicago, Illinois 60606
Telephone: 888-221-ICAP (4227)
Web site: www.icapfunds.com
This Statement of Additional Information ("SAI")
is not a prospectus and should be read in conjunction
with the Prospectus of ICAP Funds, Inc. (the
"Company"), dated May 1, 2000. The Company is
comprised of the ICAP Discretionary Equity Portfolio
(the "Discretionary Equity Portfolio"), the ICAP Equity
Portfolio (the "Equity Portfolio"), the ICAP Select
Equity Portfolio (the "Select Equity Portfolio") and
the ICAP Euro Select Equity Portfolio (the "Euro Select
Equity Portfolio") (individually, the "Portfolio" and
collectively, the "Portfolios").
The Portfolios' audited financial statements for
the year ended December 31, 1999 are incorporated
herein by reference to the Portfolios' 1999 Annual
Report.
A copy of the Portfolios' Annual Report and/or
Prospectus is available without charge upon request to
the above address, toll-free telephone number or Web
site.
This Statement of Additional Information is dated May 1, 2000.
<PAGE>
TABLE OF CONTENTS
Page
CORPORATE ORGANIZATION 3
INVESTMENT POLICIES: FUNDAMENTAL AND NON-FUNDAMENTAL 3
IMPLEMENTATION OF INVESTMENT OBJECTIVES 5
DIRECTORS AND OFFICERS 15
CODE OF ETHICS 17
PRINCIPAL SHAREHOLDERS 18
INVESTMENT ADVISER 19
PORTFOLIO TRANSACTIONS AND BROKERAGE 21
ADMINISTRATOR 22
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 22
PURCHASE AND PRICING OF SHARES 22
TAXATION OF THE PORTFOLIOS 24
PERFORMANCE INFORMATION 25
INDEPENDENT ACCOUNTANTS 26
FINANCIAL STATEMENTS 27
No person has been authorized to give any
information or to make any representations other than
those contained in this SAI and related Prospectus, and
if given or made, the information or representations
may not be relied upon as having been made by the
Portfolios. This SAI is not an offer to sell
securities in any state or jurisdiction in which an
offering may not legally be made.
<PAGE>
CORPORATE ORGANIZATION
The Company is an open-end management investment
company, commonly referred to as a mutual fund. The
Company is organized as a Maryland corporation and was
incorporated on November 1, 1994.
The Company is authorized to issue shares of
common stock in series and classes. The Company
currently offers four series of shares: the
Discretionary Equity Portfolio, the Equity Portfolio,
the Select Equity Portfolio and the Euro Select Equity
Portfolio. Each share of common stock of each
Portfolio is entitled to one vote, and each share is
entitled to participate equally in dividends and
capital gain distributions by the respective Portfolio
and in the residual assets of the respective Portfolio
in the event of liquidation. However, each Portfolio
bears its own expenses and matters affecting only one
Portfolio are voted on only by that Portfolio's
shareholders. The Discretionary Equity and Equity
Portfolios are "diversified" and the Select Equity and
Euro Select Equity Portfolios are "non-diversified,"
within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act").
No certificates will be issued for shares held in
your account. You will, however, have full shareholder
rights.
Generally, the Portfolios will not hold annual
shareholders' meetings unless required by the 1940 Act
or Maryland law.
INVESTMENT POLICIES: FUNDAMENTAL AND NON-FUNDAMENTAL
The following are the fundamental investment
policies applicable to each Portfolio which cannot be
changed without the approval of a majority of the
relevant Portfolio's outstanding voting securities. As
used herein, a "majority of the relevant Portfolio's
outstanding voting securities" means the lesser of (i)
67% of the shares of common stock of the Portfolio
represented at a meeting at which more than 50% of the
outstanding shares are present or (ii) more than 50% of
the outstanding shares of common stock of the
Portfolio.
Neither the Discretionary Equity Portfolio nor the
Equity Portfolio may:
1. With respect to 75% of its total assets,
purchase securities of any issuer (except
securities issued or guaranteed by the U.S.
government or any agency or instrumentality
thereof) if, as a result, (i) more than 5% of the
Portfolio's total assets would be invested in the
securities of that issuer or (ii) the Portfolio
would hold more than 10% of the outstanding voting
securities of that issuer.
No Portfolio may:
2. Borrow money, except that the Portfolio
may (i) borrow money from banks for temporary or
emergency purposes (but not for leverage or the
purchase of investments) and (ii) make other
investments or engage in other transactions
permissible under the 1940 Act which may involve a
borrowing, provided that the combination of (i)
and (ii) shall not exceed 33 1/3% of the value of
the Portfolio's total assets (including the amount
borrowed), less the Portfolio's liabilities (other
than borrowings).
3. Act as an underwriter of another issuer's
securities, except to the extent that the
Portfolio may be deemed to be an underwriter
within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in connection
with the purchase and sale of portfolio
securities.
4. Make loans to other persons, except
through (i) the purchase of debt securities
permissible under the Portfolio's investment
policies, (ii) repurchase agreements or (iii) the
lending of portfolio securities, provided that no
such loan of portfolio securities may be made by
the Portfolio if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of
such Portfolio's total assets.
<PAGE>
5. Purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this shall
not prevent the Portfolio from purchasing or
selling options, futures contracts or other
derivative instruments, or from investing in
securities or other instruments backed by physical
commodities).
6. Purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this shall not prohibit the
Portfolio from purchasing or selling securities or
other instruments backed by real estate or of
issuers engaged in real estate activities).
7. Issue senior securities, except as
permitted under the 1940 Act.
8. Purchase the securities of any issuer if,
as a result, more than 25% of the Portfolio's
total assets would be invested in the securities
of issuers whose principal business activities are
in the same industry.
With the exception of the investment restriction
set out in item 2 above, if a percentage restriction is
adhered to at the time of investment, a later increase
in percentage resulting from a change in market value
of the investment or the total assets will not
constitute a violation of that restriction.
Each Portfolio's investment objective is also a
fundamental investment policy which cannot be changed
without the approval of a majority of the relevant
Portfolio's outstanding voting securities. The
investment objective of both the Discretionary Equity
and the Equity Portfolios is to seek a superior total
return with only a moderate degree of risk. The
investment objective of the Select Equity Portfolio is
to seek a superior total return. The investment
objective of the Euro Select Equity Portfolio is to
seek a superior total return with income as a secondary
objective.
The following are the non-fundamental investment
policies applicable to each Portfolio which may be
changed by the Board of Directors of the Portfolios
without shareholder approval.
No Portfolio may:
1. Sell securities short, unless the
Portfolio owns or has the right to obtain
securities equivalent in kind and amount to the
securities sold short, and provided that
transactions in options, futures contracts,
options on futures contracts or other derivative
instruments are not deemed to constitute selling
securities short.
2. Purchase securities on margin, except
that the Portfolio may obtain such short-term
credits as are necessary for the clearance of
transactions; and provided that margin deposits in
connection with futures contracts, options on
futures contracts or other derivative instruments
shall not constitute purchasing securities on
margin.
3. Invest in illiquid securities if, as a
result of such investment, more than 5% of the
Portfolio's net assets would be invested in
illiquid securities.
4. Purchase securities of open-end or closed-
end investment companies except in compliance with
the 1940 Act.
5. Enter into option contracts or futures
contracts (including options on futures contracts)
or forward contracts (with respect to the Euro
Select Equity Portfolio only) if more than 30% of
the Portfolio's net assets would be represented by
such contracts.
6. Enter into futures contracts or options
on futures contracts if more than 5% of the
Portfolio's net assets would be committed to
initial margin deposits and premiums on such
contracts.
7. Purchase securities when borrowings
exceed 5% of its total assets.
<PAGE>
IMPLEMENTATION OF INVESTMENT OBJECTIVES
The following information supplements the
discussion of the Portfolios' investment objectives and
strategies described in the Prospectus under the
headings "The PortfoliosInvestment Objectives and
Principal Investment Strategies" and "The
PortfoliosTypes of Investments and Portfolio Policies."
In General
None of the Portfolios will invest more than 5% of
their net assets in any one of the following types of
investments:
* investment grade debt securities;
* non-investment grade debt securities (commonly
referred to as "junk bonds"); and
* illiquid securities.
Investment grade debt securities include long-term
debt obligations rated Baa or higher by Moody's
Investors Service ("Moody's"), BBB or higher by
Standard & Poor's Corporation ("S&P"), Duff & Phelps,
Inc. ("D&P") or Fitch IBCA, Inc. ("Fitch"), or unrated
securities of comparable quality as determined by the
investment adviser to the Portfolios, Institutional
Capital Corporation ("ICAP"). Bonds rated Baa by
Moody's or BBB by S&P, although considered investment
grade, have speculative characteristics and may be
subject to greater fluctuations in value than higher-
rated bonds.
Non-Investment Grade Debt Securities ("Junk Bonds")
Each Portfolio may invest up to 5% of its net
assets in junk bonds. Junk bonds, while generally
offering higher yields than investment grade securities
with similar maturities, involve greater risks,
including the possibility of default or bankruptcy.
They are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and
repay principal. The special risk considerations in
connection with investments in these securities are
discussed below.
Effect of Interest Rates and Economic Changes.
The junk bond market is relatively new and its growth
has paralleled a long economic expansion. As a result,
it is not clear how this market may withstand a
prolonged recession or economic downturn. Such an
economic downturn could severely disrupt the market for
and adversely affect the value of such securities.
All interest-bearing securities typically
experience appreciation when interest rates decline and
depreciation when interest rates rise. The market
values of junk bond securities tend to reflect
individual corporate developments to a greater extent
than do higher-rated securities, which react primarily
to fluctuations in the general level of interest rates.
Junk bond securities also tend to be more sensitive to
economic conditions than are higher-rated securities.
As a result, they generally involve more credit risks
than securities in the higher-rated categories. During
an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of junk bond
securities may experience financial stress and may not
have sufficient revenues to meet their payment
obligations. The risk of loss due to default by an
issuer of these securities is significantly greater
than issuers of higher-rated securities because such
securities are generally unsecured and are often
subordinated to other creditors. Further, if the
issuer of a junk bond security defaulted, a Portfolio
might incur additional expenses to seek recovery.
Periods of economic uncertainty and changes would also
generally result in increased volatility in the market
prices of these securities and thus in a Portfolio's
net asset value.
As previously stated, the value of a junk bond
security will generally decrease in a rising interest
rate market and, accordingly, so will a Portfolio's net
asset value. If a Portfolio experiences unexpected net
redemptions in such a market, it may be forced to
liquidate a portion of its portfolio securities without
regard to their investment merits. Due to the limited
liquidity of junk bond securities, a Portfolio may be
forced to liquidate these securities at a substantial
discount. Any such liquidation would reduce the
Portfolio's asset base over which expenses could be
allocated and could result in a reduced rate of return
for the Portfolio.
<PAGE>
Payment Expectations. Junk bond securities
typically contain redemption, call or prepayment
provisions which permit the issuer of such securities
containing such provisions to redeem the securities at
its discretion. During periods of falling interest
rates, issuers of these securities are likely to redeem
or prepay the securities and refinance them with debt
securities with a lower interest rate. To the extent
an issuer is able to refinance the securities, or
otherwise redeem them, a Portfolio may have to replace
the securities with a lower yielding security, which
could result in a lower return for the Portfolio.
Credit Ratings. Credit ratings issued by credit-
rating agencies evaluate the safety of principal and
interest payments of rated securities. They do not,
however, evaluate the market value risk of junk bond
securities and, therefore, may not fully reflect the
true risks of an investment. In addition, credit
rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the
condition of the issuer that affect the value of the
security. Consequently, credit ratings are used only
as a preliminary indicator of investment quality.
Investments in junk bond securities will be more
dependent on ICAP's credit analysis than would be the
case with investments in investment-grade debt
securities. ICAP employs its own credit research and
analysis, which includes a study of existing debt,
capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic
conditions, its operating history and the current trend
of earnings. ICAP continually monitors each
Portfolio's investments and carefully evaluates whether
to dispose of or to retain junk bond securities whose
credit ratings or credit quality may have changed.
Liquidity and Valuation. A Portfolio may have
difficulty disposing of certain junk bond securities
because there may be a thin trading market for such
securities. Because not all dealers maintain markets
in all junk bond securities, there is no established
retail secondary market for many of these securities.
The Portfolios anticipate that such securities could be
sold only to a limited number of dealers or
institutional investors. To the extent a secondary
trading market does exist, it is generally not as
liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market may
have an adverse impact on the market price of the
security. The lack of a liquid secondary market for
certain securities may also make it more difficult for
a Portfolio to obtain accurate market quotations for
purposes of valuing the Portfolio. Market quotations
are generally available on many junk bond issues only
from a limited number of dealers and may not
necessarily represent firm bids of such dealers or
prices for actual sales. During periods of thin
trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse
publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values
and liquidity of junk bond securities, especially in a
thinly traded market.
Illiquid Securities
Each Portfolio may invest up to 5% of its net
assets in illiquid securities (i.e., securities that
are not readily marketable). For purposes of this
restriction, illiquid securities include, but are not
limited to, restricted securities (securities the
disposition of which is restricted under the federal
securities laws), securities which may only be resold
pursuant to Rule 144A under the Securities Act,
repurchase agreements with maturities in excess of
seven days and other securities that are not readily
marketable. The Board of Directors or its delegate has
the ultimate authority to determine, to the extent
permissible under the federal securities laws, which
securities are liquid or illiquid for purposes of this
5% limitation. Certain securities exempt from
registration or issued in transactions exempt from
registration under the Securities Act, including
securities that may be resold to institutional
investors pursuant to Rule 144A under the Securities
Act, may be considered liquid under guidelines adopted
by the Board.
The Board of Directors has delegated the day-to-
day determination of the liquidity of any security to
ICAP, although it has retained oversight and ultimate
responsibility for such determinations. Although no
definitive liquidity criteria are used, the Board of
Directors has directed ICAP to look to such factors as
(i) the nature of the market for a security (including
the institutional private resale market), (ii) the
terms of certain securities or other instruments
allowing for the disposition to a third party or the
issuer thereof (e.g., certain repurchase obligations
and demand instruments), (iii) the availability of
market quotations (e.g., for securities quoted in the
PORTAL system) and (iv) other permissible relevant
factors.
<PAGE>
Restricted securities may be sold only in
privately negotiated transactions or in a public
offering with respect to which a registration statement
is in effect under the Securities Act. Where
registration is required, a Portfolio may be obligated
to pay all or part of the registration expenses and a
considerable period may elapse between the time of the
decision to sell and the time the Portfolio may be
permitted to sell a security under an effective
registration statement. If, during such a period,
adverse market conditions were to develop, the
Portfolio might obtain a less favorable price than that
which prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined
in good faith by the Board of Directors or its
delegate. If, through the appreciation of restricted
securities or the depreciation of unrestricted
securities, a Portfolio should be in a position where
more than 5% of the value of its net assets are
invested in illiquid securities, including restricted
securities which are not readily marketable, the
affected Portfolio will take such steps as is deemed
advisable, if any, to protect liquidity.
Warrants
Each Portfolio may invest without limitation in
warrants. Warrants are options to purchase equity
securities at a specific price for a specific period of
time. They do not represent ownership of the
securities but only the right to buy them. Investing
in warrants is purely speculative in that they have no
voting rights, pay no dividends and have no rights with
respect to the assets of the corporation issuing them.
In addition, the value of a warrant does not
necessarily change with the value of the underlying
security, and a warrant ceases to have value if it is
not exercised prior to its expiration date.
Real Estate Investment Trust Securities ("REITs")
Each Portfolio may invest without limitation in
the equity securities of REITs. REITs are pooled
investment vehicles which invest primarily in income
producing real estate or real estate related loans or
interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive
income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real
estate mortgages and derive income primarily from the
collection of interest payments. Similar to investment
companies, REITs are not taxed on income distributed to
shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). A Portfolio which invests in
REITs will indirectly bear its proportionate share of
the expenses incurred by the REITs in addition to the
expenses incurred directly by the Portfolio.
Investments in REITs may subject a Portfolio to risks
similar to those associated with direct ownership of
real estate (in addition to securities markets risks).
REITs are sensitive to factors such as changes in real
estate value and property taxes, interest rates, cash
flow of underlying real estate assets, supply and
demand and the management skill and creditworthiness of
the issuer. REITs may also be affected by tax and
regulatory requirements.
Foreign Securities
The Euro Select Equity Portfolio may invest
directly and without limitation in foreign securities.
Investments in securities of foreign issuers involve
risks which are in addition to the usual risks inherent
in domestic investments. In many countries, there is
less publicly available information about issuers than
is available in the reports and ratings published about
companies in the U.S. Additionally, foreign companies
are not subject to uniform accounting, auditing and
financial reporting standards. Other risks inherent in
foreign investment include expropriation; confiscatory
taxation; withholding taxes on dividends and interest;
less extensive regulation of foreign brokers,
securities markets and issuers; costs incurred in
conversions between currencies; the illiquidity and
volatility of foreign securities markets; the
possibility of delays in settlement in foreign
securities markets; limitations on the use or transfer
of assets (including suspension of the ability to
transfer currency from a given country); the difficulty
of enforcing obligations in other countries; diplomatic
developments; and political or social instability.
Foreign economies may differ favorably or unfavorably
from the U.S. economy in various respects, and many
foreign securities are less liquid and their prices are
more volatile than comparable U.S. securities. From
time to time, foreign securities may be difficult to
liquidate rapidly without adverse price effects.
Certain costs attributable to foreign investing, such
as custody charges and brokerage costs, are higher than
those attributable to domestic investing.
<PAGE>
Foreign Currency Hedging Transactions
The Euro Select Equity Portfolio may enter into
forward foreign currency exchange contracts ("forward
contracts") and foreign currency futures contracts and
options thereon. See "-Derivative Instruments," on
page 9. Forward contracts provide for the purchase,
sale or exchange of an amount of a specified foreign
currency at a future date. The Euro Select Equity
Portfolio will enter into forward contracts for hedging
purposes only; that is, only to protect against the
effects of fluctuating rates of currency exchange and
exchange control regulations between trade and
settlement dates, dividend declaration and distribution
dates and purchase and sale dates. A foreign currency
futures contract is a standardized contract for the
future delivery of a specified amount of a foreign
currency at a future date at a price set at the time of
the contract. Foreign currency futures contracts and
options thereon traded in the U.S. are traded on
regulated exchanges. The Euro Select Equity Portfolio
will enter into foreign currency futures and options
transactions for hedging and other permissible risk
management purposes only and may segregate assets to
cover its futures contracts obligations.
At the maturity of a forward or futures contract,
the Euro Select Equity Portfolio may either accept or
make delivery of the currency specified in the contract
or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting
contract. Closing purchase transactions with respect
to forward contracts are usually effected with the
currency trader who is a party to the original forward
contract. Closing purchase transactions with respect
to futures contracts are effected on an exchange. The
Euro Select Equity Portfolio will only enter into such
a forward or futures contract if it is expected that
there will be a liquid market in which to close out
such contract. There can, however, be no assurance
that such a liquid market will exist in which to close
a forward or futures contract, in which case the Euro
Select Equity Portfolio may suffer a loss.
The Euro Select Equity Portfolio may attempt to
accomplish objectives similar to those described above
with respect to forward and futures contracts for
currency by means of purchasing put or call options on
foreign currencies on exchanges. A put option gives
the Portfolio the right to sell a currency at the
exercise price until the expiration of the option. A
call option gives the Portfolio the right to purchase a
currency at the exercise price until the expiration of
the option. The Euro Select Equity Portfolio will not
enter into foreign currency forwards, futures or
related options on futures contracts if, along with the
Portfolio's investments in other options, more than 30%
of its net assets would be committed to such
instruments.
Borrowing
Each Portfolio is authorized to borrow money from
banks and make other investments or engage in other
transactions permissible under the 1940 Act which may
be considered a borrowing (such as mortgage dollar
rolls and reverse repurchase agreements), provided that
the amount borrowed cannot exceed 33 1/3% of the value
of the Portfolio's total assets. A Portfolio's
borrowings may create an opportunity for greater return
to the Portfolio and, ultimately, the Portfolio's
shareholders, but at the same time increase exposure to
losses. In addition, interest payments and fees paid
by a Portfolio on any borrowings may offset or exceed
the return earned on borrowed funds. Each Portfolio
currently intends to borrow money only for temporary,
extraordinary or emergency purposes and may not
purchase securities when its borrowings exceed 5% of
its total assets.
Lending Portfolio Securities
Each Portfolio may lend portfolio securities with
a value not exceeding 33 1/3% of the Portfolio's total
assets to brokers, dealers or other institutional
borrowers as a means of earning income. In return, the
Portfolios will receive collateral in cash or money
market instruments. The collateral will be maintained
at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The
purpose of securities lending is to permit the borrower
to use such securities for delivery to purchasers when
such borrower has sold securities short. The
Portfolios will continue to receive the equivalent of
the interest or dividends paid by the issuer of the
securities lent. The Portfolios may also receive
interest on the investment of collateral or a fee from
the borrower as compensation for the loan. The
Portfolios may pay reasonable custodial and
administrative fees in connection with a loan. The
Portfolios will retain the right to call, upon notice,
lent securities. While there may be delays in recovery
or even a loss of right in collateral should the
borrower fail financially, ICAP will review the
creditworthiness of the entities to which such loans
are made to evaluate those risks. Although the
Portfolios are authorized to lend securities, they do
not presently intend to engage in lending activities.
<PAGE>
Derivative Instruments
In General. Each Portfolio may invest up to 30%
of its net assets in derivative instruments. The
Portfolios may use derivative instruments for any
lawful purpose consistent with their respective
investment objectives such as hedging or managing risk,
but not for speculation. Derivative instruments are
commonly defined to include securities or contracts
whose value depend on (or "derive" from) the value of
one or more other assets, such as securities,
currencies or commodities. These "other assets" are
commonly referred to as "underlying assets."
Hedging. The Portfolios may use derivative
instruments to protect against possible adverse changes
in the market value of securities held in, or
anticipated to be held in, their respective portfolios.
Derivatives may also be used by the Portfolios to "lock-
in" realized but unrecognized gains in the value of
portfolio securities. Hedging strategies, if
successful, can reduce the risk of loss by wholly or
partially offsetting the negative effect of unfavorable
price movements in the investments being hedged.
However, hedging strategies can also reduce the
opportunity for gain by offsetting the positive effect
of favorable price movements in the hedged investments.
Managing Risk. The Portfolios may also use
derivative instruments to manage the risks of their
respective assets. Risk management strategies include,
but are not limited to, facilitating the sale of
portfolio securities, managing the effective maturity
or duration of debt obligations held, establishing a
position in the derivatives markets as a substitute for
buying or selling certain securities or creating or
altering exposure to certain asset classes, such as
equity, debt and foreign securities. The use of
derivative instruments may provide a less expensive,
more expedient or more specifically focused way for a
Portfolio to invest than "traditional" securities
(i.e., stocks or bonds) would.
Exchange or OTC Derivatives. Derivative
instruments may be exchange-traded or traded in over-
the-counter ("OTC") transactions between private
parties. Exchange-traded derivatives are standardized
options and futures contracts traded in an auction on
the floor of a regulated exchange. Exchange contracts
are generally liquid. The exchange clearinghouse is
the counterparty of every contract. Thus, each holder
of an exchange contract bears the credit risk of the
clearinghouse (and has the benefit of its financial
strength) rather than that of a particular
counterparty. OTC transactions are subject to
additional risks, such as the credit risk of the
counterparty to the instrument, and are less liquid
than exchange-traded derivatives since they often can
only be closed out with the other party to the
transaction.
Risks and Special Considerations. The use of
derivative instruments involves risks and special
considerations as described below. Risks pertaining to
particular derivative instruments are described in the
sections that follow.
(1) Market Risk. The primary risk of derivatives
is the same as the risk of the underlying assets;
namely, that the value of the underlying asset may go
up or down. Adverse movements in the value of an
underlying asset can expose the Portfolios to losses.
Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the
derivative instrument in relation to the underlying
asset may be magnified. The successful use of
derivative instruments depends upon a variety of
factors, particularly ICAP's ability to anticipate
movements of the securities and currencies markets,
which requires different skills than anticipating
changes in the prices of individual securities. There
can be no assurance that any particular strategy
adopted will succeed. A decision to engage in a
derivative transaction will reflect ICAP's judgment
that the derivative transaction will provide value to a
Portfolio and its shareholders and is consistent with
the Portfolio's objectives, investment limitations and
operating policies. In making such a judgment, ICAP
will analyze the benefits and risks of the derivative
transaction and weigh them in the context of the
Portfolio's entire portfolio and investment objective.
(2) Credit Risk. The Portfolios will be subject
to the risk that a loss may be sustained as a result of
the failure of a counterparty to comply with the terms
of a derivative instrument. The counterparty risk for
exchange-traded derivative instruments is generally
less than for privately-negotiated or OTC derivative
instruments, since generally a clearing agency, which
is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For
privately-negotiated instruments, there is no similar
clearing agency guarantee. In
<PAGE>
all transactions, the
Portfolios will bear the risk that the counterparty
will default, and this could result in a loss of the
expected benefit of the derivative transaction and
possibly other losses to the Portfolios. The
Portfolios will enter into transactions in derivative
instruments only with counterparties that ICAP
reasonably believes are capable of performing under the
contract.
(3) Correlation Risk. When a derivative
transaction is used to completely hedge another
position, changes in the market value of the combined
position (the derivative instrument plus the position
being hedged) can result from an imperfect correlation
between the price movements of the two instruments.
With a perfect hedge, the value of the combined
position remains unchanged for any change in the price
of the underlying asset. With an imperfect hedge, the
value of the derivative instrument and its hedge are
not perfectly correlated. Correlation risk is the risk
that there might be imperfect correlation, or even no
correlation, between price movements of a derivative
instrument and price movements of investments being
hedged. For example, if the value of a derivative
instrument used in a short hedge (such as writing a
call option, buying a put option or selling a futures
contract) increased by less than the decline in value
of the hedged investments, the hedge would not be
perfectly correlated. Such a lack of correlation might
occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other
pressures on the markets in which these instruments are
traded. The effectiveness of hedges using instruments
on indices will depend, in part, on the degree of
correlation between price movements in the index and
price movements in the investments being hedged.
(4) Liquidity Risk. Derivatives are also subject
to liquidity risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out or
replaced quickly at or very close to its fundamental
value. Generally, exchange contracts are very liquid
because the exchange clearinghouse is the counterparty
of every contract. OTC transactions are less liquid
than exchange-traded derivatives since they often can
only be closed out with the other party to the
transaction. A Portfolio might be required by
applicable regulatory requirements to maintain assets
as "cover," maintain segregated accounts and/or make
margin payments when it takes positions in derivative
instruments involving obligations to third parties
(i.e., instruments other than purchased options). If a
Portfolio is unable to close out its positions in such
instruments, it might be required to continue to
maintain such assets or accounts or make such payments
until the position expired, matured or is closed out.
The requirements might impair the Portfolio's ability
to sell a portfolio security or make an investment at a
time when it would otherwise be favorable to do so, or
require that the Portfolio sell a portfolio security at
a disadvantageous time. A Portfolio's ability to sell
or close out a position in an instrument prior to
expiration or maturity depends on the existence of a
liquid secondary market or, in the absence of such a
market, the ability and willingness of the counterparty
to enter into a transaction closing out the position.
Therefore, there is no assurance that any derivatives
position can be sold or closed out at a time and price
that is favorable to the Portfolios.
(5) Legal Risk. Legal risk is the risk of loss
caused by the legal unenforceability of a party's
obligations under the derivative. While a party
seeking price certainty agrees to surrender the
potential upside in exchange for downside protection,
the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a
counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative
products.
(6) Systemic or "Interconnection" Risk.
Interconnection risk is the risk that a disruption in
the financial markets will cause difficulties for all
market participants. In other words, a disruption in
one market will spill over into other markets, perhaps
creating a chain reaction. Much of the OTC derivatives
market takes place among the OTC dealers themselves,
thus creating a large interconnected web of financial
obligations. This interconnectedness raises the
possibility that a default by one large dealer could
create losses for other dealers and destabilize the
entire market for OTC derivative instruments.
General Limitations. The use of derivative
instruments is subject to applicable regulations of the
Securities and Exchange Commission (the "SEC"), the
several options and futures exchanges upon which they
may be traded, the Commodity Futures Trading Commission
("CFTC") and various state regulatory authorities.
The Portfolios have filed a notice of eligibility
for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in
the futures markets. In accordance with Rule 4.5 of
the regulations under the Commodities Exchange Act, the
notice of eligibility for the Portfolios includes
representations that the Portfolios will use futures
contracts and related options solely for
<PAGE>
bona fide hedging purposes within the meaning of CFTC
regulations, provided that the Portfolios may hold
other positions in futures contracts and related
options that do not qualify as a bona fide hedging
position if the aggregate initial margin deposits and
premiums required to establish these positions, less
the amount by which any such futures contracts and
related options positions are "in the money," do not
exceed 5% of each Portfolio's net assets. Adherence to
these guidelines does not, however, limit a Portfolio's
risk to 5% of its net assets.
The SEC has identified certain trading practices
involving derivative instruments that involve the
potential for leveraging Portfolio assets in a manner
that raises issues under the 1940 Act. In order to
limit the potential for the leveraging of Portfolio
assets, the SEC has stated that a Portfolio may use
coverage or the segregation of its assets. Assets used
as cover or held in a segregated account cannot be sold
while the derivative position is open, unless they are
replaced with similar assets. As a result, the
commitment of a large portion of a Portfolio's assets
to segregated accounts could impede portfolio
management or the Portfolio's ability to meet
redemption requests or other current obligations.
In some cases, a Portfolio may be required to
maintain or limit exposure to a specified percentage of
its assets to a particular asset class. In such cases,
when a Portfolio uses a derivative instrument to
increase or decrease exposure to an asset class and is
required by applicable SEC guidelines to set aside
liquid assets in a segregated account to secure its
obligations under the derivative instruments, ICAP may,
where reasonable in light of the circumstances, measure
compliance with the applicable percentage by reference
to the nature of the economic exposure created through
the use of the derivative instrument and by reference
to the nature of the exposure arising from the assets
set aside in the segregated account.
Options. The Portfolios may use options for any
lawful purpose consistent with their respective
investment objectives such as hedging or managing risk
but not for speculation. An option is a contract in
which the "holder" (the buyer) pays a certain amount
(the "premium") to the "writer" (the seller) to obtain
the right, but not the obligation, to buy from the
writer (in a "call") or sell to the writer (in a "put")
a specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time
(the "expiration date"). The holder pays the premium
at inception and has no further financial obligation.
The holder of an option will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option will receive fees or premiums but
is exposed to losses due to changes in the value of the
underlying asset. The Portfolios may purchase (buy) or
write (sell) put and call options on assets, such as
securities, currencies and indices of debt and equity
securities ("underlying assets") and enter into closing
transactions with respect to such options to terminate
an existing position. Options used by the Portfolios
may include European, American and Bermuda style
options. If an option is exercisable only at maturity,
it is a "European" option; if it is also exercisable
prior to maturity, it is an "American" option; if it is
exercisable only at certain times, it is a "Bermuda"
option.
The Portfolios may purchase (buy) and write (sell)
put and call options and enter into closing
transactions with respect to such options to terminate
an existing position. The purchase of call options
serves as a long hedge, and the purchase of put options
serves as a short hedge. Writing put or call options
can enable the Portfolios to enhance income by reason
of the premiums paid by the purchaser of such options.
Writing call options serves as a limited short hedge
because declines in the value of the hedged investment
would be offset to the extent of the premium received
for writing the option. However, if the security
appreciates to a price higher than the exercise price
of the call option, it can be expected that the option
will be exercised and the affected Portfolio will be
obligated to sell the security at less than its market
value or will be obligated to purchase the security at
a price greater than that at which the security must be
sold under the option. All or a portion of any assets
used as cover for OTC options written by the Portfolios
would be considered illiquid to the extent described
under "- Illiquid Securities," on page 6. Writing put
options serves as a limited long hedge because
increases in the value of the hedged investment would
be offset to the extent of the premium received for
writing the option. However, if the security
depreciates to a price lower than the exercise price of
the put option, it can be expected that the put option
will be exercised and the affected Portfolio will be
obligated to purchase the security at more than its
market value.
The value of an option position will reflect,
among other things, the historical price volatility of
the underlying investment, the current market value of
the underlying investment, the time remaining until
expiration, the relationship of the exercise price to
the market price of the underlying investment and
general market conditions.
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A Portfolio may effectively terminate its right or
obligation under an option by entering into a closing
transaction. For example, a Portfolio may terminate
its obligation under a call or put option that it had
written by purchasing an identical call or put option;
this is known as a closing purchase transaction.
Conversely, a Portfolio may terminate a position in a
put or call option it had purchased by writing an
identical put or call option; this is known as a
closing sale transaction. Closing transactions permit
the Portfolios to realize the profit or limit the loss
on an option position prior to its exercise or
expiration.
The Portfolios may purchase or write both exchange-
traded and OTC options. Exchange-traded options are
issued by a clearing organization affiliated with the
exchange on which the option is listed that, in effect,
guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts
between a Portfolio and the other party to the
transaction ("counterparty") (usually a securities
dealer or a bank) with no clearing organization
guarantee. Thus, when the Portfolios purchase or write
an OTC option, they rely on the counterparty to make or
take delivery of the underlying investment upon
exercise of the option. Failure by the counterparty to
do so would result in the loss of any premium paid by
the Portfolios as well as the loss of any expected
benefit of the transaction.
The Portfolios may engage in options transactions
on indices in much the same manner as the options on
securities discussed above, except the index options
may serve as a hedge against overall fluctuations in
the securities market in general.
Futures Contracts. The Portfolios may use futures
contracts for any lawful purpose consistent with their
respective investment objectives such as hedging and
managing risk but not for speculation. The Portfolios
may enter into futures contracts, including interest
rate, index and currency futures, and purchase put and
call options, and write covered put and call options,
on such futures. The purchase of futures or call
options thereon can serve as a long hedge, and the sale
of futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options
on futures contracts can serve as a limited short
hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a
strategy similar to that used for writing covered
options in securities. The Portfolios' hedging may
include purchases of futures as an offset against the
effect of expected increases in currency exchange rates
and securities prices and sales of futures as an offset
against the effect of expected declines in currency
exchange rates and securities prices. The Portfolios
may also write put options on futures contracts while
at the same time purchasing call options on the same
futures contracts in order to create synthetically a
long futures contract position. Such options would
have the same strike prices and expiration dates. The
Portfolios will engage in this strategy only when ICAP
believes it is more advantageous than purchasing the
futures contract.
To the extent required by regulatory authorities,
the Portfolios may enter into futures contracts that
are traded on national futures exchanges and are
standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading
are regulated by the CFTC. Although techniques other
than sales and purchases of futures contracts could be
used to reduce a Portfolio's exposure to market,
currency or interest rate fluctuations, a Portfolio may
be able to hedge its exposure more effectively and
perhaps at a lower cost through using futures
contracts.
An interest rate futures contract provides for the
future sale by one party and purchase by another party
of a specified amount of a specific financial
instrument (e.g., a debt security) or currency for a
specified price at a designated date, time and place.
An index futures contract is an agreement pursuant to
which the parties agree to take or make delivery of an
amount of cash equal to the difference between the
value of the index at the close of the last trading day
of the contract and the price at which the index
futures contract was originally written. Transaction
costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as
the case may be, of the instrument or the currency or
by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out
prior to delivery by entering into an offsetting
transaction in a matching futures contract. Although
the value of an index might be a function of the value
of certain specified securities, no physical delivery
of those securities is made. If the offsetting
purchase price is less than the original sale price, a
Portfolio realizes a loss; if it is more, the Portfolio
realizes a gain. Conversely, if the offsetting sale
price is more than the original purchase price, a
Portfolio realizes a gain; if it is less, the Portfolio
realizes a loss. The transaction costs must also be
included in these calculations.
<PAGE>
There can be no assurance, however, that a Portfolio will
be able to enter into an offsetting transaction with
respect to a particular futures contract at a particular
time. If a Portfolio is not able to enter into an offsetting
transaction, the Portfolio will continue to be required
to maintain the margin deposits on the futures contract.
No price is paid by the Portfolios upon entering
into a futures contract. Instead, at the inception of
a futures contract, a Portfolio is required to deposit
in a segregated account with its custodian, in the name
of the futures broker through whom the transaction was
effected, "initial margin," consisting of cash or other
liquid assets, in an amount generally equal to 10% or
less of the contract value. Margin must also be
deposited when writing a call or put option on a
futures contract, in accordance with applicable
exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does
not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is
returned to the Portfolio at the termination of the
transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as
periods of high volatility, a Portfolio may be required
by an exchange to increase the level of its initial
margin payment, and initial margin requirements might
be increased generally in the future by regulatory
action.
Subsequent "variation margin" payments are made to
and from the futures broker daily as the value of the
futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing,
but rather represents a daily settlement of a
Portfolio's obligations to or from a futures broker.
When a Portfolio purchases an option on a future, the
premium paid plus transaction costs is all that is at
risk. In contrast, when a Portfolio purchases or sells
a futures contract or writes a call or put option
thereon, it is subject to daily variation margin calls
that could be substantial in the event of adverse price
movements. If the Portfolio has insufficient cash to
meet daily variation margin requirements, it might need
to sell securities at a time when such sales are
disadvantageous. Purchasers and sellers of futures
positions and options on futures can enter into
offsetting closing transactions by selling or
purchasing, respectively, an instrument identical to
the instrument held or written. Positions in futures
and options on futures may be closed only on an
exchange or board of trade that provides a secondary
market. The Portfolios intend to enter into futures
transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market.
However, there can be no assurance that such a market
will exist for a particular contract at a particular
time.
Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price of
a future or option on a futures contract can vary from
the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price
beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily
limit for several consecutive days with little or no
trading, thereby preventing liquidation of unfavorable
positions.
If a Portfolio were unable to liquidate a futures
or option on a futures contract position due to the
absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses.
Under these circumstances, the Portfolio would continue
to be subject to market risk with respect to the
position. In addition, except in the case of purchased
options, the Portfolio would continue to be required to
make daily variation margin payments and might be
required to maintain the position being hedged by the
future or option or to maintain certain liquid
securities in a segregated account.
Certain characteristics of the futures market
might increase the risk that movements in the prices of
futures contracts or options on futures contracts might
not correlate perfectly with movements in the prices of
the investments being hedged. For example, all
participants in the futures and options on futures
contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are
moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price
volatility of the instruments and distort the normal
price relationship between the futures or options and
the investments being hedged. Also, because initial
margin deposit requirements in the futures markets are
less onerous than margin requirements in the securities
markets, there might be increased participation by
speculators in the futures markets. This participation
also might cause temporary price distortions. In
addition, activities of large traders in both the
futures and securities markets involving arbitrage,
"program trading" and other investment strategies might
result in temporary price distortions.
<PAGE>
Cash Equivalents; Temporary Strategies
The Discretionary Equity, Select Equity and Euro
Select Equity Portfolios may invest up to 35% of their
respective total assets in cash and cash equivalents
for any purpose, including pending investment or
reinvestment, and may invest up to 100% of their
respective total assets in such instruments as a
temporary defensive measure when market conditions
warrant. The Equity Portfolio, on the other hand,
intends to be fully invested at all times and
accordingly will only hold cash or cash equivalents to
meet anticipated redemption requests, to pay expenses
and pending investment or reinvestment which, in any
case, generally will not exceed 5% of its total assets.
Cash equivalents are short-term fixed income securities
issued by private and governmental institutions which
are rated Prime-1 or higher by Moody's, A-1 or higher
by S&P, D-2 or higher by D&P, F-2 or higher by Fitch or
unrated securities of comparable quality as determined
by ICAP. Such securities include, without limitation,
the following:
U.S. Government Securities. These securities
include bills, notes and bonds differing as to
maturity and rates of interest which are either
issued or guaranteed by the U.S. Treasury or U.S.
government agencies or instrumentalities. U.S.
government agency securities include securities
issued by (a) the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of
the United States, Small Business Administration
and Ginnie Mae, whose securities are supported by
the full faith and credit of the United States;
(b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks and the Tennessee Valley
Authority, whose securities are supported by the
right of the agency to borrow from the U.S.
Treasury; (c) Fannie Mae, whose securities are
supported by the discretionary authority of the
U.S. government to purchase certain obligations of
the agency or instrumentality; and (d) the Student
Loan Marketing Association, the Interamerican
Development Bank and the International Bank for
Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
While the U.S. government provides financial
support to such U.S. government-sponsored agencies
or instrumentalities, no assurance can be given
that it always will do so since it is not so
obligated by law. The U.S. government, its
agencies and instrumentalities do not guarantee
the market value of their securities, and
consequently, the value of such securities may
fluctuate.
Certificates of Deposit. These securities
are issued against funds deposited in a U.S. or
foreign bank (and its subsidiaries and branches)
or a U.S. savings and loan association. Such
securities are for a definite period of time, earn
a specified rate of return and are normally
negotiable. If a certificate of deposit is non-
negotiable, it will be considered illiquid and
will be subject to each Portfolio's 5% restriction
on investments in illiquid securities. A
certificate of deposit requires the issuer to pay
the amount deposited plus interest to the holder
of the certificate on the date specified thereon.
Under current FDIC regulations, the maximum
insurance payable as to any one certificate of
deposit is $100,000; therefore, certificates of
deposit purchased by the Portfolios may not be
fully insured.
Bank Time Deposits. Bank time deposits are
monies kept on deposit with U.S. or foreign banks
(and their subsidiaries and branches) or U.S.
savings and loan associations for a stated period
of time at a fixed rate of interest. There may be
penalties for the early withdrawal of such time
deposits, in which case the yields of these
investments will be reduced.
Bankers' Acceptances. Bankers' acceptances
are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance
is a time draft drawn on a bank by an exporter or
an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value
of the instrument on its maturity date. The
acceptance may then be held by the accepting bank
as an asset or it may be sold in the secondary
market at the going rate of interest for a
specific maturity.
Repurchase Agreements. For this purpose,
repurchase agreements include only those entered
into with respect to obligations of the U.S.
government, its agencies or instrumentalities. In
such a transaction, at the time a Portfolio
purchases the security, it simultaneously agrees
to resell the security to the seller, who also
simultaneously agrees to buy back the security at
a fixed price and time. This assures a
predetermined yield for the Portfolio during its
holding period since the resale price is always
greater than the purchase price and reflects an
agreed-upon market rate. Such transactions afford
an opportunity for the Portfolios to invest
temporarily available cash. Repurchase agreements
may be considered loans to
<PAGE>
the seller, collateralized by the underlying securities.
The risk to the Portfolios is limited to the ability
of the seller to pay the agreed-upon sum on the
repurchase date; in the event of default, the
repurchase agreement provides that the affected
Portfolio is entitled to sell the underlying
collateral. If the value of the collateral
declines after the agreement is entered into,
however, and if the seller defaults under a
repurchase agreement when the value of the
underlying collateral is less than the repurchase
price, the Portfolios could incur a loss of both
principal and interest. ICAP monitors the value
of the collateral at the time the transaction is
entered into and at all times during the term of
the repurchase agreement. ICAP does so in an
effort to determine that the value of the
collateral always equals or exceeds the agreed-
upon repurchase price to be paid to the
Portfolios. If the seller were to be subject to a
federal bankruptcy proceeding, the ability of the
Portfolios to liquidate the collateral could be
delayed or impaired because of certain provisions
of the bankruptcy laws.
Commercial Paper. These securities include
commercial paper and commercial paper master notes
(which are demand instruments without a fixed
maturity bearing interest at rates which are fixed
to known lending rates and automatically adjusted
when such lending rates change). Master demand
notes are direct lending arrangements between a
Portfolio and a corporation. There is no
secondary market for such notes; however, they are
redeemable by the Portfolios at any time. ICAP
will consider the financial condition of the
corporation (e.g., earning power, cash flow and
other liquidity ratios) and will continuously
monitor the corporation's ability to meet all of
its financial obligations, because a Portfolio's
liquidity might be impaired if the corporation
were unable to pay principal and interest on
demand.
American Depositary Receipts
The Portfolios may invest in American Depositary
Receipts ("ADRs"). ADRs are denominated in U.S.
dollars and are designed for use in the U.S. securities
markets. ADRs are receipts typically issued by a U.S.
bank or trust company evidencing ownership of the
underlying securities. ADRs are deemed to have the same
classification as the underlying securities they
represent. Thus, an ADR representing ownership of
common stock will be treated as common stock.
ADR facilities may be established as either
"unsponsored" or "sponsored." While ADRs issued under
these two types of facilities are in some respects
similar, there are distinctions between them relating
to the rights and obligations of ADR holders and the
practices of market participants. A depositary may
establish an unsponsored facility without participation
by (or even necessarily the acquiescence of) the issuer
of the deposited securities, although typically the
depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depositary usually
charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into
U.S. dollars, the disposition of non-cash distribution,
and the performance of other services. The depositary
of an unsponsored facility frequently is under no
obligation to distribute shareholder communications
received from the issuer of the deposited securities or
to pass through voting rights to ADR holders in respect
of the deposited securities. Sponsored ADR facilities
are created in generally the same manner as unsponsored
facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the
depositary. The deposit agreement sets out the rights
and responsibilities of the issuer, the depositary and
the ADR holders. With sponsored facilities, the issuer
of the deposited securities generally will bear some of
the costs relating to the facility (such as dividend
payment fees of the depositary), although ADR holders
continue to bear certain other costs (such as deposit
and withdrawal fees). Under the terms of most
sponsored arrangements, depositaries agree to
distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications
and other information to the ADR holders at the request
of the issuer of the deposited securities.
DIRECTORS AND OFFICERS
Under the laws of the State of Maryland, the Board
of Directors of the Portfolios is responsible for
managing the Portfolios' business and affairs.
Directors and officers of the Portfolios, together
with information as to their principal business
occupations during at least the last five years, and
other information, are shown below. Each director who
is deemed an "interested person," as defined in the
1940 Act, is indicated by an asterisk.
<PAGE>
*Robert H. Lyon, President and a Director of the Portfolios (DOB 3/5/50).
Mr. Lyon joined ICAP in 1988 and has been the
President, Chief Investment Officer and a Director
of ICAP since 1992. Since June 1996, Mr. Lyon has
also served as a member of the Board of Trustees
of the Nuveen Investment Trust, an open-end
management investment company which currently
offers four separate taxable investment
portfolios, including the Nuveen Growth and Income
Stock Fund, the Nuveen Balanced Stock and Bond
Fund, the Nuveen Balanced Municipal and Stock Fund
and the Nuveen European Value Fund. For the seven
years prior to joining ICAP, Mr. Lyon was an
Executive Vice President and Director of Research
with Fred Alger Management in New York. Mr. Lyon
graduated from Northwestern University with a B.A.
in economics and received his M.B.A. from the
Wharton School of Finance. Mr. Lyon has served as
President and a Director of the Portfolios since
December 1994.
*Pamela H. Conroy, Vice President, Treasurer and a
Director of the Portfolios (DOB 12/23/61).
Ms. Conroy has been a Senior Vice President of
ICAP since joining ICAP in August of 1994, a
Director of ICAP since March 1995 and Secretary of
ICAP since September 1997. As Senior Vice
President, her responsibilities include
accounting, systems, communication and product
development. Prior to joining ICAP, Ms. Conroy
worked at The Northern Trust Company where she
served as a Vice President and worked in a variety
of capacities in the investments and securities
processing areas over a nine year period. Ms.
Conroy earned a B.A. from the University of
Illinois and an M.M. from the Kellogg School of
Management. Ms. Conroy has served as Vice
President, Treasurer and a Director of the
Portfolios since December 1994.
*Donald D. Niemann, Vice President, Secretary and a
Director of the Portfolios (DOB 2/27/43).
Mr. Niemann was an original co-founder of ICAP and
has served as Executive Vice President and a
Director of ICAP since March 1993. His
responsibilities at ICAP include stock research,
selection and proxy analysis. Mr. Niemann
received a B.A. in history from Princeton
University and an M.B.A. from Harvard University.
He is a Chartered Financial Analyst (CFA). Mr.
Niemann has served as Vice President and Secretary
of the Portfolios since December 1994, and as a
Director of the Portfolios since July 1995.
Dr. James A. Gentry, a Director of the Portfolios (DOB 11/22/30).
Dr. Gentry, who joined the faculty at the
University of Illinois in 1966, is a Professor of
Finance of the College of Commerce and Business
Administration at the University. Since joining
the University, Dr. Gentry has served as Associate
Dean of the College of Commerce and Business
Administration and has authored numerous articles
and chapters in books. Currently, he teaches
courses in advanced financial management and an
honors course that provides outstanding
undergraduate students with the opportunity to
interact with leading corporate executives. Dr.
Gentry received an A.B. from Indiana State
University, and an M.B.A. and D.B.A. from Indiana
University. Dr. Gentry has served as a Director
of the Portfolios since December 1994.
Joseph Andrew Hays, a Director of the Portfolios (DOB 6/3/30).
Since January 1996, Mr. Hays has been the
principal in a consulting firm, The Hays Group,
located in Chicago, Illinois. Mr. Hays retired in
1995 from the Tribune Company, a diverse media
enterprise, as Vice President for Corporate
Relations and a member of its executive committee
after 12 years of service. Mr. Hays' professional
career in industry has been as an executive
specializing in the external affairs of
corporations. Mr. Hays received a B.S. in
journalism from Utah State University and a
Bachelor of Law from Indiana University. Mr. Hays
has served as a Director of the Portfolios since
July 1995.
*Gary S. Maurer, a Director of the Portfolios (DOB 9/26/47).
Mr. Maurer, who joined ICAP in 1972, has served as
Executive Vice President and a Director of ICAP
since March of 1993. His responsibilities include
oversight of quantitative research, as well as
<PAGE>
performance measurement and analysis. In
addition, Mr. Maurer is the director of ICAP's
client service effort. Mr. Maurer received a B.A.
in economics from Cornell University and an M.B.A.
from the University of Chicago. Mr. Maurer has
served as a Director of the Portfolios since
December 1994.
Harold W. Nations, a Director of the Portfolios (DOB
3/14/54).
Mr. Nations is a partner with the law firm of
Holleb & Coff in Chicago, Illinois. He has been
with Holleb & Coff since September 1997. From
March 1991 until September 1997, Mr. Nations was a
partner with the law firm of Shefsky & Froelich
Ltd. in Chicago, Illinois. For the seven years
prior thereto, Mr. Nations was associated with the
firm of Skadden, Arps, Slate, Meagher & Flom. Mr.
Nations received a B.S. in chemistry from the
Georgia Institute of Technology and a J.D. from
Northwestern University Law School. Mr. Nations
has served as a Director of the Portfolios since
December 1994.
*Barbara C. Schanmier, a Director of the Portfolios (DOB 3/29/50).
Ms. Schanmier, who joined ICAP in 1981, currently
serves as Senior Vice President for Trading and is
a Director of ICAP. Previously, Ms. Schanmier
served as an investment officer and trader at
Harris Trust & Savings Bank. Prior to that, Ms.
Schanmier served as an equity trader at First
Wisconsin Trust. She studied accounting at the
University of Wisconsin. Ms. Schanmier has served
as a Director of the Portfolios since December 1994.
Except for Dr. Gentry, Mr. Nations and Mr. Hays,
the address of all of the above persons is
Institutional Capital Corporation, 225 West Wacker
Drive, Suite 2400, Chicago, Illinois 60606. Dr.
Gentry's address is the University of Illinois, 419
Commerce West, 1206 South 6th Street, Champaign,
Illinois 61820-6271. Mr. Nations' address is 55 East
Monroe Street, Suite 4100, Chicago, Illinois 60603.
Mr. Hays' address is 1110 North Lake Shore Drive,
Apartment 24-South, Chicago, Illinois 60611.
As of April 1, 2000, officers and directors of the
Portfolios beneficially owned less than 1% of the
Discretionary Equity Portfolio's then outstanding
shares and less than 1% of the Equity Portfolio's then
outstanding shares. As of such date, officers and
directors beneficially owned 56.69% of the Select
Equity Portfolio's then outstanding shares and 36.16%
of the Euro Select Equity Portfolio's then outstanding
shares.
Directors and officers of the Portfolios who are
also officers, directors, employees or shareholders of
ICAP do not receive any remuneration from the
Portfolios for serving as directors or officers.
Accordingly, Mr. Lyon, Ms. Conroy, Mr. Niemann, Mr.
Maurer and Ms. Schanmier do not receive any
remuneration from the Portfolios for their services as
directors and/or officers. However, Dr. Gentry, Mr.
Hays and Mr. Nations received the following fees in
1999 for their services as directors of the Portfolios:
Name Cash Other Total
Compensation(1) Compensation
James A. Gentry $ 20,000 $0 $ 20,000
Joseph A. Hays $ 20,000 $0 $ 20,000
Harold W. Nations $ 20,000 $0 $ 20,000
_______________
(1) These three directors are not deemed to be
"interested" persons as defined in the 1940 Act.
They each receive $5,000 for each board meeting
attended. Each of the directors has elected to
receive his compensation in shares of common stock in
the Portfolio or Portfolios of his choice.
CODE OF ETHICS
The Portfolios and ICAP have adopted a Code of
Ethics, as amended March 1, 2000 (the "Code"), under
Rule 17j-1 of the 1940 Act. The Code governs all
access persons of the Portfolios and ICAP and includes
a statement of policies and procedures regarding
confidential information and conflicts of interest.
The term "access person" includes ICAP, and any
director, officer or advisory person of a Portfolio or
ICAP. An advisory person includes any employee of a
Portfolio or ICAP. The Code permits access persons to
buy or sell securities
<PAGE>
for their own accounts, but
prohibits access persons from owning securities that
are also owned by the Portfolios, subject to certain
exceptions. The Code places other limitations on the
acquisition of securities by access persons (other than
disinterested directors) such as prohibiting the
purchase of securities in an initial public offering
and restricting the purchase of private placement
securities. Each access person (other than
disinterested directors) is required to provide
duplicate copies of confirmations and brokerage
statements to the administrator for the Portfolios and
ICAP's compliance officer. In addition, access persons
are required, on an annual basis, to compile a list of
all securities holdings and provide such list to the
administrator and compliance officer.
PRINCIPAL SHAREHOLDERS
As of April 1, 2000, the following persons owned
of record or are known by the Portfolios to own
beneficially 5% or more of the outstanding shares of
one or more of the Portfolios:
Number Percentage Percentage
Name and Address Portfolio of Shares of Portfolio of Company
Charles Schwab & Co. Discretionary 414,751 6.6% 1.3%
9601 East Panorama Circle Equity
Englewood, CO 80112
Mitra & Co. Discretionary 515,322 8.2% 1.7%
1000 North Water Street Equity
Milwaukee, WI 53202-6648
Muggs & Co., c/o Firstar Discretionary 518,433 8.3% 1.7%
P.O. Box 1787 Equity
Milwaukee, WI 53201
Presbyterian Discretionary 989,305 15.8% 3.2%
Intercommunity Equity
Hospital, c/o
Fiduciary Trust Co.
International
700 South Flower Street,
Suite 200
Los Angeles, CA 90017-4101
Sun Times Master Discretionary 450,301 7.2% 1.5%
Retirement Trust, Equity
North Trust TR
P.O. Box 92956 2238797
Chicago, IL 60675
Charles Schwab & Co. Equity 2,191,498 9.7% 7.1%
9601 East Panorama Circle
Englewood, CO 80112
Fidelity Investments Equity 1,304,977 5.8% 4.2%
Institutional
Operations Co. Inc.
100 Magellan Way
Covington, KY 41015-1987
Houston Industries, Equity 1,480,126 6.5% 4.8%
Northern Trust Co.
Trust
P.O. Box 92958
Chicago, IL 60675
<PAGE>
Number Percentage Percentage
Name and Address Portfolio of Shares of Portfolio of Company
Institutional Capital Select 46,250 5.5% 0.2%
Corporation Equity
Attn. Pam Conroy
225 West Wacker Drive,
Suite 2400
Chicago, IL 60606-1229
Audrey & Sydney Irmas Select 93,431 11.0% 0.3%
Charitable Foundation Equity
16027 Ventura Blvd.,
Suite 601
Encino, CA 91436-2728
Robert H. Lyon & Select 312,852 37.0% 1.0%
Donna M. Lyon, Equity
JT TEN WROS
225 West Wacker Drive,
Suite 2400
Chicago, IL 60606-1229
Charles Schwab & Co. Euro 136,399 11.6% 0.4%
9601 East Panorama Circle Select
Englewood, CO 80112
Institutional Capital Euro 86,222 7.4% 0.3%
Corporation Select
Attn. Pam Conroy
225 West Wacker Drive,
Suite 2400
Chicago, IL 60606-1229
Robert H. Lyon & Euro 314,603 26.9% 1.0%
Donna M. Lyon, Select
JT TEN WROS
225 West Wacker Drive,
Suite 2400
Chicago, IL 60606-1229
Mayo Foundation Pension Euro 196,925 16.8% 0.6%
Fund, Select
Treasury Services
200 First Street SW
Rochester, MN 55905
Mayo Foundation, Euro 155,489 13.3% 0.5%
Treasury Services Select
200 First Street SW
Rochester, MN 55905
Based on the foregoing, as of April 1, 2000, no
person owned a controlling interest (i.e., more than
25%) in the Company as a whole. However, Robert H.
Lyon, the President and a controlling person of ICAP,
beneficially owned a controlling interest in the Select
Equity and Euro Select Equity Portfolios and the Mayo
Foundation also beneficially owned a controlling
interest in the Euro Select Equity Portfolio.
Shareholders with a controlling interest could affect
the outcome of proxy voting or the direction of
management of the Company.
INVESTMENT ADVISER
Institutional Capital Corporation ("ICAP") serves
as the investment adviser to the Portfolios pursuant to
an advisory agreement dated as of December 30, 1994, as
amended (the "Advisory Agreement"). Mr. Lyon owns a
51% controlling interest in ICAP and is the President,
Chief Investment Officer and a director of ICAP. Ms.
Conroy is a Senior Vice President, Secretary and a
director of ICAP, and both Mr. Niemann and Mr. Maurer
are Executive Vice Presidents and directors of ICAP.
Ms. Schanmier is a Senior Vice President and director
of ICAP.
<PAGE>
The Advisory Agreement as it relates to the
Discretionary Equity and Equity Portfolios is dated as
of December 30, 1994, while the amendments to the
Advisory Agreement to add the Select Equity and Euro
Select Equity Portfolios are dated as of December 31,
1997. The Advisory Agreement had an initial term of
two years (with a December 30, 1994 or December 31,
1997 starting point, as the case may be) and is
required to be approved annually thereafter by the
Board of Directors of the Portfolios or by vote of a
majority of the applicable Portfolio's outstanding
voting securities (as defined in the 1940 Act). Each
annual renewal must also be approved by the vote of a
majority of the Portfolios' directors who are not
parties to the Advisory Agreement or interested persons
of any such party, cast in person at a meeting called
for the purpose of voting on such approval. The
Advisory Agreement as it relates to the Discretionary
Equity and Equity Portfolios was initially approved by
the vote of a majority of the Portfolios' directors,
including a majority of directors who were not parties
to the agreement or interested persons of any such
party, on December 6, 1994 and by the initial
shareholders of each Portfolio on December 14, 1994.
Most recently, the agreement was approved by the
directors, including the disinterested directors, on
May 13, 1999. The amendments to the Advisory Agreement
to add the Select Equity and Euro Select Equity
Portfolios were initially approved by a vote of a
majority of the Portfolios' directors, including a
majority of directors who were not parties to the
agreement or interested persons of any such party, on
November 13, 1997. Most recently, the agreement was
approved by the directors, including the disinterested
directors, on May 13, 1999. The Advisory Agreement is
terminable, without penalty, on 60 days' written notice
by the Board of Directors, by vote of a majority of the
applicable Portfolio's outstanding voting securities or
by ICAP, and will terminate automatically in the event
of its assignment.
Under the terms of the Advisory Agreement, ICAP
manages the Portfolios' investments and business
affairs, subject to the supervision of the Portfolios'
Board of Directors. At its expense, ICAP provides
office space and all necessary office facilities,
equipment and personnel for managing the investments of
the Portfolios.
As compensation for its services, the
Discretionary Equity, Equity and Select Equity
Portfolios pay to ICAP a monthly advisory fee at the
annual rate of 0.80% of the average net asset value of
the respective Portfolio, and the Euro Select Equity
Portfolio pays to ICAP a monthly advisory fee at the
annual rate of 1.00% of the average net asset value of
the Portfolio. The advisory fee is accrued daily and
paid monthly. For the years ended December 31, 1997,
1998 and 1999, ICAP waived its management fee and/or
reimbursed operating expenses of the Discretionary
Equity and Equity Portfolios to the extent necessary to
ensure that neither Portfolio's total operating
expenses exceeded 0.80% of the respective Portfolio's
average net assets. Pursuant to an expense cap
agreement dated April 30, 1999, as renewed April 30,
2000, between ICAP and the Portfolios, ICAP has
contractually agreed to continue this
waiver/reimbursement policy until April 30, 2001. For
the years ended December 31, 1997, 1998 and 1999, ICAP
received $832,551, $1,174,319, and $1,412,274 from the
Discretionary Equity Portfolio, respectively, and
$1,689,897, $4,004,094, and $6,386,857 from the Equity
Portfolio, respectively, as compensation for its
services under the Advisory Agreement. The amounts
received by ICAP for such services would have been
$1,157,843, $1,521,894 and $1,747,696 from the
Discretionary Equity Portfolio, respectively, and
$2,141,357, $4,613,552 and $6,993,450 from the Equity
Portfolio, respectively, had ICAP not waived a portion
of its fees during the years ended December 31, 1997,
1998 and 1999. For the years ending December 31, 1998,
and 1999, ICAP also waived its management fee and/or
reimbursed operating expenses of the Select Equity and
Euro Select Equity Portfolios to the extent necessary
to ensure that the Select Equity Portfolio's total
operating expenses would not exceed 0.80% of the
Portfolio's average net assets and the Euro Select
Equity Portfolio's total operating expenses would not
exceed 1.00% of the Portfolio's average net assets.
Pursuant to the expense cap agreement, ICAP has also
contractually agreed to continue this
waiver/reimbursement policy until April 30, 2001. For
the years ended December 31, 1998 and 1999, ICAP
received $0 and $13,996 from the Select Equity
Portfolio, respectively, and $79,905 and $103,464 from
the Euro Select Equity Portfolio, respectively, as
compensation for its services under the Advisory
Agreement. The amounts received by ICAP for such
services would have been $47,089 and $168,029 from the
Select Equity Portfolio, respectively, and $242,136 and
$263,142 from the Euro Select Equity Portfolio,
respectively, had ICAP not waived all or a portion of
its fees during 1998 and 1999.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, ICAP is responsible
for decisions to buy and sell securities for the
Portfolios and for the placement of the Portfolios'
securities business, the negotiation of the commissions
to be paid
<PAGE>
on such transactions and the allocation of
portfolio brokerage and principal business. Trades may
be done with brokers, dealers and, on occasion,
issuers. Remuneration for trades may include
commissions, dealer spreads, mark-ups and mark-downs.
In executing transactions on behalf of the
Portfolios, ICAP has no obligation to deal with any
broker or dealer. Rather, ICAP seeks the best
qualitative execution. The best net price is an
important factor, but ICAP also considers the full
range and quality of a broker's services, as described
below. Recognizing the value of the range of services,
the Portfolios may not pay the lowest commission or
spread available on a particular transaction.
Brokerage will not be allocated based on the sale of a
Portfolio's shares.
The aggregate amount of brokerage commissions paid
by the Discretionary Equity Portfolio for the years
ended December 31, 1997, 1998 and 1999 was $239,444,
$354,920 and $372,803, respectively, and the aggregate
amount of brokerage commissions paid by the Equity
Portfolio for the years ended December 31, 1997, 1998
and 1999 was $522,276, $1,216,016 and $1,417,276,
respectively. The increase in brokerage fees from 1997
to 1999 was due to the increase in net assets under
management and the attendant increase in volume and
dollar value of transactions effected on behalf of the
Portfolios. The aggregate amount of brokerage
commissions paid by the Select Equity Portfolio for the
years ended December 31, 1998 and 1999 was $26,597 and
$116,824, respectively. The aggregate amount of
brokerage commissions paid by the Euro Select Equity
Portfolio for the years ended December 31, 1998 and
1999 was $80,601 and $64,596, respectively.
Section 28(e) of the Securities Exchange Act of
1934, as amended ("Section 28(e)"), permits an
investment adviser, under certain circumstances, to
cause an account to pay a broker or dealer who supplies
brokerage and research services a commission for
effecting a transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research
services include (i) furnishing advice as to the value
of securities, the advisability of investing,
purchasing or selling securities and the availability
of securities or purchasers or sellers of securities;
(ii) furnishing analyses and reports concerning
issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of
accounts; and (iii) effecting securities transactions
and performing functions incidental thereto (such as
clearance, settlement and custody).
In selecting brokers or dealers, ICAP considers
investment and market information and other research,
such as economic, securities and performance
measurement research, provided by such brokers or
dealers, and the quality and reliability of brokerage
services, including execution capability, performance
and financial responsibility. Accordingly, the
commissions charged by any such broker or dealer may be
greater than the amount another firm might charge if
ICAP determines in good faith that the amount of such
commissions is reasonable in relation to the value of
the research information and brokerage services
provided by such broker or dealer to the Portfolios.
ICAP believes that the research information received in
this manner provides the Portfolios with benefits by
supplementing the research otherwise available to them.
Such higher commissions will not, however, be paid by
the Portfolios unless (i) ICAP determines in good faith
that the amount is reasonable in relation to the
services in terms of the particular transaction or in
terms of ICAP's overall responsibilities with respect
to the accounts, including the Portfolios, as to which
it exercises investment discretion; (ii) such payment
is made in compliance with the provisions of Section
28(e), other applicable state and federal laws and the
Advisory Agreement; and (iii) in the opinion of ICAP,
the total commissions paid by the Portfolios are
reasonable in relation to the benefits to the
Portfolios over the long term. The aggregate amount of
brokerage commissions for transactions for which
research services were provided paid by the
Discretionary Equity Portfolio for the year ended
December 31, 1999 was $234,164; the aggregate amount of
such commissions paid by the Equity Portfolio for the
same time period was $924,936; the aggregate amount of
such commissions paid by the Select Equity and Euro
Select Equity Portfolios for 1999 was $72,620 and
$62,862, respectively. During the year ended December
31, 1999, the Discretionary Equity and Equity
Portfolios acquired shares of one of their regular
broker dealers, Morgan Stanley, Dean Witter, Discover &
Co. As of December 31, 1999, the aggregate value of
the securities was $0. During the year ended December
31, 1999, the Select Equity and Euro Select Equity
Portfolios did not acquire any stock of their regular
brokers or dealers.
ICAP places portfolio transactions for other
advisory accounts in addition to the Portfolios.
Research services furnished by firms through which the
Portfolios effect their securities transactions may be
used by ICAP in servicing all of its accounts; that is,
not all of such services may be used by ICAP in
connection with the Portfolios.
<PAGE>
ICAP believes it is not possible to measure separately the
benefits from research services to each of the accounts
(including the Portfolios) managed by it. Because the
volume and nature of the trading activities of the accounts
are not uniform, the amount of commissions in excess of
those charged by another broker or dealer paid by each
account for brokerage and research services will vary.
However, ICAP believes such costs to the Portfolios
will not be disproportionate to the benefits received
by the Portfolios on a continuing basis. ICAP seeks to
allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell
securities by the Portfolios and another advisory
account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities
available to the Portfolios. There can be no assurance
that a particular purchase or sale opportunity will be
allocated to the Portfolios. In making such
allocations between the Portfolios and other advisory
accounts, the main factors considered by ICAP are the
respective investment objectives, the relative size of
portfolio holdings of the same or comparable
securities, the availability of cash for investment and
the size of investment commitments generally held.
ADMINISTRATOR
Pursuant to an Amended and Restated Administration
and Fund Accounting Agreement dated as of November 13,
1997, Sunstone Financial Group, Inc. ("Sunstone"),
provides administrative and fund accounting services to
the Portfolios. Under this agreement, Sunstone
calculates the daily net asset value of each Portfolio
and provides various administrative services to the
Portfolios, including clerical, compliance and
regulatory services such as filing all federal income
and excise tax returns and state income tax returns,
assisting with regulatory filings, preparing financial
statements and monitoring expense accruals. For the
years ended December 31, 1997, 1998 and 1999, Sunstone
received $381,200, $603,126 and $632,692, respectively,
for its services under this agreement.
Sunstone's address is 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin, 53202.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
As custodian for the Portfolios' assets, UMB Bank,
n.a., 928 Grand Boulevard, Kansas City, Missouri 64141-
6226, has custody of all securities and cash of each
Portfolio, delivers and receives payment for securities
sold, receives and pays for securities purchased,
collects income from investments, if any, and performs
other duties, all as directed by the officers of the
Portfolios.
Sunstone, 207 East Buffalo Street, Suite 315,
Milwaukee, Wisconsin 53202, acts as transfer agent and
dividend-disbursing agent for the Portfolios.
PURCHASE AND PRICING OF SHARES
Purchase of Shares
Shares of the Portfolios are offered and sold on a
continuous basis at the net asset value next calculated
after the time Sunstone receives a purchase or
redemption order in good form. Please see "Your
AccountHow to Buy Shares" in the Prospectus for more
information.
Broker-dealers, financial institutions and other
financial intermediaries that have entered into
agreements with ICAP may enter purchase or redemption
orders on behalf of their customers. If you purchase
or redeem shares of a Portfolio through a financial
intermediary, certain features of the Portfolio
relating to such transactions may not be available or
may be modified in accordance with the terms of the
intermediaries' agreement with ICAP. In addition,
certain operational policies of a Portfolio, including
those related to settlement and dividend accrual, may
vary from those applicable to direct shareholders of
the Portfolio and may vary among intermediaries. We
urge you to consult your financial intermediary for
more information regarding these matters. In addition,
a Portfolio may pay, directly or indirectly through
arrangements with ICAP, amounts to financial
intermediaries that provide transfer agent and/or other
administrative services relating to the Portfolio to their
<PAGE>
customers provided, however, that the Portfolio
will not pay more for these services through
intermediary relationships than it would if the
intermediaries' customers were direct shareholders in
the Portfolio. Certain financial intermediaries may
charge a commission or other transaction fee for their
services. You will not be charged for such fees if you
purchase or redeem your Portfolio shares directly from
a Portfolio without the intervention of a financial
intermediary.
Pricing of Shares
Shares of each Portfolio are offered to the public
at the net asset value per share next computed after
the time the purchase application and funds are
received in proper order. The net asset value per
share of each Portfolio is determined as of the close
of trading (generally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange (the "NYSE") is open
for business. Purchase orders and redemption requests
received on a day the NYSE is open for trading, prior
to the close of trading on that day, will be valued as
of the close of trading on that day. Applications for
purchase of shares and requests for redemption of
shares received after the close of trading on the NYSE
will be valued as of the close of trading on the next
day the NYSE is open. A Portfolio is not required to
calculate its net asset value on days during which it
receives no orders to purchase or redeem shares. Net
asset value per share for each Portfolio is calculated
by taking the market value of the Portfolio's total
assets, including interest or dividends accrued but not
yet collected, less all liabilities, and dividing by
the total number of shares outstanding in that
Portfolio. The result, rounded to the nearest cent, is
the net asset value per share.
In determining the net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks and other equity-
type securities are valued at the last sales price on
the national securities exchange or Nasdaq on which
such securities are primarily traded; provided,
however, securities traded on an exchange or Nasdaq for
which there were no transactions on a given day and
securities not listed on an exchange or Nasdaq are
valued at the average of the most recent bid and asked
prices. Other exchange traded securities (generally
foreign securities) will be valued based on market
quotations. Any securities or other assets for which
market quotations are not readily available are valued
at fair value as determined in good faith by the Board
of Directors, or its delegate. The Board of Directors
may approve the use of pricing services to assist the
Portfolios in the determination of net asset value.
Short-term fixed income securities held by the
Portfolios are generally valued on an amortized cost
basis.
Securities quoted in foreign currency will be
valued in U.S. dollars at the foreign currency exchange
rates that are prevailing at the time the daily net
asset value per share is determined. Although foreign
assets are valued in U.S. dollars on a daily basis,
foreign assets are not converted into U.S. dollars on a
daily basis. Foreign currency exchange rates are
generally determined prior to the close of trading on
the NYSE. Occasionally, events affecting the value of
foreign investments and such exchange rates occur
between the time at which they are determined and the
close of trading on the NYSE. Such events would not
normally be reflected in the calculation of a
Portfolio's net asset value on that day. If events
that materially affect the value of a Portfolio's
foreign investments or the foreign currency exchange
rates occur during such period, the investments will be
valued at their fair value as determined in good faith
by or under the direction of the Board of Directors, or
its delegate. Certain of the securities holdings of
the Portfolios may, from time to time, be listed
primarily on foreign exchanges that trade on other days
than those on which the NYSE is open for business. As
a result, the net asset value of the applicable
Portfolio may be significantly affected by such trading
on days when investors cannot effect transactions in
their accounts.
TAXATION OF THE PORTFOLIOS
In General
Each Portfolio intends to qualify annually for
treatment as a "regulated investment company" under
Subchapter M of the Code and, if so qualified, will not
be liable for federal income taxes to the extent
earnings are distributed to shareholders on a timely
basis. In the event a Portfolio fails to qualify as a
"regulated investment company," it will be treated as a
regular corporation for federal income tax purposes.
Accordingly, the disqualifying Portfolio would be
subject to federal income taxes and any distributions
that it makes would be taxable and non-deductible by
the Portfolio. What this means for shareholders of
such Portfolio is that the cost of
<PAGE>
investing in the Portfolio would increase. Under these
circumstances, it would be more economical for shareholders
to invest directly in securities held by the Portfolio, rather
than to invest indirectly in such securities through
the Portfolio.
Foreign Transactions
Interest and dividends received by a Portfolio may
be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions that
would reduce the yield on its securities. Tax
conventions between certain countries and the United
States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign
investors. If more than 50% of the value of a
Portfolio's total assets at the close of its taxable
year consists of securities of foreign corporations, it
will be eligible to, and may, file an election with the
Internal Revenue Service that would enable its
shareholders, in effect, to receive the benefit of the
foreign tax credit with respect to any foreign and U.S.
possessions income taxes paid by it. Pursuant to the
election, a Portfolio would treat those taxes as
dividends paid to its shareholders and each shareholder
would be required to (i) include in gross income, and
treat as paid by him, his proportionate share of those
taxes, (ii) treat his share of those taxes and of any
dividend paid by the Portfolio that represents income
from foreign or U.S. possessions sources as his own
income from those sources and (iii) either deduct the
taxes deemed paid by him in computing his taxable
income or, alternatively, use the foregoing information
in calculating the foreign tax credit against his
federal income tax. Each Portfolio will report to its
shareholders shortly after each taxable year their
respective share of its income from sources within, and
taxes paid to, foreign countries and U.S. possessions
if it makes this election.
Each Portfolio maintains its accounts and
calculates its income in U.S. dollars. In general,
gain or loss (i) from the disposition of foreign
currencies and forward currency contracts, (ii) from
the disposition of foreign-currency-denominated debt
securities that are attributable to fluctuations in
exchange rates between the date the securities are
acquired and their disposition date and (iii)
attributable to fluctuations in exchange rates between
the time a Portfolio accrues interest or other
receivables or expenses or other liabilities
denominated in a foreign currency and the time the
Portfolio actually collects those receivables or pays
those liabilities, will be treated as ordinary income
or loss. A foreign-currency-denominated debt security
acquired by a Portfolio may bear interest at a high
nominal rate that takes into account expected decreases
in the value of the principal amount of the security
due to anticipated currency devaluations; in that case,
a Portfolio would be required to include the interest
in income as it accrues but generally would realize a
currency loss with respect to the principal only when
the principal was received (through disposition or upon
maturity).
Derivative Instruments
The use of derivative strategies, such as
purchasing and selling (writing) options and futures
and entering into forward currency contracts, involves
complex rules that will determine for income tax
purposes the character and timing of recognition of the
gains and losses a Portfolio will realize in connection
therewith. Gains from the disposition of foreign
currencies, and income from transactions in options,
futures and forward currency contracts derived by a
Portfolio with respect to its business of investing in
securities or foreign currencies, will qualify as
permissible income under the "Income Requirement." The
"Income Requirement" is a requirement in the Code that
a Portfolio must derive at least 90% of its gross
income each taxable year from dividends, interest,
payments with respect to securities loans and gains
from the sale or other disposition of securities or
foreign currencies or other income (including gains
from options, futures and forward contracts) derived
with respect to its business of investing in securities
of those currencies.
For federal income tax purposes, each Portfolio is
required to recognize as income for each taxable year
its net unrealized gains and losses on options, futures
or forward currency contracts that are subject to
Section 1256 of the Code ("Section 1256 Contracts") and
are held by the Portfolio as of the end of the year, as
well as gains and losses on Section 1256 Contracts
actually realized during the year. Except for Section
1256 Contracts that are part of a "mixed straddle" and
with respect to which a Portfolio makes a certain
election, any gain or loss recognized with respect to
Section 1256 Contracts is considered to be 60% long-
term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of
the Section 1256 Contract.
<PAGE>
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on an investor. There may be other federal,
state or local tax considerations applicable to a
particular investor. Investors are urged to consult
their own tax advisors.
PERFORMANCE INFORMATION
The historical performance or return of the
Portfolios may be shown in the form of various
performance figures, including average annual total
return, total return and cumulative total return. The
Portfolios' performance figures are based upon
historical results and are not necessarily
representative of future performance. Factors
affecting the Portfolios' performance include general
market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or
other financial services firm would reduce the returns
described in this section.
Total Return
Average annual total return and total return
figures measure both the net investment income
generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the
underlying investments in a Portfolio over a specified
period of time, assuming the reinvestment of all
dividends and distributions. Average annual total
return figures are annualized and therefore represent
the average annual percentage change over the specified
period. Total return figures are not annualized and
therefore represent the aggregate percentage or dollar
value changes over the period.
The average annual total return of each Portfolio
is computed by finding the average annual compounded
rates of return over the periods that would equate the
initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the stated periods at
the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") in a Portfolio's shares on the
first day of the period and computing the "ending
value" of that investment at the end of the period.
The total return percentage is then determined by
subtracting the initial investment from the ending
value and dividing the remainder by the initial
investment and expressing the result as a percentage.
The calculation assumes that all income and capital
gain dividends paid by a Portfolio have been reinvested
at the net asset value of the Portfolio on the
reinvestment dates during the period. Total return may
also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income and capital (including capital
gain and changes in share price) in order to illustrate
the relationship between these factors and their
contributions to total return.
The average annual total returns for the
Discretionary Equity Portfolio for the one-year period
ended December 31, 1999, the five year period ended
December 31, 1999 and since inception (December 31,
1994) were 14.85%, 22.54% and 22.54%, respectively.
The average annual total returns for the Equity
Portfolio for the one-year period ended December 31,
1999, the five year period ended December 31, 1999 and
since inception (December 31, 1994) were 16.28%, 24.00%
and 24.00%, respectively. The average annual total
returns for the Select Equity Portfolio for the one-
year period ended December 31, 1999 and since inception
(December 31, 1997) were 27.17% and 21.10%,
respectively. The average annual total returns for the
Euro Select Equity Portfolio for the one-year period
ended December 31, 1999 and since inception (December
31, 1997) were 22.03% and 24.69%, respectively.
<PAGE>
Comparisons
From time to time, in marketing and other
literature, the Portfolios' performance may be compared
to the performance of other mutual funds in general or
to the performance of particular types of mutual funds
with similar investment goals, as tracked by
independent organizations. Among these organizations,
Lipper, Inc. ("Lipper"), a widely used independent
research firm which ranks mutual funds by overall
performance, investment objectives and assets, may be
cited. Lipper performance figures are based on changes
in net asset value, with all income and capital gains
dividends reinvested. Such calculations do not include
the effect of any sales charges imposed by other funds.
The Portfolios will be compared to Lipper's appropriate
fund category, that is, by fund objective and portfolio
holdings.
The Portfolios' performance may also be compared
to the performance of other mutual funds tracked by
Morningstar, Inc. ("Morningstar"), which rates funds on
the basis of historical risk and total return.
Morningstar's ratings range from five stars (highest)
to one star (lowest) and represent Morningstar's
assessment of the historical risk level and total
return of a fund as a weighted average for 3, 5 and 10
year periods. Ratings are not absolute or necessarily
predictive of future performance.
Evaluations of Portfolio performance made by
independent sources may also be used in advertisements
concerning the Portfolios, including reprints of or
selections from, editorials or articles about the
Portfolios. Sources for Portfolio performance and
articles about the Portfolios may include publications
such as Money, Forbes, Kiplinger's, Financial World,
Business Week, U.S. News and World Report, the Wall
Street Journal, Barron's and a variety of investment
newsletters.
The Portfolios may compare their performance to a
wide variety of indices and measures of inflation
including the S&P 500 Stock Index, the S&P/BARRA Value
Index and the Morgan Stanley Capital International
Europe Index. There are differences and similarities
between the investments that the Portfolios may
purchase and the investments measured by these indices.
The performance of the Portfolios may also be
discussed during television interviews of ICAP
personnel conducted by news organizations to be
broadcast in the United States and elsewhere.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202 have been selected
as the independent accountants for the Portfolios.
<PAGE>
FINANCIAL STATEMENTS
The following audited financial statements are
incorporated herein by reference to the Portfolios'
Annual Report for the year ended December 31, 1999 as
filed with the SEC on February 17, 2000:
(a) Schedules of Investments by Sector as of December 31, 1999.
(b) Statements of Assets and Liabilities as of December 31, 1999.
(c) Statements of Operations for the Year Ended December 31, 1999.
(d) Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1999.
(e) Financial Highlights for the years ended December 31, 1995,
1996, 1997, 1998 and 1999.
(f) Notes to Financial Statements.
(g) Report of Independent Accountants dated January 28, 2000.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
See "Exhibit Index."
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is
under common control with any other person.
Item 25. Indemnification
Article VI of Registrant's By-Laws provides as follows:
ARTICLE VI INDEMNIFICATION
The Corporation shall indemnify (a) its
Directors and officers, whether serving the
Corporation or at its request any other entity, to
the full extent required or permitted by (i)
Maryland law now or hereafter in force, including
the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) the
Investment Company Act of 1940, as amended, and
(b) other employees and agents to such extent as
shall be authorized by the Board of Directors and
be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any
other rights to which those seeking
indemnification may be entitled. The Board of
Directors may take such action as is necessary to
carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend
from time to time such resolutions or contracts
implementing such provisions or such further
indemnification arrangements as may be permitted
by law.
Item 26. Business and Other Connections of Investment Adviser
Since 1996, the Registrant's investment adviser,
Institutional Capital Corporation ("ICAP"), has served
as sub-adviser to the taxable investment portfolios
offered by the Nuveen Investment Trust (the "Trust"),
an open-end management investment company (i.e., the
Nuveen Growth and Income Stock Fund, the Nuveen
Balanced Stock and Bond Fund, the Nuveen Balanced
Municipal and Stock Fund and the Nuveen European Value
Fund). Mr. Robert Lyon, ICAP's President, also serves
as a member of the Board of Trustees of the Trust. The
principal business address of the Trust is 333 West
Wacker Drive, 32nd Floor, Chicago, Illinois 60606.
Besides serving as investment adviser to the
Registrant and other private accounts, and as sub-
adviser to the Trust, ICAP is not currently and has not
during the past two fiscal years engaged in any other
business, profession, vocation or employment of a
substantial nature. Information regarding the
business, profession, vocation or employment of a
substantial nature of ICAP's directors and officers is
hereby incorporated by reference to the information
contained under "Directors and Officers" in the
Statement of Additional Information.
Item 27. Principal Underwriters
(a) None
(b) None
(c) None
<PAGE>
Item 28. Location of Accounts and Records
All accounts, books or other documents required to
be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules
promulgated thereunder, are in the possession of ICAP,
Registrant's investment adviser, at Registrant's
corporate offices, except (1) records held and
maintained by UMB Bank, n.a., 928 Grand Boulevard,
Kansas City, Missouri 64141, relating to its function
as custodian, (2) records held and maintained by
Sunstone Financial Group, Inc., 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202, relating
to its function as administrator and fund accountant
and (3) records held and maintained by Sunstone
Financial Group, Inc., 207 East Buffalo Street, Suite
315, Milwaukee, Wisconsin 53202 relating to its
function as transfer agent.
Item 29. Management Services
All management-related service contracts entered
into by Registrant are discussed in Parts A and B of
this Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant certifies that it meets all the requirements
for effectiveness under Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 11 to the Registration
Statement on Form N-1A to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City
of Chicago and State of Illinois on the 24th day of
April, 2000.
ICAP FUNDS, INC. (Registrant)
By: /s/ Robert H. Lyon
--------------------------
Robert H. Lyon
President
Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A has been signed
below by the following persons in the capacities and on
the date(s) indicated.
Name Title Date
/s/ Pamela H. Conroy Vice President, Treasurer April 24, 2000
- ---------------------- and a Director
Pamela H. Conroy
/s/ James A. Gentry Director April 6, 2000
- ---------------------
James A. Gentry
/s/ Joseph Andrew Hays Director April 11, 2000
- ----------------------
Joseph Andrew Hays
/s/ Robert H. Lyon President and a Director April 24, 2000
- ----------------------
Robert H. Lyon
/s/ Gary S. Maurer Director April 24, 2000
- ----------------------
Gary S. Maurer
/s/ Harold W. Nations Director April 6, 2000
- ----------------------
Harold W. Nations
/s/ Donald D. Niemann Vice President, Secretary April 24, 2000
- ---------------------- and a Director
Donald D. Niemann
/s/ Barbara C. Schanmier Director April 12, 2000
- ------------------------
Barbara C. Schanmier
<PAGE>
EXHIBIT INDEX
Exhibit No.Exhibit
(a.1) Registrant's Articles of Incorporation (1)
(a.2) Registrant's Articles Supplementary, dated
December 8, 1997 (2)
(b) Registrant's By-Laws (1)
(c) None
(d.1) Investment Advisory Agreement dated as of
December 30, 1994 (Discretionary Equity
and Equity Portfolios) (1)
(d.2) Amendment to Investment Advisory Agreement
dated as of December 31, 1997 (Select
Equity Portfolio) (2)
(d.3) Amendment to Investment Advisory Agreement
dated as of December 31, 1997 (Euro Select
Portfolio) (2)
(d.4) Expense Cap Agreement dated April 30,
1999(3)
(d.5) Amendment to Expense Cap Agreement dated
April 30, 2000
(e) None
(f) None
(g.1) Custodian Agreement with United Missouri
Bank, n.a. dated December 30, 1994 (1)
(g.2) Amendment to Custodian Agreement with
United Missouri Bank, n.a. (2)
(h.1) Transfer Agency Agreement with Sunstone
Investor Services, LLC dated as of
November 1, 1995 (4)
(h.2) Amendment to Transfer Agency Agreement
with Sunstone Investor Services, LLC dated
November 13, 1997 (2)
(h.3) Amended and Restated Administration and
Fund Accounting Agreement with Sunstone
Financial Group, Inc. dated as of November
13, 1997 (2)
(i.1) Opinion and Consent of Godfrey & Kahn,
S.C. (Discretionary Equity and Equity
Portfolios)(1)
(i.2) Opinion and Consent of Godfrey & Kahn,
S.C. (Select Equity and Euro Select
Portfolios) (2)
(i.3) Consent of Godfrey & Kahn, S.C. relating
to Exhibits (i.1) and (i.2)
(j) Consent of PricewaterhouseCoopers LLP
<PAGE>
(k) None
(l) Subscription Agreements (1)
(m) None
(n) None
(o) Reserved
(p) Code of Ethics Including A Statement of
Policies and Procedures Regarding
Confidential Information and Conflicts of
Interest Restated Effective as of
September 30, 1998 and amended March 1, 2000
____________
(1) Incorporated by reference to Registrant's
Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on April 29, 1997.
(2) Incorporated by reference to Registrant's
Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on December 23, 1997.
(3) Incorporated by reference to Registrant's
Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on April 30, 1999.
(4) Incorporated by reference to Registrant's
Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on April 29, 1996.
Exhibit (d.5)
FIRST AMENDMENT TO EXPENSE CAP/REIMBURSEMENT AGREEMENT
This First Amendment, to the Expense
Cap/Reimbursement Agreement entered into as of the 30th
day of April, 1999 between Institutional Capital
Corporation and ICAP Funds, Inc. on behalf of the ICAP
Discretionary Equity Portfolio, the ICAP Equity
Portfolio, the ICAP Select Equity Portfolio and the
ICAP Euro Select Equity Portfolio (the "Agreement"), is
entered into as of April 30, 2000.
WHEREAS, the Agreement provides that it shall
terminate on April 30, 2000 unless extended by the
mutual agreement of the parties, as provided for in an
amendment to the Agreement;
WHEREAS, the parties to the Agreement wish to
extend the term of the Agreement until April 30, 2001.
NOW THEREFORE, the parties agree as follows:
Pursuant to this First Amendment, the term of the
Agreement shall be extended until April 30, 2001,
unless further extended by the mutual agreement of the
parties, as provided for in an amendment to the
Agreement.
All other provisions of the Agreement shall remain
in full force and effect.
INSTITUTIONAL CAPITAL CORPORATION
By: /s/ Robert H. Lyon
--------------------------------
Robert H. Lyon, President
ICAP FUNDS, INC.
By: /s/ Pamela H. Conroy
--------------------------------
Pamela H. Conroy, Vice President
Exhibit (i.3)
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
PHONE (414) 273-3500 FAX (414) 273-5198
April 24, 2000
ICAP Funds, Inc.
225 W. Wacker, Suite 2400
Chicago, IL 60606
Ladies and Gentlemen:
We consent to the incorporation by reference
in this Registration Statement of our opinion for the
ICAP Discretionary Equity and ICAP Equity Portfolios
dated December 12, 1994 and our opinion for the ICAP
Select Equity and ICAP Euro Select Equity Portfolios
dated December 23, 1997. In giving this consent,
however, we do not admit that we are "experts" within
the meaning of Section 11 of the Securities Act of
1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in
this Registration Statement on Form N-1A of our report
dated January 28, 2000, relating to the financial
statements and financial highlights which appear in the
December 31, 1999 Annual Report to Shareholders of ICAP
Funds, Inc. (comprising, respectively, the ICAP
Discretionary Equity Portfolio, ICAP Equity Portfolio,
ICAP Select Equity Portfolio and ICAP Euro Select
Equity Portfolio), which is also incorporated by
reference into the Registration Statement. We also
consent to the references to us under the headings
"Financial Highlights" and "Independent Accountants" in
such Registration Statement.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
April 24, 2000
Exhibit (p)
CODE OF ETHICS
INCLUDING A STATEMENT OF POLICIES AND PROCEDURES
REGARDING CONFIDENTIAL INFORMATION AND CONFLICTS OF
INTEREST
For Access Persons of
ICAP FUNDS, INC.
and
INSTITUTIONAL CAPITAL CORPORATION
Restated Effective as of September 30, 1998 and amended March 1, 2000
I. DEFINITIONS
A. "Act" means the Investment Company Act of
1940, as amended.
B. "Advisers Act" means the Investment Advisers
Act of 1940, as amended.
C. "Fund" means ICAP Funds, Inc.
D. "ICAP" means Institutional Capital
Corporation.
E. "Access person" means ICAP, any director,
officer or advisory person of ICAP or any
director, officer or advisory person of the
Fund.
F. "Candidate List" includes those securities
under active consideration for purchase by
ICAP for the Fund or any client.
G. "Advisory person" means: (i) any employee of
the Fund or of ICAP; and (ii) any natural
person in a control relationship to the Fund
or ICAP who obtains information concerning
recommendations made to the Fund with regard
to the purchase or sale of a security on
ICAP's Candidate List.
H. A security is "being considered for purchase
or sale" when: (i) a recommendation to
purchase or sell a security has been made and
communicated; (ii) the security appears on
ICAP's Candidate List; or (iii) with respect
to the person making the recommendation, when
such person seriously considers making such a
recommendation.
I. "Beneficial ownership" shall be interpreted
in the same manner as it would be in
determining whether a person is subject to
the provisions of Section 16 of the
Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated
thereunder, except that the determination of
direct or indirect beneficial ownership shall
apply to all securities which an access
person has or acquires. As a general matter,
"beneficial ownership" will be attributed to
an access person in all instances where the
person (i) possesses the ability to purchase
or sell the security (or the ability to
direct the disposition of the security); (ii)
<PAGE>
possesses the voting power (including the
power to vote or to direct the voting) over
such security; or (iii) receives any benefits
substantially equivalent to those of
ownership.
Although the following is not an exhaustive
list, a person generally would be regarded to
be the beneficial owner of the following:
(i) securities held in the person's own
name;
(ii) securities held with another in
joint tenancy, as tenants in
common, or in other joint ownership
arrangements;
(iii) securities held by a bank or
broker as a nominee or custodian on
such persons' behalf or pledged as
collateral for a loan;
(iv) securities held by members of the
person's immediate family sharing
the same household if the person is
a custodian, guardian or otherwise
has controlling influence over the
purchase, sale, or voting of such
securities ("immediate family"
means any child, stepchild,
grandchild, parent, stepparent,
grandparent, spouse, sibling,
mother-in-law, father-in-law, son-
in-law, daughter-in-law, brother-in-
law or sister-in-law, including
adoptive relationships);
(v) securities held by a relative not
residing in the person's home if
the person is a custodian,
guardian, or otherwise has
controlling influence over the
purchase, sale, or voting of such
securities;
(vi) securities held by a trust for
which the person serves as a
trustee and in which the person has
a pecuniary interest (including
pecuniary interests by virtue of
performance fees and by virtue of
holdings by the person's immediate
family);
(vii) securities held by a trust in
which the person is a beneficiary
and has or shares the power to make
purchase or sale decisions;
(viii) securities held by a general
partnership or limited partnership
in which the person is a general
partner; and
(ix) securities owned by a corporation
which is directly or indirectly
controlled by, or under common
control with, such person.
Any uncertainty as to whether an access
person beneficially owns a security should be
brought to the attention of ICAP's Compliance
Officer or the Assistant Compliance Officer.
Such questions will be resolved in accordance
with, and this definition is subject to, the
definition of "beneficial owner" found in
Rules 16a-1(a)(2) and (5) promulgated under
the Securities Exchange Act of 1934.
<PAGE>
J. "Control" shall be interpreted as it would be
in Section 2(a)(9) of the Act. As a general
matter, "control" means the power to exercise
a controlling influence. The "power to
exercise a controlling influence" is intended
to include situations where there is less
than absolute and complete domination and
includes not only the active exercise of
power, but also the latent existence of
power. Anyone who beneficially owns, either
directly or through one or more controlled
entities, more than 25% of the voting
securities of an entity shall be presumed to
control such entity.
K. "Disinterested director" means (i) a director
of the Fund who is not an "interested person"
of the Fund within the meaning of Section
2(a)(19) of the Act and (ii) a director of
ICAP who is not an employee of ICAP.
L. "Limited offering" means an offering of
securities to a limited number of purchasers.
Such offerings are ordinarily made pursuant
to a private offering memorandum or similar
document, although they need not be, and are
exempt from the registration requirements of
the federal securities laws.
M. "Purchase or sale of a security" includes,
among other things, the writing of an option
to purchase or sell a security.
N. "Security" shall have the meaning set forth
in Section 2(a)(36) of the Act and shall
include: common stocks, preferred stocks,
debt securities; options on and warrants to
purchase common stocks, preferred stocks or
debt securities; shares of closed-end
investment companies, futures, commodities
and Related Securities. "Related Securities"
are instruments and securities that are
related to, but not the same as, a security.
For example, a Related Security may be
convertible into a security, or give its
holder the right to purchase the security.
The term "Security" also includes private
investments, including oil and gas ventures,
real estate syndicates and other investments
which are not publicly traded. It shall not
include shares of registered open-end
investment companies, direct obligations of
the Government of the United States, high
quality short-term debt instruments, bankers'
acceptances, bank certificates of deposit,
commercial paper, and such other money market
instruments as designated by the Fund's Board
of Directors.
II. FIDUCIARY PRINCIPLES
Incorporated within this Code of Ethics is a
Statement of Policies and Procedures Regarding
Confidential Information and Conflicts of Interest
(the "Statement"). Failure to observe the
policies and procedures outlined in the Statement
and/or the Code could result in the imposition of
sanctions (including dismissal) and could
constitute a criminal act in violation of, among
other, federal and/or state securities laws.
<PAGE>
A. The Statement
ICAP seeks to foster a reputation for
integrity and professionalism. That
reputation is a vital business asset. The
confidence and trust placed in ICAP by our
clients is something we value and must
endeavor to protect. Any breach of that
confidence or trust could have a disastrous,
long-term effect on ICAP's client
relationships.
In the course of their employment with ICAP,
employees will have access to confidential
information concerning ICAP, its clients and
various other matters. The proper treatment
of such information is a key aspect of
preserving ICAP's integrity. Accordingly,
employees shall not disclose, directly or
indirectly, confidential information to
anyone other than employees and agents of
ICAP who need such information to discharge
their duties.
As far as investments and investment
opportunities are concerned, employees should
remember that their first obligation is to
the client. To meet this obligation, ICAP
must ensure that all advice rendered by
employees is free from any conflict of
interest. Therefore, no employee shall
engage in any activity which may in any way
jeopardize his or her ability to render
impartial and disinterested investment
counseling. This includes scrupulously
avoiding any affiliation which may influence
or even appear to influence the employee's
ability to treat each client in an unbiased
manner.
ICAP's business depends, in part, on investor
confidence in the fairness and integrity of
the securities markets. The problem of
insider trading poses a serious threat to
that confidence. While there is no precise
statutory definition of insider trading, the
term is generally understood to mean
participating in a decision to buy, sell or
tender securities while in possession of
material nonpublic information. Material
nonpublic information is any information (i)
that is not generally available and (ii)
which would be important to an investor in
making a decision to buy, sell, or tender a
security.
The prohibition against trading on material
nonpublic information extends to any
situation where an employee participates in a
decision to buy, sell or tender securities
based on material nonpublic information that
they acquire from an issuer or its
representatives prior to the information
being made available to the public. An
employee participates in a decision to buy,
sell or tender securities if he or she
influences or controls the decision. Thus,
this policy would apply to transactions in
which an employee exercises investment
discretion or influence even though he or she
does not own the securities (such as accounts
for which the employee serves as an advisor
or fiduciary). Specifically, the policy
against insider trading would prohibit ICAP
employees from "tipping" clients, friends,
family or third parties based on their
knowledge of material nonpublic information.
As used herein, "Trading" includes any
securities transactions in which an employee
participated, exerted influence, "tipped" or
was tipped by others. Employees are
<PAGE>
absolutely prohibited from engaging in any
activities that would fall within the above
description of insider trading.
In the event an employee receives material
nonpublic information regarding an issuer,
the employee must immediately notify the
Compliance Officer or the Assistant
Compliance Officer who will place the
issuer's securities on a Restricted List.
Employees are prohibited from trading in the
securities of issuers placed on the
Restricted List.
B. General Fiduciary Principles
In addition to the specific principles
enunciated in this Code and the Statement,
all access persons shall be governed by the
following general fiduciary principles:
(i) The duty at all times to place the
interests of Fund shareholders and
clients of ICAP above all others.
Access persons must scrupulously avoid
serving their own personal interests
ahead of the interests of ICAP's
clients.
(ii) The requirement that all personal
securities transactions be conducted
consistent with the Code and in such a
manner as to avoid any actual or
potential conflict of interest or any
abuse of an individual's position of
trust and responsibility; and
(iii) The fundamental standard that no
access person should take inappropriate
advantage of their position with the
Fund or ICAP.
(iv) Information as to what securities ICAP
has recommended or will recommend is to
be held in strictest confidence.
III. POLICY ON SECURITY OWNERSHIP
In addition to the prohibitions contained in
Section IV below, it is the general policy of the
Fund and ICAP that no access person shall have any
direct or indirect beneficial ownership of any
security which is also owned by the Fund or ICAP's
clients. Upon the discovery by ICAP or any access
person that an access person has a direct or
indirect beneficial ownership of a security which
is also owned by the Fund or ICAP's clients, such
access person shall promptly report such fact to
ICAP's Compliance Officer or Assistant Compliance
Officer, and may be required to divest himself or
herself of such ownership if the Compliance
Officer or Assistant Compliance Officer determines
that any significant conflict of interest or
potential conflict of interest exists as a result
of such ownership. This policy shall not apply to
disinterested directors.
IV. PROHIBITED ACTIVITIES - DISINTERESTED DIRECTORS
<PAGE>
No disinterested director shall purchase or sell a
security if such disinterested director knew or,
in the ordinary course fulfilling his or her
official duties as a director, should have known
that, during the 15-day period immediately before
or after the date of the transaction by the
disinterested director, such security was: (i)
purchased or sold by the Fund or ICAP on behalf of
its clients; (ii) being considered by the Fund or
ICAP on behalf of its clients for purchase or
sale; or (iii) on ICAP's Candidate List.
V. PROHIBITED ACTIVITIES - ALL OTHERS
A. No access person shall purchase or sell,
directly or indirectly, any security in which
he or she has, or by reason of such
transaction acquires, any direct or indirect
beneficial ownership if such security is
owned by the Fund, any client of ICAP, is on
ICAP's Candidate List, or is otherwise being
considered for purchase by ICAP on behalf of
its clients. ICAP employees are responsible
for ascertaining the securities listed from
time to time on the Candidate List which, if
the employee does not have a copy, is always
available in the trading room.
B. An access person may sell a previously held
position in a security which is being
considered for purchase or is on the
Candidate List until ICAP purchases such
security for a client or the Fund. At the
time ICAP purchases such securities and so
long as ICAP holds such securities for a
client or the Fund, the access person must
refrain from selling such securities until
all positions in such issuer's securities are
liquidated, except with the prior written
approval of the Compliance Officer or the
Assistant Compliance Officer.
C. No access person shall acquire any securities
in an initial public offering.
D. No access person shall engage in (i) any
short sale transaction, or (ii) any
transaction in an option, future or an option
on a future in which ICAP actively deals
except with the prior written approval of the
Compliance Officer or the Assistant
Compliance Officer.
E. No access person shall acquire securities in
a Limited offering, without prior approval
from ICAP's Compliance Officer or Assistant
Compliance Officer. In determining whether
approval should be granted, the Compliance
Officer or Assistant Compliance Officer
should consider:
(i) whether the investment opportunity
should be reserved for the Fund or
clients of ICAP; and
(ii) whether the opportunity is being offered
to an individual by virtue of his or her
position with the Fund, ICAP or ICAP's
advisory relationship with any client.
<PAGE>
ICAP's Compliance Officer must maintain a
record of any decision, and the reasons
supporting the decision, to approve the
acquisition by an access person for at least
five years after the end of the fiscal year
in which the approval is granted. In the
event approval is granted, the access person
must disclose the investment when he or she
plays a material role in a client's or the
Fund's, subsequent consideration of an
investment in the issuer. In such
circumstances, the decision to purchase
securities of the issuer will be subject to
an independent review by investment personnel
with no personal interest in the issuer.
F. No access person shall receive any gift or
other thing of more than de minimis value
from any person or entity that does business
with or on behalf of the Fund or any client
of ICAP. On occasion, an access person may
be offered, or may receive without notice,
gifts from clients, brokers, vendors, or
other persons not affiliated with such
entities, including companies that ICAP on
behalf of its clients may be invested in or
may be considering making an investment in.
Acceptance of extraordinary or extravagant
gifts is not permissible.
G. No access person shall serve on the board of
directors of a publicly traded company
without prior authorization from ICAP's Board
of Directors and the Fund's Board of
Directors based upon a determination that the
board service would be consistent with the
interests of the Fund and clients of ICAP.
In the event the board service is authorized,
access persons serving as directors must be
isolated from those making investment
decisions through a "Chinese wall."
VI. EXEMPTED TRANSACTIONS
The prohibitions of Sections IV and V shall not
apply to:
A. Purchases or sales effected in any account
over which an access person has no direct or
indirect influence or control (e.g., a blind
trust);
B. Purchases or sales of securities which are
not eligible for purchase or sale by ICAP's
client accounts or the Fund;
C. Purchases or sales which are non-volitional
on the part of either the access person, the
Fund or ICAP's client accounts;
D. Purchases which are part of an automatic
dividend reinvestment plan;
E. Purchases effected upon the exercise of
rights issued by an issuer pro rata to all
holders of a class of its securities, to the
extent such rights were acquired from such
issuer, and sales of such rights so acquired;
and
F. Purchases or sales which receive the prior
approval of ICAP's Compliance Officer or
Assistant Compliance Officer because (i) they
are only remotely potentially
<PAGE>
harmful to the Fund and ICAP's clients; (ii) they
would be very unlikely to affect a highly
institutional market; or (iii) they clearly
are not related economically to securities to
be purchased, sold or held by the Fund or
ICAP's clients.
VII. REPORTING - DISINTERESTED DIRECTORS
A disinterested director shall report quarterly to
Sunstone Financial Group, Inc. ("Sunstone") or
ICAP's Compliance Officer even if such director
has no securities transactions to report for the
reporting period.
Such report shall be in the form described in
Section VIII(E) and may contain the statement that
the report shall not be construed as an admission
that the director has any direct or indirect
beneficial ownership in the security to which the
report relates.
A disinterested director need only report a
transaction in a security if such director, knew
or, in the ordinary course of fulfilling his or
her official duties as a disinterested director,
should have known that, during the 15-day period
immediately before or after the date of the
transaction by the disinterested director, such
security was: (i) purchased or sold by the Fund
or ICAP on behalf of its clients; (ii) being
considered by the Fund or ICAP on behalf of its
clients for purchase or sale; or (iii) on ICAP's
Candidate List.
VIII. REPORTING - ALL OTHERS
A. All securities transactions in which an
access person has a direct or indirect
beneficial ownership interest will be
monitored by Sunstone and ICAP's Compliance
Officer. To facilitate Sunstone's
monitoring, ICAP's Compliance Officer shall
inform Sunstone on a timely basis of any
changes in ICAP's Candidate List.
B. ICAP's Compliance Officer shall report his or
her personal securities transactions in
accordance with this Section VIII and shall
also report such transactions directly to the
Assistant Compliance Officer who shall
additionally monitor such transactions.
C. Every access person shall report to Sunstone
and ICAP's Compliance Officer the information
described in Section VIII(E) with respect to
the transactions in any security in which
such access person has, or by reason of such
transaction acquires, any direct or indirect
beneficial ownership.
D. Every access person shall report quarterly to
Sunstone and ICAP's Compliance Officer even
if such access person has no securities
transactions to report for the reporting
period.
<PAGE>
E. Every report required to be made by Sections
VII and VIII shall be made not later than ten
(10) days after the end of the calendar
quarter in which the transaction to which the
report relates and shall contain the
following information:
(i) The date of the transaction, the title,
the interest rate and maturity date (if
applicable), the number of shares, and
the principal amount of each security
involved;
(ii) The nature of the transaction (i.e.,
purchase, sale or any other type of
acquisition or disposition);
(iii) The price of the security at which
the transaction was effected; and
(iv) The name of the broker, dealer or bank
with or through whom the transaction was
effected.
The determination date for timely compliance
is the date the report is received by
Sunstone and ICAP's Compliance Officer, which
date must be recorded on the report.
F. Any report filed pursuant to Section VIII(E)
of this Code of Ethics may contain a
statement that the report shall not be
construed as an admission by the person
making such report that he or she has any
direct or indirect beneficial ownership in
the security to which the report relates.
G. In addition to the above reporting
requirements, every access person shall
direct his or her brokers to supply to
Sunstone and ICAP's Compliance Officer, on a
timely basis, duplicate copies of all
personal securities transactions and copies
of periodic statements for all securities
accounts in which such access person has a
beneficial ownership interest. Attached
hereto as Appendix 1 is a form letter that
may be used to request such documents from
the respective broker, dealer, or bank. It
is the responsibility of the access person to
make sure that his or her broker does in fact
send ICAP and Sunstone the duplicate
confirmations and the duplicate statements.
These forms, confirmations and statements
will be maintained in strictest confidence in
the respective files of ICAP and Sunstone.
H. In addition to the above reporting
requirements, every access person shall
disclose to ICAP's Compliance Officer and
Sunstone all personal securities holdings
within ten (10) days of such person's
commencement of employment, such disclosures
shall be made on the form attached hereto at
Appendix 2. Shortly after becoming an access
person, such person must meet with the
Compliance Officer to review the obligations
imposed by the Statement and this Code of
Ethics. Each such access person shall then
sign an acknowledgment, attached hereto as
Appendix 3, to affirm that they have reviewed
the Statement and this Code of Ethics.
<PAGE>
I. In addition to the above reporting
requirements, every access person shall
disclose to ICAP's Compliance Officer and
Sunstone all personal securities holdings in
an annual report which reflects such person's
securities holdings as of June 30th. Such
disclosures must be made on the form attached
hereto as Appendix 4 and received by the
Compliance Officer and Sunstone no later than
July 31st of each year.
IX. COMPLIANCE WITH THE CODE OF ETHICS
A. All access persons and shall certify annually
in the form attached hereto as Appendix 5
that:
(i) They have read and understand the Code
of Ethics and recognize that they are
subject thereto; and
(ii) They have complied with the requirements
of the Code of Ethics and disclosed or
reported all personal securities
transactions required to be disclosed or
reported pursuant to the Code.
B. Sunstone, in conjunction with ICAP's
Compliance Officer and the Fund's legal
counsel, shall include a report in the Fund's
Board of Directors quarterly materials and
ICAP shall include a report in its Board of
Directors quarterly materials which shall:
(i) Identify any violations during the
previous quarter or state that no
violations occurred during the previous
quarter; and
(ii) Identify any recommended changes in
existing restrictions or procedures
based upon the Fund's experience under
its Code of Ethics, evolving industry
practices, or developments in laws or
regulations.
C. The quarterly reports shall be summarized in
an annual report to the Fund's Board of
Directors and shall include a certification
from the Fund and ICAP stating that the
respective entity has adopted procedures
reasonably necessary to prevent its access
persons from violating this Statement and
Code of Ethics.
X. SANCTIONS
Upon discovering a violation or potential
violation of this Statement or Code of Ethics, the
Compliance Officer or Assistant Compliance Officer
will conduct an inquiry into the circumstances
and, if appropriate, will report such violation or
potential violation to the Board of Directors of
ICAP and the Fund. Technical compliance with the
Code's procedures will not automatically insulate
from scrutiny any trades that indicate an abuse of
fiduciary duties. Each Board of Directors may
impose such sanctions as it deems appropriate,
including, among other sanctions, a letter of
censure or suspension, or
<PAGE>
termination of the employment of the violator.
Each Board of Directors will be promptly informed
of any serious violations of this Code of Ethics
or the Statement.
<PAGE>
Appendix 1
Form of Letter to Broker, Dealer or Bank
[DATE]
<Broker Name and Address>
Subject: Account # ______________________
Dear ___________________________:
Institutional Capital Corporation ("ICAP"), my
employer, is a registered investment adviser. You are
requested to send duplicate confirmations of individual
transactions as well as duplicate periodic statements
for the above-referenced account to ICAP and Sunstone
Financial Group, Inc. Please address the confirmations
and statements directly to:
General Counsel Compliance Officer
Sunstone Financial Group, Inc. Institutional Capital Corporation
207 E. Buffalo Street, Suite 400 225 W. Wacker Drive, Suite 2400
Milwaukee, WI 53202 Chicago, IL 60606
Your cooperation is most appreciated. If you have
any questions regarding these requests, please contact
me or Mr. Donald Niemann of ICAP at (312) 424-9100.
Sincerely,
<Name of Access Person>
cc: Mr. Donald Niemann
<PAGE>
Appendix 2
PERSONAL SECURITIES HOLDINGS - INITIAL
In accordance with Section VIII(H) of the Code of
Ethics, please provide a list of all securities in
which you have a beneficial interest.
(1) Name of Access Person: __________________________
(2) If different than (1), name of the person
in whose name the account is held: __________________________
(3) Relationship of (2) to (1): __________________________
(4) Broker at which Account is maintained: __________________________
(5) Account Number: __________________________
(6) Contact person at Broker and phone number: __________________________
(7) For each account, attach the most recent account
statement listing securities in that account. If you
have a beneficial interest in securities that are not
listed in an attached account statement, list them
below:
Name of Security Quantity Value Custodian
1. __________________________________________________________________________
2. __________________________________________________________________________
3. __________________________________________________________________________
4. __________________________________________________________________________
5. __________________________________________________________________________
(Attach separate sheet if necessary)
I certify that this form and the attached
statements (if any) include all of the securities in
which I have a beneficial interest.
_______________________________________
Access Person Signature
Dated: ____________________ _______________________________________
Print Name
Date of commencement of employment: _____________________________________
<PAGE>
Appendix 3
ACKNOWLEDGMENT OF RECEIPT OF STATEMENT AND CODE OF ETHICS
I acknowledge that I have received and understand
the Statement and Code of Ethics dated September
30,1998 and amended March 1, 2000 and represent:
1. In accordance with the Code of Ethics, I will
report all securities transactions in which I have a
beneficial interest and which are required to be
reported.
2. I will comply with the Statement and Code of
Ethics in all other respects.
_________________________________
Signature
__________________________________
Print Name
Dated:____________________
<PAGE>
Appendix 4
PERSONAL SECURITIES HOLDINGS - ANNUAL
In accordance with Section VIII(I) of the Code of
Ethics, please provide a list of all securities in
which you have a beneficial interest as of June 30th.
(1) Name of Access Person: ____________________________
(2) If different than (1), name of the person
in whose name the account is held: ____________________________
(3) Relationship of (2) to (1): ____________________________
(4) Broker at which Account is maintained: ____________________________
(5) Account Number: ____________________________
(6) For each account, attach the account statement
listing securities in that account as of June 30th. If
you have a beneficial interest in securities that are
not listed in an attached account statement, list them
below:
Name of Security Quantity Value Custodian
1. __________________________________________________________________________
2. __________________________________________________________________________
3. __________________________________________________________________________
4. __________________________________________________________________________
5. __________________________________________________________________________
(Attach separate sheet if necessary)
I certify that this form and the attached
statements (if any) include all of the securities in
which I have a beneficial interest.
______________________________________
Access Person Signature
Dated: ___________________ ______________________________________
Print Name
[This form must be received by the Compliance Officer
and Sunstone no later than July 31st.]
<PAGE>
Appendix 5
ANNUAL CERTIFICATION OF COMPLIANCE WITH
THE STATEMENT AND CODE OF ETHICS
I certify that during the past year:
1. I have reported all securities transactions
which I am required to report pursuant to the Code of
Ethics.
2. I have complied with the Statement and Code of
Ethics in all other respects.
3. I have read and understand the Statement and
Code of Ethics and recognize that I am subject thereto.
_________________________________
Signature
__________________________________
Print Name
Dated:____________________
