<PAGE> 1
INVESTMENT ADVISOR INSTITUTIONAL
Shay Assets Management Co. INVESTORS
26 Broadway MUTUAL
Suite 400 FUNDS
New York, New York 10004
DISTRIBUTOR
Shay Financial Services Co.
111 East Wacker Drive Capital Appreciation Fund, Inc.
Chicago, Illinois 60601 Tax Advantaged Income Fund, Inc.
ADMINISTRATOR, TRANSFER AGENT,
REGISTRAR AND DIVIDEND PAYING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
PNC Bank, NA
17th & Chestnut Streets
Philadelphia, Pennsylvania 19101
LEGAL COUNSEL
Hughes Hubbard & Reed
One Battery Park Plaza
New York, New York 10004
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP ANNUAL REPORT
1345 Avenue of the Americas TO SHAREHOLDERS
New York, New York 10105 DECEMBER 31, 1995
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS MUTUAL FUNDS
PERFORMANCE SUMMARY
(UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDING DECEMBER 31, 1995(1)
<TABLE>
<CAPTION>
1
YEAR 3 YEARS 5 YEARS 10 YEARS
ENDED ENDED ENDED ENDED
----- ------- ------- --------
<S> <C> <C> <C> <C>
CAPITAL APPRECIATION
FUND................ 24.9% 14.3% 13.8% 11.2%
Standard & Poor's
500 Index......... 37.5 15.3 16.6 14.9
Dow Jones Industrial
Average........... 36.9 18.9 17.6 16.5
Lipper Growth &
Income Funds
Average........... 30.8 13.3 15.5 12.8
TAX ADVANTAGED INCOME
FUND................ 3.3 2.5 7.4 5.4(2)
IBC/Donoghue Money
Market Index...... 5.5 4.0 4.2 5.6(2)
</TABLE>
(1) Assumes reinvestment of all dividends and distributions. Average annual
returns are stated for periods greater than one year. Data for the Standard
& Poor's 500 Index, Dow Jones Industrial Average and Lipper Growth & Income
Funds Average is from Lipper Analytical Services Corporation. Data for the
IBC/Donoghue Money Market Index is from CDA Investment Technologies, Inc.
(2) Since inception of the Tax Advantaged Income Fund on 2/28/88.
The following graph shows that an investment of $10,000 in the Capital
Appreciation Fund on December 31, 1985 would have been worth $28,818 on December
31, 1995, assuming all dividends and distributions have been reinvested. A
similar investment in the S&P 500, over the same period, would have grown to
$39,892.
CAPITAL APPRECIATION FUND
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CAF S&P
<S> <C> <C>
1985 10000 10000
1986 11314 11860
1987 11687 12477
1988 12744 14535
1989 16284 19129
1990 15109 18536
1991 17513 24170
1992 19305 26007
1993 23258 28634
1994 23074 29006
1995 28818 39892
</TABLE>
The following graph shows that an investment of $10,000 in the Tax Advantaged
Income Fund on February 28, 1988 would have been worth $14,822 on December 31,
1995, assuming all dividends and distributions have been reinvested. A similar
investment in the IBC/Donoghue Money Market Index, over the same period, would
have grown to $15,281.
TAX ADVANTAGED INCOME FUND
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) TAF IBC
<S> <C> <C>
1987 10000 10000
1988 9930 10600
1989 10220 11543
1990 10548 12444
1991 12724 13153
1992 13966 13600
1993 14352 13967
1994 14501 14484
1995 14822 15281
</TABLE>
Past performance is not predictive of future results. The S&P 500 Index and
IBC/Donoghue Money Market Index represent unmanaged groups of securities which
differ in composition from the Capital Appreciation Fund and Tax Advantaged
Income Fund, respectively. The indices do not include a reduction in total
return for expenses.
- --------------------------------------------------------------------------------
1
<PAGE> 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MESSAGE FROM THE PRESIDENT:
Dear Shareholder:
The Institutional Investors Capital Appreciation Fund enjoyed a total return of
24.90% in 1995. This gain helped to elevate the Fund's three year average annual
return to 14.29% and the five year average annual return to 13.78%. Moreover, if
a shareholder institution had invested $10,000 in the Capital Appreciation Fund
in 1953 and reinvested all capital gains and dividends back into the Fund, the
shareholder institution's investment would have grown to $1,176,312 at year-end
1995. The Institutional Investors Tax Advantaged Income Fund, a money market
alternative, posted a year-end return of 3.29%.
The investing public's knowledge of mutual funds and equity investing continues
to accelerate at a rapid pace. The Investment Company Institute, for example,
recently reported that from 1940 through 1991, inclusive, net inflows into
equity mutual funds amounted to $110 billion, while from 1992 through year-end
1995, net inflows into equity mutual funds surpassed $350 billion.
Many individual investors now realize what institutional investors have known
for some time. Namely, common stocks over time outperform both money market and
bond investments. They also concur with institutional investors that an
efficient strategy to create wealth over time is to marry a long term goal such
as retirement income or a child's college tuition with a long-term, dollar-cost
averaging common stock investment plan. By investing equal dollar amounts on a
regular basis, such as weekly, monthly or quarterly, more shares are purchased
when the price is lower and fewer shares when the price is higher. In addition,
a regular investment plan helps to avoid the dangers of market timing.
Trying to precisely forecast when to enter the market and when to exit is almost
impossible when most of the stock market's gains usually occur within a very
short time span. Ibbotson Associates, a leading stock market performance
measurement firm, has shown that from December 31, 1925 through December 31,
1993, the compound annual gain in common stocks averaged 10.33%. Yet when the
best performing thirty months are removed from this 816 month time period, the
average compound annual gain drops to 3.69%. More recently, for the decade ended
December 1994, the Standard & Poor's 500 Stock Index had an average annual gain
of 14.5%. However, when the best twelve months of performance are removed, the
average annual gain is reduced to 3.8%.
The individual investor's rising knowledge of equity investing is also related
to the challenges of a global economy. Although many of the economic
consequences of global competition, such as low inflation, declining interest
rates and limited wage growth are positives for both our economy and corporate
profits, some of the results also can cause job insecurity, downward mobility
and reduced consumer confidence. Individual investors are aware that in order to
remain competitive, American industry, at least for the short term, will
continue to substitute technology for human effort, to export jobs to low wage
countries and to replace defined benefit plans with defined contribution plans
such as 401(k) plans. As a result, American workers know that they have to take
more control over their own financial future. The Capital Appreciation Fund's
investment philosophy of creating wealth over time and its investment discipline
of only investing in companies with strong balance sheets that also have the
capability of generating rising earnings and cash flow, blends in nicely with
the investment philosophies held by many new individual investors in the equity
market.
Sincerely,
Harry Doherty
Harry Doherty
President
- --------------------------------------------------------------------------------
2
<PAGE> 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT RESULTS, OUTLOOK AND STRATEGIES
CAPITAL APPRECIATION FUND
The Institutional Investors Capital Appreciation Fund provided a total return to
its shareholders of 24.90% for the twelve month period ending December 31, 1995.
Total return reflects the reinvestment of all dividends and capital gains, as
well as the change in net asset value for the period. The Fund's net asset value
per share on December 31, 1995 was $121.75, versus $112.12 on December 31, 1994.
Shareholders received distributions from dividend income of $1.2264 per share
and capital gains of $16.8850 per share during fiscal 1995.
1995 proved to be a very profitable year for investors in the domestic equity
markets. The Dow Jones Industrial Average ended the year in record territory,
surpassing both the 4000 and 5000 milestones. The Standard & Poors' 500 Index
also ended the year in record territory well above the 600 level. Strong
corporate earnings, low inflation, declining interest rates and record cash
inflows into equity mutual funds were largely responsible for the gains.
Investors commonly calculate the value of a company by estimating future cash
flows and discounting them back to the present using an appropriate discount
rate. As corporate profits strengthened and interest rates fell during the year,
cash flow estimates increased and discount rates were lowered. As a result, the
present value of these cash flows increased causing stock market participants to
bid up prices.
Securities held in the Capital Appreciation Fund that contributed at least one
percentage point to the total return during 1995 included (in descending order)
Clayton Homes, Inc.; Wendy's International, Inc.; IBP, Inc.; Reynolds & Reynolds
Co.; and Hewlett-Packard Co. There were no securities that detracted more than
one percentage point from the Fund's 1995 total return and only two that reduced
the Fund's return by more than 1/2 of 1 percentage point, namely Brown Group,
Inc. and Toys "R" Us, Inc. Brown Group was eliminated from the portfolio earlier
in the year while Toys "R" Us continues to be a holding in the Fund. Retail
stocks in general performed poorly during the year and even those with strong
balance sheets and solid management teams were not immune to the difficult
operating environment.
The investment management team was quite active during the year. As investors'
attentions were focused on the hot technology and financial sectors, we
maintained our disciplined approach of buying equity securities that appear
relatively undervalued in the marketplace. As a result, the Fund was
underweighted in these two sectors of the market, which may have adversely
affected our relative returns in the short-term. However, we were able to
accumulate many high quality stocks that have demonstrated the ability to grow
their cash flows and earnings in a consistent manner over long periods of time.
These steady growers were not the market favorites this past year, providing us
with the opportunity to accumulate positions at prices we considered to be
attractive relative to the prevailing market valuations. Most of the securities
we eliminated from the portfolio during the year were the result of reaching
fair market values or a relative decline in their financial prospects compared
to alternative opportunities.
The Fund's value philosophy consists of stringent investment guidelines which
enable Shay Assets Management Co. (the "Investment Adviser") to identify
companies with strong balance sheets and the potential for improvement in cash
flows and earnings that are currently undervalued by the equity market. This
"bottoms-up" approach seeks to identify attractive stock candidates on a
company-by-company basis. Industry sector outlook and general stock market
conditions are secondary considerations. The principal characteristics that the
Investment Adviser continually searches for include: improving cash flow return
on investment resulting largely from the efficient use of capital, lean cost
structures and continual margin improvement coupled with attractive stock
valuations. The universe of potential equity investments is continually screened
for companies meeting these parameters, thereby providing the opportunity to
enhance shareholder value.
TAX ADVANTAGED INCOME FUND
The Tax Advantaged Income Fund produced a total return of 3.29% for the twelve
month period ending December 31, 1995. The Fund's net asset value per share was
$99.49 as of December 31, 1995, versus $99.75 on December 31, 1994. Dividend
distributions during fiscal 1995 totaled $3.4913 per share. The Fund has
maintained low volatility in its net asset value per
- --------------------------------------------------------------------------------
3
<PAGE> 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
share for the duration of the year, ranging from a low of $99.41 to a high of
$100.89, while continuing to provide a steady stream of dividend income.
The Tax Advantaged Income Fund's objective is to obtain a high level of current
income consisting of dividends eligible for the Dividends Received Deduction.
Tax paying corporations can earn enhanced after-tax returns due to their ability
to exclude 70% of these dividends from their taxable income. The Fund is
conservatively managed with an emphasis on credit quality. All of the Fund's
auction rate and adjustable rate preferred holdings are investment grade.
As of December 31, 1995, the Tax Advantaged Income Fund was 81.64% invested in
auction rate preferred stocks and 6.40% in adjustable rate preferred stocks,
with the remaining 11.96% in short-term commercial paper and other short-term
assets. With the majority of the Fund's assets in auction rate preferred stocks,
which adjust their yields every 49 days, the portfolio is well positioned to
minimize volatility in the Fund's net asset value while providing a steady
stream of dividend income eligible for the Dividends Received Deduction.
- --------------------------------------------------------------------------------
4
<PAGE> 6
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK-88.77%:
<TABLE>
<CAPTION>
VALUE
-----------
SHARES (NOTE 1)
- -------
<C> <S> <C>
AUTO PARTS-3.23%
38,600 Cooper Tire & Rubber Co. .............. $ 950,525
22,800 Echlin, Inc. .......................... 832,200
-----------
1,782,725
BEVERAGES-2.54%
18,900 Coca-Cola Company...................... 1,403,325
BEVERAGES--ALCOHOLIC-2.16%
17,800 Anheuser-Busch Companies, Inc. ........ 1,190,375
BUILDING MATERIALS-3.91%
26,600 National Service Industries............ 861,175
31,900 Sherwin-Williams Co. .................. 1,299,925
-----------
2,161,100
CHEMICALS-3.24%
24,100 Morton International, Inc. ............ 864,588
20,200 PPG Industries, Inc. .................. 924,150
-----------
1,788,738
CHEMICALS--SPECIALTY-3.05%
18,500 Avery Dennison Corp. .................. 927,312
13,500 Nordson Corp. ......................... 759,375
-----------
1,686,687
COMPUTER SOFTWARE & SERVICES-3.29%
24,500 Automatic Data Processing, Inc. ....... 1,819,125
COMPUTER SYSTEMS-1.46%
9,600 Hewlett-Packard Co. ................... 804,000
CONTAINERS (PAPER)-1.44%
31,100 Bemis Company, Inc. ................... 796,938
ELECTRICAL EQUIPMENT-7.01%
11,800 Emerson Electric Co. .................. 964,650
16,300 Grainger (W.W.), Inc. ................. 1,079,875
13,000 Hubbell, Inc. ......................... 854,750
39,700 Premier Industrial Corp. .............. 972,650
-----------
3,871,925
ENTERTAINMENT-1.33%
12,400 Walt Disney Co. ....................... 731,600
<CAPTION>
VALUE
-----------
SHARES (NOTE 1)
- -------
<C> <S> <C>
FOODS-6.52%
48,000 Hormel Foods Corp. .................... $ 1,182,000
30,100 Lancaster Colony Corp. ................ 1,121,225
40,800 Sara Lee Corp. ........................ 1,300,500
-----------
3,603,725
FURNISHINGS & APPLIANCES-2.20%
50,000 Leggett & Platt, Inc. ................. 1,212,500
HEALTH CARE--DRUGS-4.29%
100,850 Mylan Laboratories..................... 2,369,975
HEALTH CARE--HOSP. MGMT.-1.80%
28,400 Manor Care, Inc. ...................... 994,000
HEAVY DUTY TRUCKS & PARTS-1.22%
26,900 Donaldson Company, Inc. ............... 675,863
HOUSEHOLD PRODUCTS-2.98%
23,000 Clorox Co. ............................ 1,647,375
MANUFACTURED HOUSING-1.55%
40,093 Clayton Homes, Inc. ................... 856,988
MANUFACTURING-1.89%
25,500 Teleflex, Inc. ........................ 1,045,500
OFFICE EQUIPMENT & SUPPLIES-2.96%
23,000 Reynolds & Reynolds Co. Class A........ 894,125
36,900 Standard Register Co. ................. 742,612
-----------
1,636,737
PUBLISHING--NEWSPAPERS-5.82%
26,000 Gannett Company, Inc. ................. 1,595,750
42,200 Lee Enterprises, Inc. ................. 970,600
2,300 Washington Post Co. Class B............ 648,600
-----------
3,214,950
RAILROADS-1.73%
24,900 Illinois Central Corp. Series A ....... 955,537
RESTAURANTS-1.74%
45,100 Wendy's International, Inc. ........... 958,375
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
5
<PAGE> 7
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK (CONTINUED):
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
RETAIL--DEPARTMENT STORES-1.89%
24,700 May Department Stores Co. .............. $ 1,043,575
RETAIL--DRUG CHAINS-3.51%
15,400 Arbor Drugs, Inc. ...................... 323,400
54,000 Walgreen Company........................ 1,613,250
-----------
1,936,650
RETAIL--FOOD CHAINS-5.70%
67,900 Albertson's, Inc. ...................... 2,232,212
37,200 Hannaford Brothers Co. ................. 916,050
-----------
3,148,262
RETAIL--GENERAL MERCHANDISE-3.20%
79,000 Wal-Mart Stores, Inc. .................. 1,767,625
RETAIL--SPECIALTY STORES-1.69%
22,200 Gap, Inc. .............................. 932,400
SPECIALIZED SERVICES-1.55%
38,600 Rollins, Inc. .......................... 854,025
TOBACCO-2.49%
15,200 Philip Morris Companies, Inc. .......... 1,375,600
TOYS-1.38%
35,100 Toys "R" Us, Inc. #..................... 763,425
-----------
Total Common Stock
(Cost $42,050,613).................... $49,029,625
-----------
</TABLE>
COMMERCIAL PAPER-11.47%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
(NOTE 1)
<C> <S> <C> <C>
$1,000,000 American Express Credit
Corp., 5.75%,
due 01/02/96.............. $ 1,000,000
2,667,000 Associates Credit Corp.,
5.60%, due 01/02/96....... 2,667,000
2,668,000 Household Finance Corp.,
5.65%, due 01/02/96....... 2,668,000
-----------
Total Commercial Paper
(Cost $6,335,000)......... 6,335,000
-----------
Total Investments
(Cost $48,385,613*)....... 100.24% 55,364,625
Liabilities in excess of
other assets.............. (.24)% (130,646)
------ -----------
Net Assets.................. 100.00% $55,233,979
====== ===========
</TABLE>
# Non-income producing security.
* Aggregate cost for Federal income tax purposes is identical. At December
31, 1995, the net unrealized appreciation for all securities of $6,979,012
consists of gross unrealized appreciation of $7,800,258 and gross unrealized
depreciation of $821,246.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
6
<PAGE> 8
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
-----------------
<S> <C>
Common stock--at value (Cost $42,050,613).............................................. $49,029,625
Commercial paper--at value (Cost $6,335,000)........................................... 6,335,000
-----------
Total Investments--at value (Cost $48,385,613)......................................... 55,364,625
Cash................................................................................... 1,000,810
Dividends and interest receivable...................................................... 95,980
Prepaid expenses....................................................................... 13,348
-----------
Total assets......................................................................... 56,474,763
-----------
LIABILITIES:
Payable for securities purchased....................................................... 1,165,085
Accrued expenses payable............................................................... 42,695
Investment advisory fees payable....................................................... 33,004
-----------
Total liabilities.................................................................... 1,240,784
-----------
NET ASSETS applicable to 453,657 shares of
$1.00 par value stock................................................................ $55,233,979
===========
NET ASSETS:
Capital paid in........................................................................ $48,253,308
Undistributed net realized gains....................................................... 167
Undistributed net investment income.................................................... 1,492
Net unrealized appreciation............................................................ 6,979,012
-----------
NET ASSETS............................................................................. $55,233,979
===========
NET ASSET VALUE, offering and redemption price
per share ($55,233,979 / 453,657 shares)............................................. $ 121.75
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 9
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends.......................................................................... $ 932,580
Interest........................................................................... 191,302
-----------
Total investment income............................................................ 1,123,882
EXPENSES:
Investment advisory fees........................................................... 361,764
Legal.............................................................................. 130,345
Administration..................................................................... 49,782
Directors'......................................................................... 44,537
Insurance.......................................................................... 29,983
Audit.............................................................................. 28,850
Custody............................................................................ 16,036
Transfer agent..................................................................... 11,440
Printing........................................................................... 7,963
Miscellaneous...................................................................... 6,672
-----------
687,372
Fee waivers........................................................................ (15,232)
-----------
Net operating expenses.......................................................... 672,140
-----------
Net investment income........................................................... 451,742
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments..................................................... 6,328,622
Net change in unrealized appreciation of investments................................. 3,832,234
-----------
Net realized and unrealized gain on investments...................................... 10,160,856
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $10,612,598
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
8
<PAGE> 10
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 451,742 $ 553,688
Net realized gain on investments.................................................. 6,328,622 6,821,337
Net change in unrealized appreciation of investments.............................. 3,832,234 (7,799,499)
----------- -----------
Net increase (decrease) in net assets resulting from operations..................... 10,612,598 (424,474)
Net equalization.................................................................... 3,043 3,761
Distributions to shareholders from:
Net investment income............................................................. (466,658) (544,084)
Net realized gain on investments.................................................. (6,328,455) (6,821,337)
Net Increase from capital share transactions........................................ 11,186,609 9,670,522
----------- -----------
Total increase in net assets.................................................... 15,007,137 1,884,388
NET ASSETS:
Beginning of year................................................................. 40,226,842 38,342,454
----------- -----------
End of year (including undistributed net investment income of
$1,492 and $13,365, respectively)............................................... $55,233,979 $40,226,842
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for Each Share of Capital Stock
Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year............................ $112.12 $137.22 $135.14 $135.63 $154.21
INCOME FROM OPERATIONS:
Net investment income....................................... 1.20 1.78 1.63 2.36 4.25
Net realized and unrealized gain (loss)..................... 26.55 (2.88) 25.94 11.40 18.90
------- ------- ------- ------- -------
Total from investment operations.......................... 27.75 (1.10) 27.57 13.76 23.15
DISTRIBUTIONS:
From net investment income.................................. (1.23) (1.73) (1.77) (2.24) (4.23)
From net realized gains..................................... (16.89) (22.27) (23.72) (12.01) (36.27)
From return of capital...................................... -- -- -- -- (1.23)
------- ------- ------- ------- -------
Total distributions....................................... (18.12) (24.00) (25.49) (14.25) (41.73)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year.................................. $121.75 $112.12 $137.22 $135.14 $135.63
======= ======= ======= ======= =======
Total return.................................................. 24.90% (0.80)% 20.5% 10.2% 15.9%
Ratio of expenses to average net assets....................... 1.39%(1) 1.06% 1.02% 0.99% 0.89%
Ratio of net investment income to average net assets.......... 0.94% 1.30% 1.09% 1.64% 2.51%
Portfolio turnover rate....................................... 85% 59% 23% 10% 21%
NET ASSETS, end of year (000's)............................... $55,234 $40,227 $38,342 $39,198 $58,670
</TABLE>
(1) Without fee waivers for the year ended December 31, 1995, the ratio of
expenses to average net assets would have been 1.43%.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
9
<PAGE> 11
INSTITUTIONAL INVESTORS TAX ADVANTAGED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHORT TERM AUCTION RATE PREFERRED STOCK-81.64%:
<TABLE>
<CAPTION>
VALUE
-----------
SHARES (NOTE 1)
- ------
<C> <S> <C>
BANKS-9.17%
200 J P Morgan Series B, 4.30%.............. $ 200,000
100 J P Morgan Series C, 4.38%.............. 100,000
100 J P Morgan Series D, 4.31%.............. 100,000
3 Republic New York A, 4.40%.............. 300,000
3 Republic New York MMP, 4.42%............ 300,000
-----------
1,000,000
FINANCIAL-20.18%
6 First Colony B, 4.47%................... 600,000
5 Ford Holdings F, 6.15%.................. 500,000
General Electric Capital Corp. D,
3 4.29%................................. 300,000
General Electric Capital Corp. G,
1 4.40%................................. 100,000
General Electric Capital Corp. I,
1 4.35%................................. 100,000
3 International Lease Finance A, 4.44%.... 300,000
3 International Lease Finance B, 4.39%.... 300,000
-----------
2,200,000
FOOD-4.59%
3 Sara Lee Corporation B, 4.38%........... 300,000
1 Sara Lee Corporation D, 4.35%........... 100,000
1 Sara Lee Corporation F, 4.36%........... 100,000
-----------
500,000
INSURANCE-9.17%
3 CNA Financial Corp. E, 4.54%............ 300,000
2 CNA Financial Corp. F, 4.69%............ 200,000
5 Transamerica A-1, 4.49%................. 500,000
-----------
1,000,000
OIL & GAS-10.09%
Shell Frontier Oil & Gas Series A,
2 4.37%................................. 200,000
Shell Frontier Oil & Gas Series B,
1 4.38%................................. 100,000
Shell Frontier Oil & Gas Series C,
3 4.34%................................. 300,000
1 Texaco Inc. G, 4.33%.................... 250,000
1 Texaco Inc. I, 4.48%.................... 250,000
-----------
1,100,000
REAL ESTATE-4.59%
1 MEPC Capital Corp. II-A, 4.60%.......... 100,000
4 MEPC Capital Corp. II-B, 4.47%.......... 400,000
-----------
500,000
UTILITIES-23.85%
5 Central Power & Light II-B, 4.69%....... 500,000
4 Delmarva Power, 4.43%................... 400,000
3,000 Houston Light & Power C, 4.49%.......... 300,000
2,000 Houston Light & Power D, 4.67%.......... 200,000
4 Idaho Power Company A, 4.43%............ 400,000
<CAPTION>
VALUE
-----------
SHARES (NOTE 1)
- ------
<C> <S> <C>
4 Southern California Gas Co. A, 4.50%.... $ 400,000
4 VEPCO June 89, 4.40%.................... 400,000
-----------
2,600,000
-----------
Total Short Term Auction Rate Preferred
Stock (Cost $8,900,000)............... 8,900,000
-----------
ADJUSTABLE RATE PREFERRED STOCK-6.40%:
BANKS-1.46%
3,700 Wells Fargo & Company Series B, 5.50%... 159,100
FINANCIAL INSTITUTIONS-3.49%
10,500 Bankers Trust NY Series Q, 5.88%........ 221,813
3,700 Bear Stearns & Co. Series A, 5.50%...... 159,100
-----------
380,913
UTILITIES-1.45%
New York State Electric & Gas
7,800 Series B, 5.44%....................... 157,950
-----------
Total Adjustable Rate Preferred Stock
(Cost $831,293)....................... 697,963
-----------
</TABLE>
COMMERCIAL PAPER-14.91%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C> <C>
$ 200,000 American Express Credit
Corp., 5.55%,
due 01/02/96............. 200,000
343,000 American Express Credit
Corp., 5.75%,
due 01/02/96............. 343,000
541,000 Associates Credit Corp.,
5.60%, due 01/02/96...... 541,000
542,000 Household Finance,
5.65%, due 01/02/96...... 542,000
-----------
Total Commercial Paper
(Cost $1,626,000)........ 1,626,000
-----------
Total Investments
(Cost $11,357,293*)...... 102.95% 11,223,963
Liabilities in excess of
other assets............. (2.95)% (321,446)
------ -----------
Net Assets................. 100.00% $10,902,517
====== ===========
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At December 31,
1995, the net unrealized depreciation for all securities of $133,330 consists
entirely of gross unrealized depreciation of $133,330.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
10
<PAGE> 12
INSTITUTIONAL INVESTORS TAX ADVANTAGED INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
-----------------
<S> <C>
Short term auction rate preferred stock--at value (Cost $8,900,000).................. $ 8,900,000
Adjustable rate preferred stock--at value (Cost $831,293)............................ 697,963
Commercial paper--at value (Cost $1,626,000)......................................... 1,626,000
-----------
Total Investments--at value (Cost $11,357,293)....................................... 11,223,963
Dividends and interest receivable.................................................... 40,930
Prepaid expenses..................................................................... 5,672
-----------
Total assets....................................................................... 11,270,565
-----------
LIABILITIES:
Cash overdraft....................................................................... 342,814
Accrued expenses payable............................................................. 17,733
Investment advisory fees payable..................................................... 7,501
-----------
Total liabilities.................................................................. 368,048
-----------
NET ASSETS applicable to 109,581 shares of
$0.01 par value stock.............................................................. $10,902,517
===========
NET ASSETS:
Capital paid in...................................................................... $11,239,226
Accumulated net realized losses...................................................... (203,000)
Overdistributed net investment income................................................ (379)
Net unrealized depreciation.......................................................... (133,330)
-----------
NET ASSETS........................................................................... $10,902,517
===========
NET ASSET VALUE, offering and redemption price
per share ($10,902,517 / 109,581 shares)........................................... $ 99.49
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
11
<PAGE> 13
INSTITUTIONAL INVESTORS TAX ADVANTAGED INCOME FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends.......................................................................... $ 766,760
Interest........................................................................... 63,874
--------
Total investment income............................................................ 830,634
EXPENSES:
Investment advisory fees........................................................... 130,593
Legal.............................................................................. 55,387
Administration..................................................................... 49,782
Directors'......................................................................... 33,556
Audit.............................................................................. 13,989
Insurance.......................................................................... 12,294
Transfer agent..................................................................... 11,145
Custody............................................................................ 10,190
Printing........................................................................... 4,094
Miscellaneous...................................................................... 1,660
--------
322,690
Fee waivers........................................................................ (42,161)
--------
Net operating expenses.......................................................... 280,529
--------
Net investment income........................................................... 550,105
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investments..................................................... (81,711)
Net change in unrealized depreciation of investments................................. 124,720
--------
Net realized and unrealized gain on investments...................................... 43,009
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $ 593,114
========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
12
<PAGE> 14
INSTITUTIONAL INVESTORS TAX ADVANTAGED INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................................................. $ 550,105 $ 503,903
Net realized gain (loss) on investments........................................... (81,711) 12,604
Net change in unrealized depreciation of investments.............................. 124,720 (252,977)
----------- -----------
Net increase in net assets resulting from operations................................ 593,114 263,530
Net equalization.................................................................... (8,851) 16,586
Distributions to shareholders from net investment income............................ (562,075) (514,303)
Net increase (decrease) from capital share transactions............................. (8,823,596) 4,779,563
----------- -----------
Total increase (decrease) in net assets......................................... (8,801,408) 4,545,376
NET ASSETS:
Beginning of year................................................................. 19,703,925 15,158,549
----------- -----------
End of year (including undistributed net investment income of
($379) and $20,442, respectively)............................................... $10,902,517 $19,703,925
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for Each Share of Capital Stock
Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year............................ $ 99.75 $100.94 $100.17 $ 96.12 $ 85.29
INCOME FROM OPERATIONS:
Net investment income....................................... 3.38 2.71 2.07 3.76 6.34
Net realized and unrealized gain (loss)..................... (0.15) (1.24) 0.68 5.51 10.87
------- ------- ------- ------- -------
Total from investment operations.......................... 3.23 1.47 2.75 9.27 17.21
DISTRIBUTIONS:
From net investment income.................................. (3.49) (2.66) (1.98) (5.22) (6.38)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year.................................. $ 99.49 $ 99.75 $100.94 $100.17 $ 96.12
======= ======= ======= ======= =======
Total return.................................................. 3.29% 1.47% 2.8% 9.8% 20.6%
Ratio of expenses to average net assets....................... 1.61%(1) 1.23% 1.26% 1.33% 1.17%
Ratio of net investment income to average net assets.......... 3.16% 2.73% 2.04% 3.81% 6.88%
Portfolio turnover rate....................................... 1% 5% 11% 73% 26%
NET ASSETS, end of year (000's)............................... $10,903 $19,704 $15,159 $ 9,319 $11,642
</TABLE>
(1) Without fee waivers for the year ended December 31, 1995, the ratio of
expenses to average net assets would have been 1.85%.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
13
<PAGE> 15
INSTITUTIONAL INVESTORS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
The Institutional Investors Capital Appreciation Fund, Inc. (the "Capital
Appreciation Fund") and the Institutional Investors Tax Advantaged Income Fund,
Inc. (the "Tax Advantaged Income Fund") (collectively, the "Funds") are
registered under the Investment Company Act of 1940, as amended, as diversified
open end management investment companies. The primary investment objective of
the Capital Appreciation Fund is to achieve capital appreciation for its
shareholders. The objective of income is secondary. The investment objective of
the Tax Advantaged Income Fund is to obtain a high level of current income
consisting of dividends eligible for the dividends received deduction.
NOTE 1--Summary of Significant Accounting Policies
A.--Security Valuations--Securities traded on national exchanges are valued at
the closing prices or, in the case of over-the-counter securities, at the mean
between closing bid and asked prices. Portfolio securities for which market
quotations are not readily available are valued at fair value using methods
determined in good faith by the Board of Directors. Short term instruments
maturing within 60 days of the valuation date are valued based upon their
amortized cost.
B.--Security Transactions and Related Investment Income--Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income and income on auction rate preferred stock is
recorded on the accrual basis. The identified cost basis is used in the
determination of realized gains and losses on security transactions.
C.--Federal Income Taxes--No provision has been made for Federal income tax,
since it is the intention of the Fund to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders.
D.--Equalization--Through July 31, 1995, the Funds followed the accounting
practice known as equalization, by which a portion of the proceeds from sales
and costs of repurchases of capital shares, equivalent on a per share basis to
the amount of undistributed net investment income on the date of the
transaction, was credited or charged to undistributed net investment income. As
a result, undistributed net investment income per share was unaffected by sales
or repurchases of the Funds' shares. The change in this policy has no effect on
the Funds' net assets.
NOTE 2--Purchases and Sales of Securities
Capital Appreciation Fund:
The cost of purchases and the proceeds from sales of investments, exclusive of
short term investments, for the year ended December 31, 1995 were $38,204,473
and $38,086,014, respectively.
Tax Advantaged Income Fund:
The cost of purchases and the proceeds from sales of investments, exclusive of
short term investments, for the year ended December 31, 1995 were $182,000 and
$1,219,127, respectively.
NOTE 3--Fees
Shay Assets Management Co. (the "Investment Adviser") was appointed as the
Funds' investment adviser effective May 19, 1995. The Investment Adviser is a
general partnership that consists of two general partners, Shay Assets
Management, Inc. and ACB Assets Management, Inc., each of which holds a
fifty-percent interest in the Investment Adviser. Shay Assets Management, Inc.
is controlled by Rodger D. Shay, Vice President of the Funds. ACB Assets
Management, Inc. is an indirect wholly-owned subsidiary of America's Community
Bankers.
The Investment Adviser receives fees from the Capital Appreciation Fund and the
Tax Advantaged Income Fund, computed separately, at the annual rate of 0.75% of
the first $100,000,000 of average daily net assets and 0.50% of average daily
net assets in excess of $100,000,000. The fee payable to the Investment Adviser
is reduced (but not below zero) to the extent expenses (exclusive of
professional fees, such as legal and audit fees and directors' fees and
expenses) exceed 1.10% of the average daily net assets of the Capital
Appreciation Fund or 1.15% of the average daily net assets of the Tax Advantaged
Income Fund for any fiscal year during the term of the agreements with the
Investment Adviser. The Investment Adviser waived approximately 2% of its fee
from the Tax Advantaged Income Fund for the period from May 19, 1995 to December
31, 1995, which amounted to $2,806.
Effective May 19, 1995, PFPC Inc. ("PFPC") was appointed the Funds'
administrator and transfer agent and PNC Bank NA ("PNC") was appointed the
Funds' custodian. PFPC and PNC are affiliates of PNC Bank Corp.
14
<PAGE> 16
As compensation for its administrative services, the Capital Appreciation Fund
and the Tax Advantaged Income Fund each pay PFPC minimum monthly fees of $6,700
(exclusive of out-of-pocket expenses). PFPC waived approximately 25% of its
administrative fee in the Capital Appreciation Fund and 61% of its
administrative fee in the Tax Advantaged Income Fund, amounting to $12,446 and
$30,311, respectively, for the period from May 19, 1995 to December 31, 1995.
As compensation for its services as transfer agent, the Capital Appreciation
Fund and the Tax Advantaged Income Fund each pay PFPC minimum monthly fees of
$1,500 (exclusive of out-of-pocket expenses). PFPC waived approximately 24% of
its transfer agent fee in the Capital Appreciation Fund and 61% of its transfer
agent fee in the Tax Advantaged Income Fund, amounting to $2,786 and $6,846,
respectively, for the period from May 19, 1995 to December 31, 1995.
As compensation for its custodial services, the Capital Appreciation Fund and
the Tax Advantaged Income Fund each pay PNC minimum monthly fees of $500
(exclusive of out-of-pocket expenses). PNC waived approximately 22% of its
custodial fee in the Tax Advantaged Income Fund, amounting to $2,198, for the
period from May 19, 1995 to December 31, 1995.
Prior to May 19, 1995, Nationar was the Funds' investment adviser,
administrator, transfer agent and custodian. For investment advisory,
administrative, transfer agency and custodial services provided prior to May 19,
1995, the Capital Appreciation Fund and the Tax Advantaged Income Fund each paid
Nationar a quarterly fee, computed separately, at an annual rate of 0.75% of the
first $75,000,000 of average daily net assets, 0.625% of the next $25,000,000 of
average daily net assets, 0.50% of the next $50,000,000 of average daily net
assets, and 0.25% of average daily net assets in excess of $150,000,000.
NOTE 4--Capital Stock
Capital Appreciation Fund:
At December 31, 1995, there were 2,000,000 shares of $1.00 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1995 and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------------- -------------------------
1995 1994 1995 1994
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold............ 72,300 71,651 $ 8,579,318 $ 9,877,080
Shares issued in
reinvestment of
dividends............. 47,411 54,339 5,756,146 6,133,716
------- ------- ----------- -----------
119,711 125,990 14,335,464 16,010,796
Shares redeemed........ (24,824) (46,650) (3,148,855) (6,340,274)
------- ------- ----------- -----------
Net increase........... 94,887 79,340 $11,186,609 $ 9,670,522
======= ======= =========== ===========
</TABLE>
Tax Advantaged Income Fund:
At December 31, 1995, there were 5,000,000 shares of $.01 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1995 and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
---------------- ------------------------
1995 1994 1995 1994
------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Shares sold............. -- 48,328 $ -- $4,873,130
Shares issued in
reinvestment of
dividends.............. 3,073 4,033 306,515 404,648
------- ------ ----------- ----------
3,073 52,361 306,515 5,277,778
Shares redeemed......... (91,022) (5,000) (9,130,111) (498,215)
------- ------ ----------- ----------
Net increase
(decrease)............. (87,949) 47,361 $(8,823,596) $4,779,563
======= ====== =========== ==========
</TABLE>
NOTE 5--Subsequent Event
The principle stockholders of the Tax Advantaged Income Fund have advised the
Fund of their intention to redeem their shares in the Tax Advantaged Income Fund
which constitute approximately 83% of the outstanding shares of the Tax
Advantaged Income Fund.
15
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
INSTITUTIONAL INVESTORS MUTUAL FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Institutional Investors Capital Appreciation
Fund, Inc. and Institutional Investors Tax Advantaged Income Fund, Inc. (two of
the portfolios constituting the Institutional Investors Mutual Fund) as of
December 31, 1995, and the related statements of operations for the year then
ended and the statements of changes in net assets and the financial highlights
for each of the two years in the period then ended. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the three years in the period ended December 31, 1993 were audited by other
auditors whose report dated February 4, 1994, expressed an unqualified opinion
on such information.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Institutional Investors Capital Appreciation Fund, Inc. and Institutional
Investors Tax Advantaged Income Fund, Inc. of the Institutional Investors Mutual
Funds as of December 31, 1995, the results of their operations for the year then
ended and the changes in their net assets and the financial highlights for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
February 15, 1996
16
<PAGE> 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS
MUTUAL FUNDS
OFFICERS
HARRY P. DOHERTY
President
MICHAEL R. KALLET
Vice President
EDWARD E. SAMMONS, JR.
Vice President and
Secretary
MARK F. TRAUTMAN
Vice President
TIMOTHY A. DEMPSEY
Executive Vice President
RODGER D. SHAY
Vice President and
Assistant Secretary
JOHN J. MCCABE
Vice President
JAY F. NUSBLATT
Treasurer
BOARD OF DIRECTORS
RALPH F. BROUTY
ROBERT P. CAPONE
TIMOTHY A. DEMPSEY
HARRY P. DOHERTY
CHRIS C. GAGAS
MICHAEL R. KALLET
STEPHEN J. KELLY
CLIFFORD E. KELSEY, JR.
ROBERT E. KERNAN, JR.
WILLIAM A. MCKENNA, JR.
NICHOLAS J. SCALI
CHARLES M. SPROCK
JOHN M. TSIMBINOS
- --------------------------------------------------------------------------------
17
<PAGE> 19
This page intentionally left blank.
18