<PAGE> 1
================================================================================
INSTITUTIONAL INVESTORS MUTUAL FUNDS
INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
MESSAGE FROM THE PRESIDENT:
Dear Shareholder Institution:
I am very pleased to report that our Institutional Investors Capital
Appreciation Fund, Inc. (the "Fund") enjoyed a total return of 20.82% in 1996.
This advance helped to bring the Fund's three year average annual return to
14.18% and the five year average annual return to 14.72%. The Fund's longer-term
track record also remains quite enviable. If a shareholder institution had
invested $100,000 in the Fund at inception in 1953 and reinvested all capital
gains and dividends in the Fund, the shareholder institution's investment would
have grown to $14,212,414 at year-end 1996.
American industry deserves much credit for getting itself into shape in the
1980's to meet the global challenges of the 1990's and beyond. Today, America's
global economic dominance is truly awesome. Not only is our economy the world's
strongest and most competitive, our workers are the world's most productive and
our businesses, on balance, are the most profitable. The United States also
creates the most jobs and invests the most capital in technology.
Since November of 1982 the United States economy has been performing quite well.
The cost of debt and equity capital has come down, economic growth has been
steady, inflation has been meek and the Dow Jones Industrial Average has
advanced over 700%. Moreover, our economy has encountered just one brief, seven
month contraction during this period, which lasted from August of 1990 until
February of 1991.
Although not everyone has participated in our nation's economic renewal, many
investors have increased their wealth through equity investing. Currently, over
40% of American households own common stock either directly or through mutual
funds. In 1985 only about $60 billion was invested in equity mutual funds.
Today, over $1.4 trillion is invested in equity mutual funds.
Not only is consumer confidence high, the demand for American goods and services
around the world is quite strong. In the industrialized world the welfare state
is being dismantled, social programs are being reduced and government downsizing
continues. In addition, privatization of public sector activities and industry
deregulation is on the rise.
The rapid pace of industrialization in the developing world along with its heavy
population growth has increased demand for United States goods and services in
many developing countries. The demand the developing nations have for consumer
goods, technology, telecommunications, engineering and construction, health
care, education and others is huge.
The Fund's investment philosophy of seeking to create shareholder value over
time and its investment discipline of investing only in companies with strong
balance sheets that are believed to have the capability of generating rising
earnings and cash flow has led the Fund to invest in a number of companies that
should be well positioned to capitalize on the emerging world economy. Today,
many of the companies in the Fund's portfolio already generate a significant
portion of their earnings outside the United States.
A special note of thanks to those Savings Bank Life Insurance (SBLI) Department
shareholders who have increased their investment in the Fund. The Fund enables
SBLI Departments to match long-term life insurance liabilities with common
stock. Past history demonstrates that common stock is truly an excellent
long-term asset with which to offset life insurance liability. The earnings
growth rate for example, for the Standard and Poor's 500 companies from 1935
through 1995, inclusive, was 4,258% and the price gain for the Standard and
Poor's 500 stock index was 4,486%.
Sincerely,
LOGO
Harry P. Doherty
- --------------------------------------------------------------------------------
1
<PAGE> 2
================================================================================
INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
PERFORMANCE SUMMARY
(UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDING DECEMBER 31, 1996(1)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
ENDED ENDED ENDED ENDED
------ ------- ------- --------
<S> <C> <C> <C> <C>
CAPITAL APPRECIATION
FUND, INC. (CAF)....... 20.8% 14.2% 14.7% 12.2%
Standard & Poor's 500
Composite Stock Price
Index (S&P 500)...... 23.0 19.7 15.2 15.3
Dow Jones Industrial
Average (DJIA)....... 28.9 22.9 18.4 15.7
Lipper Growth & Income
Funds Average........ 20.8 16.2 14.0 13.2
</TABLE>
(1) Assumes reinvestment of all dividends and distributions. Average annual
returns are stated for periods greater than one year. Data for the S&P 500,
DJIA and Lipper Growth & Income Funds Average are from Lipper Analytical
Services Corporation. The S&P 500 and DJIA do not include a reduction in
total return for expenses.
The following graph shows that an investment of $10,000 in the CAF on December
31, 1986 would have been worth $30,775 on December 31, 1996, assuming all
dividends and distributions have been reinvested. A similar investment in the
S&P 500, over the same period, would have grown to $41,356.
CAPITAL APPRECIATION FUND, INC.
CUMULATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CAF S&P
<S> <C> <C>
1986 10000 10000
1987 10330 10520
1988 11264 12256
1989 14393 16129
1990 13355 15629
1991 15479 20380
1992 17063 21929
1993 20557 24143
1994 20394 24457
1995 25472 33636
1996 30775 41356
</TABLE>
The foregoing information is a statement of the past performance of the Fund and
should not be construed as a representation or prediction of future results. The
investment return and principal value of an investment in the Fund will
fluctuate with changing market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
2
<PAGE> 3
================================================================================
INVESTMENT RESULTS, OUTLOOK AND STRATEGIES
CAPITAL APPRECIATION FUND
The Institutional Investors Capital Appreciation Fund's total return of 20.82%
for the one year period ending December 31, 1996, marks the second year in a row
of greater than 20% total returns. Total return assumes the reinvestment of all
dividends and capital gains and the deduction of all applicable expenses
incurred by the Fund. For the past five years the Fund has provided shareholders
with an average annual total return of 14.72%. This compares favorably to the
one year total return of 20.78% and five year average annual total return of
13.99% for the Lipper Growth & Income Funds Average for the periods ending
December 31, 1996. For further comparison, the average equity fund, as measured
by the Lipper All Equity Funds Average, provided a one year total return of
17.04% and a five year average annual total return of 13.09% as of December 31,
1996.
The Fund's net asset value per share on December 31, 1996 was $135.64 versus
$121.75 on December 31, 1995. Shareholders received distributions from dividend
income of $1.0867, short-term capital gains of $3.896 and long-term capital
gains of $6.606 during the year.
The equity markets continued their advance into record territory during 1996
with vigor reminiscent of 1995. The primary factors that led to the strong
advance in 1995 continued their influence in 1996, namely a slow growing economy
with little inflation, subdued interest rates and strong corporate profit
growth. The Standard & Poor's 500 Index passed the 700 level, a major milestone,
early in the fourth quarter on its way to ending the year at 740. The Dow Jones
Industrial Average surpassed the 6,000 level early in the fourth quarter, ending
the year just shy of the 6,500 mark. The advances made by these major indices
were amplified by the strong returns provided by large capitalization stocks
during the year. Small and medium capitalization issues did not perform nearly
as well during the year, as is evident by the 16.55% total return of the Russell
2000 Index, a small and medium capitalization index, for the one year period
ending December 31, 1996.
As indicated in last year's annual report to shareholders, the Fund's investment
management team was active in 1995 accumulating shares in high quality companies
that had demonstrated the ability to grow their cash flows and earnings
consistently over long periods of time at reasonable prices, while investors'
attentions were focused on the financial services and technology sectors which
were then in vogue. The timing of our commitment to the high quality, steady
growth area of the market was opportune in that these securities were the same
ones that led the market advance in 1996. We continued our focus during this
past year on the larger capitalization issues with steady cash flow and earnings
growth with the additions of Abbott Laboratories, Dover Corporation, Federal
Home Loan Mortgage Corp., Genuine Parts Company, Intel Corp., International
Flavors & Fragrances and Sysco Corp. We also eliminated many of the smaller
capitalization issues whose market prices reflected their full potential in our
opinion or whose fundamentals changed so that continued ownership was not
warranted.
The investment philosophy adhered to by the Fund's portfolio management team
consists of stringent investment guidelines focused on identifying companies
with stable cash flow and earnings growth with minimal capital expenditure
requirements, strong balance sheets and solid management at reasonable prices.
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.
- --------------------------------------------------------------------------------
3
<PAGE> 4
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK--91.91%:
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
AUTO PARTS--AFTER MARKET-2.92%
46,000 Genuine Parts Company.................. $ 2,047,000
BEVERAGES--ALCOHOLIC-2.96%
52,000 Anheuser-Busch Companies, Inc. ........ 2,080,000
BEVERAGES--SOFT DRINKS-3.15%
42,000 Coca-Cola Company...................... 2,210,250
CHEMICALS--SPECIALTY-4.84%
40,000 International Flavors & Fragrances..... 1,800,000
25,000 Nordson Corp. ......................... 1,593,750
-----------
3,393,750
COMPUTER SOFTWARE & SERVICES-3.27%
53,500 Automatic Data Processing, Inc. ....... 2,293,812
COMPUTER SYSTEMS-2.93%
41,000 Hewlett-Packard Co. ................... 2,060,250
DISTRIBUTOR--CONSUMER PRODUCTS-2.79%
60,000 Sysco Corp. ........................... 1,957,500
ELECTRICAL EQUIPMENT-9.18%
20,500 Emerson Electric Co. .................. 1,983,375
27,500 Grainger (W.W.), Inc. ................. 2,206,875
52,000 Hubbell, Inc. ......................... 2,249,000
-----------
6,439,250
ELECTRONICS & SEMICONDUCTORS-3.27%
17,500 Intel Corp. ........................... 2,291,406
ENTERTAINMENT-2.93%
29,500 Walt Disney Co. ....................... 2,053,938
FINANCIAL SERVICES-3.45%
22,000 Federal Home Loan Mortgage Corp. ...... 2,422,750
FOODS-3.18%
60,000 Sara Lee Corp. ........................ 2,235,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
HEALTH CARE--DRUGS-5.99%
43,500 Abbott Laboratories.................... $ 2,207,625
119,000 Mylan Laboratories..................... 1,993,250
-----------
4,200,875
HOUSEHOLD PRODUCTS-3.08%
21,500 Clorox Co. ............................ 2,158,063
MANUFACTURED HOUSING-2.75%
143,000 Clayton Homes, Inc. ................... 1,930,500
MANUFACTURING-4.87%
39,000 Dover Corporation...................... 1,959,750
28,000 Teleflex, Inc. ........................ 1,459,500
-----------
3,419,250
PUBLISHING--NEWSPAPERS-5.86%
27,000 Gannett Company, Inc. ................. 2,021,625
90,000 Lee Enterprises, Inc. ................. 2,092,500
-----------
4,114,125
RAILROADS-2.97%
65,000 Illinois Central Corp. Series A........ 2,080,000
RESTAURANTS-2.63%
90,000 Wendy's International, Inc. ........... 1,845,000
RETAIL--DEPARTMENT STORES-2.67%
40,000 May Department Stores Co. ............. 1,870,000
RETAIL--DRUG CHAINS-2.57%
45,000 Walgreen Company....................... 1,800,000
RETAIL--FOOD CHAINS-3.10%
61,000 Albertson's, Inc. ..................... 2,173,125
RETAIL--GENERAL MERCHANDISE-2.80%
86,000 Wal-Mart Stores, Inc. ................. 1,967,250
RETAIL--SPECIALTY STORES-3.33%
77,500 Gap, Inc. ............................. 2,334,687
TOBACCO-4.42%
27,500 Philip Morris Companies, Inc. ......... 3,097,188
-----------
Total Common Stock
(Cost $50,688,738)................... $64,474,969
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
4
<PAGE> 5
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMERCIAL PAPER--7.90%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
(NOTE 1)
<C> <S> <C> <C>
$1,521,000 American Express Credit
Corp., 6.75%, due
01/02/97.................. $ 1,521,000
1,521,000 Ford Motor Credit Corp.,
6.00%, due 01/02/97....... 1,521,000
2,500,000 Ford Motor Credit Corp.,
5.92%, due 01/06/97....... 2,500,000
-----------
Total Commercial Paper
(Cost $5,542,000)......... 5,542,000
-----------
Total Investments
(Cost $56,230,738*)....... 99.81% 70,016,969
</TABLE>
<TABLE>
<CAPTION>
VALUE
-----------
(NOTE 1)
<S> <C> <C>
Other assets in excess of
liabilities............... 0.19% $ 132,350
------ -----------
Net Assets.................. 100.00% $70,149,319
====== ===========
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At December 31,
1996, the net unrealized appreciation for all securities of $13,786,231
consists of gross unrealized appreciation of $14,199,930 and gross unrealized
depreciation of $413,699.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
ASSETS: -----------------
<S> <C>
Investment in securities, at value ($56,230,738)............ $70,016,969
Cash........................................................ 199
Dividends and interest receivable........................... 162,242
Prepaid expenses............................................ 21,036
-----------
Total assets.............................................. 70,200,446
LIABILITIES:
Accrued expenses payable.................................... 51,127
-----------
NET ASSETS, applicable to 517,169 shares of $1.00 par value
stock, 2,000,000 shares authorized........................ $70,149,319
===========
NET ASSETS:
Capital paid in............................................. $56,362,087
Undistributed net realized gains............................ 167
Undistributed net investment income......................... 834
Net unrealized appreciation................................. 13,786,231
-----------
NET ASSETS.................................................. $70,149,319
===========
NET ASSET VALUE, offering and redemption price
per share ($70,149,319 / 517,169 shares).................. $ 135.64
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
6
<PAGE> 7
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $ 1,060,193
Interest.................................................. 318,627
-----------
Total investment income................................... 1,378,820
EXPENSES:
Investment advisory....................................... 492,702
Professional.............................................. 97,903
Directors'................................................ 94,739
Administration............................................ 80,400
Insurance................................................. 27,361
Custodian................................................. 23,212
Transfer agent............................................ 19,343
Printing.................................................. 7,385
Miscellaneous............................................. 5,460
-----------
848,505
Fee waivers............................................... (8,571)
-----------
Net operating expenses................................. 839,934
-----------
Net investment income.................................. 538,886
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 5,034,088
Net change in unrealized appreciation of investments........ 6,807,219
-----------
Net realized and unrealized gain on investments............. 11,841,307
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $12,380,193
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 8
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 538,886 $ 451,742
Net realized gain on investments.......................... 5,034,088 6,328,622
Net change in unrealized appreciation of investments...... 6,807,219 3,832,234
----------- -----------
Net increase in net assets resulting from operations........ 12,380,193 10,612,598
Net equalization............................................ 0 3,043
Distributions to shareholders from:
Net investment income..................................... (539,544) (466,658)
Net realized gain on investments.......................... (5,034,088) (6,328,455)
----------- -----------
Total distributions to shareholders......................... (5,573,632) (6,795,113)
Net increase from capital share transactions................ 8,108,779 11,186,609
----------- -----------
Total increase in net assets........................... 14,915,340 15,007,137
NET ASSETS:
Beginning of year......................................... 55,233,979 40,226,842
----------- -----------
End of year (including undistributed net investment income
of $834 and $1,492, respectively)...................... $70,149,319 $55,233,979
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
8
<PAGE> 9
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Selected Data for Each Share of Capital Stock
Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year.................. $121.75 $112.12 $137.22 $135.14 $135.63
INCOME FROM OPERATIONS:
Net investment income............................. 1.09 1.20 1.78 1.63 2.36
Net realized and unrealized gain (loss)........... 24.39 26.55 (2.88) 25.94 11.40
------- ------- ------- ------- -------
Total from investment operations................ 25.48 27.75 (1.10) 27.57 13.76
DISTRIBUTIONS:
From net investment income........................ (1.09) (1.23) (1.73) (1.77) (2.24)
From net realized gains........................... (10.50) (16.89) (22.27) (23.72) (12.01)
------- ------- ------- ------- -------
Total distributions............................. (11.59) (18.12) (24.00) (25.49) (14.25)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year........................ $135.64 $121.75 $112.12 $137.22 $135.14
======= ======= ======= ======= =======
Total return........................................ 20.82% 24.90% (0.80%) 20.5% 10.2%
Ratio of expenses to average net assets............. 1.28%(1) 1.39%(1) 1.06% 1.02% 0.99%
Ratio of net investment income to average net
assets............................................ 0.82% 0.94% 1.30% 1.09% 1.64%
Portfolio turnover rate............................. 48% 85% 59% 23% 10%
Average commission rate per share................... $0.0447(2) -- -- -- --
NET ASSETS, end of year (000's)..................... $70,149 $55,234 $40,227 $38,342 $39,198
</TABLE>
- --------------------------------------------------------------------------------
(1) Without fee waivers for the years ended December 31, 1996 and 1995, the
ratio of expenses to average net assets would have been 1.29% and 1.43%,
respectively.
(2) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the year for
which commissions were charged, as required by the Securities and Exchange
Commission for fiscal years beginning after September 1, 1995.
See Accompanying Notes to Financial Statements.
9
<PAGE> 10
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS MUTUAL FUNDS
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
The Institutional Investors Capital Appreciation Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company. The primary investment
objective of the Fund is to achieve capital appreciation for its shareholders.
The objective of income is secondary.
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. 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 is recorded on the accrual basis. The specific
identification method is used in the determination of realized gains and losses
on the sale of securities.
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 and net capital gains to its shareholders.
D.--Equalization--Through July 31, 1995, the Fund 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 Fund shares. The change in this policy had no effect on
the Fund's net assets.
E.--Management Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2--PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of investments, exclusive of
short-term investments, for the year ended December 31, 1996, were $31,873,753
and $28,269,716, respectively.
NOTE 3--FEES
Shay Assets Management Co. (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, a Vice President of the Fund. ACB Assets Management, Inc. is an indirect
wholly-owned subsidiary of America's Community Bankers.
The Investment Adviser receives fees from the Fund, computed at an 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, directors' fees
and expenses, and distribution expenses, if any, payable under Rule 12b-1)
exceed 1.10% of the Fund's average daily net assets for any fiscal year during
the term of the Fund's agreements with the Investment Adviser. This limitation
did not result in any waiver of the Investment Adviser's fees during the year
ended December 31, 1996.
Shay Financial Services Co. (Distributor), which is equally owned by two general
partners, Shay Financial Services, Inc. and ACB Securities, Inc., serves as the
Fund's distributor. Shay Financial Services, Inc. is controlled by Rodger D.
- --------------------------------------------------------------------------------
10
<PAGE> 11
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS MUTUAL FUNDS
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Shay, a Vice President of the Fund. ACB Securities, Inc. is an indirect
wholly-owned subsidiary of America's Community Bankers. The Distributor receives
no compensation for its distribution services.
PFPC Inc. ("PFPC") is the Fund's administrator and transfer agent and PNC Bank
NA ("PNC") is the Fund's custodian. PFPC and PNC are affiliates of PNC Bank
Corp.
As compensation for its administrative services, the Fund pays PFPC a minimum
monthly fee of $6,700 (exclusive of out-of-pocket expenses). PFPC waived
approximately 9% of its fee during the year ended December 31, 1996. The waiver
amounted to $6,865.
As compensation for its services as transfer agent, the Fund pays PFPC a minimum
monthly fee of $1,500 (exclusive of out-of-pocket expenses). PFPC waived
approximately 9% of its fee during the year ended December 31, 1996. The waiver
amounted to $1,706.
As compensation for its custodial services, the Fund pays PNC a minimum monthly
fee of $500 (exclusive of out-of-pocket expenses).
NOTE 4--CAPITAL STOCK
At December 31, 1996, there were 2,000,000 shares of $1.00 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1996 and 1995, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------------- -------------------------
1996 1995 1996 1995
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold............................................... 68,268 72,300 $ 8,878,724 $ 8,579,318
Shares issued in reinvestment of dividends................ 35,833 47,411 4,944,436 5,756,146
------- ------- ----------- -----------
104,101 119,711 13,823,160 14,335,464
Shares redeemed........................................... (40,589) (24,824) (5,714,381) (3,148,855)
------- ------- ----------- -----------
Net increase.............................................. 63,512 94,887 $ 8,108,779 $11,186,609
======= ======= =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE> 12
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS MUTUAL FUNDS
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5--SHAREHOLDER VOTING RESULTS (UNAUDITED)
The Annual Meeting of Stockholders of the Fund was held on March 20, 1996, at
which the stockholders voted on two proposals. The proposals and the results of
the voting are set forth below.
A--Election of Directors--The first proposal concerned the election of seven
directors: five to serve a term of office of three years each, one to serve a
term of office of two years and one to serve a term of office of one year. The
results of voting were as follows:
<TABLE>
<CAPTION>
EXPIRATION
OF TERM FOR
---------- -------
<S> <C> <C>
Robert P. Capone............................................ 1999 243,795
Chris C. Gagas.............................................. 1999 243,795
Edward P. Henson............................................ 1999 243,795
Michael R. Kallet........................................... 1999 243,795
Robert E. Kernan, Jr........................................ 1999 243,795
Joseph L. Mancino........................................... 1998 243,795
Vincent F. Palagiano........................................ 1997 243,795
</TABLE>
There were no votes against any of the directors nor were there any abstentions.
In addition, Messrs. Ralph F. Brouty, Timothy A. Dempsey, Harry P. Doherty,
Stephen J. Kelly, Clifford E. Kelsey, Jr., William A. McKenna, Jr., Charles M.
Sprock and John M. Tsimbinos continue as members of the Board of Directors.
B--Ratification of Independent Auditors--The second proposal concerned the
ratification of the selection of Arthur Andersen LLP as independent auditors of
the Fund for the fiscal year ending December 31, 1996. All 243,795 votes were
cast in favor of the proposal. There were no votes against, nor were there any
abstentions.
- --------------------------------------------------------------------------------
12
<PAGE> 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of the
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.:
We have audited the accompanying statement of assets and liabilities of the
Institutional Investors Capital Appreciation Fund, Inc. (the "Fund"), including
the schedule of investments, as of December 31, 1996, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the two years in the period ended December 31, 1993, were audited by other
auditors whose report dated February 4, 1994, expressed an unqualified opinion
on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Institutional Investors Capital Appreciation Fund, Inc. as of December 31, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and financial
highlights for each of the three years in the period then ended, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
January 22, 1997
13
<PAGE> 14
================================================================================
INSTITUTIONAL INVESTORS MUTUAL FUNDS
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
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
EDWARD P. HENSON
MICHAEL R. KALLET
STEPHEN J. KELLY
CLIFFORD E. KELSEY, JR.
ROBERT E. KERNAN, JR.
JOSEPH L. MANCINO
WILLIAM A. MCKENNA, JR.
VINCENT F. PALAGIANO
CHARLES M. SPROCK
JOHN M. TSIMBINOS
14
<PAGE> 15
INSTITUTIONAL INVESTORS
MUTUAL FUNDS LOGO
INSTITUTIONAL INVESTORS
CAPITAL APPRECIATION FUND, INC.
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
INVESTMENT ADVISER
Shay Assets Management Co.
200 Park Avenue
15th Floor
New York, New York 10166
DISTRIBUTOR
Shay Financial Services Co.
111 East Wacker Drive
Chicago, Illinois 60601
ADMINISTRATOR, TRANSFER AGENT,
REGISTRAR AND DIVIDEND PAYING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
PNC Bank, NA
17th & Chestnut Streets
Philadelphia, Pennsylvania 19101
LEGAL COUNSEL
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
back cover
