<PAGE> 1
INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
MESSAGE FROM THE PRESIDENT:
Dear Shareholder:
I am most pleased to report that our Institutional Investors Capital
Appreciation Fund, Inc. (Fund) produced a total return of 15.54% for the
first-half of 1997. This advance has brought the Fund's one year total return to
25.08%, the three year average annual return to 21.17%, the five year average
annual return to 17.12% and the ten year average annual return to 10.80%. The
Fund's longer-term performance 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 $16,421,008 on June 30, 1997.
It wasn't very long ago that many "experts" were confident that the American
economic system would collapse and the Japanese or German economic models were
better ways to go. Today, our economy is the world's strongest and most
competitive. We are also the globe's leading job creator and largest exporter,
and our workers are the most productive. Moreover, the United States accounts
for over 40% of world technology expenditures.
Japan has been mired in a six year deflation that has seen real estate and stock
prices decline by more than fifty percent. Germany suffers over 11%
unemployment, limited labor mobility, high taxes and minuscule economic growth.
Eighty percent of German executives recently polled concluded that "the future
belongs to the American (economic) model."
United States executives truly rose to the occasion in the 1980's and heeded the
warnings to become more innovative and to aggressively employ technology. By
investing in technology, helping other nations adopt American style capitalism
and slimming down at home, our economic strategies are now the ones most
emulated around the world. Currently, over ninety percent of world gross
domestic product is generated by nations employing one form of capitalism or
another.
Also key to our success is low inflation. Our country's well-oiled economic
machine produces its best results during extended periods of price stability.
Inflation has been in check for over a decade. A confluence of several very
positive happenings continues to permeate our "low inflation" economy. Included
among them are:
1. Technology costs are declining, and technology-induced productivity gains are
rising.
2. Many Americans are saving more and spending less, inspired by concerns for
their retirement needs.
3. There is very limited pricing flexibility in our economy because of cheaper
and plentiful substitute goods in the global marketplace.
4. Job security is more important to many workers than hefty wage increases.
5. Healthcare fringe-benefit costs are advancing at about 2%, down from 8% in
the early 1990s.
6. Shareholder activism and "unfriendly takeovers" are reinforcing cost
consciousness.
Fortunately, more and more Americans have been participating in our country's
economic renewal through equity investing. They are aware that in a low interest
rate, low inflationary environment the best after-tax returns have been achieved
in the equity market. Today, about 40% of all households and over 100 million
Americans own stocks outright or through mutual funds. In 1985, for example,
only $53 billion was invested in equity mutual funds. Today, over $2.0 trillion
is invested in equity mutual funds.
The Fund's investment philosophy of seeking to create shareholder value over
time and its investment discipline of only investing in companies with strong
balance sheets that are believed to have the capability of generating rising
earnings and cash-flow should be well positioned to capitalize on both world
economic growth and the global technological revolution. Already, many of the
companies in the Fund's portfolio generate significant earnings from outside the
United States, and many are also cutting costs and increasing profit margins
because of improved technology. Others are producers of technology and component
suppliers to the technology industry.
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 a long term liability (life insurance) with a long
term asset (common stock). Past history demonstrates that common stock has been
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%. In 1996, the Standard and Poor's
500's price gain was 20.3% and its earnings growth rate exceeded 14.0%.
Sincerely,
Harry P. Doherty
Harry P. Doherty
PERFORMANCE SUMMARY
(UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDING JUNE 30, 1997*
<TABLE>
<CAPTION>
YEAR TO ONE FIVE TEN
DATE YEAR YEARS YEARS
------- ----- ----- -----
<S> <C> <C> <C> <C>
CAPITAL APPRECIATION
FUND..................... 15.54% 25.08% 17.12% 10.80%
Lipper Growth & Income
Funds' Average........... 15.52 28.07 17.35 12.77
Standard & Poor's 500
Index.................... 20.60 34.68 19.76 14.63
Dow Jones Industrial
Average.................. 20.12 38.54 21.36 15.78
</TABLE>
* Assumes reinvestment of all dividends and distributions and the deduction of
all applicable fees and expenses. Average annual returns are stated for
periods greater than one year. Data for the Lipper Growth & Income Funds'
Average, Standard & Poor's 500 Index and Dow Jones Industrial Average is from
Lipper Analytical Services Corporation. The S&P 500 and DJIA do not include a
reduction in total return for expenses.
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.
- --------------------------------------------------------------------------------
<PAGE> 2
INVESTMENT RESULTS, OUTLOOK AND STRATEGIES
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
The stock market, as measured by the Standard & Poor's 500 Index, continued its
ascent into record territory with a total return of 20.60% for the six-month
period ending June 30, 1997. The average equity mutual fund, as measured by the
Lipper All Equity Funds' Average, provided a total return of 11.95% during the
first half of the year, sharply trailing the S&P 500 Index. Growth and income
funds, represented by the Lipper Growth and Income Funds' Average, provided the
best performance among the Lipper universe of general equity mutual funds during
the six-month period with a total return of 15.52%. The Institutional Investors
Capital Appreciation Fund outperformed both Lipper indices with a 15.54%
year-to-date total return as of June 30, 1997.
The Fund's net asset value per share on June 30, 1997 was $156.13 versus $135.64
on December 31, 1996. Shareholders received distributions from dividend income
totaling $0.5638 per share during the first six months of 1997.
After starting the year on a strong note, rising more than 10% by mid-February,
the stock market reversed course, relinquishing all of its gains by early April.
The abrupt reversal was largely attributable to rising long-term interest rates.
Heightened inflation fears, due to renewed strength in the economy during the
first quarter, caused the 30-year Treasury bond yield to move from a low of
6.52% in mid-February up to 7.17% by mid-April. After several benign inflation
reports and evidence of slowing economic conditions emerged early in the second
quarter, interest rates fell below the critical 7% level. Rates continued their
descent to around 6.75% as the second quarter came to a close. The stock market
rose substantially during the second quarter as the interest rate environment
improved and corporations reported strong first quarter profit growth.
The superior return of the Standard & Poor's 500 Index during the first half of
the year, compared to the average equity mutual fund, appears to be the result
of equity investors' strong appetite for the largest capitalization stocks. The
S&P 500 Index is capitalization weighted; the larger the market capitalization
(price times number of shares outstanding), the larger the weighting in the
index. As of June 30, 1997, the top 25 stocks in the S&P 500 Index, in order of
market capitalization, accounted for approximately one-third of the index by
weight. The average return for these 25 stocks during the first half of the year
was 28.5% versus 20.6% for the entire index. Thus the remaining 475 stocks in
the S&P 500 Index, which accounted for two-thirds of the index by weight,
provided an average first half return of 16.6%. Many mutual fund managers were
reluctant to own the largest capitalization issues due to their high relative
valuations. As of June 30, 1997, the price-to-earnings ratio of the top 25 S&P
500 stocks was 24.3 times 1997 estimated earnings, versus an average of 19.7 for
the entire index. In addition, the dividend yield for these top 25 stocks was
1.5% versus 1.7% for the entire index. Mutual funds were further hampered by
weak relative returns provided by their cash reserves as well as normal
operating expenses incurred during the period.
The Institutional Investors Capital Appreciation Fund's portfolio management
team has continued to adhere to its investment philosophy consisting of
stringent investment guidelines focused on identifying companies with stable
cash flow and earnings growth, 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.
On occasion, a company's valuation may become very attractive, due to short-term
adverse circumstances that do not, in our opinion, affect its long-term
fundamental outlook. The additions of Federal National Mortgage Association,
McDonald's and Nike during the first six months of 1997 were prompted by such
events. Interpublic Group and Pitney Bowes were also new additions to the
portfolio during the period. All of these companies are leaders in their
industries and exhibit the characteristics that we seek in our portfolio
companies.
Three stocks were eliminated from the portfolio during the first half of the
year. W.W. Grainger and May Department Stores were removed after their prices
exceeded our valuations and were not supported by our future earnings and cash
flow projections. Mylan Laboratories was eliminated during the quarter due to
continued margin pressure rampant in the generic drug industry. The Fund's cash
position was approximately 4% as of June 30, 1997.
- --------------------------------------------------------------------------------
2
<PAGE> 3
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK-95.86%: VALUE
SHARES -----------
- ------- (NOTE 1)
<C> <S> <C>
ADVERTISING-2.24%
30,000 Interpublic Group of Cos., Inc. ........ $ 1,839,375
AUTO PARTS--AFTER MARKET-3.15%
76,500 Genuine Parts Company................... 2,591,437
BEVERAGES--ALCOHOLIC-2.65%
52,000 Anheuser-Busch Companies, Inc. ......... 2,180,750
BEVERAGES--SOFT DRINKS-3.20%
39,000 Coca-Cola Company....................... 2,632,500
CHEMICALS--SPECIALTY-5.31%
45,000 International Flavors & Fragrances...... 2,272,500
32,500 Nordson Corp. .......................... 2,088,125
-----------
4,360,625
COMPUTER SOFTWARE &
SERVICES-3.06%
53,500 Automatic Data Processing, Inc. ........ 2,514,500
COMPUTER SYSTEMS-3.24%
47,500 Hewlett-Packard Co. .................... 2,660,000
DISTRIBUTOR--CONSUMER
PRODUCTS-3.00%
67,500 Sysco Corp. ............................ 2,463,750
ELECTRICAL EQUIPMENT-5.53%
41,000 Emerson Electric Co. ................... 2,257,563
52,000 Hubbell, Inc. .......................... 2,288,000
-----------
4,545,563
ELECTRONICS &
SEMICONDUCTORS-3.11%
18,000 Intel Corp. ............................ 2,552,625
ENTERTAINMENT-2.88%
29,500 Walt Disney Co. ........................ 2,367,375
<CAPTION>
VALUE
SHARES -----------
- -------
(NOTE 1)
<C> <S> <C>
FINANCIAL SERVICES-6.33%
88,000 Federal Home Loan Mortgage Corp. ....... $ 3,025,000
50,000 Federal National Mortgage Association... 2,181,250
-----------
5,206,250
FOODS-2.73%
54,000 Sara Lee Corp. ......................... 2,247,750
HEALTH CARE--DRUGS-3.53%
43,500 Abbott Laboratories..................... 2,903,625
HOUSEHOLD PRODUCTS-3.05%
19,000 Clorox Co. ............................. 2,508,000
MANUFACTURED HOUSING-2.60%
150,000 Clayton Homes, Inc. .................... 2,137,500
MANUFACTURING-5.35%
41,000 Dover Corporation....................... 2,521,500
60,000 Teleflex, Inc. ......................... 1,875,000
-----------
4,396,500
OFFICE EQUIPMENT AND
SUPPLIES-3.17%
37,500 Pitney Bowes, Inc. ..................... 2,606,250
PUBLISHING--NEWSPAPERS-5.33%
27,000 Gannett Company, Inc. .................. 2,666,250
65,000 Lee Enterprises, Inc. .................. 1,714,375
-----------
4,380,625
RAILROADS-2.98%
70,000 Illinois Central Corp. Series A......... 2,445,625
RESTAURANTS-3.16%
100,000 Wendy's International, Inc. ............ 2,593,750
RETAIL--DRUG CHAINS-2.93%
45,000 Walgreen Company........................ 2,413,125
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
3
<PAGE> 4
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED): VALUE
SHARES -----------
- ------- (NOTE 1)
<C> <S> <C>
RETAIL--FOOD CHAINS-5.83%
72,500 Albertson's, Inc. ...................... $ 2,646,250
44,500 McDonald's Corp......................... 2,149,906
-----------
4,796,156
RETAIL--GENERAL
MERCHANDISE-3.29%
80,000 Wal-Mart Stores, Inc. .................. 2,705,000
RETAIL--SPECIALTY STORES-4.97%
82,500 Gap, Inc. .............................. 3,207,188
15,000 Nike, Inc. ............................. 875,625
-----------
4,082,813
TOBACCO-3.24%
60,000 Philip Morris Companies, Inc. .......... 2,662,500
-----------
Total Common Stock
(Cost $54,960,026).................. $78,793,969
-----------
</TABLE>
COMMERCIAL PAPER-4.21%:
<TABLE>
<CAPTION>
VALUE
-----------
PRINCIPAL (NOTE 1)
AMOUNT
- ----------
<C> <S> <C> <C>
$3,456,000 Household Finance, 6.08%,
due 07/01/97
(Cost $3,456,000)......... $ 3,456,000
-----------
Total Investments
(Cost $58,416,026*)....... 100.07% 82,249,969
Liabilities in excess of
other assets.............. (0.07)% (56,365)
------ -----------
Net Assets.................. 100.00% $82,193,604
====== ===========
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At June 30, 1997,
the net unrealized appreciation for all securities of $23,833,943 consists of
gross unrealized appreciation of $23,905,576 and gross unrealized depreciation
of $71,633.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
4
<PAGE> 5
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS:
Investment in securities, at value (Cost $58,416,026)..................................... $82,249,969
Cash...................................................................................... 794
Receivable for securities sold............................................................ 575,366
Receivable for fund shares sold........................................................... 250,000
Dividends and interest receivable......................................................... 148,902
Prepaid expenses.......................................................................... 3,551
-----------
Total assets............................................................................ 83,228,582
-----------
LIABILITIES:
Payable for securities purchased.......................................................... 975,590
Accrued expenses payable.................................................................. 59,388
-----------
Total liabilities....................................................................... 1,034,978
-----------
NET ASSETS, applicable to 526,449 shares of
$1.00 par value stock, 2,000,000 shares authorized...................................... $82,193,604
============
NET ASSETS:
Capital paid in........................................................................... $57,226,640
Undistributed net investment income....................................................... 1,583
Undistributed net realized gains.......................................................... 1,131,438
Net unrealized appreciation............................................................... 23,833,943
-----------
NET ASSETS................................................................................ $82,193,604
============
NET ASSET VALUE, offering and redemption price
per share ($82,193,604 / 526,449 shares)................................................ $ 156.13
============
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
----------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends............................................................................. $ 594,819
Interest.............................................................................. 173,326
----------------
Total investment income............................................................... 768,145
EXPENSES:
Investment advisory................................................................... 291,088
Professional.......................................................................... 44,629
Directors'............................................................................ 43,398
Administration........................................................................ 40,630
Insurance............................................................................. 17,485
Custodian............................................................................. 13,215
Transfer agent........................................................................ 9,641
Printing.............................................................................. 3,107
Miscellaneous......................................................................... 2,958
----------------
Total expenses..................................................................... 466,151
----------------
Net investment income.............................................................. 301,994
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments........................................................ 1,131,271
Net change in unrealized appreciation of investments.................................... 10,047,712
----------------
Net realized and unrealized gain on investments......................................... 11,178,983
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... $ 11,480,977
==============
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
6
<PAGE> 7
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................................... $ 301,994 $ 538,886
Net realized gain on investments........................................ 1,131,271 5,034,088
Net change in unrealized appreciation of investments.................... 10,047,712 6,807,219
---------------- ------------
Net increase in net assets resulting from operations...................... 11,480,977 12,380,193
Distributions to shareholders from:
Net investment income................................................... (301,245) (539,544)
Net realized gain on investments........................................ 0 (5,034,088)
---------------- ------------
Total distributions to shareholders....................................... (301,245) (5,573,632)
Net increase from capital share transactions.............................. 864,553 8,108,779
---------------- ------------
Total increase in net assets....................................... 12,044,285 14,915,340
NET ASSETS:
Beginning of period..................................................... 70,149,319 55,233,979
---------------- ------------
End of period (including undistributed net investment income of $1,583
and $834, respectively).............................................. $ 82,193,604 $ 70,149,319
============== ============
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 8
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Selected Data for Each Share of Capital Stock
Outstanding throughout Each Period
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of period......... $ 135.64 $121.75 $112.12 $137.22 $135.14 $135.63
INCOME FROM OPERATIONS:
Net investment income...................... 0.56 1.09 1.20 1.78 1.63 2.36
Net realized and unrealized gain (loss).... 20.49 24.39 26.55 (2.88) 25.94 11.40
---------------- ------- ------- ------- ------- -------
Total from investment operations......... 21.05 25.48 27.75 (1.10) 27.57 13.76
DISTRIBUTIONS:
From net investment income................. (0.56) (1.09) (1.23) (1.73) (1.77) (2.24)
From net realized gains.................... 0.00 (10.50) (16.89) (22.27) (23.72) (12.01)
---------------- ------- ------- ------- ------- -------
Total distributions...................... (0.56) (11.59) (18.12) (24.00) (25.49) (14.25)
---------------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of period............... $ 156.13 $135.64 $121.75 $112.12 $137.22 $135.14
============== ======= ======= ======= ======= =======
Total return................................. 15.54% 20.82% 24.90% (0.80%) 20.5% 10.2%
Ratio of expenses to average net assets...... 1.20%(1) 1.28%(2) 1.39%(2) 1.06% 1.02% 0.99%
Ratio of net investment income to average net
assets..................................... 0.78%(1) 0.82% 0.94% 1.30% 1.09% 1.64%
Portfolio turnover rate...................... 29% 48% 85% 59% 23% 10%
Average commission rate per share............ $ 0.0484(3) $0.0447(3) -- -- -- --
NET ASSETS, end of period (000's)............ $ 82,194 $70,149 $55,234 $40,227 $38,342 $39,198
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(2) Without fee waivers for the years ended December 31, 1996 and 1995, the
ratios of expenses to average net assets would have been 1.29% and 1.43%,
respectively.
(3) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
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.
8
<PAGE> 9
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
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, dividend income is recorded on the
ex-dividend date and 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.--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 six months ended June 30, 1997, were $13,370,978
and $10,230,961, 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 six
months ended June 30, 1997.
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.
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.
- --------------------------------------------------------------------------------
9
<PAGE> 10
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997 (CONTINUED)
As compensation for its administrative services, the Fund pays PFPC a minimum
monthly fee of $6,700 (exclusive of out-of pocket expenses).
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).
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 June 30, 1997, there were 2,000,000 shares of $1.00 par value capital stock
authorized. Transactions in capital stock for the six months ended June 30, 1997
and the year ended December 31, 1996, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------- ---------------------------
1997 1996 1997 1996
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold........................................... 35,865 68,268 $ 5,044,692 $ 8,878,724
Shares issued in reinvestment of dividends............ 1,909 35,833 285,744 4,944,436
------- ------- ----------- -----------
37,774 104,101 5,330,436 13,823,160
Shares redeemed....................................... (28,494) (40,589) (4,465,883) (5,714,381)
------- ------- ----------- -----------
Net increase.......................................... 9,280 63,512 $ 864,553 $ 8,108,779
======== ======== ============ ============
</TABLE>
NOTE 5--SHAREHOLDER VOTING RESULTS
The Annual Meeting of Stockholders of the Fund was held on April 16, 1997, 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 five
directors to serve a term of office of three years each. The results of voting
were as follows:
<TABLE>
<CAPTION>
EXPIRATION
OF TERM FOR
---------- -------
<S> <C> <C>
Robert F. Brouty.................................................................. 2000 527,857
Harry P. Doherty.................................................................. 2000 527,857
Stephen J. Kelly.................................................................. 2000 527,857
William A. McKenna, Jr............................................................ 2000 527,857
Vincent F. Palagiano.............................................................. 2000 527,857
</TABLE>
In addition, Messrs. Robert P. Capone, Timothy A. Dempsey, Chris C. Gagas,
Edward P. Henson, Michael R. Kallet, Clifford E. Kelsey, Jr., Robert E. Kernan,
Jr., Joseph L. Mancino, 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, 1997. All 527,857 votes were
cast in favor of the proposal. There were no votes against, nor were there any
abstentions.
- --------------------------------------------------------------------------------
10
<PAGE> 11
================================================================================
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
- --------------------------------------------------------------------------------
11
<PAGE> 12
INVESTMENT ADVISER
Shay Assets Management Co.
200 Park Avenue
45th 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
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