<PAGE> 1
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INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
MESSAGE FROM THE PRESIDENT:
Dear Shareholder Institution:
I am very pleased to report that Institutional Investors Capital Appreciation
Fund, Inc. produced a total return of 28.64% in 1997. This advance has brought
the Fund's three year average annual return to 24.75%, the five year average
annual return to 18.34%, and the ten year average annual return to 14.38%. 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 $18,283,334 on December 31, 1997.
For the last fifteen years, we have witnessed: (1) steady economic growth
interrupted by just eight months of recession, (2) rapid job creation, (3) low
unemployment, (4) rising productivity, (5) declining federal budget deficits,
(6) dormant inflation, (7) stock market gains exceeding 950%, as measured by the
Dow Jones Industrial Average, (8) a technology revolution, and (9) the largest
small business boom ever. In the global marketplace, we have seen a fierce drive
to adopt capitalism and unprecedented demands for American capital, technology
and expertise. Today, the United States is the world's leading exporter and
largest job creator and accounts for about 40% of world technology expenditures.
Going forward, the economic weather forecast remains bright. Fortune magazine's
business index shows that ninety percent of executives polled maintain the
economy will remain in an expansion mode at least for the next few years.
Consumer confidence is at a twenty-eight year high and both monetary and fiscal
policy are in sync with a low inflation, moderate growth economic trajectory.
This "steady as she goes" economic environment does not have to get any better
to continue to create wealth, capital and rising living standards.
One potential concern on the economic horizon is the Asian financial crisis.
Assuming this financial flu is contained, the fallout for the United States
should be mixed. Exports currently total about 12% of our eight trillion dollar
gross domestic product and Asia accounts for about 30% of total exports or 3.6%
of GDP. On the negative side, our trade deficit will probably rise, some
companies will have to lower profit forecasts and pricing power will be limited.
On the positive side, inflation should remain subdued and the Federal Reserve
Board will probably keep a lid on interest rates and could even lower them. In
addition, more foreign and "safe haven" capital will probably gravitate to our
capital markets.
Fortunately, more and more Americans continue to participate in our country's
economic progress through equity investing. They recognize that in a low
interest rate, low inflation environment the best after-tax returns are achieved
in the equity market. At present, American households have more money invested
in common stocks than they do in real estate. Interestingly, about 90% of all
the monies ever invested in equity mutual funds has been invested in the last
seven years and today, about $2.3 trillion is held in equity mutual funds.
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 should continue to be well positioned to capitalize on
both world economic growth and the global technological revolution.
A special note of thanks to those Savings Bank Life Insurance (SBLI) Department
shareholders who continue to increase their investment in the Fund. The Fund
enables SBLI departments to match 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, Standard and Poor's
price gain was 20.3% and its earnings growth rate exceeded 14%. This year's
preliminary figures suggest earnings gains exceeded 12% and the Standard and
Poor's 500 stock price gain was 31.01%.
Sincerely,
/s/ Harry P. Doherty
Harry P. Doherty
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1
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INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
PERFORMANCE SUMMARY
(UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDING DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
INSTITUTIONAL INVESTORS
CAPITAL APPRECIATION
FUND.................. 28.64% 24.75% 18.34% 14.38%
Standard &
Poor's 500
Composite
Stock Price
Index (S&P
500).......... 33.36 31.16 20.27 18.05
Dow Jones
Industrial
Average
(DJIA)........ 24.87 30.08 22.01 18.55
Lipper Growth &
Income Funds
Average....... 26.99 26.58 17.63 15.87
</TABLE>
(1) 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 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 Fund on December
31, 1987 would have been worth $38,326 on December 31, 1997, assuming all
dividends and distributions have been reinvested. A similar investment in the
S&P 500, over the same period, would have grown to $52,426.
CAPITAL APPRECIATION FUND, INC.
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CAF S&P
<S> <C> <C>
1987 10000 10000
1988 10905 11650
1989 13934 15331
1990 12928 14858
1991 14985 19972
1992 16518 20845
1993 19901 22950
1994 19743 23248
1995 24658 31973
1996 29793 38311
1997 38326 52426
</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.
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2
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INVESTMENT RESULTS, OUTLOOK AND STRATEGIES
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
The Institutional Investors Capital Appreciation Fund's net asset value per
share on December 31, 1997 was $164.68 versus $135.64 on December 31, 1996.
Shareholders received distributions per share from dividend and interest income
of $1.0885, short-term capital gains of $2.9327, mid-term capital gains of
$1.5465 and long-term capital gains of $3.8313 during the year.
The Fund's total return of 28.64% for the one-year period ending December 31,
1997 marks the third consecutive year of greater than 20% total returns for the
Fund. Total return assumes the reinvestment of all dividends and capital gains
and the deduction of all applicable fees and expenses. For the past five years
the Fund has provided shareholders with an average annual total return of
18.34%. This compares favorably to the one year total return of 26.99% and five
year average annual total return of 17.63% for the Lipper Growth & Income Funds
Average for the periods ending December 31, 1997. For further comparison, the
average equity fund, as measured by the Lipper All Equity Funds Average,
provided a one year total return of 17.52% and a five year average annual total
return of 15.83% as of December 31, 1997.
The Fund's favorable total return relative to its direct comparison, the Lipper
Growth & Income Funds Average, is in large part due to the significant
outperformance by the Fund during the 4th quarter of the year. The Institutional
Investors Capital Appreciation Fund provided a total return of 5.71% during this
three-month period as compared to 0.79% for the Lipper Growth & Income Funds
Average. As the stock market declined during late October, due to adverse
economic conditions in Southeast Asia, market participants gravitated to large
capitalization issues and, more specifically, to companies that are less likely
to be affected by the economic woes overseas. The investment philosophy adhered
to by the Fund's portfolio management team favors large capitalization
non-cyclical companies, and the Fund benefited from the significant portion of
its assets deployed in this sector of the market.
During the past three years we have experienced an exceptional investment
environment. As mentioned here a year ago, the main catalysts for the rising
equity prices have been continued economic growth with low inflation, a
favorable interest rate environment and strong corporate profit growth. In fact,
this past year we have seen higher economic growth with both lower inflation and
lower interest rates than in the previous two years. Corporate profit growth was
also strong in the first half of this year, although it slowed during the latter
half of the year. To a large extent this was due to economic weakness overseas
and weaker demand for U.S. goods resulting from the stronger dollar.
The recent currency crises in Southeast Asia will likely temper economic growth
worldwide as demand from those countries declines. This can be construed as
positive for continued low inflation as slower economic growth reduces
inflationary pressures. In all likelihood, however, it could also impede
corporate profit growth. In addition, it is likely that some corporations will
begin missing earnings expectations.
Increased market volatility should not necessarily be viewed negatively. The
Fund's portfolio management team constantly analyzes companies one by one for
their individual merits. Each company must meet our stringent guidelines both
for financial soundness and growth potential before we consider the price we
would be willing to pay for an ownership position. Once a candidate is
identified, we project a matrix of future values and determine whether the
present market value will provide us with the required rate of return. The more
that stock prices fluctuate, the higher the likelihood we will find
opportunities to invest in high quality companies at favorable prices.
During 1997, the Fund's investment management team pursued its strategy of
accumulating shares in high quality companies with stable cash flow and earnings
growth, minimal capital expenditure requirements, strong balance sheets and
solid management at reasonable prices. We continued our focus during this past
year on large capitalization issues
- --------------------------------------------------------------------------------
3
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with the addition of Fannie Mae, Interpublic Group, Johnson & Johnson,
McDonald's, Nike and Pitney Bowes. We also eliminated a number of securities
whose market prices reflected their full potential in our opinion or whose
fundamentals changed so that continued ownership by the Fund was not warranted.
These companies included W.W. Grainger, Lee Enterprises, May Department Stores,
Mylan Laboratories, Sara Lee and Teleflex.
During the six-year period beginning December 31, 1991, coinciding with the
tenure of the current portfolio management team, the Institutional Investors
Capital Appreciation Fund has provided a cumulative total return of 155.80%.
This compares favorably to the six-year cumulative return of 142.36% for the
Lipper Growth & Income Funds Average and 112.96% for the Lipper All Funds
Average.
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4
<PAGE> 5
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK--92.21%:
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
ADVERTISING-2.68%
52,500 Interpublic Group of Cos., Inc. ..... $ 2,615,156
AUTO PARTS--AFTER MARKET-2.96%
85,000 Genuine Parts Company................ 2,884,688
BEVERAGES--ALCOHOLIC-3.05%
67,500 Anheuser-Busch Companies, Inc. ...... 2,970,000
BEVERAGES--SOFT DRINKS-3.08%
45,000 Coca-Cola Company.................... 2,998,125
CHEMICALS--SPECIALTY-2.77%
52,500 International Flavors & Fragrances... 2,703,750
COMPUTER SOFTWARE & SERVICES-3.37%
53,500 Automatic Data Processing, Inc. ..... 3,283,563
COMPUTER SYSTEMS-2.73%
42,500 Hewlett-Packard Co. ................. 2,656,250
DISTRIBUTOR--CONSUMER PRODUCTS-3.15%
67,500 Sysco Corp. ......................... 3,075,469
ELECTRICAL EQUIPMENT-5.93%
50,000 Emerson Electric Co. ................ 2,821,875
60,000 Hubbell, Inc. ....................... 2,958,750
-----------
5,780,625
ELECTRONICS & SEMICONDUCTORS-2.88%
40,000 Intel Corp. ......................... 2,810,000
ENTERTAINMENT-3.30%
32,500 Walt Disney Co. ..................... 3,219,531
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
FINANCIAL SERVICES-6.85%
60,000 Fannie Mae........................... $ 3,423,750
77,500 Freddie Mac.......................... 3,250,156
-----------
6,673,906
FOOTWEAR-2.62%
65,000 Nike, Inc. .......................... 2,551,250
HEALTH CARE--DIVERSIFIED-3.21%
47,500 Johnson & Johnson.................... 3,129,062
HEALTH CARE--DRUGS-3.03%
45,000 Abbott Laboratories.................. 2,950,313
HOUSEHOLD PRODUCTS-3.08%
38,000 Clorox Co. .......................... 3,004,375
MANUFACTURED HOUSING-2.77%
150,000 Clayton Homes, Inc. ................. 2,700,000
MANUFACTURING-4.66%
75,000 Dover Corporation.................... 2,709,375
40,000 Nordson Corporation.................. 1,835,000
-----------
4,544,375
OFFICE EQUIPMENT AND SUPPLIES-3.09%
33,500 Pitney Bowes, Inc. .................. 3,012,906
PUBLISHING--NEWSPAPERS-3.42%
54,000 Gannett Company, Inc. ............... 3,337,875
RAILROADS-2.71%
77,500 Illinois Central Corp. Series A...... 2,639,844
RESTAURANTS-6.02%
60,000 McDonald's Corp. .................... 2,865,000
125,000 Wendy's International, Inc. ......... 3,007,813
-----------
5,872,813
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK (CONTINUED):
<TABLE>
<CAPTION>
SHARES VALUE
- ------- -----------
(NOTE 1)
<C> <S> <C>
RETAIL--DRUG CHAINS-2.74%
85,000 Walgreen Company..................... $ 2,666,875
RETAIL--FOOD CHAINS-3.40%
70,000 Albertson's, Inc. ................... 3,316,250
RETAIL--GENERAL MERCHANDISE-2.83%
70,000 Wal-Mart Stores, Inc. ............... 2,760,625
RETAIL--SPECIALTY STORES-2.86%
78,750 Gap, Inc. ........................... 2,790,703
TOBACCO-3.02%
65,000 Philip Morris Companies, Inc. ....... 2,945,312
-----------
Total Common Stock
(Cost $60,189,265)................. $89,893,641
</TABLE>
COMMERCIAL PAPER--7.34%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
(NOTE 1)
<C> <S> <C> <C>
$3,159,000 Household Finance Corp.,
6.25%, due 01/02/98..... $ 3,159,000
2,000,000 Ford Motor Credit Corp.,
6.02%, due 01/05/98..... 2,000,000
2,000,000 American Express Credit
Corp., 5.84%, due
01/07/98................ 2,000,000
-----------
Total Commercial Paper
(Cost $7,159,000)....... 7,159,000
-----------
Total Investments
(Cost $67,348,265*)..... 99.55% 97,052,641
Other assets in excess of
liabilities............. 0.45% 434,229
------ -----------
Net Assets................ 100.00% $97,486,870
====== ===========
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At December 31,
1997, the net unrealized appreciation for tax purposes for all securities of
$29,704,376 consists of gross unrealized appreciation of $31,175,446 and gross
unrealized depreciation of $1,471,070.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
6
<PAGE> 7
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
ASSETS:
Investment in securities, at value (Cost $67,348,265)....... $97,052,641
Cash........................................................ 224
Receivable for fund shares sold............................. 1,000,000
Dividends and interest receivable........................... 159,064
Prepaid expenses............................................ 29,360
-----------
Total assets.............................................. 98,241,289
LIABILITIES:
Payable for investments purchased........................... 733,244
Accrued expenses payable.................................... 21,175
-----------
Total liabilities......................................... 754,419
-----------
NET ASSETS, applicable to 591,971 shares of $1.00 par value
stock, 2,000,000 shares authorized........................ $97,486,870
===========
NET ASSETS:
Capital paid in............................................. $67,774,710
Undistributed net investment income......................... 7,784
Net unrealized appreciation................................. 29,704,376
-----------
NET ASSETS.................................................. $97,486,870
===========
NET ASSET VALUE, offering and redemption price
per share ($97,486,870 / 591,971 shares).................. $ 164.68
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 8
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $ 1,213,983
Interest.................................................. 335,834
-----------
Total investment income................................ 1,549,817
EXPENSES:
Investment advisory....................................... 621,810
Directors'................................................ 87,535
Administration............................................ 84,732
Professional.............................................. 77,863
Insurance................................................. 34,737
Custodian................................................. 24,140
Transfer agent............................................ 19,528
Printing.................................................. 7,464
Miscellaneous............................................. 7,022
-----------
Total expenses......................................... 964,831
-----------
Net investment income.................................. 584,986
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain........................................... 4,564,123
Net change in unrealized appreciation....................... 15,918,145
-----------
Net realized and unrealized gain............................ 20,482,268
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $21,067,254
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
8
<PAGE> 9
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 584,986 $ 538,886
Net realized gain on investments.......................... 4,564,123 5,034,088
Net change in unrealized appreciation on investments...... 15,918,145 6,807,219
----------- -----------
Net increase in net assets resulting from operations........ 21,067,254 12,380,193
Distributions to shareholders from:
Net investment income..................................... (578,036) (539,544)
Net realized gain on investments.......................... (4,564,298) (5,034,088)
----------- -----------
Total distributions to shareholders......................... (5,142,334) (5,573,632)
Net increase from capital share transactions................ 11,412,631 8,108,779
----------- -----------
Total increase in net assets........................... 27,337,551 14,915,340
NET ASSETS:
Beginning of year......................................... 70,149,319 55,233,979
----------- -----------
End of year (including undistributed net investment income
of $7,784 and $834, respectively)...................... $97,486,870 $70,149,319
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
9
<PAGE> 10
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,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year............... $135.64 $121.75 $112.12 $137.22 $135.14
INCOME FROM OPERATIONS:
Net investment income.......................... 1.10 1.09 1.20 1.78 1.63
Net realized and unrealized gain (loss) on
investments.................................. 37.34 24.39 26.55 (2.88) 25.94
------- ------- ------- ------- -------
Total from investment operations........... 38.44 25.48 27.75 (1.10) 27.57
DISTRIBUTIONS:
From net investment income..................... (1.09) (1.09) (1.23) (1.73) (1.77)
From net realized gains........................ (8.31) (10.50) (16.89) (22.27) (23.72)
------- ------- ------- ------- -------
Total distributions........................ (9.40) (11.59) (18.12) (24.00) (25.49)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year..................... $164.68 $135.64 $121.75 $112.12 $137.22
======= ======= ======= ======= =======
Total return..................................... 28.64% 20.82% 24.90% (0.80)% 20.5%
Ratio of expenses to average net assets.......... 1.16% 1.28%(1) 1.39%(1) 1.06% 1.02%
Ratio of net investment income to average net
assets......................................... 0.71% 0.82% 0.94% 1.30% 1.09%
Portfolio turnover rate.......................... 27% 48% 85% 59% 23%
Average commission rate per share(2)............. $0.0473 $0.0447 -- -- --
NET ASSETS, end of year (000's).................. $97,487 $70,149 $55,234 $40,227 $38,342
</TABLE>
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(1) 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.
(2) 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.
10
<PAGE> 11
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INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
The Institutional Investors Capital Appreciation Fund, Inc. (the "Fund") is a
corporation 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 securities 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 at 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 ordinary 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 year ended December 31, 1997, were $25,940,019
and $21,003,615, respectively.
NOTE 3--FEES
Effective December 8, 1997, Shay Assets Management, Inc. (the "Investment
Adviser") ("SAMI") became the investment adviser to the Fund. The Investment
Adviser is a wholly-owned subsidiary of Shay Investment Services, Inc. ("SISI"),
both of which are controlled by Rodger D. Shay, a Vice President of the Fund.
From May 1995 to December 8, 1997, the investment adviser was Shay Assets
Management Co. ("SAMC"), a general partnership that consisted of two general
partners, SAMI and ACB Assets Management, Inc. ("ACBAM"). ACBAM is an indirect
wholly-owned subsidiary of America's Community Bankers.
On December 8, 1997, SAMI purchased ACBAM's 50% interest in SAMC; SAMC was
dissolved and its business (including investment advisory functions to the
Fund), assets and liabilities were transferred to SAMI. In anticipation of this
transaction, the shareholders of the Fund approved a new investment advisory
agreement between the Fund and SAMI on November 13, 1997. The terms of the
investment advisory agreement, including the duties, obligations and
compensation of the investment adviser, are substantially the same as in the
previous agreement.
SAMI and SISI have borne all of the costs incurred by the Fund in connection
with the above transaction, including preparation and distribution of proxy
materials to shareholders, meetings of the Fund's shareholders and Board of
Directors, legal fees, and other fees and expenses.
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11
<PAGE> 12
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The Investment Adviser receives fees from the Fund computed at an annual rate of
0.75% of the first $100,000,000 of the Fund's 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 agreement with the Investment Adviser. This limitation
did not result in any waiver of investment advisory fees during the year ended
December 31, 1997.
Effective December 8, 1997, Shay Financial Services, Inc. (the "Distributor")
("SFSI") became the distributor to the Fund. The Distributor is a wholly-owned
subsidiary of SISI, both of which are controlled by Rodger D. Shay, a Vice
President of the Fund. Prior to December 8, 1997, the distributor was Shay
Financial Services Co. ("SFSC"), a general partnership that consisted of two
general partners, SFSI and ACB Securities, Inc. ("ACBS"). ACBS is an indirect
wholly-owned subsidiary of America's Community Bankers.
On December 8, 1997, SFSI purchased ACBS' 50% interest in SFSC, SFSC was
dissolved and its business (including distribution functions to the Fund),
assets and liabilities were transferred to SFSI. The Distributor receives no
compensation for its distribution services.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank Corp., is the Fund's administrator
and transfer agent. As compensation for its administrative services, PFPC
receives fees from the Fund computed at an annual rate of 0.10% of the first
$200,000,000 of the Fund's average daily net assets, 0.075% of the next
$200,000,000, 0.05% of the next $200,000,000, and 0.03% of average daily net
assets in excess of $600,000,000 (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).
NOTE 4--CAPITAL STOCK
At December 31, 1997, there were 2,000,000 shares of $1.00 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1997 and 1996, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------------- --------------------------
1997 1996 1997 1996
------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Shares sold........................................... 135,463 68,268 $ 21,293,784 $ 8,878,724
Shares issued in reinvestment of dividends............ 30,764 35,833 4,877,038 4,944,436
------- ------- ------------ -----------
166,227 104,101 26,170,822 13,823,160
Shares redeemed....................................... (91,425) (40,589) (14,758,191) (5,714,381)
------- ------- ------------ -----------
Net increase.......................................... 74,802 63,512 $ 11,412,631 $ 8,108,779
======= ======= ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE> 13
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 5--SHAREHOLDER VOTING RESULTS (UNAUDITED)
A Special Meeting of the Fund was held on November 13, 1997, at which the
shareholders voted on one proposal. The proposal and the results of voting are
set forth below.
Shareholders were asked to vote on a proposal to approve a new investment
advisory agreement between the Fund and SAMI. SAMI was the managing partner of
the Fund's previous investment adviser, SAMC. All 462,499 votes were cast in
favor of the proposal. There were no votes against, nor were there any
abstentions (see Note 3).
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.
- --------------------------------------------------------------------------------
13
<PAGE> 14
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, 1997, 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 four 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 the year
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, 1997, by correspondence with the custodian and the application of
alternative auditing procedures with respect to unsettled securities
transactions. 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, 1997,
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 four years in the period then ended, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 20, 1998
14
<PAGE> 15
================================================================================
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
- --------------------------------------------------------------------------------
15
<PAGE> 16
INVESTMENT ADVISER
Shay Assets Management, Inc.
200 Park Avenue
45th Floor
New York, New York 10166
DISTRIBUTOR
Shay Financial Services, Inc.
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 ACCOUNTANTS
Arthur Andersen LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
[INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC LOGO]
Annual Report
To Shareholders
December 31, 1997
