<PAGE> 1
INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
MESSAGE FROM THE PRESIDENT
Dear Shareholder:
I am happy to report that Institutional Investors Capital Appreciation Fund,
Inc. produced a total return of 13.18% for the six months ended June 30, 1998.
This gain helped to bring our one-year return to 26.02%. The Fund's three-year
average annual return grew to 25.02% and the five and ten-year average annual
returns are 18.80% and 14.32%, respectively, for the periods ended June 30,
1998. In addition, the Fund is celebrating its 45th Anniversary, and if a
shareholder institution had invested $100,000 at inception the investment would
have grown to $20,693,831 on June 30, 1998.
Whenever our competitors around the globe set their eyes on the United States,
they are most impressed with what they see. They see the world's sole remaining
"superpower" running away from the rest of the pack. It's hard for them to
comprehend that this is the same United States that less than a generation ago
was suffering with a 10.5% unemployment rate, a 21.5% prime rate and long
Treasury bonds yielding over 14.5%. Today, the United States is the world's
largest exporter, investor in technology and job creator. We have created more
jobs since 1980 than Europe has since 1900 and we have incurred only seven
months of recession since the end of 1982.
Three continuing trends have helped to deliver this stellar performance. One is
privatization and deregulation, which are growing worldwide and increasing the
demand for U.S. goods and services. Another is technology costs which continue
to decline while technology-spawned productivity is rising. Finally, with so
many Americans taking more control over their financial well being, our nation's
savings and investment pool continues to expand.
Currently over four billion inhabitants of this planet now live in a country
that employs one form of capitalism or another, up from one billion less than a
decade ago. As a result, the escalating demands for United States goods,
services, management expertise, technology and capital are huge. We will not be
giving up our status as the world's premier exporter for many years to come.
It has taken less than two generations for the technology industry to catapult
from an emerging industry to the nation's largest. It is now estimated that
about 90% of all U.S. workers are employed in just three industries: technology,
technology-related and services. The economic benefits generated by technology's
rapid expansion include lower operating costs, higher productivity and increased
job creation. Technology spending now accounts for 25% of total U.S. business
investment and is expanding rapidly in all the other industrialized nations as
well.
More and more citizens continue to heed the call to take more control over their
financial destiny. For over a decade they have been bombarded by the financial
services industry and others to "get started" and they have. Today, over $5
trillion is invested in mutual funds, of which $2.6 trillion is in equity mutual
funds. In 1985, only $55 billion resided in equity mutual funds.
These savvy new investors know the benefits of time, compounding and equity
investing. American households currently have more of their total assets in
common stock than in real estate, and over half of all household financial
assets are now invested in common stocks.
Not only is the demand for U.S. equities strong because of solid economic
fundamentals and low inflation, a significant amount of "flight" capital has
come into U.S. capital markets. Much of it is coming because of political
instability in Eastern Europe and economic uncertainty in Southeast Asia. At the
same time, the supply of "quality" equity securities is diminishing because of
heavy domestic and foreign merger and acquisition activity and rising share
repurchase programs.
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1
<PAGE> 2
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
the privatization, computerization, deregulation and globalization trends
permeating the global landscape.
We offer a special note of thanks to those Savings Banks Life Insurance (SBLI)
department shareholders that continue to increase 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. For example, the earnings per share growth for the Dow
Jones Industrial Average (DJIA) from 1927 through 1997, inclusive, was 4,544%,
and the price gain (dividends not included) for the DJIA was 3,834%. From 1977
through 1997, inclusive, the DJIA earnings per share growth was 370% and the
price gain equaled 852%. For the ten years-ended 1997, earnings per share grew
160%, and the DJIA price gain totaled 308%.
Sincerely,
HARRY P. DOHERTY
Harry P. Doherty
President
PERFORMANCE SUMMARY
(UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDING JUNE 30, 1998*
<TABLE>
<CAPTION>
YEAR ONE FIVE TEN
TO DATE YEAR YEARS YEARS
------- ---- ----- -----
<S> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND................................... 13.18% 26.02% 18.80% 14.32%
Lipper Growth & Income Funds Average........................ 12.11 22.86 19.03 15.78
Standard & Poor's 500 Index................................. 17.71 30.15 23.08 18.56
Dow Jones Industrial Average................................ 14.14 18.68 23.35 18.72
</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.
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2
<PAGE> 3
INVESTMENT RESULTS, OUTLOOK AND STRATEGIES
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
The Fund's net asset value per share on June 30, 1998 was $185.90 versus $164.68
on December 31, 1997. Shareholders received distributions from dividend income
totaling $0.4840 per share during the first six months of 1998. The Fund's total
return for the six-month period ending June 30, 1998 was 13.18%. This compares
favorably to the universe of growth and income funds, represented by the Lipper
Growth and Income Funds Average, which posted a first half return of 12.11%. The
average domestic equity mutual fund, as measured by the Lipper General Equity
Funds Average, returned 11.75% for the six-month period ending June 30, 1998
while the average equity mutual fund including foreign and sector funds,
represented by the Lipper All Equity Funds Average, provided a six-month return
of 9.77%. Total return assumes the reinvestment of all dividends and capital
gains and the deduction of all applicable fees and expenses.
After three years of returns exceeding 20% per year, it would have been nearly
impossible to predict that the Institutional Investors Capital Appreciation Fund
would gain more than 13% during the first six months of this year. The driving
forces fueling stock price advances continue to be low inflation and favorable
interest rates combined with strong economic and corporate profit growth. As
Asian economies continue to experience turmoil and the longevity of our own
economic growth has come into question, many investors have begun to seek safety
in blue chip companies that offer steadier earnings streams as well as increased
liquidity. The Fund has been a beneficiary of this trend due to its
concentration in large capitalization multi-national corporations and certain
large retailers, which have done so well this year. The Fund's six-month return
was favorably impacted by sizable positions in these types of securities
including, Gap (+74% for the six months ending June 30), Wal-Mart (+54%),
McDonald's (+45%), Walgreen (+32%), Coca-Cola (+28%) and Abbott Laboratories
(+25%). In addition, the Fund's limited exposure to cyclical issues has further
aided returns.
During the first half of 1998, four securities were eliminated from the
portfolio and three were added. Early in the year, Illinois Central entered into
a merger agreement with Canadian National Railway with a cash and stock value of
$39 per share. Due to the fact that the stock fully reflected the value of the
transaction and no other bidders were likely to emerge, we elected to sell our
shares. A majority of the proceeds were reinvested in Campbell Soup. This
company meets our stringent investment criteria and was available at an
attractive valuation. In addition, its recent spin-off of Vlassic Foods
International should provide opportunities for improved margins and provides the
company with additional focus. We promptly sold the Vlassic shares we received
from the spin-off due to their insignificant weighting in the portfolio, in
addition to the fact that the new company is not one in which we would consider
an investment on a stand-alone basis.
Electronic Data Systems was purchased during the month of April as a turnaround
candidate. Revenues of the financially sound company have been increasing at a
much faster pace than its earnings. We believe that margins have room for
improvement and earnings growth could accelerate as a result. With the stock off
more than 35% from its October 1996 peak, we believe that there is ample room
for appreciation. Coinciding with the EDS purchase, Dover was eliminated from
the Fund due to its high valuation relative to its long-term fundamental
outlook. Merck's strong balance sheet and ongoing research and development
program, coupled with a favorable valuation relative to its industry, prompted
us to add it to the portfolio during the first half of 1998. Lastly, Nordson was
eliminated from the portfolio during the period, due to deteriorating
fundamentals resulting in part from weakening demand from Asian markets.
Going forward, we do not expect the equity markets or the Fund to produce
six-month returns of the magnitude we have just experienced, and it has become
increasingly difficult to find value in the current market environment. However,
we will continue to seek out pockets of value in what otherwise might be
considered an overvalued market.
- --------------------------------------------------------------------------------
3
<PAGE> 4
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK--93.95%:
SHARES VALUE
- --------- ------------
(NOTE 1)
<C> <S> <C>
ADVERTISING-2.95%
52,500 Interpublic Group of Cos., Inc. ... $ 3,186,094
AUTO PARTS--AFTER MARKET-2.08%
65,000 Genuine Parts Company.............. 2,246,562
BEVERAGES--ALCOHOLIC-2.19%
50,000 Anheuser-Busch Companies, Inc...... 2,359,375
BEVERAGES--SOFT DRINKS-3.56%
45,000 Coca-Cola Company.................. 3,847,500
CHEMICALS--SPECIALTY-2.82%
International Flavors &
70,000 Fragrances....................... 3,040,625
COMPUTER SOFTWARE & SERVICES-6.58%
53,500 Automatic Data Processing, Inc..... 3,898,813
80,000 Electronic Data Systems Corp....... 3,200,000
------------
7,098,813
COMPUTER SYSTEMS-2.66%
48,000 Hewlett-Packard Co................. 2,874,000
DISTRIBUTOR--CONSUMER
PRODUCTS-3.44%
145,000 Sysco Corp. ....................... 3,715,625
ELECTRICAL EQUIPMENT-4.72%
50,000 Emerson Electric Co. .............. 3,018,750
50,000 Hubbell, Inc....................... 2,081,250
------------
5,100,000
ELECTRONICS & SEMICONDUCTORS-3.09%
45,000 Intel Corp......................... 3,335,625
ENTERTAINMENT-2.92%
30,000 Walt Disney Co..................... 3,151,875
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------
(NOTE 1)
<C> <S> <C>
FINANCIAL SERVICES-6.47%
55,000 Fannie Mae......................... $ 3,341,250
77,500 Freddie Mac........................ 3,647,344
------------
6,988,594
FOODS-3.10%
63,000 Campbell Soup Co................... 3,346,875
FOOTWEAR-2.93%
65,000 Nike, Inc.......................... 3,164,687
HEALTH CARE--DIVERSIFIED-3.25%
47,500 Johnson & Johnson.................. 3,503,125
HEALTH CARE--DRUGS-6.51%
90,000 Abbott Laboratories................ 3,678,750
25,000 Merck & Co., Inc................... 3,343,750
------------
7,022,500
HOUSEHOLD PRODUCTS-2.92%
33,000 Clorox Co.......................... 3,147,375
MANUFACTURED HOUSING-2.55%
145,000 Clayton Homes, Inc. ............... 2,755,000
OFFICE EQUIPMENT AND SUPPLIES-2.54%
57,000 Pitney Bowes, Inc.................. 2,743,125
PUBLISHING--NEWSPAPERS-3.09%
47,000 Gannett Company, Inc............... 3,339,938
RESTAURANTS-6.67%
55,000 McDonald's Corp. .................. 3,795,000
145,000 Wendy's International, Inc......... 3,407,500
------------
7,202,500
RETAIL--DRUG CHAINS-3.25%
85,000 Walgreen Company................... 3,511,562
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
4
<PAGE> 5
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED):
SHARES VALUE
- --------- ------------
(NOTE 1)
<C> <S> <C>
RETAIL--FOOD CHAINS-3.60%
75,000 Albertson's, Inc................... $ 3,885,938
RETAIL--GENERAL MERCHANDISE-3.60%
64,000 Wal-Mart Stores, Inc............... 3,888,000
RETAIL--SPECIALTY STORES-3.54%
62,000 Gap, Inc........................... 3,820,750
TOBACCO-2.92%
80,000 Philip Morris Companies, Inc....... 3,150,000
------------
Total Common Stock
(Cost $63,162,248)............... $101,426,063
</TABLE>
COMMERCIAL PAPER 5.96%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
(NOTE 1)
<C> <S> <C> <C>
$4,433,000 Household Finance Corp.,
5.95%, due 07/01/98.... $ 4,433,000
2,000,000 Ford Motor Credit Co.
5.73%, due 07/06/98.... 2,000,000
------------
Total Commercial Paper
(Cost $6,433,000)...... 6,433,000
------------
Total Investments
(Cost $69,595,248*).... 99.91% 107,859,063
Other assets in excess of
liabilities............ 0.09% 94,571
------ ------------
Net Assets............... 100.00% $107,953,634
====== ============
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At June 30, 1998,
the net unrealized appreciation for tax purposes for all securities of
$38,263,815 consists of gross unrealized appreciation of $38,963,574 and gross
unrealized depreciation of $699,759.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
ASSETS:
Investment in securities, at value (Cost $69,595,248)....... $107,859,063
Cash........................................................ 711
Dividends and interest receivable........................... 161,428
Prepaid expenses............................................ 9,989
------------
Total assets.............................................. 108,031,191
LIABILITY:
Accrued expenses payable.................................... 77,557
------------
NET ASSETS, applicable to 580,721 shares of $1.00 par value
stock, 2,000,000 shares authorized........................ $107,953,634
============
NET ASSETS:
Capital paid in............................................. $ 65,766,432
Undistributed net investment income......................... 144
Undistributed net realized gains............................ 3,923,243
Net unrealized appreciation................................. 38,263,815
------------
NET ASSETS.................................................. $107,953,634
============
NET ASSET VALUE, offering and redemption price per share
($107,953,634/580,721 shares)............................. $ 185.90
============
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
6
<PAGE> 7
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
----------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $ 644,925
Interest.................................................. 191,818
-----------
Total income......................................... 836,743
EXPENSES:
Investment advisory....................................... 379,756
Administration............................................ 51,157
Directors'................................................ 43,391
Legal..................................................... 29,753
Insurance................................................. 19,371
Custodian................................................. 13,889
Transfer agent............................................ 9,744
Audit..................................................... 9,620
Printing.................................................. 3,669
Miscellaneous............................................. 3,473
-----------
Total expenses....................................... 563,823
-----------
Net investment income................................ 272,920
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain........................................... 3,923,243
Net change in unrealized appreciation....................... 8,559,439
-----------
Net realized and unrealized gain on investments............. 12,482,682
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $12,755,602
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 8
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
---------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 272,920 $ 584,986
Net realized gain on investments.......................... 3,923,243 4,564,123
Net change in unrealized appreciation on investments...... 8,559,439 15,918,145
------------ -----------
Net increase in net assets resulting from operations........ 12,755,602 21,067,254
Distributions to shareholders from:
Net investment income..................................... (280,560) (578,036)
Net realized gain on investments.......................... 0 (4,564,298)
------------ -----------
Total distributions to shareholders......................... (280,560) (5,142,334)
Net increase/(decrease) from capital share transactions (See
Note 4)................................................... (2,008,278) 11,412,631
------------ -----------
Total increase in net assets......................... 10,466,764 27,337,551
NET ASSETS:
Beginning of period....................................... 97,486,870 70,149,319
------------ -----------
End of period (including undistributed net investment
income of $144 and $7,784, respectively)............... $107,953,634 $97,486,870
============ ===========
</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 Period
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 -----------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of period..... $ 164.68 $135.64 $121.75 $112.12 $137.22 $135.14
INCOME FROM OPERATIONS:
Net investment income.................. 0.47 1.10 1.09 1.20 1.78 1.63
Net realized and unrealized gain (loss)
on investments....................... 21.23 37.34 24.39 26.55 (2.88) 25.94
-------- ------- ------- ------- ------- -------
Total from investment operations..... 21.70 38.44 25.48 27.75 (1.10) 27.57
DISTRIBUTIONS:
From net investment income............. (0.48) (1.09) (1.09) (1.23) (1.73) (1.77)
From net realized gains on
investments.......................... 0.00 (8.31) (10.50) (16.89) (22.27) (23.72)
-------- ------- ------- ------- ------- -------
Total distributions.................. (0.48) (9.40) (11.59) (18.12) (24.00) (25.49)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of period........... $ 185.90 $164.68 $135.64 $121.75 $112.12 $137.22
======== ======= ======= ======= ======= =======
Total return............................. 13.18% 28.64% 20.82% 24.90% (0.80%) 20.5%
Ratio of expenses to average net
assets................................. 1.10%(1) 1.16% 1.28%(2) 1.39%(2) 1.06% 1.02%
Ratio of net investment income to average
net assets............................. 0.53%(1) 0.71% 0.82% 0.94% 1.30% 1.09%
Portfolio turnover rate.................. 28% 27% 48% 85% 59% 23%
Average commission rate per share(3)..... $ 0.0450 $0.0473 $0.0447 -- -- --
NET ASSETS, end of period (000's)........ $107,954 $97,487 $70,149 $55,234 $40,227 $38,342
</TABLE>
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(1) Annualized.
(2) 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.
(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.
9
<PAGE> 10
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
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 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 six month period ended June 30, 1998, were
$13,742,812 and $14,693,072, 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"),
which is 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 paid 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.
- --------------------------------------------------------------------------------
10
<PAGE> 11
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
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 six month
period ended June 30, 1998.
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, which is 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 June 30, 1998, 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, 1998
and the year ended December 31, 1997, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
-------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares sold....................................... 32,088 135,463 $ 5,614,260 $ 21,293,784
Shares issued in reinvestment of dividends........ 1,406 30,764 257,399 4,877,038
------- ------- ----------- ------------
33,494 166,227 5,871,659 26,170,822
Shares redeemed................................... (44,744) (91,425) (7,879,937) (14,758,191)
------- ------- ----------- ------------
Net increase/(decrease)........................... (11,250) 74,802 $(2,008,278) $ 11,412,631
======= ======= =========== ============
</TABLE>
NOTE 5--STOCKHOLDER VOTING RESULTS
A Special Meeting of Stockholders of the Fund was held on November 13, 1997, at
which the stockholders voted on one proposal. The proposal and the results of
voting are set forth below.
- --------------------------------------------------------------------------------
11
<PAGE> 12
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
Stockholders 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 22, 1998, 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>
Timothy A. Dempsey.......................................... 2001 347,432
Clifford E. Kelsey, Jr...................................... 2001 347,432
Joseph L. Mancino........................................... 2001 347,432
Charles M. Sprock........................................... 2001 347,432
John M. Tsimbinos........................................... 2001 347,432
</TABLE>
In addition, Messrs. Ralph F. Brouty, Robert P. Capone, Harry P. Doherty, Chris
C. Gagas, Edward P. Henson, Michael R. Kallet, Stephen J. Kelly, Robert E.
Kernan, Jr., William A. McKenna, Jr. and Vincent F. Palagiano 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 31,1998. All 347,432 votes were
cast in favor of the proposal. There were no votes against, nor were there any
abstentions.
- --------------------------------------------------------------------------------
12
<PAGE> 13
NOTES
<PAGE> 14
NOTES
<PAGE> 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS MUTUAL FUND
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
JOSEPH L. MANCINO
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
<PAGE> 16
BACK COVER
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.
Semi-Annual Report
To Shareholders
June 30, 1998
