<PAGE> 1
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INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
MESSAGE FROM THE PRESIDENT:
Dear Shareholder Institution:
I am most pleased to report that Institutional Investors Capital Appreciation
Fund, Inc. produced a total return of 28.85% in 1998. This performance has
brought the Fund's three-year average annual return to 26.05%, the five-year
average annual return to 19.93%, and the ten-year average annual return to
16.30%. 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 $23,558,607 on
December 31, 1998.
Oh, what a difference a generation makes. It was just about that long ago when
our nation was witnessing a 21.5% prime rate, a 13% Consumer Price Index, a
10.5% unemployment rate and a long-term Treasury bond yielding over 14%. Here we
are on the eve of the millennium and the United States is about to enter its
eighth year of uninterrupted prosperity. Even more astonishing is that only
three quarters of recession separates this expansion from the previous one which
began, over sixteen years ago, in 1982's final quarter.
Call it luck, or call it part of the United States economy's incomplete
metamorphosis to a more technology-driven, information-oriented society or call
it something else, but things have changed. Pricing power in our economy today
is extremely limited. Deflation has engulfed about one-third of the world's
population and many of the globe's low cost producers reside beyond our borders.
As a result, most companies must continue to tighten their cost structures to
protect profit margins and avoid losing market share. Adding to profit margin
pressures is the fact that export growth remains sluggish and many imports today
are lower in price than a year ago.
Fortunately, over 80% of American workers labor in the service industry and just
8% of American workers toil in manufacturing. Being a consumer-driven (65% of
GDP) nation and not an export-driven nation gives our economy some added
protection from the global slowdown. Also, since the U.S. spends over 40% of the
world's technology dollars and began its technology transition over a generation
ago, our economic insulation is further reinforced. Job insecurity and "aging
baby boomers" are helping to keep prices in check because wage demands are not
terribly onerous.
All is not golden. Some caution lights are flashing. The rate of corporate
profit growth, for example, is slowing. Consumers, on balance, are spending more
than they are earning and some are letting their stock market gains do their
savings for them. Although federal debt as a percent of GDP is dropping,
business debt continues to expand as companies increase their research and
development budgets and add to their capital expenditure programs. Some are also
financing share repurchase programs.
It is hard to predict how long this expansion will last, but the economic
dominance of the United States is spellbinding. Although we account for just 4%
of the world's population, we produce 28% of world economic output. Last year's
Consumer Price Index of 1.6% was the lowest since the current recovery began.
United States corporations remain the world's most profitable and our workers
are the most productive. We are also the planet's largest exporter and largest
importer.
More and more Americans continue to participate in our nation's economic
progress through equity investing. It was just twenty years ago when the average
daily trading volume on the New York Stock Exchange was 28 million shares. Today
it exceeds 650 million shares. Twenty years ago, less than $40 billion was held
in equity mutual funds. It now totals $2.6 trillion.
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 United States and world economic growth.
We wish to give a special note of thanks to those Savings Banks Life Insurance
(SBLI) department shareholders that continue to increase their investment in the
Fund.
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1
<PAGE> 2
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The Fund enables SBLI departments to match a long-term liability (life
insurance) with a long-term asset (common stock). Past history continues to
demonstrate 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%. Last year, the DJIA gain
of 18.13% exceeded estimated profit growth by over 50%.
Sincerely,
/s/ Harry P. Doherty
--------------------
Harry P. Doherty
President
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2
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INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.
PERFORMANCE SUMMARY
(UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
PERIODS ENDING DECEMBER 31, 1998(1)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
INSTITUTIONAL INVESTORS
CAPITAL APPRECIATION
FUND.................. 28.85% 26.05% 19.93% 16.30%
Standard &
Poor's 500
Composite
Stock Price
Index (S&P
500).......... 28.58 28.23 24.06 19.21
Dow Jones
Industrial
Average
(DJIA)........ 18.13 23.83 22.25 18.76
Lipper Growth &
Income Funds
Average....... 15.59 21.43 18.53 15.76
</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, 1988 would have been worth $45,288 on December 31, 1998, assuming all
dividends and distributions have been reinvested. A similar investment in the
S&P 500, over the same period, would have grown to $57,862.
CAPITAL APPRECIATION FUND, INC.
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
CAF S&P
<S> <C> <C>
1988 10,000 10,000
1989 12,778 13,160
1990 11,856 12,752
1991 13,742 16,629
1992 15,148 17,892
1993 18,250 19,700
1994 18,106 19,956
1995 22,613 27,445
1996 27,321 33,744
1997 35,147 45,001
1998 45,288 57,862
</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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3
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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, 1998 was $195.75 versus $164.68 on December 31, 1997.
Shareholders received per share distributions from dividend income of $0.9436,
short-term capital gains of $1.8192 and long-term capital gains of $13.4344
during the year. The Fund's total return of 28.85% for the one-year period
ending December 31, 1998 marks the fourth consecutive year of total returns
greater than 20%. This compares favorably to the one-year total returns of
15.59% for the Lipper Growth & Income Funds Average and 11.19% for the Lipper
All Equity Funds Average for the year ending December 31, 1998. Total return
assumes the reinvestment of all dividends and capital gains and the deduction of
all applicable fees and expenses.
During the 7-year period beginning December 31, 1991 and ending December 31,
1998, coinciding with the tenure of the current portfolio management team, the
Institutional Investors Capital Appreciation Fund has provided a cumulative
total return of 229.60%. This compares favorably to the 7-year cumulative return
of 178.33% for the Lipper Growth & Income Funds Average and 136.89% for the
Lipper All Equity Funds Average. The Fund's average annual total return for the
7-year period ending December 31, 1998 was 18.58% versus 15.75% for the Lipper
Growth & Income Funds Average and 13.11% for the Lipper All Equity Funds
Average.
The Institutional Investors Capital Appreciation Fund's strong performance
relative to its direct comparison, the Lipper Growth & Income Funds Average, was
due in large part to solid returns provided by the large capitalization stocks
that the Fund emphasizes. As the stock market declined during the summer and
into the fall, investors gravitated to the large capitalization issues that
would likely experience fewer disruptions from the adverse economic conditions
outside the United States. Due to the fact that the investment philosophy
adhered to by the Fund's portfolio management team favors large capitalization
companies with predictable cash flows, the Fund benefited from the significant
portion of its assets deployed in this market sector.
The past four years have certainly been a wonderful time to be invested in the
equity markets. As mentioned here over the past few years, equity prices have
benefited from steady economic growth coupled with a favorable interest rate
environment and the absence of inflationary pressures. During this past year, we
have experienced some of the highest economic growth, lowest inflation and
lowest interest rates in the last five years. However, corporate profit growth
has slowed over the course of the year and the declining interest rate
environment may have run its course. As a result, it may be difficult for stock
prices to continue to produce returns of the magnitude we have experienced over
these past four years.
Volatility was certainly a significant factor during last year. After a strong
start in the first half of the year, the stock market sharply reversed course
during the summer giving up nearly all of its gains, only to rebound forcefully
during the last three months of the year to close at record levels. As the new
year begins, we are faced with two additional issues likely to affect the
financial markets in the near future, namely the impeachment of our President
and economic unrest in Latin America. It would not be surprising if the recent
increase in volatility were to continue for some time.
In light of this recent activity, we continue to remain true to our investment
discipline. We focus on individual businesses, studying how they manage their
capital to produce the most profitable returns that are consistent and
sustainable over time. As in prior years, the Institutional Investors Capital
Appreciation Fund's investment management team maintained 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. As our discipline would suggest, we are
often able to identify more attractive opportunities for investment during
market declines, such as the one we experienced this past summer and are likely
to experience at various times in the future.
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4
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During 1998, our focus continued to be on large capitalization issues with the
additions of Campbell Soup, Electronic Data Systems, Gillette and Merck. 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
Anheuser-Busch, Clayton Homes, Dover, Illinois Central, Nordson and Vlassic
Foods (a spin-off of Campbell Soup).
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5
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INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK--94.26%:
<TABLE>
<CAPTION>
SHARES VALUE
- ------ ------------
(NOTE 1)
<C> <S> <C>
ADVERTISING-3.68%
55,000 Interpublic Group of Cos., Inc. .... $ 4,386,250
AUTO PARTS--AFTER MARKET-2.25%
80,000 Genuine Parts Company............... 2,675,000
BEVERAGES--SOFT DRINKS-2.95%
52,500 Coca-Cola Company................... 3,510,938
CHEMICALS--SPECIALTY-3.25%
87,500 International Flavors &
Fragrances Inc.................... 3,866,406
COMPUTER SOFTWARE & SERVICES-6.95%
50,000 Automatic Data Processing, Inc. .... 4,009,375
85,000 Electronic Data Systems Corp. ...... 4,271,250
------------
8,280,625
COMPUTER SYSTEMS-3.01%
52,500 Hewlett-Packard Co. ................ 3,586,406
DISTRIBUTOR--CONSUMER PRODUCTS-3.34%
145,000 Sysco Corp. ........................ 3,978,438
ELECTRICAL EQUIPMENT-4.80%
55,000 Emerson Electric Co. ............... 3,440,937
60,000 Hubbell, Inc. ...................... 2,280,000
------------
5,720,937
ELECTRONICS & SEMICONDUCTORS-3.48%
35,000 Intel Corp. ........................ 4,149,688
ENTERTAINMENT-2.90%
115,000 Walt Disney Co. .................... 3,450,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ ------------
(NOTE 1)
<C> <S> <C>
FINANCIAL SERVICES-7.04%
55,000 Fannie Mae.......................... $ 4,070,000
67,000 Freddie Mac......................... 4,317,313
------------
8,387,313
FOODS-2.91%
63,000 Campbell Soup Co. .................. 3,465,000
FOOTWEAR-2.21%
65,000 Nike, Inc. ......................... 2,636,562
HEALTH CARE--DIVERSIFIED-3.24%
46,000 Johnson & Johnson................... 3,858,250
HEALTH CARE--
PHARMACEUTICALS-6.39%
80,000 Abbott Laboratories................. 3,920,000
25,000 Merck & Co., Inc. .................. 3,692,188
------------
7,612,188
HOUSEHOLD PRODUCTS-2.94%
30,000 Clorox Co. ......................... 3,504,375
OFFICE EQUIPMENT AND SUPPLIES-3.16%
57,000 Pitney Bowes, Inc. ................. 3,765,562
PERSONAL CARE-3.04%
75,000 Gillette Co. ....................... 3,623,437
PUBLISHING--NEWSPAPERS-3.20%
57,500 Gannett Company, Inc. .............. 3,805,781
RESTAURANTS-5.74%
55,000 McDonald's Corp. ................... 4,214,375
120,000 Wendy's International, Inc. ........ 2,617,500
------------
6,831,875
</TABLE>
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See Accompanying Notes to Financial Statements.
6
<PAGE> 7
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED):
SHARES VALUE
- ------- ------------
(NOTE 1)
<C> <S> <C>
RETAIL--DRUG CHAINS-2.95%
60,000 Walgreen Company.................... $ 3,513,750
RETAIL--FOOD CHAINS-3.74%
70,000 Albertson's, Inc. .................. 4,458,125
RETAIL--GENERAL MERCHANDISE-3.76%
55,000 Wal-Mart Stores, Inc. .............. 4,479,062
RETAIL--SPECIALTY STORES-4.07%
86,250 Gap, Inc. .......................... 4,851,563
TOBACCO-3.26%
72,500 Philip Morris Companies, Inc. ...... 3,878,750
------------
Total Common Stock
(Cost $64,275,888)................ $112,276,281
</TABLE>
COMMERCIAL PAPER--5.61%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
(NOTE 1)
<C> <S> <C> <C>
$1,000,000 American Express Credit
Corp., 5.80%, due
01/04/99............... $ 1,000,000
2,500,000 Ford Motor Credit Corp.,
4.25%, due 01/04/99.... 2,500,000
3,188,000 American Express Credit
Corp., 4.25%, due
01/06/99............... 3,188,000
------------
Total Commercial Paper
(Cost $6,688,000)...... 6,688,000
------------
Total Investments
(Cost $70,963,888*).... 99.87% 118,964,281
Other assets in excess of
liabilities............ 0.13% 152,948
------ ------------
Net Assets............... 100.00% $119,117,229
====== ============
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At December 31,
1998, the net unrealized appreciation for tax purposes for all securities of
$48,000,393 consists of gross unrealized appreciation of $48,856,028 and gross
unrealized depreciation of $855,635.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 8
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS:
Investment in securities, at value (Cost $70,963,888)....... $118,964,281
Cash........................................................ 647
Dividends and interest receivable........................... 172,390
Prepaid expenses............................................ 22,406
------------
Total assets.............................................. 119,159,724
LIABILITY:
Accrued expenses payable.................................... 42,495
------------
NET ASSETS, applicable to 608,532 shares of $1.00 par value
stock, 2,000,000 shares authorized........................ $119,117,229
============
NET ASSETS:
Capital paid in............................................. $ 71,116,836
Net unrealized appreciation................................. 48,000,393
------------
NET ASSETS.................................................. $119,117,229
============
NET ASSET VALUE, offering and redemption price per share
($119,117,229/608,532 shares)............................. $ 195.75
============
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
8
<PAGE> 9
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $ 1,351,708
Interest.................................................. 311,625
-----------
Total investment income................................ 1,663,333
EXPENSES:
Investment advisory....................................... 777,312
Administration............................................ 105,462
Directors'................................................ 84,218
Legal..................................................... 48,316
Insurance................................................. 33,629
Custodian................................................. 27,897
Audit..................................................... 19,300
Transfer agent............................................ 18,200
Printing.................................................. 7,683
Miscellaneous............................................. 7,481
-----------
Total expenses......................................... 1,129,498
-----------
Net investment income.................................. 533,835
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain........................................... 8,562,566
Net change in unrealized appreciation....................... 18,296,017
-----------
Net realized and unrealized gain............................ 26,858,583
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $27,392,418
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
9
<PAGE> 10
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 533,835 $ 584,986
Net realized gain on investments.......................... 8,562,566 4,564,123
Net change in unrealized appreciation on investments...... 18,296,017 15,918,145
------------ -----------
Net increase in net assets resulting from operations........ 27,392,418 21,067,254
Distributions to shareholders:
From net investment income................................ (533,835) (578,036)
In excess of net investment income........................ (8,840) --
From net realized gain on investments..................... (8,562,566) (4,564,298)
------------ -----------
Total distributions to shareholders......................... (9,105,241) (5,142,334)
Net increase from capital share transactions................ 3,343,182 11,412,631
------------ -----------
Total increase in net assets........................... 21,630,359 27,337,551
NET ASSETS:
Beginning of year......................................... 97,486,870 70,149,319
------------ -----------
End of year (including undistributed net investment income
of $7,784 at December 31, 1997)........................ $119,117,229 $97,486,870
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
10
<PAGE> 11
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,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year........... $ 164.68 $135.64 $121.75 $112.12 $137.22
INCOME FROM OPERATIONS:
Net investment income...................... 0.93 1.10 1.09 1.20 1.78
Net realized and unrealized gain (loss) on
investments.............................. 46.33 37.34 24.39 26.55 (2.88)
-------- ------- ------- ------- -------
Total from investment operations....... 47.26 38.44 25.48 27.75 (1.10)
DISTRIBUTIONS:
From net investment income................. (0.93) (1.09) (1.09) (1.20) (1.73)
In excess of net investment income......... (0.01) -- -- (0.03) --
From net realized gains on investments..... (15.25) (8.31) (10.50) (16.89) (22.27)
-------- ------- ------- ------- -------
Total distributions.................... (16.19) (9.40) (11.59) (18.12) (24.00)
-------- ------- ------- ------- -------
NET ASSET VALUE, end of year................. $ 195.75 $164.68 $135.64 $121.75 $112.12
======== ======= ======= ======= =======
Total return................................. 28.85% 28.64% 20.82% 24.90% (0.80)%
Ratio of expenses to average net assets...... 1.07% 1.16% 1.28%(1) 1.39%(1) 1.06%
Ratio of net investment income to average net
assets..................................... 0.51% 0.71% 0.82% 0.94% 1.30%
Portfolio turnover rate...................... 22% 27% 48% 85% 59%
Average commission rate per share (2)........ $ 0.0453 $0.0473 $0.0447 -- --
NET ASSETS, end of year (000's).............. $119,117 $97,487 $70,149 $55,234 $40,227
</TABLE>
- --------------------------------------------------------------------------------
(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.
11
<PAGE> 12
- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 as of 4:00 pm Eastern Time. 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--FEES
Shay Assets Management, Inc. (the "Investment Adviser") is 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.
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 the Investment Adviser's fees during the years
ended December 31, 1998 and 1997.
Shay Financial Services, Inc. (the "Distributor") is the distributor for the
Fund. The Distributor is a wholly-owned subsidiary of SISI, which is controlled
by Rodger D. Shay, a Vice President of the Fund. 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
- --------------------------------------------------------------------------------
12
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- --------------------------------------------------------------------------------
INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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 3--CAPITAL STOCK
At December 31, 1998, there were 2,000,000 shares of $1.00 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1998 and 1997, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------------- ---------------------------
1998 1997 1998 1997
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 57,835 135,463 $ 10,620,797 $ 21,293,784
Shares issued in reinvestment of dividends........... 43,487 30,764 8,418,691 4,877,038
------- ------- ------------ ------------
101,322 166,227 19,039,488 26,170,822
Shares redeemed...................................... (84,761) (91,425) (15,696,306) (14,758,191)
------- ------- ------------ ------------
Net increase......................................... 16,561 74,802 $ 3,343,182 $ 11,412,631
======= ======= ============ ============
</TABLE>
NOTE 4--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, 1998, were $21,686,782
and $26,162,725, respectively.
NOTE 5--SHAREHOLDER VOTING RESULTS (UNAUDITED)
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.
- --------------------------------------------------------------------------------
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, 1998, and the related statement
of operations, changes in net assets, and financial highlights for the periods
presented. 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.
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, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Institutional Investors Capital Appreciation Fund, Inc. as of December 31, 1998,
the results of its operations, changes in its net assets, and financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 19, 1999
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.
230 West Monroe Street
Chicago, Illinois 60606
ADMINISTRATOR, TRANSFER AGENT,
REGISTRAR AND DIVIDEND PAYING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
PFPC Trust Co.
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.
Annual Report
To Shareholders
December 31, 1998
- -------------------------------------
