INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND INC, POS AMI, 1999-04-30

INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND INC
POS AMI, 1999-04-30

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FILE NO. 811-620
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 11

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INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
(Exact Name of Registrant as Specified in Charter)

200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (212) 573-9354

James H. Bluck
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
(Name and Address of Agent for Service)

================================================================================

<PAGE>

INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
-----------
CROSS REFERENCE SHEET

N-1A ITEM NO. LOCATION
- ------------- --------

PART A INFORMATION REQUIRED IN A PROSPECTUS

Item 1. Front and Back Cover Pages................... Not applicable

Item 2. Risk/Return Summary: Investments,
Risks, and Performance....................... Not applicable

Item 3. Risk/Return Summary: Fee Table.............. Not applicable

Item 4. Investment Objectives, Principal
Strategies, and Related Risks................ Investment Objective
and Strategies;
Principal Risks
Item 5. Management's Discussion of Fund
Performance.................................. Not Applicable

Item 6. Management, Organization, and Capital
Structure.................................... Portfolio Management

Item 7. Shareholder Information...................... Share Price -- Net
Asset Value;
Purchase of Fund
Shares; Share
Purchase Options;
Redeeming Shares;
Dividends,
Distributions and
Federal Income Tax
Status

Item 8. Distribution Arrangements.................... Purchase of Fund Shares

Item 9. Financial Highlights Information............. Not applicable

PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

Item 10. Cover Page and Table of Contents............. Cover Page of the
Statement of Additional
Information; Contents

Item 11. Fund History................................. The Fund

Item 12. Description of the Fund and Its
Investments and Risks........................ The Fund; Investment
Objective, Policies
and Risks

Item 13. Management of the Fund....................... Officers and Directors
of the Fund

Item 14. Control Persons and Principal Holders of
Securities................................... Control Persons and
Principal Holders of
Securities

Item 15. Investment Advisory and Other
Services..................................... Investment Advisory and
Other Services;
Independent Auditors

Item 16. Brokerage Allocation and Other
Practices.................................... Purchase and Sale of
Portfolio Securities

Item 17. Capital Stock and Other Securities........... Description of Capital
Stock

Item 18. Purchase, Redemption and Pricing of
Shares....................................... Purchase and Redemption
of Shares; Financial
Statements

<PAGE>

Item 19. Taxation of the Fund......................... Income Tax Status,
Dividends and
Distributions

Item 20. Underwriters................................. Investment Advisory
and Other Services

Item 21. Calculation of Performance Data.............. Performance Information

Item 22. Financial Statements......................... Financial Statements

PART C OTHER INFORMATION

INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE
APPROPRIATE ITEM, SO NUMBERED, IN PART C TO THIS REGISTRATION STATEMENT.

<PAGE>

INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.

PROSPECTUS
O O O O O O O O O O O O O O
May 1, 1999
O O O O O O O O O O O O O O
A NO-LOAD FUND
O O O O O O O O O O O O O O
PRIMARY OBJECTIVE:
Capital Appreciation
SECONDARY OBJECTIVE:
Income

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY.

THE OFFER AND SALE OF THE SECURITIES OFFERED BY MEANS OF THIS PROSPECTUS HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SHARES OF THE
FUND MAY BE OFFERED AND SOLD ONLY TO ELIGIBLE INSTITUTIONS WHOSE PRINCIPAL
OFFICES ARE LOCATED IN THE STATE OF NEW YORK AND MAY NOT BE TRANSFERRED, EXCEPT
TO ANOTHER ELIGIBLE INSTITUTION WHOSE PRINCIPAL OFFICE IS LOCATED IN THE STATE
OF NEW YORK.

This Prospectus does not constitute an offer in any state or jurisdiction
outside the State of New York.

ADDITIONAL INFORMATION AND SHAREHOLDER INQUIRIES

A current Statement of Additional Information ("SAI") which provides more detail
about the Fund is on file with the Securities and Exchange Commission as part of
the Fund's registration statement on Form N-1A. The SAI is incorporated herein
by reference, which means that it is legally considered part of this Prospectus.

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.

The SAI, annual report and semi-annual report are available without charge upon
request. To obtain a copy of the current SAI, annual or semi-annual report or
other information about the Fund or to make shareholder inquiries:

Call: 800-527-3713
Write to: Institutional Investors Capital Appreciation Fund, Inc.
c/o Shay Financial Services, Inc.
230 West Monroe Street, Chicago, Illinois 60606

You may view information about the Fund by visiting the Securities and Exchange
Commission's internet website (www.sec.gov). You can also review and obtain
copies of Fund information by visiting the SEC's Public Reference Room in
Washington, DC (phone 800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009. (The
Fund's Investment Company Act File Number is 811-620.)

YOU SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.

<PAGE>

CONTENTS

PAGE PAGE
<S> <C> <C> <C>
Key Points........................... 2 Redeeming Shares...................... 10
Performance Summary.................. 4 Understanding Performance............. 12
Fees and Expenses of the Fund........ 5 Dividends, Distributions and
Eligible Institutions................ 6 Federal Income Tax Status............ 12
Investment Objective and Strategies.. 6 Portfolio Management.................. 13
Principal Risks...................... 7 Administrator, Transfer Agent,
Share Price -- Net Asset Value....... 8 Dividend Paying Agent and Custodian.. 14
Purchase of Fund Shares.............. 9 Distributor........................... 14
Share Purchase Procedures............ 10

</TABLE>

---------------

KEY POINTS

ELIGIBLE INVESTMENT FOR NEW YORK SAVINGS BANKS: The Fund is designed as an
investment vehicle for New York savings banks under Subdivision 26(e) of Section
235 of the New York Banking Law and certain other Eligible Institutions, as
defined below.

ELIGIBLE INSTITUTIONS: Shares of the Fund may be purchased and owned only by,
and may be transferred only to, Eligible Institutions that have their principal
offices within the State of New York. An "Eligible Institution" means: (i) a
savings bank or savings and loan association which is organized under the laws
of the State of New York, (ii) a federal savings association organized under the
laws of the United States, (iii) a holding company owning a majority of the
outstanding shares of such a savings bank, savings and loan association or
savings association, (iv) a life insurance department of any such savings bank,
savings and loan association or savings association, (v) a wholly- or
majority-owned subsidiary of any such savings bank, savings and loan association
or savings association, including without limitation a life insurance
subsidiary, or (vi) a pension trust, fund, plan or agreement participated in by
one or more such savings banks, savings and loan associations, savings
associations or holding companies to provide retirement benefits, death benefits
or disability benefits for any or all of its or their active officers and
employees.

ELIGIBLE INVESTMENTS BY THE FUND: In order to maintain the Fund as an eligible
investment for New York savings banks under Subdivision 26(e) of Section 235 of
the New York Banking Law, the Fund will invest only in securities in which a
savings bank may invest.

GOAL AND PRINCIPAL STRATEGIES: The Fund's primary investment objective is to
achieve capital appreciation. The objective of income is secondary. The Fund
seeks to achieve these objectives by investing in a diversified portfolio of
equity securities consisting primarily of common stocks of U.S.-based companies
whose growth, cash flow, earnings and dividend prospects are promising and whose
securities are reasonably priced and have the potential for capital appreciation
in the opinion of the Fund's Investment Adviser. The equity securities in which
the Fund invests consist primarily of dividend-paying common stocks of
large-capitalization companies, i.e., companies with a market capitalization in
excess of $5 billion. There is no assurance that the Fund in fact will achieve
these objectives.

RISKS: All investments in equity mutual funds, like the Fund, involve risk.
Simply defined, risk is the possibility that you will lose money or not make
money. Below is a summary of the principal risk factors for the Fund.

O MARKET AND INVESTMENT RISKS. The value of the Fund's shares will fluctuate in
accordance with the value of the securities held in its portfolio. Declines
are possible in the overall stock market or in the particular securities or
types of securities held by the Fund, and it is possible to lose money as a
result of your investment.

O PORTFOLIO MANAGEMENT RISKS. The Investment Adviser's skill will affect the
ability of the Fund to achieve its investment objective. The strategies
employed by the Fund may not match the performance of other strategies at
particular times or under particular market or economic conditions.
Accordingly, the Fund's performance for any period may differ from the
performance of the overall market or from other investments that may be
available to you.

<PAGE>

O LIMITATIONS ON THE AMOUNT OF REDEMPTIONS. The amount that can be withdrawn
from the Fund by a shareholder on any day is limited to the greater of 2,500
shares or 10% of the total number of shares owned by the shareholder at the
time the request for redemption is made.

O REGULATORY RISKS. All of the Fund's shareholders are financial institutions
(or subsidiaries of, or holding companies for, financial institutions) that
are regulated by state and/or federal law. Changes in federal and state
regulations in effect from time to time may affect the types of securities
and other instruments in which the Fund may invest and, therefore, could
adversely affect the ability of the Fund to achieve its investment
objectives. Regulatory changes also may affect the ability of Eligible
Institutions to invest in the Fund, which could result in a reduction in the
size of the Fund and have other adverse effects on the Fund.

INVESTMENTS NOT INSURED OR GUARANTEED: An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.

[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

PERFORMANCE SUMMARY

The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from
year-to-year over a 10-year period and by showing how the Fund's average annual
returns for one, three, five, and ten years compare to those of a broad-based
securities market index. All returns assume reinvestment of dividends. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.

YEAR-BY-YEAR TOTAL RETURNS (AS OF DECEMBER 31 OF EACH YEAR)

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27.58% (7.21%) 15.91% 10.23% 20.50% (0.80%) 24.90% 20.82% 28.64% 28.85%

</TABLE>

Best Quarter: 4th Quarter, 1998 +21.31%
Worst Quarter: 3rd Quarter, 1990 -17.10%

AVERAGE ANNUAL TOTAL RETURNS

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------

Institutional Investors Capital
Appreciation Fund, Inc............... 28.85% 26.05% 19.93% 16.30%

S&P 500 Index*....................... 28.58% 28.23% 24.06% 19.21%

* The S&P 500 Index is the Standard & Poor's Composite Index of 500 Stocks,
which is a commonly recognized unmanaged price index of 500 widely held
common stocks. Unlike the Fund's returns, index returns do not reflect any
fees or expenses.

<PAGE>

FEES AND EXPENSES OF THE FUND

THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.

SHAREHOLDER FEES (fees paid directly from your investment)........... NONE

ANNUAL FUND OPERATING EXPENSES (deducted from Fund assets)*

Management Fees.................................................... 0.74%
Distribution or Service (12b-1) Fees............................... NONE
Other Expenses..................................................... 0.33%
Administration, Transfer Agent and Custodian Fees.........0.14%
Professional and Directors' Expenses......................0.14%
Insurance, Printing and Miscellaneous Expenses............0.05%
Total Annual Fund Operating Expenses............................... 1.07%

- ---------------
* Annual fund operating expense figures are for the fiscal year ended December
31, 1998, and are expressed as a percentage of the Fund's average net assets.

EXAMPLE

This Example may help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated. The Example also assumes that your investment has a 5% return each
year, all dividends and distributions are reinvested and the Fund's operating
expenses described in the preceding table remain the same as a percentage of net
assets. Based on these assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------

$109 $340 $590 $1,306

<PAGE>

ELIGIBLE INSTITUTIONS

The Fund is designed as an investment vehicle for New York savings banks
under Subdivision 26(e) of Section 235 of the New York Banking Law and certain
other Eligible Institutions, as defined below. Shares of the Fund may be
purchased and owned only by, and may be transferred only to, Eligible
Institutions that are resident in the State of New York. An Eligible Institution
will be deemed to be a resident of the State of New York only if it has its
principal office within the State of New York. An "Eligible Institution" means:

o a savings bank or savings and loan association which is organized under the
laws of the State of New York,

o a federal savings association organized under the laws of the United States,

o a holding company owning a majority of the outstanding shares of such a
savings bank, savings and loan association or savings association,

o a life insurance department of any such savings bank, savings and loan
association or savings association,

o a wholly- or majority-owned subsidiary of any such savings bank, savings and
loan association or savings association, including without limitation a life
insurance subsidiary, or

o a pension trust, fund, plan or agreement participated in by one or more such
savings banks, savings and loan associations, savings associations or holding
companies to provide retirement benefits, death benefits or disability
benefits for any or all of its or their active officers and employees.

Federal law may further restrict the ability of certain Eligible Institutions
to invest in the Fund. Each Eligible Institution should consult its own advisers
with respect to limitations, if any, imposed on its investments in the Fund by
applicable banking laws or regulations.

INVESTMENT OBJECTIVES AND STRATEGIES

INVESTMENT OBJECTIVES

The primary investment objective of the Fund is to achieve capital
appreciation for its shareholders. The objective of income is secondary. There
is no assurance that the Fund will, in fact, achieve these objectives.

The Board of Directors may change the Fund's investment objectives without
shareholder approval whenever in its judgment economic or market conditions
warrant.

ELIGIBLE INVESTMENTS

In order to maintain the Fund as an eligible investment for New York savings
banks under Subdivision 26(e) of Section 235 of the New York Banking Law, the
Fund will not make any investment or engage in any transaction which would cause
the Fund's shares not to be eligible for investment by savings banks under the
laws of the State of New York. That law effectively limits the types of
investments which the Fund may make by generally limiting savings banks to
investing in investment companies which invest in securities in which a savings
bank may itself invest.

As currently in effect, the New York Banking Law and the Banking Department's
regulations thereunder and interpretations thereof operate to limit investment
by the Fund to "qualified equity securities" and "qualified debt securities" in
which a prudent person of discretion and intelligence in such matters who is
seeking a reasonable income and preservation of capital would invest. A
"qualified equity security" means an equity security which is, at the time of
acquisition, listed on the New York Stock Exchange or the American Stock
Exchange or for which representative high and low bid prices are regularly
quoted on the National Association of Securities Dealers Automated Quotation
System. A "qualified debt security" means a debt security which is not in
default as to either principal or interest when acquired.

The Fund's investments under the "prudent man" regulations of the Banking
Department are subject to the further restriction that the Fund may not invest

<PAGE>

in or otherwise acquire any equity security (or security convertible into an
equity security) issued by any bank, trust company, savings bank, savings and
loan association, bank holding company, banking organization, life insurance
company, or corporation engaged principally in the issue, flotation,
underwriting, public sale or distribution of securities, except to the extent
otherwise permitted by the Banking Department.

Restrictions and policies of the Fund which are based on the laws of the
State of New York applicable to savings banks and savings and loan associations
may be changed by any amendments to or changes in such laws or the regulations
promulgated thereunder or official interpretations of such laws and regulations,
without action by the Fund's shareholders.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests primarily in equity securities of U.S.-based companies whose
growth, cash flow, earnings and dividend prospects are promising and whose
securities are reasonably priced and have the potential for capital appreciation
in the opinion of its Investment Adviser.

The equity securities in which the Fund invests consist primarily of
dividend-paying common stocks of large-capitalization companies, i.e., companies
with a market capitalization in excess of $5 billion. The Fund may invest up to
25% of its assets in equity securities of smaller companies. The equity
securities in which the Fund may invest also include common stocks that do not
pay dividends, preferred stocks and corporate debt securities convertible into
common stock.

It is the Fund's policy to invest substantially all of its assets in equity
securities and, to the extent reasonably practicable, at least 80% of its assets
in common stock. At most times, the Fund holds no more liquid reserves than it
believes necessary to provide for redemptions. However, if the Fund's Investment
Adviser deems it beneficial for defensive purposes during adverse market,
economic or other conditions, and subject to restrictions, if any, imposed by
the New York Banking Law, the Fund may invest up to 100% of its assets
temporarily in non-equity securities, such as investment grade corporate
bonds, commercial paper and government securities. In taking this action, the
Fund would reduce its exposure to fluctuations and risks in the market for
equity securities and would increase its exposure to fluctuations and risks of
the market for debt securities. These defensive actions would reduce the benefit
from any upswing in the equity markets and, if the Investment Adviser does not
correctly anticipate fluctuations in the equity and debt securities markets, may
not contribute to the achievement of the Fund's investment objective.

To a limited extent, the Fund also may engage in other investment practices.

More information about the Fund's investments and strategies is provided in
the Statement of Additional Information.

PRINCIPAL RISKS

All investments in equity mutual funds, like the Fund, involve risk. Simply
defined, risk is the possibility that you will lose money or not make money. The
principal risk factors for the Fund are discussed below. Before you invest,
please make sure you understand the risks that apply to your investment.

MARKET AND INVESTMENT RISKS

The value of the Fund's shares will fluctuate in accordance with the value of
the securities held in its portfolio so that your shares, when redeemed, may be
worth more or less than their original cost. Declines are possible in the
overall stock market or in the particular securities or types of securities held
by the Fund, and it is possible to lose money as a result of your investment.

The Fund may invest up to 25% of its assets in the securities of companies
with a market capitalization of less than $5 billion. These companies carry
additional risks because their earnings tend to be less predictable, their share
prices more volatile and their securities less liquid than the securities of
larger companies.

<PAGE>

Investments in mutual funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

PORTFOLIO STRATEGY

The Investment Adviser's skill in choosing appropriate investments for the
Fund will affect the ability of the Fund to achieve its investment objective,
and the investment strategies employed by the Fund may not match the performance
of other strategies at different times or under different market or economic
conditions. Accordingly, the Fund's performance for any period may differ from
the performance of the overall market or from other investments that may be
available to you.

REGULATORY RISKS

All of the Fund's shareholders are financial institutions (or subsidiaries
of, or holding companies for, financial institutions) that are regulated by
state and/or federal law. Changes in federal and state regulations in effect
from time to time may affect the type of securities and other instruments in
which the Fund may invest and, therefore, could adversely affect the ability of
the Fund to achieve its investment objectives.

The ability of Eligible Institutions to invest in the Fund (and the amounts
that they may invest) is subject to both federal and state regulation. Further
regulatory restrictions on the ability of Eligible Institutions to invest in the
Fund (or on the size of their investments) could result in a reduction in the
size of the Fund and an increase the Fund's expense ratio, affect the Fund's
ability to achieve economies of scale, result in a reduction in the Fund's
investment returns and adversely affect the ability of the Fund to achieve its
investment objectives.

YEAR 2000 RISKS

Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 or correctly process certain other dates after 1998 because
of the way dates are encoded. These difficulties are referred to generally as
the "Year 2000" issue. The Fund depends primarily on its Investment Adviser,
Administrator, Transfer Agent and Custodian for operational activities and,
accordingly, is dependent on the proper functioning of the computer systems
used by them and by their vendors and service providers. The Fund could be
adversely affected if the computer systems used by the Fund's Investment
Adviser, Administrator, Transfer Agent or Custodian or other vendors or service
providers do not properly process and calculate date-related information from
and after January 1, 1999. Such an event could have a negative impact on the
handling of securities trades, payments of dividends, pricing, processing of
investments and redemptions and other accounting services, among other
activities.

Although the Fund's Investment Adviser, Administrator, Transfer Agent and
Custodian have been actively working on changes to their computer systems to
address potential problems and believe that their systems will be Year 2000
compliant when required, there is no assurance that the Year 2000 issue will not
result in service disruptions that could have an adverse impact on the
operations of the Fund.

The Year 2000 issue affects practically all companies, organizations and
markets, including companies in which the Fund invests and the markets in which
they trade. At this time no one knows precisely what the degree of impact of the
Year 2000 issue will be. To the extent that the impact on an investment held by
the Fund or on the securities markets or the economy is negative, it could
seriously affect the Fund's investment performance.

SHARE PRICE -- NET ASSET VALUE

The price of the Fund's shares is also referred to as their NET ASSET VALUE
or NAV. The net asset value per share of the Fund is determined by computing the
total value of all securities and other assets of the Fund, subtracting all of
its liabilities and then dividing by the total number of shares of the Fund
outstanding:

Net Asset Value = TOTAL ASSETS - LIABILITIES
----------------------------
Number of Shares Outstanding

The Fund determines net asset value per share of the Fund as of 4:00 P.M.,
New York time. Shares will not be priced on days on which the New York Stock
Exchange is closed for trading.

<PAGE>

The Fund uses market prices in valuing portfolio securities, but may use
fair value estimates if reliable market prices are unavailable.

PURCHASE OF FUND SHARES

Investors purchase shares at the Fund's next-determined net asset value after
the Fund receives your order to purchase. Orders to purchase shares are not
binding on the Fund until accepted by the Fund. The Fund reserves the right to
reject any purchase order.

Investors in the Fund pay no shareholder transaction fees, such as sales
loads or exchange fees, when purchasing shares.

PROCEDURES FOR OPENING AN ACCOUNT WITH THE FUND

Accounts with the Fund may be established by telephone. To open an account,
telephone the Fund's Distributor, Shay Financial Services Inc., at 800-527-3713.

PROCEDURES FOR PURCHASING SHARES

Eligible Institutions may submit purchase orders by telephone for their
initial investment in the Fund or any subsequent investment. To make an
investment in the Fund, follow the instructions below under the heading "SHARE
PURCHASE PROCEDURES."

NEXT-DAY SETTLEMENT

The Fund permits next-day settlement for shares purchased by telephone.
Next-day settlement permits an Eligible Institution to place an order by
telephone to purchase Fund shares at the net asset value per share next
determined after receipt of the order to purchase and to deliver payment for the
order by wire transfer the following business day. Payment must be in the form
of federal funds or other immediately available funds and must be received by
PNC Bank prior to 4:00 P.M. New York City time on the next business day after
submission of the order to purchase, or the order will be canceled.

A purchase order is binding upon the investor. If the Fund must cancel your
order because payment was not timely received, you will be responsible for the
difference between the price of the shares when ordered and the price of the
shares when the order is canceled, and for any fees or other losses and expenses
incurred by the Fund. The Fund may redeem shares from your account in an amount
equal to the amount of the difference in share price and the fees and other
losses and expenses incurred, if any, and may retain the proceeds of the
redemption in satisfaction of your liability to the Fund. You will continue to
be responsible for any deficiency. In addition, the Fund may prohibit or
restrict you from electing next-day settlement in the future or from making
future purchases of the Fund's shares.

Any funds received by the Fund in respect of a canceled purchase order will
be returned upon instructions from the sender without any liability to the Fund,
the Investment Adviser, the Distributor or the Custodian. If it is not possible
to return the funds the same day, you will not have use of the funds until the
next business day when it is possible to effect the return payment. The Fund
reserves the right to reject any purchase order.

REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

You may elect to have dividends and capital gains distributions of the Fund,
when paid, reinvested in shares of the Fund at the net asset value per share
determined at the close of business on the ex-dividend date. The Fund will so
reinvest your dividends and capital gains distributions unless you make a
contrary election at the time you open your account. You may change an election
at any time prior to a record date for a dividend or distribution by notifying
the Fund in writing.

SHARE CERTIFICATES

The Fund will not issue certificates representing the Fund's shares unless
you make a request in writing directly to the Fund's Administrator. Wire and
telephone redemptions of shares held in certificate form are not permitted.

<PAGE>

SHARE PURCHASE PROCEDURES

INITIAL PURCHASE
----------------

TO OPEN AN ACCOUNT Call the Fund at 800-527-3713.
OR OBTAIN INFORMATION

MINIMUM INVESTMENT $20,000 minimum for initial investments.
There is no minimum for subsequent investments.

BY TELEPHONE 1. Call 800-527-3713 to submit a purchase
order by telephone and indicate the amount of the
investment or the number of shares you desire to
purchase. All purchases made by telephone must be paid
by wire transfer.

2. Wire funds using the wire instructions below.
Immediately available funds must be received by 4:00
P.M. New York City time on the next business day after
the order is submitted or the order will be canceled.

METHOD OF PAYMENT AND All payments must be made by wire transfer.
WIRE INSTRUCTIONS

First, call 800-527-3713 to notify the Fund that you
intend to purchase shares by wire and to verify wire
instructions. Then, wire funds care of PNC Bank, N.A.,
Philadelphia, PA:

ABA#: 0310-0005-3
BNF Mutual Fund Services / 8529992181
From: (NAME OF INVESTOR/SHAREHOLDER)
TIN: (SHAREHOLDER'S TAXPAYER IDENTIFICATION NUMBER)
Account Number: (INVESTOR'S ACCOUNT NUMBER IN THE FUND)
For purchase of: Institutional Investors Capital
Appreciation Fund
Amount: (AMOUNT TO BE INVESTED)

REDEEMING SHARES

You may withdraw any part of your account at any time by redeeming shares
(subject to the conditions and limited exceptions described below). You must
provide the Fund with certified resolutions of your Board of Directors or Board
of Trustees (or other documentation satisfactory to the Fund) identifying
persons who are authorized to effect redemptions on your behalf.

Investors in the Fund pay no shareholder transaction fees, such as redemption
fees or exchange fees, when redeeming shares.

You may make redemption requests in writing or by telephone. If share
certificates were issued to you for the shares to be redeemed, the share
certificates must accompany the redemption request. Procedures for redeeming
shares are described below.

Shares are redeemed at their net asset value per share next determined after
receipt by the Fund of the request for redemption and all other necessary
documentation, including share certificates, if any, for the shares being
redeemed, except for certain large redemptions described below under "LIMITATION
ON THE AMOUNT OF REDEMPTIONS."

Redemption requests should be directed to the Fund's Distributor:

By telephone: 800-527-3713

By mail or Institutional Investors Capital
overnight courier Appreciation Fund, Inc.
c/o Shay Financial Services, Inc.
230 West Monroe Street
Suite 2810
Chicago, IL 60606

Upon the receipt of such request in proper form as described below, the
shareholder will receive from the Fund the amount of the net asset value of the
redeemed shares which will be determined in accordance with the procedures
described below under "LIMITATION ON THE AMOUNT OF REDEMPTIONS."

LIMITATION ON THE AMOUNT OF REDEMPTIONS

The amount that can be redeemed from the Fund by a shareholder on any day is
limited to the greater of 2,500 shares or 10% of the total number of shares
owned by the shareholder at the time the request for redemption is made.

<PAGE>

If a request for redemption exceeds the greater of 2,500 shares or 10% of the
total number of shares owned by the shareholder, the redemption price for shares
up to this limit will be the net asset value per share next determined after
receipt by the Fund of the request for redemption and all other necessary
documentation. The computation of net asset value of any excess number of shares
as to which notice is received from a shareholder will be made at 4:00 P.M., New
York time, on the business day next succeeding the date of the first
computation, subject to the maximum limitation of the greater of 2,500 shares or
10% of the total number of shares owned on the date of giving such notice, with
continuing like computations on each succeeding business day, until the net
asset value for all shares for which notice has been received has been so
determined.

The procedures for computation of redemption prices for large redemptions may
be waived by the Board of Directors in the event that it determines that such
restrictions are not in the best interests of the Fund and its shareholders.

The redemption price will be paid by the Fund within seven business days
after receipt of the notice of redemption in good order by the Distributor,
provided that the certificates for the shares to be redeemed, if any, have been
surrendered duly endorsed for transfer, guaranteed and delivered to PFPC. In the
event that the net asset value of any shares is computed on a day other than the
day of delivery of notice of redemption, then the redemption price of such
shares will be paid by the Fund within seven business days after such day of
computation.

TELEPHONE REDEMPTIONS

The Fund permits shareholders to redeem shares by telephone by calling the
Fund at 800-527-3713. Telephone redemption instructions must include your
Institutional Investors Capital Appreciation Fund account number and the dollar
amount or number of shares to be redeemed.

Telephone redemption requests are not available for shares for which share
certificates have been issued.

The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures may include, among other
things, matching the name and title of the person making a redemption request to
the list of persons authorized by the shareholder to effect transactions in its
account. The Fund reserves the right to refuse a telephone redemption if it
believes it advisable to do so. Assuming the Fund's security procedures are
followed, neither the Fund nor the Fund's Administrator, Transfer Agent or
Distributor will be responsible for the authenticity of redemption instructions
received by telephone and believed to be genuine, and the investor will bear any
loss. The Fund may record all calls.

During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. Shares may be redeemed by mail if you
are unable to contact the Fund by telephone.

WRITTEN REDEMPTION REQUESTS

To be in good order, written redemption requests must be signed EXACTLY as
the account is registered by ALL persons in whose names the account is held and
must include the following information and documents:

o the account number from which shares are to be redeemed,

o the dollar value or number of shares to be redeemed,

o the shareholder's phone number,

o the signatures of the account owner EXACTLY as registered on the account,

o any certificates you are holding for the shares being redeemed.

PAYMENT (WIRING) OF REDEMPTION PROCEEDS

Redemption proceeds will be wired to the shareholder's bank or other account
shown on the Fund's records.

Changes in the bank account for delivery of redemption proceeds must be made
by written instructions signed by an authorized person.

EXCEPTIONS TO OBLIGATION TO REDEEM

Redemptions may be suspended, and the date of payment postponed, if:

o trading on the New York Stock Exchange is suspended or restricted,

o an emergency makes determination of net asset value or disposition of
portfolio securities not reasonably practicable, or

o the Securities and Exchange Commission by order permits suspension for the
protection of shareholders.

<PAGE>

Redemptions also may be limited, and the date of payment postponed, as
described above under "LIMITATION ON THE AMOUNT OF REDEMPTIONS."

The right of redemption may also be suspended or payment in satisfaction of
redemptions postponed for such other periods as may be established by the Board
of Directors if the Board of Directors determines that it is contrary to the
best interests of the Fund and its other shareholders to commit the Fund to an
earlier repurchase of any or all shares offered for redemption. Such
determination will be made only when a prior request for redemption remains
unaccepted or when the Board of Directors expressly concludes that by reason of
the number of shares offered or the condition of the securities markets, there
is doubt as to the ability of the Fund to liquidate sufficient assets to raise
the necessary funds within an earlier time without undue sacrifice and that the
existence of extraordinary conditions requires adoption of an emergency measure.

Requests for redemption received during a period when the right to redeem is
suspended may be withdrawn at any time until redemptions are recommenced.

REDEMPTION IN KIND

The Fund reserves the right to make a "redemption in kind" -- payment in
portfolio securities rather than cash -- if the Board of Directors determines
that, by reason of the closing of the New York Stock Exchange or otherwise, the
orderly liquidation of securities owned by the Fund is impracticable, or payment
in cash would be prejudicial to the best interests of the remaining shareholders
of the Fund. The Statement of Additional Information contains supplementary
details concerning redemption in kind.

UNDERSTANDING PERFORMANCE

From time to time the Fund reports performance information in the form of
total return and average annual total return. See, for example, "PERFORMANCE
SUMMARY" at page 4 of this Prospectus. Total return shows the change in the
value of an investment in the Fund over a specified period of time (such as one,
three, five or ten years), assuming reinvestment of all dividends and
distributions and after deduction of all applicable charges and expenses. The
Fund's average annual total return represents the annual compounded growth rate
that would produce the total return achieved over the period. The performance
information reported by the Fund does not take into account any federal or
state income taxes that you may pay.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX STATUS

DIVIDEND POLICY

The Fund pays dividends of net investment income, if any, quarterly. The Fund
usually makes distributions of net long-term capital gains, if any, realized
during a fiscal year in December of that fiscal year.

The Fund's dividend distribution will vary with the amount of dividend and
other investment income received, and the expenses incurred, by the Fund. In
periods of relatively low dividend and interest rates, the Fund's dividend and
interest income may not exceed the Fund's expenses, so that dividend
distributions may not occur or may be low.

TAX STATUS; TREATMENT OF DIVIDENDS, DISTRIBUTIONS, GAINS AND LOSSES

TAX STATUS OF THE FUND. The Fund has elected to qualify, and intends to
remain qualified, as a regulated investment company under Subchapter M of the
Internal Revenue Code. The Fund intends to distribute all of its net investment
income and capital gains to shareholders. Assuming that it is so qualified and
makes such distributions, the Fund will not be subject to federal income tax on
the net investment income and capital gains distributed. If the Fund failed to
qualify as a regulated investment company or failed to meet certain 90%
distribution requirements, it would be taxed as an ordinary corporation. Even if
it meets these qualifications, if the Fund did not distribute 98% of its
ordinary income and 98% of its capital gain net income, it would be subject to a
non-deductible 4% excise tax on the amount required to be but not distributed.

TAXATION OF DIVIDENDS AND DISTRIBUTIONS. All dividends out of net investment
income, together with distributions of short-term capital gain, will be taxable
as ordinary income to shareholders whether or not reinvested. Any net long-term
capital gain distributed to shareholders will be taxable as long-term capital
gains to shareholders, whether or not reinvested and regardless of the length of
time a shareholder has owned its shares. Long-term capital gains earned by
corporate shareholders will be taxed at the same rate as ordinary income. A
portion of dividends paid from net investment income attributable to dividends
from domestic corporations may qualify for the dividends-received deduction for

<PAGE>

corporate shareholders. Shareholders that are tax exempt entities will not be
taxed on amounts distributed to them by the Fund.

The Fund expects to pay dividends quarterly and capital gain distributions
annually, but there can be no assurance that there will be such dividends or
distributions. Dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid during the
following January will be taxable as if received by shareholders on December 31
of the calendar year in which such dividends or distributions are declared. The
Fund will notify shareholders after the close of its fiscal year of the dollar
amount and the taxable status of that year's dividends and distributions.

Shareholders buying shares immediately prior to a distribution should note
that the distribution will be taxable to them even though the price of the
shares will have included the amount of the forthcoming distribution.

TAXATION OF GAINS AND LOSSES UPON SALE OR REDEMPTION. Any gain or loss
realized upon a sale or redemption of Fund shares held as capital assets by a
shareholder will generally be treated as long-term capital gain or loss subject
to tax at a maximum rate of 20% if the shares have been held for more than one
year, and otherwise will be treated as short-term capital gain or loss. However,
any loss realized on the sale or redemption of Fund shares that have been held
for six months or less will be treated as long-term capital loss to the extent
of the amount of any capital gains dividend received by the shareholder with
respect to such shares.

Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain distributions and redemption
proceeds paid to shareholders that have not provided certain certified
information to the Fund. In order to avoid this withholding requirement, a
shareholder must certify that the taxpayer identification number provided is
correct and that the shareholder is not currently subject to backup withholding
or is exempt from backup withholding.

OTHER. You should consult your own tax advisers for specific questions about
the federal, state or local income tax implications of an investment in the
Fund.

PORTFOLIO MANAGEMENT

INVESTMENT ADVISER

Shay Assets Management, Inc. (the "Investment Adviser") makes the investment
decisions for the Fund, subject to policies established by the Fund's Board of
Directors, and is responsible for placing purchase and sale orders for portfolio
securities and other investments.

Shay Assets Management, Inc. is a registered investment adviser under the
Investment Advisers Act of 1940 and serves as investment adviser to Asset
Management Fund, Inc., a registered investment company comprising five
fixed-income portfolios with aggregate net assets of approximately $1.5 billion
at December 31, 1998, and as investment adviser to M.S.B. Fund, Inc., which had
net assets at December 31, 1998, of approximately $66 million.

The Investment Adviser's principal office is located at 230 West Monroe
Street, Chicago, Illinois 60606. The Investment Adviser is controlled by Rodger
D. Shay, who is a Vice President of the Fund. Shay Assets Management, Inc.,
together with its predecessor, Shay Assets Management Co., has served as the
Fund's investment adviser since May 19, 1995.

INVESTMENT ADVISER'S FEE

The Fund pays the Investment Adviser a graduated investment management fee.
The fee is computed at the annual rate of 0.75% of the first $100,000,000 of the
Fund's average daily net assets and 0.50% of the Fund's 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 the expenses of the Fund (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 during any fiscal year. This limitation did not
result in any reduction of the Investment Adviser's fee during 1998. The total
amount paid by the Fund in 1998 in respect of investment advisory services was
0.74% of the Fund's average net assets.

PORTFOLIO MANAGERS

The individuals with primary responsibility for the management of the Fund's
portfolio are John J. McCabe and Mark Trautman. Mr. McCabe and Mr. Trautman have
been responsible for the Fund's investments since 1991 and 1993 respectively,
first as employees of the Fund's prior investment adviser, Nationar, and
currently as Portfolio Managers of Shay Assets Management, Inc.

<PAGE>

Mr. McCabe is Senior Vice President of the Investment Adviser and joined the
Investment Adviser in May 1995. Mr. McCabe previously served as Senior Vice
President and Chief Investment Officer of Nationar, the Fund's former investment
adviser, from August 1991 through May 1995, and in that capacity had
responsibility for the Fund's investments. Mr. McCabe is a director and past
President of the New York Society of Security Analysts, a past director of the
Financial Analysts Federation and a member and founding Governor of The
Association for Investment Management and Research.

Mr. Trautman is Vice President of the Investment Adviser and joined the
Investment Adviser in May 1995. Prior to May 20, 1995, Mr. Trautman served as
Director of Mutual Funds Investment for the Fund's former investment adviser,
Nationar, and in that capacity had responsibility for the Fund's investments. He
also has served as Portfolio Manager for M.S.B. Fund, Inc. since March 1993.
From January 1992 through March 1993 he served as Senior Equity Analyst for the
two funds.

ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT AND CUSTODIAN

ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND PAYING AGENT. The Fund appointed
PFPC Inc. ("PFPC" or the "Administrator"), P.O. Box 8905, Wilmington, Delaware
19899-8905, as its administrator effective May 19, 1995. PFPC also serves as the
transfer agent, registrar and dividend paying agent for the Fund's shares.

CUSTODIAN. PFPC Trust Company ("PFPC Trust" or the "Custodian"),
Philadelphia, Pennsylvania, is the custodian of the Fund's investments. PFPC
Trust and PFPC are affiliates of PNC Bank Corp.

DISTRIBUTOR

Shay Financial Services, Inc. (the "Distributor") acts as the distributor of
the Fund. The Distributor's principal office is located at 230 West Monroe
Street, Chicago, IL 60606. The Distributor is controlled by Rodger D. Shay, a
Vice President of the Fund. The Fund has authorized the Distributor to undertake
certain activities in connection with the sale of shares of the Fund, including
informing potential investors about the Fund through written materials, seminars
and personal contacts. The Distributor does not receive any compensation from
the Fund for these activities.

<PAGE>

INSTITUTIONAL
INVESTORS
CAPITAL
APPRECIATION
FUND, INC.

<PAGE>

CONTENTS
PAGE

The Fund............................................................. 1

Investment Objective, Policies, and Risks............................ 1

Investment Objectives............................................. 1

Risks............................................................. 1

Fundamental Investment Policies-- Investment Restrictions
Regarding Portfolio Securities................................. 2

Other Investment Restrictions..................................... 3

Issuance of Senior Securities..................................... 3

Investments under Abnormal Market Conditions...................... 4

Writing Covered Call Options...................................... 4

Portfolio Turnover................................................ 5

Purchase and Redemption of Shares.................................... 6

Performance Information.............................................. 8

Income Tax Status, Dividends and Distributions....................... 8

Officers and Directors of the Fund................................... 9

Certain Other Affiliations and Business Relationships............. 15

Compensation of Directors and Officers............................ 15

Management Ownership of Fund Securities........................... 17

Control Persons and Principal Holders of Securities.................. 17

Investment Advisory and Other Services............................... 18

Investment Adviser................................................ 18

Administrator, Transfer Agent, Shareholder Servicing Agent,
Dividend Paying Agent and Custodian............................ 20

Distributor....................................................... 20

Independent Auditors................................................. 21

Purchase and Sale of Portfolio Securities............................ 21

Expenses of the Fund................................................. 22

Description of Capital Stock......................................... 22

General Information.................................................. 22

Financial Statements................................................. 23

<PAGE>

THE FUND

Institutional Investors Capital Appreciation Fund, Inc. (the "Fund")
is a diversified, open-end management investment company. The Fund was
incorporated under the laws of the State of New York on October 29, 1952.

INVESTMENT OBJECTIVES, POLICIES, AND RISKS

INVESTMENT OBJECTIVES

The primary investment objective of the Fund is to achieve capital
appreciation for its shareholders. The objective of income is secondary. The
Fund seeks to achieve these objectives by investing primarily in common stocks
of companies whose growth, earnings and dividend prospects are promising and
whose securities are reasonably priced and have potential for capital
appreciation, in the opinion of its investment adviser.

RISKS

All investments in equity mutual funds, like the Fund, involve risk.

MARKET AND INVESTMENT RISKS. The value of the Fund's shares will
fluctuate in accordance with the value of the securities held in its portfolio
so that your shares, when redeemed, may be worth more or less than their
original cost. Declines are possible in the overall stock market or in the
particular securities or types of securities held by the Fund.

The Fund may invest up to 25% of its assets in the securities of
companies with a market capitalization of less than $5 billion. These companies
carry additional risks because their earnings tend to be less predictable, their
share prices more volatile and their securities less liquid than the securities
of larger companies.

Investments in mutual funds are not bank deposits and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund may invest from time-to-time in convertible debt securities
and may, under abnormal market conditions, invest up to 100% of its assets in
fixed income securities. See "INVESTMENTS UNDER ABNORMAL MARKET CONDITIONS" in
this Statement of Additional Information. Investments in fixed income securities
expose the Fund to the risk that interest or principal may not be paid in a
timely manner. In addition, prices of fixed income securities tend to move
inversely with changes in interest rates. An increase in interest rates will
result in a drop in the prices of fixed income securities, which could adversely
affect the Fund's share price.

PORTFOLIO STRATEGY RISKS. The Investment Adviser's skill in choosing
appropriate investments for the Fund will affect the ability of the Fund to
achieve its investment objective, and the investment strategies employed by the
Fund may not match the performance of other strategies at different times or
under different market or economic conditions. Accordingly, the Fund's
performance for any period may differ from the performance of the overall market
or from other investments that may be available to you.

<PAGE>

FUNDAMENTAL INVESTMENT POLICIES -- INVESTMENT RESTRICTIONS REGARDING PORTFOLIO
SECURITIES

The following restrictions are fundamental policies and cannot be
changed without approval of a majority of the Fund's outstanding voting
securities. As a matter of fundamental policy, the Fund may not:

o purchase securities of an issuer if such purchase would cause more than
25% of the value of the Fund's total assets (taken at current value) to be
invested in the securities of any one issuer or group of issuers in the
same industry;

o purchase securities of an issuer if such purchase would cause more than 5%
of any class of securities of such issuer to be held by the Fund;

o purchase securities of an issuer (other than obligations of the United
States and its instrumentalities) if such purchase would cause more than
5% of the Fund's total assets, taken at market value, to be invested in
the securities of such issuer;

o invest in any issuer for the purpose of exercising control of management;

o underwrite securities of other issuers;

o purchase or sell real estate or real estate mortgage loans;

o deal in commodities or commodities contracts;

o loan money, except that, subject to the restrictions, if any, imposed by
the New York Banking Law, the Fund may (A) purchase debt obligations and
(B) make sales of federal funds (loans maturing in fewer than seven days
to depository institutions and generally made through the Federal Reserve
System);

o purchase on margin or sell short any security, except that the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities;

o borrow money or mortgage or pledge any of its assets, except that the Fund
may borrow money from banks for temporary or emergency (but not
leveraging) purposes in an amount up to 5% of the Fund's total assets when
the borrowing is made, and may pledge up to 15% of its assets to secure
such borrowings;

o purchase or retain securities of an issuer if any officer, director or
employee of, or counsel for, the Fund is an officer, director or employee
of such issuer; or

o write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (A) write covered call options with respect to any or all of
its portfolio securities and (B) enter into closing purchase transactions
with respect to such options.

In addition to the foregoing, the Fund will not make any investment or
engage in any transaction which would cause the Fund's shares not to be eligible
for investment by savings banks under the laws of the State of New York. That
law effectively limits the types of investments which the Fund may make by
generally limiting savings banks to investing in investment companies

<PAGE>

which invest in securities in which a savings bank may itself invest.
As currently in effect, the New York Banking Law and the Banking Department's
regulations thereunder and interpretations thereof operate to limit investment
by the Fund to "qualified equity securities" and "qualified debt securities" in
which a prudent person of discretion and intelligence in such matters who is
seeking a reasonable income and preservation of capital would invest. A
"qualified equity security" means an equity security which is, at the time of
acquisition, listed on the New York Stock Exchange or the American Stock
Exchange or for which representative high and low bid prices are regularly
quoted on the National Association of Securities Dealers Automated Quotation
System. A "qualified debt security" means a debt security which is not in
default as to either principal or interest when acquired. The Fund's investments
under the "prudent man" regulations of the Banking Department are subject to the
further restriction that the Fund may not invest in or otherwise acquire any
equity security (or security convertible into an equity security) issued by any
bank, trust company, savings bank, savings and loan association, bank holding
company, banking organization, life insurance company, or corporation engaged
principally in the issue, flotation, underwriting, public sale or distribution
of securities except to the extent otherwise permitted by the Banking
Department.

Restrictions and policies of the Fund which are based on the laws of
the State of New York applicable to savings banks and savings and loan
associations may be changed by any amendments to or changes in such laws or the
regulations promulgated thereunder or official interpretations of such laws and
regulations, without action by the Fund's shareholders.

OTHER INVESTMENT RESTRICTIONS

In addition to the restrictions identified above as "Fundamental
Policies", the Fund may not:

o invest in securities of any other investment company, except as may be
acquired as part of a merger, consolidation or other acquisition of
assets, and as may be consistent with applicable banking laws of the State
of New York;

o purchase any security if, as a result of such transaction, more than 10%
in the aggregate of the Fund's total assets (at current value) would be
invested in (A) securities restricted as to disposition under federal
securities laws and (B) securities for which there are no readily
available market quotations;

o participate on a joint or joint and several basis in any trading account
in securities; or

o invest in the securities of issuers which, together with any predecessors,
have a record of less than three years of continuous operation.

ISSUANCE OF SENIOR SECURITIES

The Fund does not issue senior securities, except that it may borrow
money for temporary administrative or liquidity (but not leveraging) purposes,
as described above under "FUNDAMENTAL INVESTMENT POLICIES." The Fund may borrow
only from banks up to an amount not in excess of 5% of the value of the Fund's
total assets at the time of the loan, repayable in not more than 60 days. This

<PAGE>

policy is a fundamental investment policy of the Fund and may not be
altered, amended, or repealed except as authorized by the vote of a majority of
the outstanding shares of the Fund.

INVESTMENTS UNDER ABNORMAL MARKET CONDITIONS

Under normal market conditions, it is the Fund's policy to invest
substantially all of its assets in equity securities. However, if the Fund's
Investment Adviser deems it beneficial for defensive purposes during adverse
market, economic or other conditions, the Fund may invest up to 100% of its
assets temporarily in short-term non-equity securities, such as investment grade
corporate bonds, commercial paper and government securities. In taking this
action, the Fund would reduce its exposure to fluctuations and risks in the
market for equity securities and would increase its exposure to fluctuations and
risks of the market for debt securities. These defensive actions would reduce
the benefit from any upswing in the equity markets and, if the Investment
Adviser does not correctly anticipate fluctuations in the equity and debt
securities markets, may not contribute to the achievement of the Fund's
investment objective.

WRITING COVERED CALL OPTIONS

COVERED CALL OPTIONS. The Fund may engage in writing (i.e., selling)
call options listed on organized securities exchanges with respect to securities
owned by the Fund (called "covered" options). Except in the circumstances
described below, the Fund will not sell any security subject to a call option
written by the Fund so long as that option is outstanding. Call options are
currently listed on the Chicago Board Options Exchange and the New York,
American, Midwest and Pacific Stock Exchanges. A call option gives the purchaser
the right to buy a security from the Fund at a fixed price (the "exercise
price") at any time prior to the expiration of the option contract regardless of
the market price of the security at that time. In return for such right, the
purchaser pays the Fund a premium which the Fund retains whether or not the
purchaser exercises the option. The premium represents consideration to the Fund
for undertaking the option obligation and thereby foregoing (during the period
of the option) the opportunity to profit from an increase in the market price of
the underlying security above the exercise price. For example, assume the Fund
owns 100 shares of XYZ and, at a time when the market price of XYZ was $50 per
share, the Fund wrote a six month call option on those shares at an exercise
price of $50 for a premium of $500 (less transaction costs). If the price of XYZ
declined to $40 per share the call would not likely be exercised. The 100 XYZ
shares would have declined $1,000 in value and the Fund would have received
income in the amount of $500. On the other hand, should the price of XYZ rise to
$60 per share the call would likely be exercised with the result that, in
exchange for the $500 premium, the Fund would have foregone the $1,000
appreciation on the underlying shares.

When the Fund writes an option, the securities subject to the option
will be segregated or otherwise held for delivery in accordance with the
requirements of any applicable securities exchange. The Fund may purchase call
options only for the purpose of closing out a previous option commitment (called
a "closing purchase transaction"). A closing purchase transaction is made by
buying an option with identical terms as an option previously written, resulting
in the cancellation of the Fund's previous option obligation. If the Fund wishes
to sell securities on which it has options outstanding it would execute a
closing purchase transaction prior to selling the securities. A profit or loss

<PAGE>

may be realized on a closing purchase transaction if the amount paid
to purchase a call option previously written is less or more than the amount
received from its sale.

The writing of covered call options involves certain risks. An option
position may be closed out only on an exchange which provides a market for an
option of the same series. Although the Fund will generally write only those
call options for which there appears to be an active market, there is no
assurance that an active market on an exchange will exist for any particular
option at any particular time. If the Fund as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it would,
as a result, be subject to any price decline in the underlying security. If such
a situation were to arise, the Fund's Investment Adviser would determine whether
to hold the underlying securities and risk depreciation in their market value or
to sell the securities and substitute cash or other securities as collateral for
the option obligation.

In general, premiums received on options which are not exercised and
gains or losses realized on closing purchase transactions are treated as
short-term capital gains or losses. When an option is exercised the premium is
added to the exercise price and the resulting gain or loss is characterized as a
short- or long-term capital gain or loss depending on the holding period of the
underlying securities. In general, brokerage commissions associated with buying
and selling call options are higher than those associated with other securities
transactions.

The Board of Directors has directed the Fund's Investment Adviser to
write options only in situations where the exercise price plus the premium (less
transaction costs) would, at the time the option is written, equal a price at
which the Investment Adviser would recommend selling the underlying securities
because of fundamental investment considerations. Consequently, the Fund does
not believe that option writing has a material effect on the Fund's portfolio
turnover rate, and the Fund believes that option writing may contribute both to
the capital appreciation and income objectives of the Fund. In addition, the
Board of Directors has directed the Investment Adviser to restrict option
writing so that no more than 15% of the Fund's total assets may be subject to
outstanding options at any time. The Board of Directors may change these
restrictions whenever such changes appear to be in the best interest of the
Fund.

PORTFOLIO TURNOVER

Although the Fund does not intend to engage in substantial short-term
trading, it may, in order to take advantage of new investment opportunities or
to preserve gains or limit losses, sell portfolio securities without regard to
the length of time that they have been held. The Fund's annual portfolio
turnover rate was 48%, 27% and 22% in 1996, 1997 and 1998, respectively. The
portfolio turnover rate is determined by dividing the amount of the lesser of
the purchases or sales during the year by the average value of the Fund's
portfolio securities during such year. The portfolio turnover rate of the Fund
is not normally expected to exceed 75% but may do so if the Fund's investment
objectives and policies in the light of market conditions require more frequent
trades.

<PAGE>

PURCHASE AND REDEMPTION OF SHARES

PROCEDURE FOR PURCHASING AND REDEEMING SHARES. Shares are purchased through
the Fund's Distributor, Shay Financial Services, Inc., or by sending money
directly to the Fund. Procedures for purchasing and selling shares are described
in the Prospectus.

PURCHASE AND REDEMPTION AT NET ASSET VALUE. Investors may purchase shares
of the Fund at the Fund's net asset value per share next determined after
receipt of an order for purchase as described in the Prospectus.

Investors may redeem shares of the Fund at the Fund's net asset value per
share. However, the amount that can be redeemed from the Fund by a shareholder
on any day is limited to the greater of 2,500 shares or 10% of the total number
of shares owned by the shareholder at the time the request for redemption is
made.

If a request for redemption exceeds the greater of 2,500 shares or 10% of
the total number of shares owned by the shareholder, the redemption price for
shares up to this limit will be the net asset value per share next determined
after receipt by the Fund of the request for redemption and all other necessary
documentation. The computation of net asset value of any excess number of shares
as to which notice is received from a shareholder will be made at 4:00 P.M., New
York time, on the Business Day next succeeding the date of the first
computation, subject to the maximum limitation of the greater of 2,500 shares or
10% of the total number of shares owned on the date of giving such notice, with
continuing like computations on each succeeding Business Day, until the net
asset value for all shares for which notice has been received has been so
determined.

The procedures for computation of redemption prices for large redemptions
may be waived by the Board of Directors in the event that it determines that
such restrictions are not in the best interests of the Fund and its
shareholders.

DETERMINATION OF NET ASSET VALUE. Net asset value per share of the Fund is
determined as of 4:00 P.M., New York time. The Fund computes its net asset value
once daily on days the New York Stock Exchange is open for trading. Purchase
orders received prior to 4:00 P.M., New York time, on a trading day are executed
at the net asset value per share computed as of 4:00 P.M., New York time, on
such day. Orders received after 4:00 P.M., New York time, on a trading day or on
a day which is not a trading day are executed at the net asset value per share
computed as of 4:00 P.M., New York time, on the next trading day.

The net asset value per share of the Fund is determined by computing the
total value of all securities and other assets of the Fund, subtracting all of
its liabilities and then dividing by the total number of shares of the Fund
outstanding. For purposes of such computation, a security listed on a national
securities exchange or on the NASDAQ National Market System is valued at the
last reported sale price thereof on the exchange or system where the security is
principally traded. If no trade occurs on such exchange or system on the date of
computation, such security will be valued at the mean of the last bid and asked
prices on such day on such exchange or system.

<PAGE>

Securities not listed on a national securities exchange or on the NASDAQ
National Market System but traded in an over-the-counter market are valued at
the average of the last bid and asked prices prior to the computation. Short
term interest-bearing investments for which market quotations are not available
are valued at cost plus discount earned, which the Board of Directors has
determined to be fair value. Other securities are valued at their fair value, as
determined in good faith by the Board of Directors of the Fund.

Securities underlying outstanding call options written by the Fund are
valued at their market price as determined above. Premiums received on the sale
of call options are included in the net asset value; however, the current market
value of outstanding options written by the Fund is deducted in computing net
asset value. The current market value of an option listed on an organized
securities exchange is based on the last sales price on such exchange prior to
4:00 P.M., New York time, or, if none, the mean of the last bid and asked prices
as of 4:00 P.M., New York time.

REDEMPTION IN KIND. The Fund reserves the right to make redemption
payments, in whole or in part, in kind, in securities or other assets of the
Fund. Payment in kind will be made only if the Board of Directors determines
that, by reason of the closing of the New York Stock Exchange or otherwise, the
orderly liquidation of securities owned by the Fund is impracticable, or payment
in cash would be prejudicial to the best interests of the remaining shareholders
of the Fund. In making any such payment in kind, the Fund will, as nearly as may
be practicable, deliver securities or other assets of a market value
representing the same proportionate interest in the assets of the Fund as is
represented by the shares so to be paid for. Any shortfall will be made up in
cash. The Fund reserves the right to select from each portfolio holding a number
of shares which will reflect the portfolio make-up or to select shares from one
or more portfolio investments. Whenever delivery of securities or other assets
is to be made for a redemption in kind, such delivery will be made as promptly
as practicable after receipt by the Distributor of a request for redemption in
proper form accompanied by such other documents as the Fund may require.

Investors receiving an in-kind redemption payment will incur a brokerage
charge on the disposition of the securities through a broker.

<PAGE>

PERFORMANCE INFORMATION

The following table sets forth the total return on an investment in
the Fund for the one-, three-, five- and ten-year periods ended December 31,
1998, and the average annual total return for such periods.

INSTITUTIONAL INVESTORS CAPITAL APPRECIATION FUND, INC.
TOTAL RETURN DATA

PERIODS ENDED DECEMBER 31, 1998
-----------------------------------------

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Total Return................ 28.85% 100.28% 148.15% 352.88%

Average Annual Total Return. 28.85% 26.05% 19.93% 16.30%

Total return shows the percentage change in the value of an
investment in the Fund over the specified periods, assuming (i) a hypothetical
investment of $1,000 at the beginning of the period, (ii) reinvestment of all
dividends and distributions and (iii) deduction of all applicable charges and
expenses. The Fund's average annual total return represents the annual
compounded growth rate that would produce the total return achieved over the
applicable period. For example, as indicated in the table above, a 19.93%
average annual rate of return would produce a total return of 148.15% over a
five-year period. The performance information reported above does not take into
account any federal or state income taxes that may be payable by an investor.

The foregoing information is a statement of the past record 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. Comparisons
of total returns on a year-to-year basis may facilitate an understanding of how
changing market conditions affect the Fund. The average annual total return
permits an investor to identify the overall rate of return achieved by the Fund
during a multi-year period without regard to year-to-year variations.

INCOME TAX STATUS, DIVIDENDS AND DISTRIBUTIONS

The Fund has elected to qualify, and intends to remain qualified, as
a regulated investment company under Subchapter M of the Internal Revenue Code.
It is the Fund's policy to distribute all of its net investment income (income
from dividends and interest, less expenses) and net short-term capital gain, if
any, as income dividends and to distribute substantially all net long-term
capital gain (net of short-term capital loss) on sales of portfolio securities
as capital gain distributions. If the Fund should fail to qualify for Subchapter
M status, it would be subject to federal corporate income tax on its net
investment income and capital gains. In addition, distributions to shareholders
would be taxed as corporate dividends at ordinary income rates. No portion of
the dividends would be afforded capital gains treatment. In the event the Fund
fails to distribute to shareholders in a calendar year an amount equal to the
sum of (i) 98% of its ordinary income (excluding capital gain), (ii) 98% of its

<PAGE>

capital gain net income (determined for the applicable twelve-month
test period), and (iii) the amount, if any, of ordinary income and capital gain
not distributed in the preceding calendar year, it would be subject to a
nondeductible 4% excise tax on the amounts not distributed. Because the Fund
expects to distribute all of its net investment income and net capital gain, it
does not expect to incur a liability for this tax.

In general, the portion of the dividends paid by the Fund out of
qualifying dividends received by the Fund from domestic corporations with
respect to shares which are held by the Fund for at least 46 days (excluding
certain periods during which the Fund's risk of loss is diminished), other than
with respect to certain cumulative dividends on preferred stock and designated
as such by the Fund will be eligible, whether paid in cash or in additional
shares, for the federal income tax 70% dividends-received deduction that is
available to certain corporate taxpayers. Because a portion of the dividends
paid by the Fund will be paid out of, in addition to such qualifying dividends,
other income such as interest income and net short-term capital gains realized
by the Fund, less than 100% of the dividends will be eligible for the 70%
dividends-received deduction. Dividends paid on shares of the Fund will not be
eligible for the dividends-received deduction if the corporate shareholder holds
such shares less than 46 days.

Other Code provisions may also limit the availability of the
dividends-received deduction to shareholders. For example, the 70%
dividends-received deduction cannot, in general, exceed 70% of a corporation's
taxable income (determined without regard to the 70% dividends-received
deduction). In addition, the Code reduces the 70% dividends-received deduction
with respect to portfolio stock where debt is attributable to the investment in
such stock. In addition, the 70% dividends-received deduction is not permitted
for purposes of calculating a shareholder's alternative minimum tax.

Shareholders should consult their own tax advisers concerning these
and other matters that may be applicable to their specific tax situation,
including the effects of any changes in the tax law.

OFFICERS AND DIRECTORS OF THE FUND

The directors of the Fund, in addition to reviewing the actions of
the Fund's Investment Adviser, decide upon matters of general policy at their
regular meetings. The Fund's officers supervise the business operations of the
Fund.

The Fund has fifteen directors who are elected for staggered terms
of three years each. The directors and officers of the Fund, together with their
addresses and ages, their positions with the Fund, the years of expiration of
their terms as directors and their principal occupations for the last five years
(together with other relevant experience), are set forth in the following table.

<PAGE>

POSITION(S) HELD WITH
REGISTRANT AND
EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- --------------------- -----------------------------------------

<S> <C> <C>
HARRY P. DOHERTY (Age 56)*+ President, Director Chairman of the Board and Chief Executive Officer,
15 Beach Street (2000) Staten Island Bancorp, Inc., and Chairman and Chief
Staten Island, NY 10304 Executive Officer of its principal subsidiary, Staten
Island Savings Bank.

JOSEPH L. MANCINO (Age 61)* Executive Vice Chairman of the Board, President and Chief Executive
1400 Old Northern Boulevard President, Officer, The Roslyn Savings Bank.
Roslyn, NY 11576 Director (2001)

MICHAEL R. KALLET (Age 48)* Vice President, President and Chief Executive Officer, Oneida Savings
182 Main Street Director (2002) Bank.
Oneida, NY 13421

RALPH F. BROUTY (Age 69) Director Chairman of the Board and Chief Executive Officer,
111 Clinton Street (2000) Watertown Savings Bank.
Watertown, NY 13601

ROBERT P. CAPONE (Age 44) Director Chairman of the Board, President and Chief Executive
10 Bank Street (2002) Officer, Community Mutual Savings Bank.
White Plains, NY 10606

TIMOTHY A. DEMPSEY (Age 65) Director Chairman of the Board and Chief Executive Officer,
18 Oakland Avenue (2001) Warwick Community Bancorp, Inc. Savings Bank and
P.O. Box 591 Chairman of the Board and Chief Executive Officer of
Warwick, NY 10990-0591 its principal subsidiary, The Warwick Savings Bank.

CHRIS C. GAGAS (Age 68) Director Chairman of the Board, President and Chief Executive
214 West First Street (2002) Officer, Oswego City Savings Bank.
Oswego, NY 13126

- ----------------

* These directors are regarded as interested persons under the Investment Company Act of 1940 by virtue of
their positions as officers of the Fund.

+ This director may be regarded as an "interested person" under the Investment Company Act of 1940 because
he is a director of America's Community Bankers. See "CERTAIN OTHER AFFILIATIONS AND BUSINESS
RELATIONSHIPS."

<PAGE>

JOSEPH R. FICALORA (Age 52) Director Chairman, President and Chief Executive Officer, Queens
38-25 Main Street (2002) County Bancorp, Inc. and President of Queens County
Flushing, NY 11354 Savings Bank, its principal subsidiary.

STEPHEN J. KELLY (Age 45) Director President and Chief Executive Officer, Rhinebeck
23 Montgomery Street (2000) Savings Bank.
Rhinebeck, NY 12572

CLIFFORD E. KELSEY, JR. Director Director and former President and Chief Executive
(Age 66) (2001) Officer, Goshen Savings Bank.
1 South Church Street
Goshen, NY 10924

ROBERT E. KERNAN, JR. (Age 56) Director President and Chief Executive Officer, The Seneca Falls
19 Cayuga Street (2002) Savings Bank.
Seneca Falls, NY 13148

WILLIAM A. McKENNA, JR. Director Chairman of the Board, President and Chief Executive
(Age 62) (2000) Officer, Ridgewood Savings Bank.
71-02 Forest Avenue
Ridgewood, NY 11385

CLIFFORD M. MILLER (Age 57) Director Chairman of the Board, President and Chief Executive
P.O. Box 3337 (2002) Officer, Ulster Savings Bank.
Kingston, NY 12402

VINCENT F. PALAGIANO (Age 58) Director Chairman of the Board and Chief Executive Officer, The
209 Havemeyer Street (2000) Dime Savings Bank of Williamsburgh.
Brooklyn, NY 11211

CHARLES M. SPROCK (Age 59) Director Chairman of the Board, President and Chief Executive
100 On the Mall (2001) Officer, The Rome Savings Bank.
Rome, NY 13340

<PAGE>

RODGER D. SHAY (Age 62) Vice President and Mr. Shay has been Chairman and the sole director of the
1000 Brickell Avenue Assistant Secretary Fund's investment adviser, Shay Assets Management,
Miami, FL 33131 Inc., since November 1997 and previously served as its
President and as a director from 1990 to 1997. Mr. Shay
also has served as Chairman and the sole director of
the Fund's distributor, Shay Financial Services, Inc.,
since November 1997 and previously served as its
President and as a director from 1990 to 1997. Mr. Shay
held similar positions with Shay Assets Management Co.
and Shay Financial Services Co., which served as the
Fund's investment adviser and distributor,
respectively, from 1995 through December 1997. Mr. Shay
has been the Chairman, sole director and President of
Shay Investment Services, Inc., an enterprise which
owns 100% of Shay Assets Management, Inc., and Shay
Financial Services, Inc., since 1990. He serves or has
previously served in the following capacities: Chairman
and a Director, Asset Management Fund, Inc., a
registered investment company; Vice President and
Assistant Secretary of M.S.B. Fund, Inc., a registered
investment company; and Director, First Home Savings
Bank, S.L.A. since 1990. He previously was employed by
certain subsidiaries of Merrill Lynch & Co. from 1955
to 1981, where he served in various executive positions
including Chairman of the Board of Merrill Lynch
Government Securities, Inc., Chairman of the Board of
Merrill Lynch Money Market Securities, Inc. and
Managing Director of the Debt Trading Division of
Merrill Lynch, Pierce, Fenner & Smith Inc.

<PAGE>

EDWARD E. SAMMONS, JR. Vice President and Mr. Sammons has been President of the Fund's investment
(Age 59) Secretary adviser, Shay Assets Management, Inc., since November
230 West Monroe Street, 1997 and previously served as its Executive Vice
Suite 810 President from 1990 to 1997. Mr. Sammons also has
Chicago, IL 60606 served as Executive Vice President of the Fund's
distributor, Shay Financial Services, Inc., since
1990. He also held the position of Executive Vice
President with Shay Assets Management Co. and Shay
Financial Services Co. from 1990 through December
1997. These companies served as the Fund's investment
adviser and distributor, respectively, from 1995
through December 1997. Mr. Sammons has served as
Executive Vice President of Shay Investment Services,
Inc., since September 1990. He serves or has
previously served in the following capacities:
President and Treasurer of Asset Management Fund, Inc.,
a registered investment company; Vice President and
Secretary of M.S.B. Fund, Inc.; Vice President, from
1987 to 1990, Advance America Funds, Inc.; and Senior
Vice President and Manager of Fixed Income Securities,
Republic National Bank in Dallas from 1962 to 1983.

JOHN J. McCABE (Age 55) Vice President Mr. McCabe has been a Senior Vice President of Shay
200 Park Avenue, 45th Floor Assets Management, Inc. since June 1995 and held the
New York, New York 10166 comparable position with Shay Assets Management Co.
through December 1997. From August 1991 through May
1995, he was Senior Vice President and Chief Investment
Officer of Nationar. He also serves as a Vice President
of M.S.B. Fund, Inc. He previously served as Managing
Director and Portfolio Manager at Sterling Manhattan
Corporation, an investment banking firm, for
approximately three years and in various positions at
Bankers Trust Company, including Director of Investment
Research and Managing Director of the Investment
Management Group. Mr. McCabe is a director and past
President of the New York Society of Security Analysts,
a past director of the Financial Analysts Federation
and a member and founding Governor of The Association
for Investment Management and Research.

<PAGE>
POSITION(S) HELD WITH
REGISTRANT AND
EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- --------------------- -----------------------------------------

MARK F. TRAUTMAN (Age 33) Vice President Mr. Trautman has been a Vice President of Shay Assets
200 Park Avenue, 45th Floor Management, Inc. since June 1995 and held the
New York, New York 10166 comparable position with Shay Assets Management Co.
through December 1997. He has been Portfolio Manager of
the Fund since March 1993. From March 1993 through May
1995, he served as Director of Mutual Funds Investment
of Nationar. He also serves as a Vice President and
Portfolio Manager for M.S.B. Fund, Inc. From January
1992 through March 1993 he served as Senior Equity
Analyst for the two funds. From December 1988 through
December 1991, Mr. Trautman was a Senior Associate with
Sterling Manhattan Corporation. From June 1987 through
November 1988, Mr. Trautman held the position of
Treasury Analyst at Thomson McKinnon Securities, Inc.,
a securities brokerage firm. He is also a member of The
New York Society of Security Analysts and The
Association for Investment Management and Research.

JAY F. NUSBLATT (Age 38) Treasurer Mr. Nusblatt has been Vice President and Director of
103 Bellevue Parkway Fund Accounting and Administration of PFPC Inc., the
Wilmington, Delaware 19809 Fund's administrator, since March 1993. He was
previously employed as an Assistant Vice President of
Fund/Plan Services, Inc., with responsibility for
financial reporting and fund administration, from 1989
to 1993. Mr. Nusblatt also serves as Treasurer of
M.S.B. Fund, Inc. and as an officer of other investment
companies registered under the Investment Company Act
of 1940 who are clients of PFPC Inc.

</TABLE>

<PAGE>

Harry P. Doherty, Timothy A. Dempsey and William A. McKenna also are
directors of M.S.B. Fund, Inc., a registered investment company affiliated with
the Fund by virtue of having a common investment adviser. Messrs. Shay, Sammons,
McCabe, Trautman and Nusblatt also are officers of M.S.B. Fund, Inc.

The Fund has an Executive Committee, composed of Messrs. Doherty,
Kallet, Mancino and McKenna, which meets from time to time, as necessary,
between meetings of the Board to consider matters concerning the Fund. Subject
to limitations provided by law and the Fund's by-laws, the Executive Committee
is authorized to exercise the power and authority of the Board of Directors as
may be necessary during the intervals between meetings of the Board of
Directors.

Each of the directors of the Fund is an officer or director of an
Eligible Institution or of a holding company which controls one or more Eligible
Institutions. Any of such Eligible Institutions may from time to time purchase
at its discretion sufficient shares of the Fund so that its holding may exceed
5% of the then outstanding shares of the Fund. Eligible Institutions are not
restricted by the Fund as to the number of shares of the Fund that they may
purchase or hold. (See "CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.")

CERTAIN OTHER AFFILIATIONS AND BUSINESS RELATIONSHIPS

Certain officers and directors of the Fund are also officers,
employees or directors of Shay Assets Management, Inc. ("SAMI") and Shay
Financial Services, Inc. ("SFSI"). Messrs. Rodger D. Shay, Edward E. Sammons,
Jr., John J. McCabe and Mark F. Trautman, who are officers of the Fund, are
officers and employees of SAMI. Mr. Shay is the sole director of SAMI, SFSI and
Shay Investment Services, Inc. ("SISI"), which is the sole stockholder of SAMI
and SFSI. Mr. Shay also is the majority stockholder of SISI.

Harry P. Doherty, a director of the Fund, also holds positions with
affiliates of Shay Assets Management Co., which, prior to December, 1997, served
as the Fund's investment adviser. Mr. Doherty is a director of America's
Community Bankers (the "Association"). Prior to December 7, 1997, the
Association owned through subsidiaries a 50% interest in Shay Assets Management
Co. and Shay Financial Services Co., which served as the Fund's investment
adviser and distributor, respectively, from May 1995 to December 7, 1997. Mr.
Doherty may be considered an "interested person" as the result of his continued
position with the Association and the interest of the Association in certain
royalty and other payments that will be made by SISI and its affiliates to the
Association and its affiliates.

COMPENSATION OF DIRECTORS AND OFFICERS

Directors of the Fund receive compensation for their services as
directors consisting of:

o a $3,000 annual retainer per director, payable in four quarterly
installments

o a per-meeting fee of $500 for each meeting of the Board of Directors
attended in person

<PAGE>

o a per-meeting fee of $250 for each meeting of a Board committee attended
in person on a date on which a meeting of the Board of Directors is not
held.

No additional fee is paid for telephonic meetings. The Board of Directors meets
quarterly. Directors are also reimbursed for reasonable expenses incurred in
attending meetings or otherwise incurred in connection with their attention to
the affairs of the Fund.

In recognition of the additional responsibilities and duties performed by
the President of the Fund, the President receives an additional annual retainer
of $2,000, payable in four quarterly installments, which is in addition to the
compensation the President receives as a director.

The other officers of the Fund do not receive any compensation from the
Fund other than the compensation they may receive as directors of the Fund. No
fee is payable for telephonic meetings of the Board of Directors or any
committee. No pension or retirement benefits are paid to directors, advisory
board members, or executive officers.

The total compensation paid to the directors and officers for service
during 1998 was $75,000. The Fund also reimburses directors and officers for
their reasonable expenses incurred in attending meetings or otherwise in
connection with their attention to the affairs of the Fund. The total amount of
expenses incurred during 1998 for which the directors were reimbursed was
$9,218. The Fund does not provide officers and directors directly or indirectly
with any pension or retirement benefits.

The following table sets forth the aggregate compensation received by
each director of the Fund from the Fund and any other investment company having
the same investment adviser for services as a director or officer during 1998.
Such compensation does not include reimbursements to the directors for their
expenses incurred in connection with their activities as directors.

<TABLE>
<CAPTION>
COMPENSATION TABLE

AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION FUND AND FUND COMPLEX
NAME OF DIRECTOR FROM FUND PAID TO DIRECTORS
- ---------------- --------- -----------------

<S> <C> <C>
Ralph F. Brouty $5,000 $5,000
Robert P. Capone $5,000 $5,000
Timothy A. Dempsey $5,000 $9,750 (1)
Harry P. Doherty $7,000 $12,000 (1)
Chris C. Gagas $5,000 $5,000
Edward P. Henson $5,000 $5,000
Michael R. Kallet $4,500 $4,500
Stephen J. Kelly $5,000 $5,000
Clifford E. Kelsey, Jr. $5,000 $5,000
Robert E. Kernan, Jr. $4,500 $4,500
Joseph L. Mancino $5,000 $5,000

<PAGE>

AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION FUND AND FUND COMPLEX
NAME OF DIRECTOR FROM FUND PAID TO DIRECTORS
- ---------------- --------- -----------------

William A. McKenna, Jr. $5,000 $9,500 (1)
Vincent F. Palagiano $5,000 $5,000
Charles M. Sprock $4,000 $4,000
John M. Tsimbinos $5,000 $5,000

</TABLE>

- ----------------

(1) Includes compensation received as a director or officer of one other
investment company having the same investment adviser as the Fund.

MANAGEMENT OWNERSHIP OF FUND SECURITIES

Although no officer or director of the Fund owns any equity securities
of the Fund, each director of the Fund is an officer or director of an Eligible
Institution, and it is expected that such Eligible Institutions may, from time
to time, purchase shares of the Fund. All such directors disclaim beneficial
ownership of any such shares. The Eligible Institutions with which the directors
are affiliated owned approximately 93% of the outstanding shares of the Fund at
March 31, 1999.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of March 31, 1999, Staten Island Bancorp, directly or indirectly
through its subsidiary Staten Island Savings Bank, 15 Beach Street, Staten
Island, New York, owned approximately 34% of the outstanding shares of the Fund.
As a result of such ownership, Staten Island Bancorp, which is organized as a
New York savings bank, is deemed to be a controlling person of the Fund. Staten
Island Bancorp's holding, if it were maintained on the record date of any
meeting of shareholders of the Fund, would enable Staten Island Bancorp to
exercise a substantial influence over the outcome of each matter submitted to a
vote of the shareholders of the Fund, including election of directors, and
depending on the number of shares present in person or represented by proxy at a
meeting of shareholders, may enable Staten Island Bancorp to determine the
outcome of each such vote. Harry P. Doherty, who is Chairman and Chief Executive
Officer of Staten Island Bancorp, also is a director and the President of the
Fund.

<PAGE>

As of March 31, 1999, the following persons owned of record and, to
the best of the Fund's knowledge, beneficially more than 5% of the Fund's
outstanding securities, directly or indirectly through subsidiaries:

NAME AND ADDRESS PERCENTAGE OWNERSHIP
- ---------------- --------------------

<S> <C>

Staten Island Bancorp 34%
15 Beach Street
Staten Island, New York 10304

Ridgewood Savings Bank 19%
71-02 Forest Avenue
Ridgewood, NY 11385

The Roslyn Savings Bank 8%
1400 Old Northern Boulevard
Roslyn, NY 11576

Watertown Savings Bank 8%
111 Clinton Street
Watertown, New York 13601

Warwick Community Bancorp 6%
18 Oakland Avenue
P.O. Box 591
Warwick, NY 10990-0591

</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

Shay Assets Management, Inc. serves as the Investment Adviser of the
Fund; PFPC Inc. serves as its administrator, transfer agent, dividend paying
agent and shareholder servicing agent; and PFPC Trust Company is the custodian
for the Fund.

INVESTMENT ADVISER

Shay Assets Management, Inc. (the Fund's "Investment Adviser") makes
investment decisions for the Fund and is responsible for placing purchase and
sale orders for portfolio securities and other investments. Under the investment
advisory agreement between the Investment Adviser and the Fund (the "Investment
Advisory Agreement"), the Investment Adviser receives a fee from the Fund
computed at the annual rate of 0.75% of the first $100,000,000 of the Fund's
average daily net assets and 0.50% of the Fund's 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 the expenses of the Fund (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 during any fiscal year during the term of the

<PAGE>

Fund's agreement with the Investment Adviser. The Investment Advisory Agreement
also provides for a reduction in the fee payable to the Investment Adviser to
the extent the expenses of the Fund would exceed any applicable limit
established pursuant to the statutes or regulations of any jurisdictions in
which the Fund's shares are qualified for offer and sale. However, the Fund's
shares are not offered or sold in any jurisdiction that imposes such a
limitation. These limitations did not result in any reduction of the Investment
Adviser's fee in 1998. The total amounts paid by the Fund for the years ended
December 31, 1996, 1997 and 1998, respectively, in respect of investment
advisory services were $492,702, $621,810 and $777,312, respectively,
representing 0.75%, 0.75% and 0.74% of the Fund's average daily net assets
(after all fee reductions and expense limitations). The Investment Adviser pays
for the Fund's legal counsel to prepare the minutes of meetings of the Board of
Directors and its committees.

The Investment Adviser is a registered investment adviser under the
Investment Advisers Act of 1940 and serves as investment adviser to Asset
Management Fund, Inc., a registered investment company comprising five
fixed-income portfolios with aggregate net assets of approximately $1.3 billion
at December 31, 1998, and as investment adviser to M.S.B. Fund, Inc., an
investment company with net assets of approximately $66 million as of December
31, 1998.

The Investment Adviser, Shay Assets Management, Inc., is a Florida
corporation that is controlled by Rodger D. Shay. The Investment Adviser is a
wholly-owned subsidiary of Shay Investment Services, Inc., which is the holding
company for the Fund's Investment Adviser and Distributor and certain other
related companies engaged primarily in securities-related businesses. Rodger D.
Shay is the majority stockholder of Shay Investment Services, Inc. The
Investment Adviser's principal office is located at 230 West Monroe Street,
Suite 2810, Chicago, Illinois 60606.

Shay Assets Management, Inc. (together with its predecessor, Shay
Assets Management Co.) has served as the Fund's Investment Adviser since May 19,
1995. The Fund's current Investment Advisory Agreement with Shay Assets
Management, Inc. was approved by the shareholders of the Fund on November 13,
1997.

Under the Investment Advisory Agreement, the Investment Adviser is not
liable to the Fund for any error of judgment or mistake of law or for any loss
suffered by the Fund, except a loss resulting from (i) a breach of fiduciary
duty with respect to the receipt of compensation for services, (ii) a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or (iii) reckless disregard by it of its
obligations and duties under the agreement.

The Investment Advisory Agreement will continue in effect from year to
year, subject to termination by the Fund or the Investment Adviser as described
below, if such continuance is approved at least annually by the vote of the
Fund's Board of Directors and a majority of the directors of the Fund who are
not "interested persons" of the Fund or of the Investment Adviser.

<PAGE>

The Investment Adviser may terminate the Investment Advisory Agreement
upon 90 days' written notice to the Fund. The Investment Advisory Agreement can
be terminated at any time without penalty by the Fund upon 30 days' written
notice to the Investment Adviser. The Investment Advisory Agreement will
terminate automatically in the event of its assignment.

Certain directors and officers of the Fund are affiliated persons of
the Investment Adviser and its affiliates. See "OFFICERS AND DIRECTORS OF THE
FUND."

ADMINISTRATOR, TRANSFER AGENT, SHAREHOLDER SERVICING AGENT, DIVIDEND PAYING
AGENT AND CUSTODIAN

PFPC Inc. ("PFPC"), 103 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's administrator. Pursuant to the terms of the Administration and
Accounting Services Agreement between the Fund and PFPC, PFPC performs various
administrative services for the Fund, including (i) maintenance of books and
records, (ii) preparation of various filings, reports, statements and returns
filed with governmental authorities or distributed to shareholders of the Fund
and (iii) computation of the Fund's net asset value for purposes of sales and
redemptions of shares.

The Fund pays PFPC for its services as administrator a fee computed at
the annual rate of 0.10% of the first $200 million of the Fund's average net
assets, 0.075% of the next $200 million of average net assets, with further
reductions in the applicable rate for net assets in excess of $400 million,
subject to a minimum annual charge of $80,400. The amounts paid to PFPC for the
years ended December 31, 1996, 1997 and 1998, were $80,400, $84,732 and
$105,462, respectively. PFPC also serves as the transfer agent, registrar,
shareholder servicing agent and dividend paying agent for the Fund and receives
additional compensation in such capacities.

CUSTODIAN. PFPC Trust Company ("PFPC Trust"), 17th & Chestnut Streets,
Philadelphia, Pennsylvania, is the custodian of the Fund's investments. PFPC
Trust and PFPC are affiliates of PNC Bank Corp. PFPC Trust (or its affiliate PNC
Bank, N.A.) has served as the Fund's Custodian since May 19, 1995.

DISTRIBUTOR

Shay Financial Services, Inc. (the "Distributor") is the distributor
of the Fund. The Distributor is a Florida corporation that is controlled by
Rodger D. Shay, who is a Vice President of the Fund. The principal business
address of the Distributor is located at 230 West Monroe Street, Chicago, IL
60606.

The Fund has authorized the Distributor to undertake certain
activities in connection with the continuous offer and sale of shares of the
Fund, including informing potential investors about the Fund through written
materials, seminars and personal contacts. The Distributor is obligated to use
its best efforts to effect sales of shares of the Fund, but has no obligation to
sell any particular number of shares. The Distributor does not receive any
compensation from the Fund in connection with such activities.

<PAGE>

Certain directors and officers of the Fund also are directors,
officers or employees of the Distributor and its affiliates. See "OFFICERS AND
DIRECTORS OF THE FUND."

INDEPENDENT AUDITORS

Arthur Andersen LLP, 1601 Market Street, Philadelphia, Pennsylvania
serves as the Fund's independent auditors and in that capacity audits the Fund's
annual financial statements.

PURCHASE AND SALE OF PORTFOLIO SECURITIES

The primary aim of the Fund in the allocation of portfolio transactions to
various brokers is the attainment of best price and execution consistent with
obtaining investment research services and statistical information at reasonable
cost. The Investment Adviser is thus authorized to pay a brokerage commission in
excess of that which another broker might have charged for effecting the same
transaction in recognition of the value of efficient execution and research and
statistical information provided by the selected broker. Transactions in
portfolio securities were effected during the calendar year 1998 through a total
of 3 brokers, drawn from a list of brokers selected by the Investment Adviser on
the basis of their ability to provide efficient execution of portfolio
transactions and investment research and statistical information. A large
majority of the Fund's portfolio transactions are executed on national
securities exchanges through member firms. However, when the Investment Adviser
believes that a better price can be obtained for the Fund, portfolio
transactions may be executed in the third market. Portfolio transactions in
unlisted securities are executed in the over-the-counter market. The brokerage
list is reviewed continually in an effort to obtain maximum advantage from
investment research and statistical information made available by brokers, and
allocation among the brokers is made on the basis of best price and execution
consistent with obtaining research and statistical information at reasonable
cost.

In 1998, brokerage commissions of $41,170 (attributable to purchases of
$16,473,188 and proceeds from sales of $14,961,499) were paid to brokers who
provided investment research and statistical information to the Investment
Adviser. The research and statistical information provided to the Investment
Adviser consist primarily of written and electronic reports and presentations
analyzing specific companies, industry sectors, the stock market and the
economy. To the extent that the Investment Adviser uses such research and
information in rendering investment advice to the Fund, the research and
information tend to reduce the Investment Adviser's expenses. The Investment
Adviser may use research services and statistical information furnished by
brokers through which the Fund effects securities transactions in servicing all
of its accounts, and the Investment Adviser may not use all such services in
connection with the Fund. The total amounts of brokerage commissions paid in
1996, 1997 and 1998 were $70,147, $52,668 and $50,104, respectively. The
Investment Adviser monitors the reasonableness of commissions paid by the Fund
based on its experience in the market, and the Board of Directors periodically
reviews the reasonableness of such commissions as well.

Neither the Fund nor any of its officers or directors, nor its
Investment Adviser, is affiliated with any broker employed by the Fund in

<PAGE>

connection with the purchase or sale of portfolio securities or other
investments. The Fund does not maintain joint or joint and several trading
accounts in securities.

EXPENSES OF THE FUND

The Fund is responsible for the payment of its expenses. Such expenses
include, without limitation, the fees payable to the Fund's Investment Adviser,
administrator, transfer agent, shareholder servicing agent, dividend paying
agent and custodian, brokerage fees and expenses, filing fees for the
registration or qualification of the Fund's shares under federal or state
securities laws, taxes, interest, the cost of liability insurance, fidelity
bonds, indemnification expenses, legal and auditing fees and expenses, any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Fund for violation of any law, expenses of
preparing and printing prospectuses, proxy materials, reports and notices and of
mailing the same to shareholders and regulatory authorities, the compensation
and expenses of the Fund's directors and officers who are not affiliated with
the Fund's Investment Adviser or administrator and any extraordinary expenses
incurred by the Fund.

DESCRIPTION OF CAPITAL STOCK

The capital stock of the Fund consists of a single class of common
shares with a par value of $1.00 per share. Each common share entitles the
holder to one vote for the election of directors and on all other matters. These
shares have non-cumulative voting rights which means that the holders of more
than 50% of the shares voting for the election of directors can elect 100% of
the directors if they choose to do so and, in such event, the holders of the
remaining shares voting for the election of directors will not be able to elect
any person or persons to the Board of Directors. All shares have equal rights to
participate in any dividends declared and, in the event of liquidation, in the
assets of the Fund. Upon issuance and payment in accordance with the terms
herein described, the shares will be fully paid and nonassessable. There are no
conversion rights, preemptive rights or sinking fund provisions with respect to
the Fund's shares.

Shares of stock of the Fund may not be sold or transferred to or be
owned by, any person other than an Eligible Institution.

GENERAL INFORMATION

Statements contained in the Prospectus and this Statement of
Additional Information as to the contents of any contract or agreement or other
document referred to are not necessarily complete. In each instance, reference
is made to the copy of such contract, agreement or other document filed as an
exhibit to the Registration Statement of which the Prospectus and this Statement
of Additional Information form a part, each such statement being qualified in
all respects by such reference.

<PAGE>

FINANCIAL STATEMENTS

The financial statements, including the notes thereto, incorporated by
reference into this Statement of Additional Information have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report, with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. Except as set forth above, this Statement of Additional Information
does not incorporate any other portion of the Annual Report.

The Fund will provide a copy of the Annual Report without charge to
each person to whom this Statement of Additional Information is delivered.
Investors should direct requests to the Fund in writing c/o Shay Financial
Services, Inc., 230 West Monroe Street, Suite 2810, Chicago, IL 60606 or by
telephone at 800-527-3713.

<PAGE>

PART C. OTHER INFORMATION
-----------------

ITEM 23. EXHIBITS
- ------------------

(a) Restated Certificate of Incorporation of the Registrant.
Previously filed with Amendment No. 9 as Exhibit 1.

(b) By-Laws. Previously filed with Amendment No. 10 as Exhibit 2.

(1) Form of Certificate for Common Stock. Previously filed
with Amendment No. 2 as Exhibit 4.

(2) Articles Third, Fourth, Ninth, Tenth and Eleventh of
Certificate of Incorporation (See Exhibit (a))

(3) Articles II, VIII, IX and XVI of By-Laws (See Exhibit
(b))

(d) Investment Advisory Agreement dated as of December 9, 1997,
between the Registrant and Shay Assets Management, Inc.
Previously filed with Amendment No. 10 as Exhibit 5.

(e) Distribution Agreement dated as of December 9, 1997, between
the Registrant and Shay Financial Services, Inc. Previously
filed with Amendment No. 10 as Exhibit 9(c).

(f) Not Applicable.

(g) Custody Agreement

(1) Custodian Services Agreement dated as of May 19, 1995,
between the Registrant and PFPC Trust Company, as
assignee of PNC Bank, National Association. Previously
filed with Amendment No. 8 as Exhibit 8(a).

(2) Custodian Services Fees Agreement dated as of
May 19, 1995, between the Registrant and PFPC Trust
Company, as assignee of PNC Bank, National Association.
Previously filed with Amendment No. 8 as Exhibit 8(b).

(3) Administration and Accounting, Transfer Agency and
Custodian Services Fee Waivers Agreement dated as of May
19, 1995, between the Registrant, PFPC Trust Company,
as assignee of PNC Bank, National Association, and
PFPC Inc. Previously filed with Amendment No. 8 as
Exhibit 8(c).

<PAGE>

(h) Other Material Contracts

(1) Administration and Accounting Services Agreement dated
as of May 19, 1995, between the Registrant and PFPC Inc.
Previously filed with Amendment No. 8 as Exhibit 9(a).

(2) Transfer Agency Services Agreement dated as of May 19,
1995, between the Registrant and PFPC Inc. Previously
filed with Amendment No. 8 as Exhibit 9(b).

(i) Not Applicable.

(j) Not Applicable.

(k) Not Applicable.

(l) Not applicable.

(m) Not applicable.

(n) Financial Data Schedule

(o) Not applicable.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------

ITEM 25. INDEMNIFICATION
---------------

Sections 721-726 of the New York Business Corporation Law provide that
a New York corporation shall have the power and, in certain cases, the
obligation to indemnify officers or directors against certain liabilities.
Article XVII of the by-laws of the Registrant provides that the Registrant shall
indemnify directors or officers to the full extent permitted by New York law.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,

<PAGE>

the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

In addition, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, indemnification by the Registrant of its
directors and officers against liabilities arising out of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of their respective offices is against public policy and, therefore,
unenforceable. In the event that any questions arise as to the lawfulness of
indemnification under the Investment Company Act of 1940 or the advancement of
legal fees or other expenses incurred by its officers and directors, the
Registrant will not advance such expenses or provide such indemnification unless
there has been a determination by a court, by a vote of a majority of a quorum
consisting of disinterested, non-party directors, or by independent legal
counsel in a written opinion or by other reasonable and fair means that such
indemnification or advancement would not violate Section 17 of the Investment
Company Act of 1940 and the rules and regulations thereunder.

In addition, the Registrant has entered into a Directors and Officers
Liability Insurance Policy covering the period August 1, 1998 to July 31, 1999.
Such policy insures against loss which any directors or officers of the
Registrant are obligated to pay by reason of claims based on actual or alleged
breach of duty, neglect, error, misstatement, misleading statement, omission or
other act done or wrongfully attempted or any matter claimed against them solely
by reason of their being directors or officers. The policy does not protect or
purport to protect any director or officer against any loss arising from fines
or penalties imposed by law or matters which may be deemed uninsurable under the
law.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
--------------------------------------------------------

Incorporated herein by reference from the Statement of Additional
Information are the following: the description of the business of Shay Assets
Management, Inc. (the "Investment Adviser"), contained in the section entitled
"Investment Advisory and Other Serices;" the information concerning the
organization and controlling persons of Shay Financial Services, Inc. (the
"Distributor") contained in the section entitled "Investment Advisory and other
Services;" and the biographical information pertaining to Messrs. Shay, Sammons,
McCabe and Trautman contained in the section entitled "Officers and Directors of
the Fund."

The Investment Adviser is located at 230 West Monroe Street, Suite
2810, Chicago, Illinois, 60606 and at 1000 Brickell Avenue, Miami,

<PAGE>

Florida, 33131, and also has offices in New York City and Summit, New
Jersey. The Investment Adviser is a wholly-owned subsidiary of Shay
Investment Services, Inc. ("SISI"). SISI is controlled by Rodger D. Shay,
and Arthur M. Berardelli and Rodger D. Shay, Jr. each owned 5% or more of its
shares at March 31, 1999. Shay Financial Services, Inc. ("SFSI") and First
Financial Trust Company ("FFTC") are also wholly-owned subsidiaries of SISI.

Rodger D. Shay is the Chairman of the Investment Adviser, SISI,
and SFSI. Edward E. Sammons, Jr. is President of the Investment Adviser and
Executive Vice President of SISI and SFSI. Rodger D. Shay, Jr. is the
President of SFSI, Senior Vice President of SISI and Executive Vice President
of the Investment Adviser. Roy R. Hingston and Robert T. Podraza are also
Vice Presidents of the Investment Adviser, SISI and SFSI.

SFSI is a securities broker-dealer registered with the Securities and
Exchange Commission. FFTC is a Texas trust company which provides custodial
services, primarily for institutional customers of SFSI.

Effective December 8, 1997, the Investment Adviser began rendering
investment adviser services to the Fund and two other registered investment
companies, Asset Management Fund, Inc. ("AMF") and M.S.B. Fund, Inc. In
addition, the Investment Adviser acts as investment adviser to several savings
banks located in New York State on a non-discretionary basis.

From its inception in August 1990 to December 7, 1997, the Investment
Adviser was a 50% general partner and the managing partner of Shay Assets
Management Co. ("SAMC"), the Fund's prior investment adviser. SAMC was the
investment adviser for the Fund and M.S.B. Fund, Inc. from May 19, 1995 to
December 7, 1997, for AMF from September 1, 1990 to December 7, 1997, and for
the Institutional Investors Tax-Advantaged Income Fund, Inc. from May 19, 1995
to March 15, 1996, and was the Sub-Adviser, providing portfolio management
services, for the U.S. Mortgage Securities Portfolio of Nationar Funds, Inc.
from June 1994 to February 1995. In addition, SAMC acted as investment adviser
to several savings banks located in New York State on a non-discretionary basis.
SAMC was dissolved on December 7, 1997, with its assets, liabilities, and
business (including investment advisory services to the Fund) being transferred
to the Investment Adviser.

ITEM 27. PRINCIPAL UNDERWRITERS
----------------------

(a) The Distributor, Shay Financial Services, Inc., serves as the
principal distributor for M.S.B. Fund, Inc. and Asset Management Fund, Inc.
in addition to serving Institutional Investors Capital Appreciation Fund, Inc.

(b) Rodger D. Shay is the Chairman and sole director of the Distributor. He
also serves as an officer of the Registrant. Edward E. Sammons, Jr. is the
Executive Vice President of the Distributor and an officer of the Registrant.
Other information about Mr. Shay and Mr. Sammons required by this Item 27 is
incorporated herein by reference to Item 26 and the "Officers and Directors of
the Fund" in the Statement of Additional Information. Set forth below are the

<PAGE>

names, principal business addresses and positions and offices with the
Distributor of the other officers of the Distributor.

NAME OF DIRECTOR OR POSITIONS AND OFFICES
- ------------------- ---------------------
OFFICER OF THE DISTRIBUTOR PRINCIPAL BUSINESS ADDRESS WITH DISTRIBUTOR
- -------------------------- -------------------------- ----------------

Robert T. Podraza 230 West Monroe Street Chief Financial Officer
Chicago, IL 60606 and Chief Operating
Officer

Rodger D. Shay, Jr. 1000 Brickell Avenue President
Miami, FL 33131

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------

The books and other documents required to be maintained pursuant to
Rule 31a-1(b) (4) and (b) (10) are in the physical possession of the Fund's
Investment Adviser, Shay Assets Management, Inc., 230 West Monroe Street, Suite
2810, Chicago, Illinois 60606; accounts, books and other documents required by
Rule 31a-1(b) (5) through (7) and (b) (11) and Rule 31a-1(f) are in the physical
possession of Shay Assets Management, Inc., 230 West Monroe Street, Suite 2810,
Chicago, Illinois 60606; all other books, accounts and other documents required
to be maintained under Section 31(a) of the Investment Company Act of 1940 and
the Rules promulgated thereunder are in the physical possession of PFPC Inc.,
103 Bellevue Parkway, Wilmington, Delaware 19809.

ITEM 29. MANAGEMENT SERVICES
-------------------

Not applicable.

ITEM 30. UNDERTAKINGS
------------

Not applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York and
State of New York on the 29th day of April, 1999.

INSTITUTIONAL INVESTORS CAPITAL
APPRECIATION FUND, INC.

By: /S/ JOHN MCCABE
----------------------------------------
John McCabe
Senior Vice President

<PAGE>

EXHIBIT INDEX

Exhibit
NUMBER DESCRIPTION
- ------ -----------

(n) Financial Data Schedule

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED FINANCIAL STATEMENTS OF THE FUND CONTAINED IN THE FUND'S
ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO).
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 70963888
<INVESTMENTS-AT-VALUE> 118964281
<RECEIVABLES> 172390
<ASSETS-OTHER> 23053
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119159724
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42495
<TOTAL-LIABILITIES> 42495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71116836
<SHARES-COMMON-STOCK> 608532
<SHARES-COMMON-PRIOR> 591971
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48000393
<NET-ASSETS> 119117229
<DIVIDEND-INCOME> 1351708
<INTEREST-INCOME> 311625
<OTHER-INCOME> 0
<EXPENSES-NET> (1129498)
<NET-INVESTMENT-INCOME> 533835
<REALIZED-GAINS-CURRENT> 8562566
<APPREC-INCREASE-CURRENT> 18296017
<NET-CHANGE-FROM-OPS> 27392418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (542675)
<DISTRIBUTIONS-OF-GAINS> (8562566)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57835
<NUMBER-OF-SHARES-REDEEMED> (84761)
<SHARES-REINVESTED> 43487
<NET-CHANGE-IN-ASSETS> 21630359
<ACCUMULATED-NII-PRIOR> 7784
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 777312
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1129498
<AVERAGE-NET-ASSETS> 105462394
<PER-SHARE-NAV-BEGIN> 164.68
<PER-SHARE-NII> .93
<PER-SHARE-GAIN-APPREC> 46.33
<PER-SHARE-DIVIDEND> (.94)
<PER-SHARE-DISTRIBUTIONS> (15.25)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 195.75
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>