<PAGE>
- --------------------------------------------------------------------------------
Chairman's Letter
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
The volatility of the stock market increased dramatically in the last 6 months
of 1998. While the major indexes were up, market leadership however was
concentrated in just a few sectors. Technology being the most visible. Value
investing did not fare well in this climate.
It is impossible to predict with certainty the direction the market will take in
1999. However, we believe those investors who take a long term view of their
portfolios and can afford to remain invested through the inevitable up and down
cycles will continue to be well rewarded in the equity market place. We
appreciate your continued support and remain confident that our focus on value
will again be a successful strategy in facing the challenges ahead.
Sincerely,
/s/ Rudolph C. Sander
---------------------
Rudolph C. Sander
February 25th, 1999
<PAGE>
- --------------------------------------------------------------------------------
President's Letter February, 1999
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
As we review the past year in the context of our year-ago commentary, we are
struck by the accuracy of some of our macroeconomic comments. The outcome in
terms of the performance of the stock market, however, was wildly different from
our attempt at reading the crystal ball. We had pointed to the likelihood of
earnings disappointments and reduced estimates by analysts, and with the market
selling at what appeared to be full valuations, we guessed that the market might
be more volatile and only post modest gains aided by further interest rate
reductions by the Fed. The fact that we had expected increased volatility and a
correction at some point during the year didn't make it any easier when it
actually materialized in the summer. Indeed, one painful aspect of the
correction was that value stocks, despite having trailed the market in the
months preceding the decline, participated fully, and then some, on the
downside. Despite a brief improvement in breadth after the October lows, the
market's preference for liquidity was evident throughout the year, and the
returns on large capitalization issues outpaced small and mid-cap issues in
every period. For the year, the (capitalization-weighted) S&P 500 Index return
was 28.6%. The largest 25 companies in the index had a return of 54.7%; the 100
largest companies (the top quintile by size) had a return of 36.5% and because
of their weighting in the index, they accounted for 85% of the index return.
Meanwhile, the average (equal-weighted) return of the 500 stocks in the index
was 13.5%, and the median return of all the stocks in the index was only 6.6% --
that means that half of the stocks in the index returned less than 6.6% last
year.
The stock market's preference for large capitalization was accompanied by a
preference for growth. If one sorts the index components by Price/Earnings
ratio, one proxy for expected earnings growth, the top half of the index had a
total return of 33.2%, compared with the bottom 250 stocks by P/E ratio, whose
return was a negative 8.2%, a spread of 41 percentage points. Addison's average
P/E ratio at year-end was about 60% of the S&P 500's P/E ratio of 30 times
reported earnings. The wide performance disparity and its correlation to P/E
ratios and market capitalization was even more dramatic in the MidCap and
SmallCap indices, where the returns trailed the major market indices
substantially. Whether measured by valuation statistics such as P/E ratios,
Price/Book value ratios, or by market capitalizations, Addison's portfolio sells
at a discount to the market averages, and during the narrow market of 1998,
those factors were detrimental to performance. For calendar 1998, the Fund's
return was a very disappointing 0.4%, far behind the S&P 500, and slightly
behind the average mid-cap value fund return of 1.4%, according to Morningstar.
Now that we have gone through the correction, which, despite its brevity,
bordered on being a bear market in terms of its peak to trough decline and the
damage it inflicted on most stocks, what should we expect from here? We will
continue to have volatility, but we are optimistic that the worries about the
economic landscape will gradually abate as it becomes clearer that Asian and
Latin American woes aren't going to pull the stronger, more stable economies of
Europe and the U.S. into recession. The market may have begun to discount this
in the rally from the lows reached in early October, but monetary stimulus by
the Federal Reserve in the wake of the Long Term Capital hedge fund bailout was
likely the main catalyst for the market's rebound. The bulk of that market
movement has been characterized by the same sort of stocks which led for most of
1998, but we have seen some strengthening among the cyclical issues that tend to
populate low P/E, value-oriented portfolios. It remains to be seen whether the
"January effect" is responsible for this rotation in the market, or if there
will be broader market participation in 1999. At the moment, we are still seeing
earnings estimates being reduced across a broad range of companies. This may
result in positive earnings surprises on these reduced forecasts, and
comparisons should become easier for many companies if the economy sustains its
recent strength. Despite the problems in other economies, the U.S. economy has
remained surprisingly strong. As long as the market is worried about an economic
slowdown, the dominance of large-cap growth stocks (the new "Nifty Fifty") may
persist, but that uncertainty is likely to
<PAGE>
be resolved in the not-too-distant future. As usual, we find that our crystal
ball is lacking the clarity that we'd like, but we are doubtful that the
five-year cycle of superior performance by growth stocks will last forever. Such
cycles have lasted from three to seven years in the past, and a cyclical
rotation is likely to occur as some of the more troubled economies rebound. The
market will begin to broaden and money will flow into a broader spectrum of
stocks than those that have dominated returns over the last year.
By the reckoning of most analysts and economists 1999 should be a year
characterized by continued low inflation and low interest rates. This should
allow P/E ratios to stay at historically high levels. If corporate earnings can
resume their growth after a flat-to-down year (for S&P 500 earnings), the stock
market can continue its climb to new highs. As is always the case, we can think
of a number of risks to the current outlook. The combination of low inflation,
low unemployment, rising wages, and low interest rates is almost as good as it
gets. With the domestic economy apparently in such good shape, the potential for
further improvement seems slim. Indeed, with the consensus expecting a
continuation of this environment, there is the potential for nasty surprises. A
worsening of the economic and financial situations in Asia and Latin America
resulting in competitive currency devaluations could have an adverse effect on
interest rates, foreign trade, and economic growth on a worldwide basis. On the
other hand, some analysts believe that the Asian economies (ex-Japan) may have
begun to recover. The true dimensions of the Y2K problem are still unknown. We
expect it to cause some disruptions, but we are hopeful that they will not have
the broad economic repercussions some doomsayers have predicted. It also seems
inevitable that the speculative bubble which has inflated the prices of Internet
stocks will burst eventually, as did the energy bubble in the early 1980's. What
impact that will have on the overall market or economy is hard to know, but
there has been a lot of paper wealth created in that group.
The year just ended was tumultuous from a number of perspectives and the year
ahead seems to have the potential for more of that excitement and tension. When
all is said and done, we expect that the current economic expansion is likely to
carry on into the year 2000. That would have favorable implications for equity
investors, and an "average" year for stocks would carry the Dow Industrials
above the 10,000 level. We will do our best to make sure that our portfolio
participates as it has most years in the past.
Sincerely,
/s/ Radcliffe Cheston
-----------------------
Radcliffe Cheston
<PAGE>
- --------------------------------------------------------------------------------
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Number
of Value
Shares (Note A)
- --------------------------------------------------------------------------------
COMMON STOCK - 97.7%
- --------------------------------------------------------------------------------
Aerospace -- 3.6%
Northrop Grumman Corporation ................ 13,413 $ 980,826
Textron, Incorporated ....................... 20,000 1,518,750
---------
2,499,576
---------
Apparel -- 2.0%
VF Corporation .............................. 30,000 1,406,250
---------
Automobiles & Related-- 2.1%
General Motors Corporation .................. 20,000 1,431,250
---------
Banking-- 6.9%
Charter One Financial,
Incorporated ............................... 52,659 1,461,287
Chase Manhattan Corporation ................. 24,000 1,633,500
First Union Corporation ..................... 28,000 1,702,750
---------
4,797,537
---------
Business Services -- 1.6%
AMR Corporation ............................. 19,170 1,138,219
---------
Capital Goods-- 1.4%
Harsco Corporation .......................... 31,020 944,171
---------
Cement Products-- 1.7%
Southdown, Incorporated ..................... 20,100 1,189,669
---------
Chemicals-- 3.4%
Du Pont (E.I.) De Nemours
and Company ................................ 22,000 1,167,375
Union Carbide Corporation ................... 28,000 1,190,000
---------
2,357,375
---------
Computers -- 4.9%
Compaq Computer, Incorporated ............... 46,200 1,937,512
Gateway 2000, Incorporated*** ............... 28,000 1,433,250
---------
3,370,762
---------
Computer Equipment -- 1.9%
Storage Technology
Corporation*** ............................. 37,000 1,315,812
---------
Construction Materials-- 2.6%
Vulcan Materials Company .................... 13,880 1,826,088
---------
Consumer Products-- 4.1%
Fortune Brands Incorporated ................. 35,000 1,106,875
Premark International,
Incorporated ............................... 50,000 1,731,250
---------
2,838,125
---------
Data Processing -- 1.2%
Sterling Software, Incorporated ............. 30,000 811,875
---------
<PAGE>
- --------------------------------------------------------------------------------
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Number
of Value
Shares (Note A)
- --------------------------------------------------------------------------------
Electronics -- 3.2%
Central South West Corporation ............. 40,000 $1,097,500
Harris Corporation ......................... 30,000 1,098,750
---------
2,196,250
---------
Finance -- 2.1%
Morgan Stanley Dean Witter
& Company ................................. 21,000 1,491,000
---------
Financial-- 2.9%
SunAmerica, Incorporated ................... 24,619 1,997,216
---------
Food, Beverage and Tobacco-- 3.9%
Philip Morris Companies,
Incorporated .............................. 25,000 1,337,500
Supervalu, Incorporated .................... 50,000 1,400,000
---------
2,737,500
---------
Healthcare Facilities -- 1.7%
Tenet Health Care Corporation .............. 44,000 1,155,000
---------
Home Furnishing/Housewares-- 1.8%
Ethan Allen Interiors,
Incorporated .............................. 30,000 1,230,000
---------
Insurance-- 6.5%
Allstate Corporation ....................... 36,000 1,390,500
American General Corporation ............... 19,000 1,482,000
Reliastar Financial Corporation ............ 36,000 1,660,500
---------
4,533,000
---------
International Oils -- 2.0%
Exxon Corporation .......................... 19,000 1,389,375
---------
Machinery-- 2.3%
Pentair, Incorporated ...................... 40,000 1,592,500
---------
Manufacturing-- 0.8%
Aptargroup, Incorporated ................... 20,000 561,250
---------
Medical Supplies-- 1.8%
Becton Dickinson & Company ................. 30,000 1,280,625
---------
Natural Gas-- 1.8%
Columbia Gas System,
Incorporated ............................... 21,100 1,218,525
---------
Office Equipment-- 2.4%
Xerox Corporation .......................... 14,000 1,652,000
---------
Oil-- 2.1%
Amoco Corporation .......................... 24,000 1,449,000
---------
Oil Equipment & Services-- 1.4%
Halliburton Company ........................ 32,000 948,000
---------
4
<PAGE>
- --------------------------------------------------------------------------------
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Number
of Value
Shares (Note A)
- --------------------------------------------------------------------------------
Paper & Forest Products -- 1.9%
Rayonier, Incorporated ............................ 28,000 $ 1,286,250
----------
Rails/Trucking/Transportation-- 1.4%
Norfolk Southern Corporation ...................... 31,350 993,403
----------
Real Estate-- 3.4%
Duke Realty Investments,
Incorporated ..................................... 50,000 1,162,500
Health Care Property Investors,
Incorporated ..................................... 37,778 1,161,674
----------
2,324,174
----------
Retail Merchandising -- 2.3%
Dayton Hudson Corporation ......................... 30,000 1,627,500
----------
Retail Store-- 3.5%
Ross Stores, Incorporation ........................ 40,000 1,575,000
Sears, Roebuck and Company ........................ 20,000 850,000
----------
2,425,000
----------
Steel -- 1.6%
Carpenter Technology
Corporation ...................................... 32,000 1,086,000
----------
Technology-- 2.2%
Comdisco, Incorporated ............................ 90,000 1,518,750
----------
Utilities-- Electric-- 5.3%
Duke Energy Corporation ........................... 19,332 1,238,456
FPL Group, Incorporated ........................... 22,000 1,355,750
Nipsco Industries, Incorporated ................... 34,640 1,054,355
----------
3,648,561
----------
Utilities -- Natural Gas -- 2.0%
NICOR, Incorporated ............................... 32,886 1,389,434
----------
TOTAL COMMON STOCK
(Cost $43,849,188) ................................ 67,657,022
----------
<PAGE>
- --------------------------------------------------------------------------------
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal Value
Amount (Note A)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS** - 2.7%
- --------------------------------------------------------------------------------
PNC Bank $1,891,000 at 3.75%
(Agreement dated 12/31/98, to
be repurchased at $1,891,788 on
01/04/99; collateralized by
$1,929,285 Federal Home Loan
Mortgage Corporation, 6.50%,
due 09/25/20). (Value $1,901,450
- Cost $1,891,000)................................ $1,891,000 $ 1,891,000
TOTAL INVESTMENTS
(Cost $45,740,188*) ............................ 100.4% 69,548,022
-----------
Liabilities in excess of
Other Assets ................................... (0.4%) (307,218)
----------- -----------
Net Assets ........................................ 100.0% $69,240,804
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Aggregate cost for federal income tax purposes was $45,740,188. The
aggregate gross unrealized appreciation (depreciation) for all
securities is as follows:
Gross Appreciation ......... $24,923,737
Gross Depreciation ......... (1,115,903)
-----------
Net Appreciation ........... $23,807,834
===========
** It is the Fund's policy to always receive, as collateral, securities
whose value, including accrued interest, will be at least equal to 102%
of the dollar amount to be paid to the Fund under each agreement at its
maturity. The values of the securities are monitored daily. If the
value falls below 101% of the amount to be paid at maturity, additional
collateral is obtained. The Fund makes payment for such securities only
upon physical delivery of evidence of book entry transferred to the
account of its custodian.
*** Non-income producing security.
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $45,740,188) ........................ $69,548,022
Cash ............................................................ 225
Receivables:
Dividends .................................................... 54,042
Interest ..................................................... 197
Fund shares sold ............................................. 8,547
Prepaid expense ................................................. 2,934
-----------
- --------------------------------------------------------------------------------
TOTAL ASSETS ................................................ 69,613,967
-----------
- --------------------------------------------------------------------------------
LIABILITIES:
Payable:
Fund shares repurchased ...................................... 283,547
Accrued expenses ................................................ 89,616
-----------
- --------------------------------------------------------------------------------
TOTAL LIABILITIES ........................................... 373,163
-----------
- --------------------------------------------------------------------------------
NET ASSETS ...................................................... $69,240,804
===========
SHARES OUTSTANDING .............................................. 2,362,235
===========
================================================================================
NET ASSET VALUE PER SHARE ($69,240,804 / 2,362,235 shares) ...... $ 29.31
===========
================================================================================
NET ASSETS CONSISTED OF THE FOLLOWING AT DECEMBER 31, 1998:
Paid-in capital ................................................. $45,146,428
Undistributed net investment income ............................. 112,941
Undistributed net realized gain ................................. 173,601
Unrealized appreciation on investments .......................... 23,807,834
-----------
$69,240,804
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
For the Six Months Ended December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Dividends ................................................. $ 673,468
Interest .................................................. 71,641
-----------
- --------------------------------------------------------------------------------
Total income .............................................. 745,109
-----------
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fee ................................... 268,252
Distribution fee .......................................... 143,068
Shareholder servicing ..................................... 89,417
Administration fee ........................................ 38,382
Transfer agent fee ........................................ 28,550
Insurance ................................................. 9,214
Custodian fee ............................................. 9,896
Audit ..................................................... 10,359
Printing .................................................. 8,085
Directors' fee ............................................ 7,579
Federal and state registration fees ....................... 10,359
Legal Fee ................................................. 5,053
Miscellaneous ............................................. 4,040
-----------
- --------------------------------------------------------------------------------
Total expenses ............................................ 632,254
-----------
- --------------------------------------------------------------------------------
Net investment income .................................. 112,855
-----------
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions .............. 173,547
Change in unrealized appreciation of investments .......... (6,452,835)
-----------
- --------------------------------------------------------------------------------
Net loss on investments ................................... (6,279,288)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... ($6,166,433)
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements
7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes In Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
ended For the Year
December 31, 1998 ended
(Unaudited) June 30, 1998
----------------- -------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
Operations:
Net investment income ................................................ $ 112,855 $ 223,065
Net realized gain from security transactions ......................... 173,547 6,325,657
Change in unrealized appreciation of investments ..................... (6,452,835) 6,427,673
------------ ------------
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations....... (6,166,433) 12,976,395
------------ ------------
- ----------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ($0.04 and $0.13 per share, respectively) ...... (99,682) (283,838)
Capital gains ($1.67 and $3.62 per share, respectively)............... (4,082,558) (7,862,175)
------------ ------------
Total distributions ................................................ (4,182,240) (8,146,013)
------------ ------------
Capital share transactions:
Net increase (decrease) in net assets derived
from capital share transactions* .................................... (1,922,382) 10,072,025
------------ ------------
Total increase (decrease) in net assets ............................ (12,271,055) 14,902,407
------------ ------------
- ----------------------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------------------
Beginning of period ..................................................... 81,511,859 66,609,452
------------ ------------
End of period** ......................................................... $69,240,804 $ 81,511,859
============ ============
==========================================================================================================
* Capital share transactions are as follows:
Shares Value
---------- -----------
For the six months ended December 31, 1998
Shares purchased ..................................................... 70,059 $ 2,025,510
Shares reinvested .................................................... 126,480 4,044,827
Shares redeemed ...................................................... (283,550) (7,992,719)
------------ ------------
Net decrease ....................................................... (87,011) $(1,922,382)
------------ ------------
For the year ended June 30, 1998
Shares purchased ..................................................... 276,170 $ 8,769,576
Shares reinvested .................................................... 269,399 7,901,583
Shares redeemed ...................................................... (208,748) (6,599,134)
------------ ------------
Net increase ....................................................... 336,821 $ 10,072,025
============ ============
</TABLE>
** Undistributed net investment income $112,941 & $99,768, respectively
See Notes to Financial Statements
8
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
For the six months
ended
December 31, 1998
(Unaudited) Years ended June 30
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............................... $33.28 $31.53 $26.42 $22.92 $20.45 $22.69
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment income ........................... $0.05 $0.09 $0.15 $0.17 $0.22 $0.21
Net gains on securities
(both realized and unrealized) ................ (2.31) 5.41 7.60 5.42 3.77 (0.76)
------- ------- ------- ------- ------- -------
Total from investment operations ................ (2.26) 5.50 7.75 5.59 3.99 (0.55)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net
investment income ............................. (0.04) (0.13) (0.15) (0.21) (0.20) (0.23)
Distributions from capital gains ................ (1.67) (3.62) (2.49) (1.88) (1.32) (1.46)
------- ------- ------- ------- ------- -------
Total distributions ............................. (1.71) (3.75) (2.64) (2.09) (1.52) (1.69)
------- ------- ------- ------- ------- -------
Net asset value, end of year ....................... $29.31 $33.28 $31.53 $26.42 $22.92 $20.45
======= ======= ======= ======= ======= =======
Total Return (1) ................................... (7.23)%** 19.40% 32.20% 25.92% 21.11% (2.73)%
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ............ $69,241 $81,512 $57,368 $50,704 $38,506 $36,171
Ratio of expenses to average assets ............. 1.77%* 1.75% 1.82% 1.96% 2.06% 2.06%
Ratio of net investment
income to average net assets .................. 0.32%* 0.30% 0.54% 0.69% 1.03% 1.00%
Portfolio Turnover .............................. 8.65% 28.14% 29.48% 38.97% 42.82% 43.26%
Average Commission Rate Per Share (2) .............. $0.0619 $0.0631 $0.0673
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(1) Exclusive of deduction of sales charge on investment.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
This report has been prepared for Shareholders and may be distributed to others
only preceded or accompanied by a current prospectus.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial statement
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
A. Addison Capital Shares, Inc. (the "Fund") was organized as a Maryland
corporation on June 4, 1986. The Fund is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. Significant accounting policies relating to the Fund are as follows:
Security Valuation -- Portfolio securities which are traded on a national
securities exchange or included in the NASDAQ National Market System are
valued at the last sales price. Securities traded on an exchange or NASDAQ
for which there has been no sale on that day and other over-the-counter
securities are valued at the mean between the closing bid and asked prices.
Debt instruments having a maturity of 60 days or less are valued at
amortized cost.
Securities Transactions and Investment Income -- Securities transactions
are accounted for on trade date. The cost of investments sold is determined
by use of the specific identification method for both financial reporting
and income tax purposes. Interest income is recorded on an accrual basis;
dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders -- Substantially all of the
Fund's net investment income and net realized capital gains, if any, will
be distributed to shareholders on an annual basis.
Federal Income Taxes -- No provision is made for Federal income taxes as it
is the Fund's intention to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be
sufficient to relieve it from all or substantially all Federal income
taxes.
B. Addison Capital Management Company (Addison Capital), a wholly-owned
subsidiary of Janney Montgomery Scott Inc. (Janney), serves as the Fund's
investment adviser. For its services as adviser, Addison Capital receives a fee,
computed daily and paid monthly, at an annual rate of .75% of the Fund's first
$100 million in average net assets, 50% of the next $150 million in average net
assets, and .25% of average net assets in excess of $250 million.
PFPC Inc., a wholly-owned, indirect subsidiary of PNC Bank, serves as the
Fund's administrative and accounting agent. As compensation for these services,
PFPC receives a fee computed daily and paid monthly, at an annual rate of .10%
of the Fund's average net assets or $100,000, whichever is greater. PFPC agreed
to reduce its minimum annual fee to $75,000 for the six months ending December
31,1998.
PNC Bank acts as the Fund's custodian. PFPC Inc. also acts as the Fund's
transfer agent and dividend disbursing agent.
Pursuant to an Underwriting Agreement with the Fund, Janney, a wholly-owned
subsidiary of Independence Square Properties, Inc., which is in turn wholly
owned by Penn Mutual Life Insurance Company, serves as the Fund's distributor.
As compensation for these services, Janney receives a fee from the Fund,
computed daily and paid monthly, at an annual rate of .40% of the Fund's average
net assets. Janney received no brokerage commissions for the six months ended
December 31, 1998 of $1,950.
Under a Services Agreement between the Fund and Janney, Janney will provide
office space to the Fund, will supervise performance by PNC Bank and PFPC Inc.
of their respective duties, and will respond to shareholders' inquiries for an
annual fee equal to .25% of the Fund's average daily net assets.
If expenses borne by the Fund in any fiscal year exceed expense limitations
imposed by applicable state securities regulations, Janney and Addison Capital
may reduce their fees on a pro-rata basis to the extent required by such
regulations. No such reduction was required for the six months ended December
31, 1998.
10
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial statement
December 31, 1998 (Continued)
- --------------------------------------------------------------------------------
Certain officers and directors of the Fund are officers and/or directors of
Addison Capital and Janney. The law firm of Morgan, Lewis & Bockius, a member of
which is also an officer of the Fund, received $5,053 from the Fund for legal
services rendered during the six months ended December 31, 1998.
C. Purchases and sales of securities, other than short-term obligations,
aggregated $5,812,767 and $9,647,762, respectively, for the six months ended
December 31, 1998.
D. As of July 3, 1995 Fund shares are sold at their net asset value. As of that
date all sales charges are eliminated for all Fund share purchases.
11
<PAGE>
Directors & Officers
Rudolph C. Sander
Chairman of the Board
Radcliff Cheston
President & Chief Executive
Margaret M. Healy
Director
Charles E. Mather, III
Director
William R. Dimeling
Director
James Wolitarsky
Treasurer, Chief Accounting Officer
& Chief Financial Officer
James V. Kelly
Vice President
Michael R. Patitucci
Vice President
Charles J. Sullivan
Vice President
James W. Jennings
Secretary
Investment Adviser
ADDISON CAPITAL MANAGEMENT CO.
1608 Walnut Street
Philadelphia, PA 19103
Distributor
JANNEY MONTGOMERY SCOTT INC.
1801 Market Street
Philadelphia, PA 19103
Administrator
PFPC, INC.
103 Bellevue Parkway
Wilmington, DE 19809
Transfer Agent PFPC, INC.
103 Bellevue Parkway
Wilmington, DE 19809
Addison
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Capital
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Shares
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Distributed by:
Established
1832
JMS
Janney Montgomery Scott
INC.
Semi-Annual Report
to Shareholders
December 31st, 1998
