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EAGLE GROWTH SHARES, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1999
This statement is not a prospectus, but should be read in conjunction with the
Fund's current prospectus (dated April 1, 1999). To obtain the prospectus
please write to Eagle Growth Shares, Inc., 1200 North Federal Highway, Suite
424, Boca Raton, Florida 33432
Or call:
Nationwide 1-800-749-9933
Florida 1-561-395-2155
The information required by Item 11 "Fund History" of this Statement of
Additional Information is incorporated by reference and is located in the
Fund's prospectus under the heading "Investment Objectives and Principal
Strategies". The information required by Item 22 "Financial Statements"
of this Statement of Additional Information is incorporated by reference
and is located in the Fund's Annual Report dated November 30, 1998.
Table of Contents Page
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Investment Objectives, Policies and Risks. . . . . . 2
Options Transactions . . . . . . . . . . . . . . . 2
Futures Contracts . . . . . . . . . . . . . . . . 4
Taxation of the Fund . . . . . . . . . . . . . . . . 5
Investment Limitations . . . . . . . . . . . . . . . 6
Rights of Ownership . . . . . . . . . . . . . . . . 7
Letter of Intent . . . . . . . . . . . . . . . . . . 7
Right of Accumulation . . . . . . . . . . . . . . . 8
Group Discount Privilege . . . . . . . . . . . . . . 8
Automatic Investment Plan . . . . . . . . . . . . . 8
Check Withdrawal Plan . . . . . . . . . . . . . . . 9
Tax Sheltered Plans . . . . . . . . . . . . . . . . 9
Account Reinstatement Privilege. . . . . . . . . . . 10
Computation Of Net Asset Value . . . . . . . . . . . 10
Purchase of Shares . . . . . . . . . . . . . . . . . 10
Redemption and Repurchase of Shares. . . . . . . . . 10
Management of the Fund . . . . . . . . . . . . . . . 11
Officers and Directors . . . . . . . . . . . . . . 11
Brokerage. . . . . . . . . . . . . . . . . . . . . 13
Information about the Investment Advisor . . . . . . 14
Underwriters . . . . . . . . . . . . . . . . . . . . 14
Independent Certified Public Accountants . . . . . . 15
Calculation of Performance Data. . . . . . . . . . . 15
Comparisons and Advertisements . . . . . . . . . . . 16
Financial Statements . . . . . . . . . . . . . . . . 16
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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While the following are not considered to be principal policies of the Fund
they may be employed as described herein.
The Fund may, from time to time, invest in restricted securities and may be
deemed to be a statutory underwriter if it distributes any such restricted
securities. Such investments may generally be made at advantageous prices.
The Fund may not resell any such securities unless the Federal and any
applicable state registration requirements respecting such securities are
first satisfied, or an exemption from such registration requirements is
available. The restrictions upon the disposition of such securities may
adversely affect their marketability and the Fund generally may not be able to
dispose of such securities at prices for unrestricted securities of the same
class of the same issuer. The Fund will not purchase restricted securities if
immediately after such purchase more than 10% of the value of the Fund's net
assets would be invested in such securities or other assets for which market
quotations are not readily available. Ordinarily, the Fund does not
expect to have more than 5% of the Fund's total net asset value invested in
restricted securities. If the fair value of restricted securities or other
assets not having readily available market quotations previously purchased
exceeds 10% of the value of the Fund's assets during the period such
securities are held, appropriate steps will be taken in the management of the
balance of the portfolio to achieve adequate liquidity. Restricted securities
are valued at fair value calculated by delegated persons acting in accordance
with methods of valuation determined in good faith by the Board of Directors.
The Board will review the appropriateness of such methods of valuation at
proper intervals. If it becomes necessary to register such securities before
resale with the appropriate federal and state authorities, the Fund may have
to bear part or all of the expenses of any such registration if an agreement
has not been reached with the issuer of the securities to bear part or all of
these costs.
The Fund may also invest in fixed income securities including securities
convertible into common stocks where such investments appear to offer
opportunities for capital appreciation. When the Fund invests in fixed income
securities for this reason, the Fund may purchase such securities which are
rated B-2 or lower by Moody's or B- or lower by Standard & Poor's. These
fixed income debt securities are deemed to involve a higher risk level than
investment grade debt securities. The Fund may also invest in unrated
securities when Baxter Financial Corporation (the "Advisor") believes that the
terms of such securities and the financial condition of the issuer are such
that the protection afforded limits risks to a level similar to that of rated
securities in which the Fund may invest. Fixed income debt securities
offer a potential for capital appreciation because the value of the fixed
income security generally fluctuates inversely with interest rates.
The Fund has authority to invest up to 20% of its assets in the securities of
foreign companies. However, historically the Fund has not invested more than
5% of its assets in foreign securities. Investments in foreign securities
involve risks which are in addition to the usual risks inherent in domestic
investments. There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in
the United States. Foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to United
States companies. Foreign investments may also be affected by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations, and by indigenous economic and political
developments. There is also the possibility of nationalization or other
government policies or instability which could affect investments in
securities of issuers in those nations.
The Fund has authority to buy securities of companies organized as real estate
investment trusts ("REITS"). REITS pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests.
OPTIONS TRANSACTIONS
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The Fund may sell covered call options (options on securities owned by the
Fund) and uncovered call options (options on securities not owned by the Fund)
which are issued by the Options Clearing Corporation and listed on
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national securities exchanges. This practice may enable the Fund to increase
its income because the buyer of the option pays the Fund a sum of cash (a
premium) for the option whether or not the buyer ultimately exercises the
option. The amount of the premium is determined on the exchange upon which
the option is traded, and will depend on various factors, such as the market
price and volatility of the underlying securities and the expiration date
and exercise price of the option.
Ordinarily, call options would be sold on stocks whose market value is not
expected to appreciate above the option exercise price by the expiration date
of the option, or when the premium received plus the exercise price of the
option exceeds the price at which the Advisor expects the underlying
securities to be trading by the expiration date of the option. When the Fund
sells an option it is obligated to deliver the underlying securities until the
expiration date of the option (which may be one, two, three, six or nine
months from the date the option is issued) if the option is exercised. If the
option is exercised, the Fund would deliver the underlying securities to the
buyer if the option was a covered option or buy the underlying securities to
deliver to the purchaser of the option if the option was uncovered.
The sale of covered call options should enable the Fund to increase its
income through the receipt of premium income on the call options it sells.
However, the Fund risks limiting potential gains the Fund would otherwise
realize if the market value of the underlying securities of a covered call
option appreciates above the exercise price of the option because the
purchaser will then exercise the option. In the case of uncovered call
options, the Fund risks a loss upon closing its option position if the market
price of the optioned securities at the time the option is exercised exceeds
the exercise price plus the premium received by the Fund.
The Fund may purchase call options when the Advisor believes that the market
price of the underlying securities will exceed the strike price of the option,
plus the premium the Fund must pay for the option, by the option expiration
date. If the market price of the underlying securities appreciates after the
option is purchased, the price of the option also will appreciate, thereby
affording the Fund the opportunity to resell the option at a profit or, as an
alternative, to purchase the underlying securities at the option exercise
price anytime until or on the expiration date and retain or resell the
underlying securities at their appreciated value. Purchasing call options,
however, entails the risk that the market price of the underlying
securities may decrease and the market value of the call option will also
decrease, and in these circumstances, while the Fund may sell the option, the
transaction is likely to result in a loss.
The Fund may also buy and sell put options. For the sale of a put option the
Fund receives a premium, which is determined on the exchange on which the put
is traded. The amount of the premium is influenced by the same factors as
influence the market price of call options.
The sale of a put option obligates the seller to purchase the underlying
securities at the option exercise price anytime until or on the expiration
date if the option is exercised. Alternatively, the seller may satisfy its
obligation by purchasing an identical put option for delivery to the purchaser
of the put option.
The option will be exercised if the market price of the underlying securities
is less than the strike price of the option on the expiration date of the
option. The Fund may sell put options to obtain premium income on underlying
securities whose market price the Advisor expects to increase or remain
relatively constant for the duration of the option. They may also be sold
when the Advisor believes the underlying securities are an attractive long-
term investment, despite a possible short term decline in their market
value. In these circumstances, the Fund would purchase the underlying
securities pursuant to the option rather than buy an identical put option to
close the transaction, if the option is exercised by the buyer.
The Fund also may buy put options to protect against a decline in the
market value of underlying securities that are held in the Fund's investment
portfolio. In return for paying a premium to the seller of the put option,
the Fund acquires the right to sell the underlying securities to the seller of
the option at the exercise price, thereby protecting itself against a decline
in the market price of the underlying securities. If, however, at the
expiration date of the option, the market value of the underlying securities
has not declined below the option exercise price, the Fund will not exercise
its put option.
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Puts and calls also may be used in combination, to hedge investments in
underlying securities. For example, if the Fund has bought a call that
entitles it to purchase underlying securities at a specified strike price, it
may also buy a put, which enables it to sell the same securities at a
specified strike price. Put options, as well as call options, are frequently
available on identical underlying securities with identical expiration dates,
but at different strike prices. In this type of hedging transaction, the Fund
might seek to buy a put option whose strike price is higher than the strike
price of an otherwise identical call option on the same underlying securities,
thereby obtaining the right to buy the underlying securities at a lower price
than the price at which it would have the right to sell the securities.
The success of options transactions depends largely on the ability of the
Advisor to predict future stock and option movements. Further, an option
position may be closed out only on an exchange which provides a secondary
market for an option of the same series. Although the Fund will generally
purchase or sell only those options for which the Advisor believes there is an
active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option. The inability to
close-out an option position could result in a loss to the Fund.
When the Fund sells an uncovered call option or a put option, it will be
required to maintain in a segregated account, which will be "marked to market,
" with its custodian bank cash or highly liquid, short-term U.S. government
securities in an amount equal to its obligation under the call or put option.
With respect to a put option this will be an amount equal to the price of the
underlying securities it will be obligated to buy if the option is exercised.
With respect to a call option, it would be the market value of the underlying
securities it is obligated to deliver if the option is exercised.
FUTURES CONTRACTS
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The Fund may buy and sell financial futures contracts and options on futures
contracts. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of specific securities at a
specified future time and at a specified price. Financial futures contracts
which are standardized as to maturity date and the underlying financial
instruments are traded on national futures exchanges, and include futures
contracts on equity securities, debt securities and foreign currencies.
Although index futures contracts by their terms call for settlement in cash,
in most cases the contracts are closed out before the settlement date.
Closing out an open futures position is done by taking an opposite position
("buying") a contract which has previously been "sold" or "selling" a contract
previously purchased in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Therefore, it might not be possible to close a
futures position. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Fund may be required to
make delivery of the securities underlying futures contracts it holds.
The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts can be substantial, due to
the low margin deposits required. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss
(as well as gain) to the investor. There is also the risk of loss by the Fund
of margin deposits, in the event of bankruptcy of a broker with whom the Fund
has an open position in the futures contract or related option.
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The Fund may use financial futures and options thereon to implement a
number of hedging strategies. For example, because the purchase of a
financial futures contract requires only a relatively small initial margin
deposit, the Fund could remain exposed to the market activity of a broad-based
number of stocks contained in the futures index, while maintaining liquidity
to meet redemptions. Also, the Fund might temporarily invest available cash
in stock index futures contracts or options pending investments in securities.
These investments entail the risk that an imperfect correlation may exist
between changes in the market price of an index futures contract and the value
of the securities that comprise the index.
There are also limited risk strategies that involve combinations of options
and futures positions. For example, the Fund might purchase a futures
contract in anticipation of higher prices while simultaneously buying an
option on a futures contract to protect against the risk of lower prices.
Further, inasmuch as the Fund may purchase foreign securities which are
denominated in foreign currencies, the Fund may purchase foreign currency
futures contracts in order to hedge against fluctuations in foreign currency
exchange rates.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
"variation" (additional) margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the Fund. Variation margin payments are made to and from the
futures broker for as long as the contract remains open. The Fund expects to
earn income on its margin deposits. The Fund will not enter into futures
contract transactions to the extent that, immediately thereafter, the sum of
its initial and variation margin deposits on open contracts exceeds 5% of the
market value of the Fund's total assets. Minimum initial margin requirements
are established by the futures exchange and may be changed. Brokers may
establish deposit requirements which are higher than the exchange minimums.
When the Fund has a long position in a futures contract or sells a put option,
it must establish a segregated account with its custodian bank containing cash
or highly liquid, short-term U.S. government securities in an amount equal to
the purchase price of the contract or the strike price of the put option (less
any margin on deposit). When the Fund sells a call option on a futures
contract, it must establish a segregated account with its custodian bank
containing cash or highly liquid, short-term U.S. government securities in an
amount that, when added to the amount of the margin deposit, equals the
market value of the instruments underlying the call option (but are not less
than the strike price of the call option).
TAXATION OF THE FUND
--------------------
The Fund intends to continue to qualify for tax treatment under Subchapter M
of the Internal Revenue Code and to distribute to shareholders all of its net
investment income and realized net capital gains (in excess of any available
capital loss carry overs) to relieve the Fund from all Federal income tax.
Should the Fund not qualify it would be subject to Federal income tax on its
earnings and profits.
Except for transactions the Fund has identified as hedging transactions,
the Fund is required for federal income tax purposes to recognize as income
for each taxable year its net unrealized gains and losses on certain futures
contracts as of the end of the year as well as those actually realized during
the year. In most cases, any gain or loss recognized with respect to a
futures contract is considered to be 60% long-term capital gain or loss and
40% short-term capital gain or loss, without regard to the holding period of
the contract. Furthermore, sales of futures contracts which are intended to
hedge against a change in the value of securities held by the Fund may affect
the holding period of such securities and, consequently, the nature of the
gain or loss on such securities upon disposition.
In order for the Fund to continue to qualify for Federal income tax treatment
as a regulated investment company, at least 90% of its gross income for its
taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities and other income derived with respect to the Fund's business of
investing in securities.
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The Fund will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes, including
unrealized gains at the end of the Fund's fiscal year on futures transactions.
Such distributions will be combined with distributions of capital gains
realized on the Fund's other investments.
INVESTMENT LIMITATIONS
----------------------
The Fund has adopted the following restrictions which are designed to reduce
certain risks inherent in securities investment and which may be changed with
the approval of the lesser of: (i) at least 67% of the voting securities of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (ii)
more than 50% of the outstanding voting securities of the Fund.
The Fund will not:
Borrow money, except from banks for emergency purposes, and then not in
excess of 5% of the value of its total assets;
Invest more than 25% of the value of its assets in companies in any one
industry;
Purchase securities on margin;
Make any purchase resulting in more than 5% of the value of its assets
being invested in the securities of any one company, except U.S.
Government securities;
Purchase more than 10% of any class of securities of any company. For
this purpose, all debt securities of an issuer and all series of
non-voting preferred stock of an issuer are each considered as one class
of securities;
Purchase commodities or commodity contracts, except the Fund may purchase
and sell financial futures contracts and options thereon;
Purchase interests in real estate, except as may be represented by
securities for which there is an established market;
Purchase securities of another open-end investment company, except in
connection with a plan of merger, consolidation, or acquisition of
assets. It may, however, purchase shares of closed-end investment
companies where such purchase is in the open market and no commission or
profit to a sponsor or dealer results other than a customary broker's
commission. The advisory fee of the Fund will not be reduced for any
assets invested in shares of closed end investment companies;
Make short sales of securities. The Fund does not consider the sale of
uncovered call options or financial futures contracts to be short sales;
Make loans, except through the purchase of debt securities of a type
commonly held by institutional investors;
Issue senior securities, except the Fund may buy and sell options;
Act as an underwriter of the securities of any other issuer, except the
Fund may invest not more than 10% of the value of its net assets at the
time the investment is made in securities which are not readily
marketable because registration under the federal securities laws would
be required ("restricted securities").
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Changes in the following policies are not subject to shareholder approval.
The Fund will not purchase securities for which a bona fide market does
not exist (including, but not limited to, "restricted," foreign
securities not listed on a recognized domestic or foreign securities
exchange, and other illiquid securities) if immediately after such
purchase more than 10% of the Fund's net assets will be invested in such
securities.
The Fund may invest in repurchase agreements. Investments in repurchase
agreements involve certain risks. For example, if the seller of the
underlying securities defaults on its obligation to repurchase the
securities at a time when their value has declined, the Fund may incur a
loss upon disposition. If the seller becomes insolvent and subject to
liquidation or reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are
collateral not within the control of the Fund and, therefore, subject to
sale by the trustee in bankruptcy. Finally, it is possible that the Fund
may not be able to substantiate its interest in the underlying
securities. While management acknowledges these risks, it believes that
they can be controlled through stringent security selection criteria and
careful monitoring procedures.
RIGHTS OF OWNERSHIP
-------------------
Each share of common stock of the Fund has an equal interest in the Fund's
assets, net investment income, any net capital gains, and is entitled to one
vote. The shares are non-assessable, fully transferable, and redeemable at
the option of the holder. They may be sold only for cash or in connection
with mergers, stock distributions and similar transactions. They have no
conversion, pre-emptive or other subscription rights. Shareholders having
questions about the Fund or their accounts may contact the Fund at the address
or telephone number shown on the cover page of this prospectus.
Ordinarily, the Fund does not intend to hold an annual meeting of shareholders
in any year except when required under the Investment Company Act of 1940.
LETTER OF INTENT
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An investor can qualify for a reduced sales charge as set forth in the
prospectus by signing a non-binding Letter of Intent stating his intention to
invest at least $10,000 during a 13 month period. The Letter of Intent is
applicable to the aggregate amount of purchases of shares of the Fund and
combined purchases of shares of the Fund and Philadelphia Fund, Inc. made by
an individual; an individual, his spouse and children under the age of 21; and
a trustee or other fiduciary of a single trust estate or single fiduciary
account, as well as Employee Benefit Plans qualified under section 401 of the
Internal Revenue Code and organizations exempt from taxation under sections
501(c)(3) or (13) of the Code. The Letter must be filed within 90 days after
the first purchase to be included under it. The value of shares of the Fund
and/or Philadelphia Fund Inc., previously purchased, including shares held
under Eagle Growth Shares or Philadelphia Fund Single Payment Investing
Programs and Systematic Investing Programs upon which all scheduled payments
have been made, will be included as a credit toward completion of the Letter
of Intent to the extent that such shares are held during the 13 month period
of the Letter of Intent when the investor so requests. The amount to be
credited will be equal to the offering price of the shares held on the date of
the first purchase under the Letter of Intent. The initial purchase under a
Letter of Intent must be in an amount of at least $1,000 and subsequent
purchases not less than $500.
Five percent of the total dollar amount specified in the Letter of Intent is
held in escrow by Firstar Bank, N.A. in shares. Any dividends or capital gains
distributions on the escrowed shares are credited to the shareholder. Upon
completion of the total dollar amount specified in the Letter the escrowed
shares are released. If total purchases under the Letter are less than the
amount specified therein the shareholder is required to remit to the
underwriter
<PAGE> 8
an amount equal to the difference between the dollar amount of
sales charges actually paid and the amount which would have been paid if the
total purchases made under the Letter were made at one time. If the
shareholder does not pay such difference within twenty days after having
received written request from the underwriter, the Custodian is authorized to
redeem so many of the escrowed shares to realize such difference and release
any remaining full shares and cash for any fractional shares to the
shareholder. There is no obligation upon the investor to purchase or the Fund
to sell the full indicated amount.
RIGHT OF ACCUMULATION
---------------------
The reducing scale of sales charges set forth in the prospectus also apply to
subsequent purchases of the Fund's shares by an individual; an individual, his
spouse and children under the age of 21; or a trustee or other fiduciary of a
single trust estate or single fiduciary account where the aggregate
investments in shares of the Fund and/or Philadelphia Fund, Inc., including
shares held under Eagle Growth Shares or Philadelphia Fund Single Payment
Investing Programs and Systematic Investing Programs upon which all scheduled
payments have been made is $10,000 or more. For example, a stockholder who
owns shares of the Fund and/or Philadelphia Fund, Inc. that originally cost
him $5,000 on which he paid an 8.50% sales charge may subsequently purchase an
additional $5,000 of the Fund's shares at a sales charge of 7.75% of such
subsequent purchase or an additional $20,000 of the Fund's shares at a sales
charge of 6.25%. To determine eligibility, the shares currently held by the
investor are valued at the then net asset value or the cost of such shares to
the investor, whichever is greater. The Fund's underwriter, or the Custodian
(if the payment is being made by the investor directly to the Custodian), must
be notified when a sale takes place which would qualify for a reduced sales
charge on the basis of previous purchases, and reduction will be granted when
the aggregate holdings are confirmed through a check of the records of the
Fund. The reduced sales charges described under "Purchase of Shares" in the
prospectus will be applicable to subsequent purchases by an Employee Benefit
Plan qualified under Section 401 of the Internal Revenue Code, and
organizations exempt from taxation under Sections 501(c)(3) or (13) of the
Internal Revenue Code.
GROUP DISCOUNT PRIVILEGE
------------------------
Any purchaser, including his spouse and children under the age of 21, who is a
member of a qualified group, such as a trade association, church group, union,
social or fraternal organization, who wishes to have the advantage of an
individually lower sales charge through either a Letter of Intent or a Right
of Accumulation, may do so if he, in conjunction with other members of that
group, wishes to purchase shares of the Fund so that the entire purchases by
the group will afford a lower sales charge to each individual participant.
Group purchases must be made through a common remitter. The Fund will send
the common remitter, at or before the completion of each purchase of shares
for group members, written notice of receipt of the total amount received by
the Fund on the group's behalf. Also, if in a current calendar quarter, a
payment is not received by the Fund on behalf of a group member on whose
behalf a purchase was made in the preceding calendar quarter, the Fund will
send the investor written notice that a current payment has not been received
in his or her behalf. Further, if the Fund does not receive a payment from
the common remitter on behalf of the group within ten days on the date
specified for delivery of the payment, the Fund will send each group member a
written confirmation of his or her next three succeeding investments promptly
after they are made.
AUTOMATIC INVESTMENT PLAN
-------------------------
The Automatic Investment Plan enables shareholders to make regular monthly
investments in shares through automatic charges to their bank checking
accounts. With shareholder authorization and bank approval, Firstar Bank, N.A.
will automatically charge the bank account for the amount specified, which
will be automatically invested in shares at the public offering price on the
date specified by the shareholder. Bank accounts will be charged on the day
or a few days before investments are credited, depending on the bank's
capabilities, and shareholders will receive a quarterly confirmation statement
showing the transactions during the calendar quarter.
<PAGE> 9
Participation in the plan will begin within 30 days after receipt of a
completed section 7 of the Account Application and a voided check from your
checking account. If your bank account cannot be charged due to insufficient
funds, a stop-payment order, or the closing of your bank account, the plan may
be terminated and the related investment reversed. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing
to American Data Services, Inc.
CHECK WITHDRAWAL PLAN
---------------------
An investor with a minimum account balance of $5,000 who is not currently
participating in the Automatic Investment Plan may have sufficient shares
automatically redeemed at regular monthly or quarterly intervals to provide
payments of $25 or more. This minimum amount is not necessarily a recommended
amount. This privilege may be exercised by a written request to American Data
Services, Inc. specifying the amount of the check to be received each month
(or each quarter as desired). Share certificates cannot be issued while the
Plan is in effect. With the Custodian's approval, payment amounts may be
revised at any time by the investor. All shares owned or purchased will be
credited to the Check Withdrawal Plan and a sufficient number of shares will
be sold from the investor's account to meet the requested withdrawal payments.
All income dividends and capital gains distributions on shares held will be
reinvested in additional shares at net asset value on the ex-dividend date.
Since the withdrawal payments represent the proceeds from the sales of shares,
there will be a reduction of invested capital to the extent that withdrawal
payments exceed the income dividends and capital gains distributions paid and
reinvested in shares held in the account. While no charge is contemplated on
each withdrawal payment at present, the right is reserved at any future time
to deduct $1.00 from each withdrawal payment. At present, the expenses
incurred in connection with this privilege are paid by the Fund. This Plan,
upon written notice to the Custodian, may be terminated at any time without
penalty. Any subsequent investments in this Plan must be $1,000 or more.
However, making additional purchases while the Plan is in effect may be
inadvisable due to sales charges and tax liabilities.
TAX SHELTERED PLANS
-------------------
For self-employed individuals, partnerships, and corporations, there is
available through the Fund a prototype Profit Sharing/Money Purchase Pension
Plan which has been approved by the Internal Revenue Service. The Profit
Sharing Plan permits an employer to make tax deductible investments in the
Fund on behalf of each participant up to the lesser of 15% of each
participant's earned income (or compensation), or $30,000. The Money Purchase
Pension Plan permits an employer to make tax deductible contributions on
behalf of each participant up to the lesser of 25% of earned income (or
compensation), or $30,000. If an employer adopts both the Profit Sharing Plan
and the Money Purchase Pension Plan, deductible contributions to both plans in
the aggregate may be made on behalf of each participant up to the lesser of
25% of earned income (or compensation), or $30,000. Also, the Fund makes
available an Individual Retirement Account (IRA) which permits annual tax
deductible investments in the Fund up to $2,000 per year by certain taxpayers.
All taxpayers may make nondeductible IRA contributions up to $2,000 whether or
not they are eligible for a deductible contribution. Dividends and capital
gains distributions paid on Fund shares held in a retirement plan or an IRA
will be reinvested at net asset value and accumulate free from tax until
withdrawn.
The Fund also makes available a "Roth IRA" - which permits nondeductible
investments in the Fund by certain taxpayers up to $2,000 per tax year. If
the Roth IRA is maintained for at least a five-year period beginning with the
first tax year for which a contribution to the Roth IRA was made,
distributions from the Roth IRA after age 59-1/2 or under certain other
circumstances will be completely tax free.
An annual limit of $2,000 applies to contributions to regular and Roth IRAs.
For example, if a taxpayer contributes $2,000 to a regular IRA for a year, he
or she may not make any contribution to a Roth IRA for that year.
<PAGE> 10
Forms to establish an IRA or a Profit Sharing/Money Purchase Pension Plan
are available from Baxter Financial Corporation or your investment dealer.
ACCOUNT REINSTATEMENT PRIVILEGE
-------------------------------
A stockholder may, after he has liquidated any of his shares of the Fund on
written request to the Fund, reinstate his account without payment of any
additional sales charge, at net asset value next calculated after receipt of
the reinstatement request, provided that he meets the qualifications listed
below. The Account Reinstatement Privilege may be exercised only once except
with respect to shares held under an Eagle Growth Shares Investing Program,
and the amount reinvested may not exceed the amount of the redemption proceeds
received on the liquidation of such shares. In addition, the reinstatement
must be completed within thirty days after the liquidation.
A liquidation of Fund shares is considered a sale under the Internal Revenue
Code and the "wash sale" provisions of Section 1091 of the Code will be
applicable to an account reinstatement if the cost of the liquidated shares
exceeds the proceeds of liquidation.
COMPUTATION OF NET ASSET VALUE
------------------------------
The Fund's net asset value per share is the value of the Fund's securities
investments plus cash and other assets minus its liabilities divided by the
number of the Fund's outstanding shares (adjusted to the nearest cent).
Portfolio securities traded on a securities exchange or the NASDAQ National
Market System are valued at the closing sales price on the market on which
they are principally traded. Securities traded over-the-counter, except those
that are quoted on the NASDAQ National Market System, are valued at the
prevailing quoted bid prices. Other assets (including restricted securities)
and securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Board of Directors or a
delegated person acting pursuant to the directions of the Board. The method
of valuing assets and securities for which no quotations are available,
including restricted securities, will be reviewed at appropriate intervals by
the Board. Initial valuations of such assets will be made in good faith by the
Board of Directors. Net asset value is calculated as of the close of the New
York Stock Exchange, generally 4:00 p.m., New York City time, on each day the
New York Stock Exchange is open for trading.
PURCHASE OF SHARES
------------------
The Fund calculates the offering price and net asset value at the close
of the New York Stock Exchange generally 4:00 p.m., on days when the New York
Stock Exchange is open. On other days, the Fund will generally be closed and
pricing calculations will not be made. The New York Stock Exchange is
scheduled to be open Monday through Friday throughout the year except for New
Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Orders
for redemption and purchase will not be processed if received when the Fund is
closed.
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------
Payment for shares redeemed may be postponed, or the right of redemption may
be suspended, for any period during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, or periods during
which, by rule of the Securities and Exchange Commission, trading on the New
York Stock Exchange is deemed restricted; or for any period during which an
emergency as determined by order of the Commission exists as a result of
which, disposal by the Fund of securities owned by it is not reasonably
practicable; or it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or for such other periods as the
Commission may, by order, permit for the protection of security holders of the
Fund.
<PAGE> 11
The Fund has reserved the right to redeem Fund shares in kind, rather than in
cash, should this be necessary. However, by filing an appropriate election
under Rule 18f-1 pursuant to the Investment Company Act of 1940 and the
adoption of such election as a fundamental policy which can be changed only
upon the approval of a majority vote of the outstanding voting securities of
the Fund, the Fund has obligated itself upon a request for redemption to
redeem shares solely for cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund in compliance with a request for redemption by any one
shareholder during any 90 day period.
MANAGEMENT OF THE FUND
----------------------
Officers and Directors
- ----------------------
The Board of Directors, guided by the recommendations of the Advisor,
establish the broad investment policy and, under Maryland law, are responsible
to oversee the management of the Fund.
Purchases may be made at net asset value by officers, directors, and employees
of the Fund, as well as by employees of broker-dealer firms which maintain
effective selling dealer agreements with the Fund's underwriter. From time to
time the Fund may offer its shares at net asset value to certain classes of
potential investors which have been identified by management and ratified by
the Board of Directors. Prior to such offering, the Fund, in compliance with
applicable federal securities laws, will supplement or revise the prospectus
to identify the class.
The names, ages, addresses of the officers and directors of the Fund, and
their principal business occupations for the past five years are listed below.
All officers and directors serve the Fund and Philadelphia Fund, Inc., a
registered investment company, in identical capacities. Each Director who is
an "interested person" of the Fund, as defined in the Investment Company Act
of 1940, is indicated by an asterisk. All of the officers and directors
aggregately own 4.5% of the securities of the Fund.
Kenneth W. McArthur, Director (63)
93 Riverwood Parkway, Toronto, Ontario, Canada M8Y 4E4
Chairman, Shurway Capital Corp. (private investment company); formerly, Vice
President and Director, Nesbitt Investment Management; formerly, President,
Chief Executive Officer and Director, Fahnestock & Co. Inc. (securities
broker); formerly Senior Vice President and Chief Financial Officer, Nesbitt
Thomson Inc. (holding company).
Thomas J. Flaherty, Director (74)
400 Ocean Road, House No. 175, Vero Beach, FL 32963
Retired. Formerly Executive Vice President, Philadelphia Fund, Inc.; formerly,
President Eagle Growth Shares, Inc.; formerly, President and Director,
Universal Programs, Inc. and Eagle Advisory Corporation (investment advisors).
Donald P. Parson, Director (57)*
c/o Parson & Brown, 666 Third Avenue, New York, NY 10017
Partner, Parson & Brown, Attorney at Law; Director ITSN, Inc. (interactive
satellite kiosks); formerly Partner, Whitman & Ransom, Attorneys at Law.
<PAGE> 12
Donald H. Baxter, Director and President* (55)
1200 North Federal Highway, Suite 424, Boca Raton, FL 33432
Director, President, and Treasurer, Baxter Financial Corporation; Director,
Sunol Molecular Corp. (biotechnology); Director, Great Eastern Bank; formerly
Managing Member, Crown Capital Asia Limited Liability Company (private
investment company); formerly Managing Member, Baxter Biotech Ventures Limited
Company (private investment company); formerly Portfolio Manager, Nesbitt
Thomson Asset Management Inc.
Robert A. Utting, Director (75)
c/o The Royal Bank of Canada, 1 Place Ville Marie,
Montreal, Quebec, Canada H3C 3A9
Director, R. A. Utting & Associates Inc. (investment company); Director, MICC
Investments Limited; Director, Continental Can Company, Inc.; Director, AVCORP
Industries, Inc.; Director, Cambridge Shopping Center Limited; formerly,
President, R. A. Utting & Associates Inc.; formerly, Chairman and Director,
The Mortgage Insurance Company of Canada; formerly, Vice Chairman, Royal Bank
of Canada.
Robert L. Meyer, Director (58)
c/o Ehrlich Meyer Associates, Inc.,
25 Griffin Avenue, Bedford Hills, NY 10507
President, Ehrlich Meyer Associates, Inc.; formerly Principal Officer,
Convergent Capital Corporation (holding company); formerly Director, Vice
President, and Senior Vice President, Fahnestock & Co. Inc.
James Keogh, Director (82)
202 West Lyon Farm Drive, Greenwich, CT 06831
Writer/Editor; Retired. formerly Executive Editor, TIME (newsmagazine);
formerly, Director, United States Information Agency; formerly, Executive
Director, The Business Round Table.
Ronald F. Rohe, Vice President, Secretary, and Treasurer (56)
1200 North Federal Highway, Suite 424, Boca Raton, FL 33432
Chief Operating Officer and Marketing Director, Baxter Financial Corporation;
formerly Registered Representative, Paine Webber Incorporated.
Each director, except Donald H. Baxter, receives $50 from Eagle Growth Shares
for each quarterly Board of Director's meeting they attend. Donald P. Parson, a
director of the Fund, is a partner of the firm Parson and Brown which handles
certain legal matters for the Fund. In addition, each director receives from
the Philadelphia Fund a $2,000 annual fee and $1,150 for each quarterly Board
of Director's meeting they attend. Donald H. Baxter does not receive any annual
or meeting fees as a director from either fund.
<PAGE> 13
________________________________________________________________________________
|COMPENSATION TABLE |
|for the fiscal year ended 11/30/98 |
|---------------------------------- Pension or |
| Retirement |
| Benefits Estimated Total |
| Accrued Annual Compensation |
| Aggregate as part Benefits from Fund and |
| Compensation of Fund Upon Philadelphia |
|Name, Position From Fund Expenses Retirement Fund, Inc. |
|______________________________________________________________________________|
|Thomas J. Flaherty, Director $200 $6,800 |
|------------------------------------------------------------------------------|
|James Keogh, Director $200 $6,800 |
|------------------------------------------------------------------------------|
|Kenneth W. McArthur, Director $200 $6,800 |
|------------------------------------------------------------------------------|
|Robert L. Meyer, Director $200 $6,800 |
|------------------------------------------------------------------------------|
|Donald P. Parson $150 $5,600 |
|------------------------------------------------------------------------------|
|Robert A. Utting, Director $100 $4,400 |
|------------------------------------------------------------------------------|
BROKERAGE
- ---------
Donald H. Baxter, President of Baxter Financial Corporation, the Fund's
investment advisor, is responsible for the selection of brokers to execute
Fund portfolio transactions. Mr. Baxter seeks to obtain the best price and
execution of Fund portfolio transactions and selects brokers with this goal in
mind. Baxter Financial Corporation is authorized to allocate brokerage
transactions to dealers that have sold Fund shares. Such transactions are
subject to the requirement to seek to obtain the best price and execution.
In selecting brokers, Mr. Baxter also considers the commission rate
being paid by the Fund. Commissions on listed securities are based on
competitive rates. Mr. Baxter seeks to assure himself that the commissions
paid by the Fund are reasonable in relation to the rates paid by other similar
institutions which are comparable in size and portfolio characteristics to the
Fund, and commensurate with the services being provided by the broker. To
accomplish this, Mr. Baxter negotiates commission levels with brokers with
whom the Fund does business; compares the quoted commission levels received,
and applies his knowledge regarding the general levels of commissions
prevailing from time to time. Mr. Baxter also considers the value of research
services provided to the Fund by brokers. Mr. Baxter is authorized to permit
the payment of commissions in excess of those which may have been charged by
another broker if he has determined, in good faith, that the amount of such
commission is reasonable in relation to the brokerage or research services
provided by the broker acting for the Fund. During the fiscal year ended
November 30, 1998, the Fund paid total brokerage commissions of $2,640 to
brokers that provided research services.
Receipt of research information, including statistical and market analyses,
economic and financial studies from securities firms, electronic quotation
services, and on-line electronic analysis software, enables Baxter Financial
Corporation to supplement its own research and analysis activities by making
available the views of other securities firms and is a factor considered in
selecting brokers for the Fund. Allocations of brokerage for the receipt of
research and statistical information are made in the best judgment of Mr.
Baxter and not in accordance with any formula.
Baxter Financial Corporation serves as investment advisor to two registered
investment companies, the Fund and Philadelphia Fund, Inc. and manages other
private investment accounts as well. Receipt of research information by
Baxter Financial Corporation may also be of benefit to Philadelphia Fund, Inc.
and these other private accounts.
During the fiscal years ended November 30, 1998, 1997, and 1996, the Fund paid
total brokerage commissions of $14,790, $13,684, and $6,160, respectively. The
increased level of commissions incurred by the Fund in 1997 was due to the
portfolio manager's decision to take profits in a rising market. Rising
prices provided the opportunity for capital gains while other issues provided
desirable alternative investment vehicles.
<PAGE> 14
On over-the-counter transactions, the Fund generally deals with the principal
market makers and no commissions are paid to a broker except in situations
where execution through the broker is likely to result in a savings to the
Fund.
INFORMATION ABOUT THE INVESTMENT ADVISOR
----------------------------------------
The current Investment Advisory Agreement between Baxter Financial Corporation
and the Fund was approved by the Fund's shareholders on March 19, 1991 and
became effective on April 1, 1991. The agreement requires Baxter Financial
Corporation to provide the Fund with a continuous review of and
recommendations regarding investment of the Fund's assets. As compensation for
the rendering of advisory services, the Advisor receives an annual fee,
payable monthly, equal to .75 percent of the net assets of the Fund not
exceeding $200,000,000. The rate of this annual fee is reduced to .625
percent on net assets in excess of $200,000,000 but less than $400,000,000,
and to .50 percent of net assets in excess of $400,000,000. The fee is based
on the month-end net asset value of the Fund, and is payable monthly at 1/12th
of the annual fee rate.
The current Administration Agreement between the Fund and Baxter Financial
Corporation requires Baxter Financial Corporation to supervise and provide for
the administrative operations of the Fund, including the provision of office
space, utilities, equipment, and clerical, secretarial, and administrative
personnel. The fee payable to Baxter Financial Corporation under the
Administrative Agreement is at the annual rate of .25 percent of the net
assets of the Fund, calculated and payable monthly, at 1/12th the annual
rate.
For the fiscal year ended November 30, 1998, Baxter Financial Corporation
earned investment advisory fees of $24,104, and, as administrator, earned
$8,035 for administrative services rendered. Over the same period, expenses
of the Fund for the fiscal year ended November 30, 1998 were 2.67% of average
net assets.
For the fiscal year ended November 30, 1997, Baxter Financial Corporation
earned investment advisory fees of $23,738, and, as administrator, earned
$7,913 for administrative services rendered. Over the same period, expenses
of the Fund for the fiscal year ended November 30, 1997 were 2.75% of average
net assets. The California regulation that limited the Fund's expense ratio
no longer applied (see below).
For the fiscal year ended November 30, 1996, Baxter Financial Corporation
earned investment advisory fees of $21,096, and, as administrator, earned
$7,032 for administrative services rendered. Over the same period,
reimbursable expenses of the Fund amounted to 2.61% of the average net assets
exceeding California regulatory expense limitation in effect at the time.
The excess amount, $3,016 was reimbursed to the Fund by Baxter Financial
Corporation. Expenses of the Fund for fiscal year ended November 30, 1996
were 2.58% of average net assets after reimbursement of expenses.
The Fund pays all of its own operating expenses, including: custodian and
transfer agent fees, insurance premiums, registration fees, cost of Directors'
and stockholders' meetings, distribution expenses, legal and accounting fees,
printing, and postage.
Firstar Bank, N.A. acts as the Fund's custodian. American Data Services,
Inc. acts as transfer agent, and dividend disbursing agent, and also provides
the Fund with certain accounting services.
UNDERWRITERS
------------
Baxter Financial Corporation serves as the principal underwriter of the
Fund's shares, which are offered on a continuous and "best efforts" basis.
During the last three fiscal years of the Fund, Baxter Financial Corporation
retained total underwriting and dealer commissions of $680, $533, and $127, in
1998, 1997, and 1996, respectively, after allowing $53, $37, and $12,
respectively, to dealers who sold Fund shares in each of these years.
<PAGE> 15
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
----------------------------------------
Briggs, Bunting & Dougherty, LLP, Philadelphia PA, serve as the independent
certified public accountants of the Fund. As such, that firm conducts an
audit of the Fund's annual and semi-annual reports to stockholders and
prepares the Fund's tax returns.
CALCULATION OF PERFORMANCE DATA
-------------------------------
Following are quotations of the annualized total returns for the one, five,
and ten year periods ended November 30, 1998 using the standardized method of
calculation pursuant to SEC Guidelines:
Average Annual Total Returns
----------------------------
One-Year..................... -6.98%
Five-Year.................... 3.39%
Ten-Year..................... 7.90%
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000
by the average annual compounded rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period, less any recurring fees charged to a shareholder
account. The results are annualized and presented accordingly. The
calculation assumes that the maximum sales load is deducted from the initial
$1,000 purchase order and that all dividends and distributions are reinvested
at the net asset value on the reinvestment dates during the period. The
quotation assumes that the account was completely redeemed at the end of each
one, five, and ten year period, as well as the deduction of all applicable
charges and fees.
The SEC Guidelines provide that "average annual total return" be computed
according to the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeeming value of a hypothetical
$1,000 payment made at the beginning of 1, 5,
or 10 year periods at the end of the 1, 5, or
10 year periods or fractional portions thereof.
Non-standardized performance figures may also be presented in connection with
Fund advertisements. Performance figures calculated in this manner may
exclude charges which might otherwise reduce return figures, including, for
example, the sales load or Fund operating expenses, or such figures may
reflect Fund performance over periods of time other than the one, five, and
ten year periods. Non-standardized total return figures, when furnished,
shall be accompanied by standardized total return figures which shall reflect
Fund performance over the following time periods: (1) one-year to date and May
1, 1987 to date, the latter being the date on which Mr. Donald H. Baxter
assumed exclusive portfolio management responsibilities pertaining to
the Fund, or (2) one, five, and ten year periods as of the most recent fiscal
year end of the Fund. However, notwithstanding the foregoing, standardized
total return figures for one, five, and ten year periods shall always be
presented in the Fund's Statement of Additional Information.
<PAGE> 16
COMPARISONS AND ADVERTISEMENTS
------------------------------
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, Fund advertisements may discuss total return as
reported by various financial publications, or they may also compare total
return to total return as reported by other investments, indices, and
averages. Without limitation, the following publications, indices, and
averages may be used:
(a) Dow Jones Composite Average or its component averages -- an
unmanaged index presently composed of 30 industrial corporation
stocks (Dow Jones Industrial Average), 15 utility company stocks,
and 20 transportation company stocks. Comparisons of performance
assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -- an
unmanaged index presently composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks, and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation, and
finance stocks listed on the New York Stock Exchange.
(d) Lipper -- Mutual Fund Performance Analysis and Lipper Mutual Fund
Indices --measures total return and average current yield for the
mutual fund industry. Ranks individual mutual fund performance over
specified time periods assuming reinvestment of all distributions,
exclusive of sales charges.
(e) Financial publications, including Business Week, Changing Times,
Financial World, Forbes, Fortune, Money Magazine, Wall Street
Journal, Barron's, which rate fund performance over various time
periods.
FINANCIAL STATEMENTS
--------------------
The financial statements of the Fund for the fiscal year ended November 30,
1998, including the Portfolio of Investments, Statement of Assets and
Liabilities, Sample Price Computation, Statement of Operations, Statement of
Changes in Net Assets, Notes to Financial Statements, Financial Highlights,
and Independent Auditor's Report, as set forth in the Fund's Annual Report to
Stockholders for fiscal year ended November 30, 1998, are incorporated herein
by reference.
