<PAGE>
Chairman's Letter
Dear Fellow Shareholders:
The year ended June 30, 1998 was another excellent year for Addison Capital
Shares. The total return on the Fund for this period was 19.40%. The Fund paid
dividends of $.13 a share and made capital gain distributions of $3.62.
We are more than satisfied with these results, but continued gains of this
magnitude are not realistic. We are presently experiencing turbulent market
conditions reflecting uncertainties in foreign markets and the domestic
political climate. We believe, however, that low interest rates and low
inflation will produce continuing growth in the economy. We continue to be long
term bullish and urge investors to remain focused on long term goals.
We appreciate your continued confidence in our commitment to value and
believe this approach will be successful in dealing with the challenges in the
year ahead.
Sincerely,
/s/ Rudolph C. Sander
------------------------------------
Rudolph C. Sander
1
<PAGE>
President's Letter
Dear Fellow Shareholders:
The economic and investment climate has remained remarkably healthy over the
past year in the United States, although the situation in Asia and Russia has
continued to be worrisome. It was apparent a year ago that corporate earnings
growth was likely to slow from its heady pace of better than 20% to something
like half of that, and that process is continuing today, with earnings forecasts
for the S&P 500 getting revised downward regularly. At the same time, the
economic crisis in Japan and the rest of Asia has combined with already weak
commodities markets to keep disinflation as the dominant economic force. This
(plus the ripple effect from the GM strike) has moderated the strength in the
U.S. economy, and while it has made revenue and earnings growth increasingly
challenging for many companies, it has kept inflation in check. As a
consequence, despite warnings from a few economists that interest rate hikes
from the Federal Reserve were imminent and needed, long-term interest rates have
declined to 30 year lows, making the yield curve extremely flat. We expect that
the economy is likely to remain in this moderate growth mode, with the main risk
being a gradual deterioration in the growth rate. At the moment we see neither a
need for, nor much likelihood of, an increase in interest rates.
This has been an excellent environment for stocks, although we and other
market observers have been concerned about the ever-higher valuations for
stocks. To date, worries about price/earnings ratios have been misplaced, as
growth stocks have rewarded those who were willing to pay the lofty prices
required. For example, Coca-Cola now sells at 54 times the forecasted earnings
for 1998, and if one is willing to believe in a forecast for the year 2000,
which expects earnings growth of 16-17% over the next 2 1/2 years, the P/E
multiple is still 40. The market's largest stock, General Electric, with over
$300 billion in market capitalization, where earnings have been growing at 13%,
sells at 34 times forecasted earnings for 1998. Maybe those P/E's are justified,
but we can find other good quality companies with comparable earnings growth
rates selling at half or less of the multiples of these current market leaders.
Sour grapes? Perhaps, but we prefer to shop where valuations and expectations
are modest. If we can identify cheap stocks with favorable price and earnings
momentum factors, we believe that we will be rewarded in time.
Being a value investor can be trying, but it has been especially so in the
recent stock market environment with large-cap growth and Internet stocks
dominating investor attention. At times we have felt like wallflowers at a dance
watching from the edge of the floor and, although it has been entertaining and
exciting, we have been unable to fully join in the festivities. As we have
observed more than once over the last few years, the stock market's performance
has been so breathtaking that we have frequently enjoyed partial-year returns
which in other times might have seemed to be a pretty good year's work. We have
also suggested more than once that a period of consolidation for stock prices
would be healthy. The old saying about being careful what one wishes for seems
to be apropos in this instance, because many small and mid-cap stocks have been
marking time or declining, as have many issues which meet our valuation
criteria. Still, when the major market indices are outpacing the majority of
stocks so badly, it is enormously frustrating. Indeed, a small number of large
capitalization stocks have accounted for the bulk of the market's return over
the last several months. It is axiomatic that investment styles go through
cycles when they work, followed by periods when they are "out of sync." That is
certainly the case in this market, where value, small and mid-cap indices are
lagging the big-cap indices badly. It is reasonable to expect that the current
market leaders will also experience a period of relative weakness, and we might
look forward to better relative returns from our stocks. Ironically, we had
earlier forecast that 1998 might be a year of more modest, only average
long-term equity returns, around 10-11% for the year. Depending on which
benchmark one chooses, the market has already achieved or exceeded that in the
last six months. Of course, nobody knows what the next six months will bring!
On an absolute basis, most investors would be pleased or delighted with an
annual return of 19.4% - most of
2
<PAGE>
the time. However, the past fiscal year was another exceptional period for
stocks, and an honest appraisal of our performance must conclude that it was a
poor year relative to our benchmarks. As we review the year's results, it is
apparent that we did a few things wrong:
1) We paid too much attention to price/earnings ratios in a year when
earnings growth was all that mattered. In fact, an analysis of the S&P
500 components reveals that there was a nearly perfect correlation
between below-average P/E ratios and below-average returns.
2) We invested in smaller companies in a market where the lion's share of
the rewards went to the largest companies. If one was invested outside
of the largest market capitalization issues, and if the portfolio was
equally-weighted, as is Addison's portfolio, one was virtually assured
of under-performing the market. The equal-weighted S&P 500 had a return
of 23% versus its cap-weighted return of 30%.
3) We diversified the portfolio, across both market capitalization and
economic sectors in an environment where investment returns were highly
concentrated. Most studies equate concentrated portfolios with higher
levels of risk. If that is true, this was a year when risk was
rewarded.
4) Our stock selection model failed us more frequently than normal. It was
a year in which the worst ranked stocks often outperformed the
best-ranked stocks, not an environment conducive to the successful
application of a systematic approach.
Through the quarter just ended, the returns on the Fund and the various
indices were as follows:
Total Returns for periods ended 6/30/98
---------------------------------------
Year- 12
Qtr to-date months
--- ------- ------
Addison Capital Shares -1.3% 8.2% 19.4%
S&P 500 3.3% 17.7% 30.2%
S&P 500/BARRA Value 0.5% 12.1% 25.1%
MidCap 400/BARRA Value -4.1% 5.3% 26.7%
Lipper G&I Funds Index 0.3% 12.0% 22.9%
We cannot know when this pattern may change, but until it does, we'll have to
be patient, knowing that a systematic approach to investing in value stocks will
again have its day. In the meantime, we thought it might be useful to provide a
profile of the current portfolio and compare it to the S&P 500 and its "value"
component (as defined by BARRA, an investment management and consulting firm):
Sincerely,
/s/ Radcliffe Cheston
-----------------------------------
Radcliffe Cheston
President
PORTFOLIO PROFILE
Addison Capital Shares
As of June 30, 1998
Portfolio Characteristics
- -------------------------
S&P S&P 500/
Addison 500 BARRA Value
------- --- -----------
Number of Stocks 52 500 354
Median Market Cap $5.7B $7.6B $6.4B
Price/Earnings Ratio 17.8x 24.8x 18.8x
Price/Book Ratio 3.1x 4.5x 3.0x
Dividend Yield 2.1% 1.4% 1.8%
Return on Equity 18.9% 22.3% 15.5%
Earnings Growth Rate 20.0% 14.3% 9.9%
Ten Largest Holdings (% of total net assets)
- --------------------------------------------
Morgan Stanley Dean Witter 2.3%
Chase Manhattan Corporation 2.2%
SunAmerica, Inc. 2.2%
ReliaStar Financial Corporation 2.1%
Ross Stores, Inc. 2.1%
Exxon Corporation 2.1%
Bowne & Co., Inc. 2.1%
Comdisco, Inc. 2.1%
Charter One Financial, Inc. 2.1%
Duke Energy Co. 2.1%
3
<PAGE>
Sector Diversification (% of Common Stocks)
- -------------------------------------------
Addison S&P 500
------- -------
Capital Goods 3.2% 4.4%
Consumer Durables 3.6% 4.6%
Consumer Non-Durables 20.0% 29.2%
Energy 9.4% 7.5%
Financials 21.6% 17.8%
Materials & Services 14.1% 11.0%
Technology 17.4% 14.2%
Transportation 3.3% 1.1%
Utilities 7.4% 10.2%
[LINE GRAPH]
Comparison of $10,000 Investments in Addison Capital Shares
vs. the S&P 500 Index and the Lipper Growth & Income Fund Index
Addison Capital Shares S&P 500 Lipper
---------------------- ------- ------
9/15/86 $10,000 $10,000 $10,000
1987 $12,714 $13,449 $12,721
1988 $11,614 $12,532 $12,398
1989 $13,399 $15,082 $14,587
1990 $14,966 $17,578 $15,915
1991 $15,774 $18,901 $16,860
1992 $17,341 $21,427 $19,256
1993 $20,978 $24,351 $22,464
1994 $20,407 $24,694 $23,390
1995 $24,715 $31,117 $27,872
1996 $31,121 $39,203 $34,039
1997 $41,142 $52,805 $43,594
1998 $49,122 $68,731 $53,560
ADDISON CAPITAL SHARES
Average Annual Returns for periods ended June 30, 1998
1 Year - 19.4% 5 Years - 18.5% Since 9/15/86 - 14.5%
4
<PAGE>
INSERT PIE CHART
Addison Capital Shares
Equity Portfolio Sector Weights as of June 30, 1998
- -----------------------------
Utilities 7.4%
- -----------------------------
Transportation 3.3%
- -----------------------------
Cap. Goods 3.2%
- -----------------------------
Technology 17.4%
- -----------------------------
Materials & Services 14.1%
- -----------------------------
Energy 9.4%
- -----------------------------
Consumer Non-Durables 20%
- -----------------------------
Consumer Durables 3.6%
- -----------------------------
Finance 21.6%
- -----------------------------
5
<PAGE>
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
June 30, 1998
Number
of Value
Shares (Note A)
- ------------------------------------------------------------------------------
COMMON STOCK - 95.4%
- ------------------------------------------------------------------------------
Aerospace -- 3.5%
Northrop Grumman Corporation 13,413 $1,383,216
Textron, Incorporated 20,000 1,433,750
----------
2,816,966
----------
Apparel -- 1.7%
The Dress Barn, Incorporated*** 55,000 1,368,125
----------
Automobiles & Related-- 1.6%
General Motors Corporation 20,000 1,336,250
----------
Banking -- 8.3%
BankBoston Corporation 30,000 1,668,750
Charter One Financial, Incorporated 50,152 1,689,495
Chase Manhattan Corporation 24,000 1,812,000
First Union Corporation 28,000 1,631,000
----------
6,801,245
----------
Business Services -- 4.1%
AMR Corporation 19,170 1,595,902
Bowne and Company,
Incorporated 38,000 1,710,000
----------
3,305,902
----------
Capital Goods -- 3.1%
Harsco Corporation 31,020 1,421,104
Timken Company 35,400 1,090,762
----------
2,511,866
----------
Cement Products -- 1.9%
Southdown, Incorporated 21,700 1,548,837
----------
Chemicals-- 3.8%
Du Pont (E.I.) De Nemours and
Company 22,000 1,641,750
Union Carbide Corporation 28,000 1,494,500
----------
3,136,250
----------
Computers -- 3.6%
Compaq Computer, Incorporated 46,200 1,310,925
Gateway 2000, Incorporated*** 32,000 1,620,000
----------
2,930,925
----------
Computer Equipment -- 2.0%
Storage Technology
Corporation*** 37,000 1,604,875
----------
Construction Materials-- 1.8%
Vulcan Materials Company 13,880 1,480,822
----------
<PAGE>
Number
of Value
Shares (Note A)
- ------------------------------------------------------------------------------
Consumer Products -- 3.6%
Fortune Brands Incorporated 35,000 $1,345,313
Premark International,
Incorporated 50,000 1,612,500
----------
2,957,813
----------
Electronics -- 1.6%
Harris Corporation 30,000 1,340,625
----------
Finance -- 2.3%
Morgan Stanley Dean Witter &
Company 21,000 1,918,875
----------
Financial -- 2.2%
SunAmerica, Incorporated 30,619 1,758,679
----------
Food, Beverage and Tobacco -- 3.0%
Philip Morris Companies,
Incorporated 25,000 984,375
Supervalu, Incorporated 33,000 1,464,375
----------
2,448,750
----------
Healthcare Facilities -- 1.7%
Tenet Health Care Corporation 44,000 1,375,000
----------
Home Furnishing/Housewares -- 1.8%
Ethan Allen Interiors,
Incorporated 30,000 1,498,125
----------
Insurance -- 6.1%
Allstate Corporation 18,000 1,648,125
Orion Capital Corporation 28,000 1,564,500
Reliastar Financial Corporation 36,000 1,728,000
----------
4,940,625
----------
International Oils -- 3.8%
Exxon Corporation 24,000 1,711,500
Royal Dutch Petroleum
Corporation 25,232 1,383,029
----------
3,094,529
----------
Machinery -- 1.6%
Pentair, Incorporated 30,000 1,275,000
----------
Manufacturing -- 0.8%
Aptargroup, Incorporated 10,000 621,875
----------
Medical Supplies -- 1.9%
Becton Dickinson & Company 20,000 1,552,500
----------
Natural Gas -- 2.0%
Columbia Gas System,
Incorporated 29,100 1,618,688
----------
6
<PAGE>
- --------------------------------------------------------------------------------
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
June 30, 1998
- --------------------------------------------------------------------------------
Number
of Value
Shares (Note A)
- ------------------------------------------------------------------------------
Office Equipment -- 1.7%
Xerox Corporation 14,000 $ 1,422,750
-----------
Oil -- 1.4%
Amoco Corporation 28,000 1,165,500
-----------
Oil Equipment & Services -- 1.7%
Halliburton Company 32,000 1,426,000
-----------
Paper & Forest Products -- 1.6%
Rayonier, Incorporated 28,000 1,288,000
-----------
Pharmaceuticals -- 1.7%
ICN Pharmaceuticals,
Incorporated 29,560 1,350,523
-----------
Rails/Trucking/Transportation -- 1.1%
Norfolk Southern Corporation 31,350 934,622
-----------
Real Estate -- 1.7%
Health Care Property Investors,
Incorporated 37,778 1,362,369
-----------
Retail Store -- 3.6%
Ross Stores, Incorporation 40,000 1,720,000
Sears, Roebuck and Company 20,000 1,221,250
-----------
2,941,250
-----------
Steel -- 2.0%
Carpenter Technology
Corporation 32,000 1,608,000
-----------
Technology -- 2.1%
Comdisco, Incorporated 90,000 1,710,000
-----------
Tobacco -- 1.9%
VF Corporation 30,000 1,545,000
-----------
Utilities -- Electric -- 5.5%
Duke Energy Corporation 28,332 1,678,671
FPL Group, Incorporated 22,000 1,386,000
Nipsco Industries, Incorporated 49,640 1,389,920
-----------
4,454,591
-----------
Utilities -- Natural Gas -- 1.6%
NICOR, Incorporated 32,886 1,319,551
-----------
TOTAL COMMON STOCK
(Cost $47,510,634) 77,771,303
-----------
<PAGE>
Principal Value
Amount (Note A)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS** -- 4.8%
PNC Bank $3,888,000 at 4.75%
(Agreement dated 06/30/98, to
be repurchased at $3,888,513 on
07/01/98; collateralized by
$3,957,040 Federal Home Loan
Mortgage Corporation, 6.50%,
due 10/15/08). (Value $3,966,933
- Cost $3,888,000) $3,888,000 $3,888,000
-----------
TOTAL INVESTMENTS
(Cost $51,398,634*) 100.2% 81,659,303
Liabilities in excess of
Other Assets (0.2%) (147,444)
---------- -----------
Net Assets 100.0% $81,511,859
========== ===========
================================================================================
* Aggregate cost for federal income tax purposes was $51,398,634 The aggregate
gross unrealized appreciation (depreciation) for all securities is as
follows:
Gross Appreciation $30,625,114
Gross Depreciation (364,445)
-----------
Net Appreciation $30,260,669
===========
** 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.
7
<PAGE>
________________________________________________________________________________
Statement of Assets and Liabilities
________________________________________________________________________________
June 30, 1998
ASSETS:
Investments, at value (Cost $51,398,634) $81,659,303
Cash 55
Receivables:
Dividends 76,465
Interest 513
Fund shares sold 29,550
Prepaid expense 10,149
-----------
TOTAL ASSETS 81,776,035
-----------
LIABILITIES:
Payable:
Fund shares repurchased 152,930
Accrued expenses 111,246
-----------
TOTAL LIABILITIES 264,176
-----------
NET ASSETS $81,511,859
===========
SHARES OUTSTANDING 2,449,246
===========
NET ASSET VALUE PER SHARE ($81,511,859 / 2,449,246 shares) $33.28
======
NET ASSETS CONSISTED OF THE FOLLOWING:
Paid-in capital $47,068,810
Undistributed net investment income 99,768
Undistributed net realized gains 4,082,612
Unrealized appreciation on investments 30,260,669
-----------
$81,511,859
===========
See Notes to Financial Statements.
8
<PAGE>
________________________________________________________________________________
Statement of Operations
________________________________________________________________________________
For the Year Ended June 30, 1998
INVESTMENT INCOME:
Income:
Dividends $ 1,390,718
Interest 153,799
-----------
Total Income 1,544,517
-----------
Expenses:
Investment advisory fee 564,974
Distribution fee 301,318
Shareholder servicing 188,325
Administration fee 77,410
Transfer agent fee 56,582
Insurance 22,612
Federal and state registration fees 20,469
Audit 20,500
Custodian fee 20,112
Printing 15,794
Directors' fee 15,000
Legal fee 10,089
Miscellaneous 4,165
State taxes 4,102
-----------
Total Expenses 1,321,452
-----------
Net Investment Income 223,065
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions 6,325,657
Change in unrealized appreciation of investments 6,427,673
-----------
Net Gain on Investments 12,753,330
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,976,395
===========
See Notes to Financial Statements.
9
<PAGE>
________________________________________________________________________________
Statement of Changes In Net Assets
________________________________________________________________________________
<TABLE>
<CAPTION>
For the year For the year
ended ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 223,065 $ 311,130
Net realized gain from security transactions 6,325,657 6,825,229
Change in unrealized appreciation of investments 6,427,673 9,273,824
----------- -----------
Net increase in net assets resulting from operations 12,976,395 16,410,183
----------- -----------
Distributions to shareholders:
Net investment income ($0.13 and $0.15 per share, respectively) (283,838) (296,865)
Capital gains ($3.62 and $2.49 per share, respectively) (7,862,175) (4,873,658)
----------- -----------
Total distributions (8,146,013) (5,170,523)
----------- -----------
Capital share transactions:
Net increase in net assets derived from capital share transactions* 10,072,025 4,665,992
----------- -----------
Total increase in net assets 14,902,407 15,905,652
----------- -----------
NET ASSETS:
Beginning of year 66,609,452 50,703,800
----------- -----------
End of year** $81,511,859 $66,609,452
=========== ===========
*Capital share transactions are as follows:
Shares Value
----------- -----------
For the year ended June 30, 1998
Shares purchased 276,169 $ 8,769,576
Shares reinvested 269,399 7,901,583
Shares redeemed (208,748) (6,599,134)
----------- -----------
Net increase 336,820 $10,072,025
=========== ===========
For the year ended June 30, 1997
Shares purchased 239,811 $ 6,477,547
Shares reinvested 199,406 4,981,584
Shares redeemed (245,822) (6,793,139)
----------- -----------
Net increase 193,395 $ 4,665,992
=========== ===========
** Undistributed net investment income $99,768 & $160,541, respectively.
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
________________________________________________________________________________
Financial Highlights
________________________________________________________________________________
The Table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 31.53 $ 26.42 $ 22.92 $ 20.45 $ 22.69
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income $ 0.09 $ 0.15 $ 0.17 $ 0.22 $ 0.21
Net gains on securities (both
realized and unrealized) 5.41 7.60 5.42 3.77 (0.76)
------- ------- ------- ------- -------
Total from investment
operations 5.50 7.75 5.59 3.99 (0.55)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income (0.13) (0.15) (0.21) (0.20) (0.23)
Distributions from capital gains (3.62) (2.49) (1.88) (1.32) (1.46)
------- ------- ------- ------- -------
Total distributions (3.75) (2.64) (2.09) (1.52) (1.69)
------- ------- ------- ------- -------
Net asset value, end of year $ 33.28 $ 31.53 $ 26.42 $ 22.92 $ 20.45
======= ======= ======= ======= =======
Total Return (1) 19.40% 32.20% 25.92% 21.11% (2.73)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $81,512 $66,609 $50,704 $38,506 $36,171
Ratio of expenses to average assets 1.75% 1.83% 1.96% 2.06% 2.06%
Ratio of net investment income to
average net assets 0.30% 0.54% 0.69% 1.03% 1.00%
Portfolio Turnover 28.14% 29.48% 38.97% 42.82% 43.26%
Average Commission Rate
Per Share (2) $0.0631 $0.0673
</TABLE>
- ------------------
(1) Exclusive of deduction of sales charge imposed on investments prior to
July 3, 1995.
(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.
11
<PAGE>
________________________________________________________________________________
Notes to Financial Statements
June 30, 1998
________________________________________________________________________________
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.
<PAGE>
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 a monthly rate of one
twelfth of .10% of the Fund's average net assets or $75,000, whichever is
greater.
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. In addition, Janney received brokerage commissions for the
fiscal year ended June 30, 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 year ended June 30, 1998.
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 $11,522 from the Fund for legal
services rendered during the year.
12
<PAGE>
________________________________________________________________________________
Notes to Financial Statements
June 30, 1998 (Continued)
________________________________________________________________________________
C. Purchases and sales of securities, other than short-term obligations,
aggregated $21,488,242 and $20,170,147, respectively, for the year ended June
30, 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.
(Unaudited)
E. Addison Capital Shares, Inc. distributed a total Long Term
Capital Gain Dividend of $6,330,097, or $2.9317 per share, during the fiscal
year ending June 30, 1998. Of this total Long Term Capital Gain Dividend amount,
the fund made a 28 percent Rate Gain distribution of $3,078,512 or $1.4573 per
share and a 20 Percent Rate Gain distribution of $3,251,585, or $1.4744 per
share.
Because the Fund's fiscal year is not the calendar year, Capital Gain
Dividend distributed amounts to be used by calendar year tax payers on their
Federal income tax returns will be reflected on 1099-DIV forms, which will be
mailed in January, 1999.
On July 1, 1998 Addison Capital Shares, Inc. distributed to its shareholders,
$.0407 per share of ordinary income, and $1.6669 per share of Long Term Capital
Gains.
13
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________________________________________________________________________________
Report of Independent Certified Public Accountants
________________________________________________________________________________
To the Shareholders and Board of Directors
Addison Capital Shares, Inc.
We have audited the accompanying statement of assets and liabilities of
Addison Capital Shares, Inc., including the schedule of portfolio investments,
as of June 30, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Addison Capital Shares, Inc. as of June 30, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 9, 1998
14
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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
<PAGE>
Addison
Capital
Shares
Distributed by:
logo
Annual Report
to Shareholders
June 30, 1998
