<PAGE>
As filed with the Securities and Exchange Commission on August 27, 1999
Registration No. 33-6364
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 14 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT /X/
COMPANY ACT OF 1940
AMENDMENT NO. 16 /X/
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ADDISON CAPITAL SHARES, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Janney Montgomery Scott LLC
2 Bala Cynwyd Plaza
Bala Cynwyd, PA 19004
(Address of Principal Executive Offices)
Registrant's Telephone Number: (215) 667-7007
JAMES W. JENNINGS, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, PA 19103
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
|_| immediately upon filing pursuant to Paragraph (b)
|_| on October 30, 1999 pursuant to Paragraph (b) of Rule 485
| | 60 days after filing pursuant to Paragraph (a)(1)
|X| on November 1, 1999 pursuant to Paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to Paragraph (a)(2)
|_| on __________ pursuant to Paragraph (a)(2) of Rule 485
<PAGE>
PROSPECTUS
November 1, 1999
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----------------------------------
ADDISON
CAPITAL
SHARES
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----------------------------------
Addison Capital Shares, Inc. is a mutual fund seeking long-term capital
appreciation and is managed by Addison Capital Management Company.
DISTRIBUTOR
JANNEY MONTGOMERY SCOTT LLC
1801 Market Street
Philadelphia, Pennsylvania 19103
In Philadelphia, Pennsylvania (215) 665-6000
Outside Philadelphia, Pennsylvania (800) 331-3186
The Securities and Exchange Commission has not approved
or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation
to the contrary is a criminal offense
<PAGE>
How to Read your Prospectus
This prospectus gives you important information about the Fund that you should
know before investing. Please read this prospectus and keep it for future
reference. The prospectus has been arranged into different sections so that you
can easily review this important information. For more detailed information
about the Fund, please see:
Page
----
Summary .......................................................................2
Fund Fees and Expenses.........................................................4
About the Fund ................................................................4
Management.....................................................................6
Purchasing, Selling and Exchanging Fund Shares.................................7
Retirement Plans..............................................................10
Dividends and Distributions...................................................11
Taxes.........................................................................11
Financial Highlights..........................................................12
Application for Pre-Authorized Check Plan.....................................13
Account Application...........................................................15
<PAGE>
SUMMARY
Objective and Strategy
The Fund is a mutual fund that has an investment objective of long term capital
appreciation. Addison Capital Management Company acts as the Fund's investment
adviser and invests Fund assets in a way that it believes will help the Fund
achieve its goal. The Adviser believes that the Fund's investment objective can
best be met by investing primarily in equity securities of medium and large
sized U.S. companies that appear to be undervalued. The Fund will normally be
fully invested.
Investor Profile
The Fund is suited for you if you are seeking long-term capital appreciation and
can withstand the share price volatility of equity investing.
Risk Factors
Investing in the Fund involves risks, and the Fund may not achieve its goal. The
Adviser's judgments about the markets, the economy or companies may not
anticipate actual market movements, economic conditions or company performance,
and these judgments may affect the return on your investment.
The value of your investment in the Fund is based on the market value of the
securities the Fund holds. The value of an investment in the Fund will vary from
day to day based on changes in the prices of the common stocks in the Fund's
portfolio. These prices change daily due to economic and other events that
affect particular companies and other issuers. These price movements, sometimes
called volatility, may be greater or lesser depending on the types of securities
the Fund owns and the markets in which they trade. The Fund's investments will
have moderate to high price volatility as compared to other asset classes.
An investment in the Fund could lose money, just as with other investments. A
Fund share is not a bank deposit, and it is not insured or guaranteed by the
FDIC or any other government agency.
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<PAGE>
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The Fund's past performance does not
necessarily indicate how the fund will perform in the future. These figures
assume that all distributions were reinvested.
This bar chart shows changes in the performance of the Fund's Shares from year
to year for ten years.*
50%
40.28%
40%
30.65%
30% 27.67% 29.3%
23.18%
20%
13%
10%
6.5%
0% 0.37%
-6.43% -6.72%
- -10%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
* The performance information shown above is based on a calendar year.
During the above period, the highest return for a quarter was 16.1% (quarter
ended March 31, 1991) and the lowest return for a quarter was -18.4% (quarter
ended September 30, 1998).
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998, to those of an unmanaged market index.
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1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
The Fund 0.4% 15.9% 14.7%
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S&P 500(R)Index* 28.6% 24.0% 19.2%
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* The Standard & Poor's 500 Composite Index is an unmanaged index that is a
widely recognized benchmark of general market performance. The index is a
passive measure of equity market returns.
-3-
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. The Fund imposes no sales load on purchases or reinvested
dividends; nor does it impose deferred sales charges, redemption fees or
exchange fees.
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SHAREHOLDER FEES
(Fees paid directly from your investment)
None.*
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ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
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Investment Advisory Fees 0.75%
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Distribution (12b-1) Fees 0.65%
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Shareholder Servicing Fees 0.25%
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Other Expenses 0.43%
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Total Annual Fund Operating Expenses 2.08%
-----
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Less Fee Waivers (0.25)%**
-------
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Net Expenses 1.83%
=======
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* The Fund's Distributor agreed to waive the front end sales charge of 3% for
all shares purchased since July 3, 1995.
** The Fund's Distributor has contractually agreed to reduce the distribution
fee from 0.65% to 0.40%.
In both instances, the Fund's Distributor has committed not to seek
reinstatement of these waived amounts, for at least one year from November 1,
1999, and not without the affirmative vote of the Fund's disinterested
directors.
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Example
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This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and you redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and Fund expenses remain the same. Although
your actual costs and returns might be different, your approximate costs of
investing $10,000 in the Fund would be:
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1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
The Fund $186 $576 $990 $2,148
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ABOUT THE FUND
Investment Objective and Strategy
The Fund's objective is long-term capital appreciation. The Fund seeks to
increase the value of your investment over the long-term (referred to as
long-term capital appreciation), primarily through the purchase of common stocks
of U.S. companies with large and medium capitalizations that the Adviser
believes to be undervalued. A security may be undervalued in the Adviser's view
because of many market factors, including investor apathy, market decline within
an industry group, poor industry conditions, earnings declines or other factors
that may provide buying opportunities at attractive prices relative to the
long-term prospects for the securities in question. Such securities are usually
characterized by low price to earnings ratios relative to standard indices, such
as the S&P 500(R) Index, or low price to earnings ratios relative to the
relevant industry grouping. The Fund will invest in securities of a variety of
companies in order to diversify across economic sectors. Portfolio exposure is
limited to a maximum of 5% in any single issuer.
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<PAGE>
The Adviser's Philosophy
The Adviser is a value-oriented investor and intends to invest in securities
which are undervalued due to such factors as investor apathy, earnings declines,
or other adverse developments that the Adviser believes have abated, or soon
will abate. It believes the securities are likely to provide a greater return
than securities with higher price to earnings ratios. These higher price to
earnings securities reflect anticipated favorable developments but are subject
to greater correction should any unfavorable developments occur. Although the
Fund will invest primarily in dividend-paying companies, the Fund may, from time
to time, invest in securities that pay no dividends or interest.
The Fund invests primarily in the common stocks of U.S. companies. Common stocks
represent shares of ownership in a company, and may or may not pay dividends.
The Adviser invests in companies that it believes show the potential for their
stock prices to rise. The Fund's investments will tend to consist of medium
sized companies ($1 billion to $5 billion in market value) and large companies
(over $5 billion in market value).
Although the Fund will generally be fully invested, with 5% or less of the
portfolio in cash equivalents, the Fund may make temporary defensive investments
that are inconsistent with the Fund's principal investment strategies, in an
attempt to respond to adverse market, economic, political or other conditions.
While the Fund is engaged in a temporary defensive strategy, it may not achieve
its investment objective. The Fund may also invest in some foreign securities.
The Fund may change its investment strategies, but not its objective, without
shareholder approval. You would be notified, however, if there are any changes.
Risks
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-sized companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group.
The Fund's share price changes daily based on the value of its stock holdings.
Stock values fluctuate in response to the activities of individual companies of
general market and economic conditions. In the short term, they can fluctuate
drastically in response to these factors. For example, in 1987, the Dow Jones
Industrial Average, an index of blue chip stocks, fell 22% in a single day.
Stock values also can decline over an extended period.
-5-
<PAGE>
The primary risk of value stocks is that they may never appreciate to the extent
expected by the asset manager because the underlying circumstances causing the
market to undervalue them do not change. To the extent that the Fund invests in
those kind of stocks, it will be exposed to the risks associated with
those kinds of investments. For these and other reasons, the Fund may
underperform other stock funds (such as international, growth and small company
stock funds).
Investments in foreign securities that are not traded on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market System will
constitute less than 10% of the Fund's assets. These investments in foreign
securities involve risks that are in addition to those of U.S. investments.
Foreign investments are subject to such risks as possible problems arising from
accounting, disclosure, settlement, and regulatory practices that differ from
U.S. standards.
The performance of the Fund will depend on how successful the Adviser is in
pursuing the Fund's investment strategy, and there is no assurance that the
Adviser will be successful in this regard. The Adviser may simply do a poor job
of selecting investments. In addition, there may be times when the great
majority of the securities that fit within the Fund's investment objectives are
declining in value, and you would make more money in a federally insured bank
account.
With all of these risks, when you sell Fund shares, they may be worth less than
what you paid for them.
The Year 2000 Issue
The Fund could be affected by computer problems related to the transition to the
year 2000. While no one knows if these problems will have any impact on the Fund
or on the financial markets in general, the Fund is taking steps to protect
investors. These include efforts to ensure that the Fund's own systems are
prepared to make the transition to the year 2000, and to determine that the
problem will not affect the systems used by the Fund's major service providers.
Whether these steps will be effective can only be known for certain in the year
2000. In addition, year 2000 problems may negatively affect the companies and
governments whose securities the Fund purchases, which may ultimately have an
impact on the value of the Fund's shares. Additional information on these risks
is contained in the Statement of Additional Information.
MANAGEMENT
Investment Adviser
The Funds' investment adviser, Addison Capital Management Company, makes
investment decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment programs. The Adviser also ensures compliance
with the Funds' investment policies and guidelines. The Adviser's address is
1608 Walnut Street, Philadelphia, PA 19103
Addison Capital Management Company, a subsidiary of Janney Montgomery Scott LLC,
has been in business since 1981 and had approximately $400 billion in assets
under management as of December 31, 1998. It has advised the Fund since its
formation in 1986. A team of investment professionals led by Radcliffe Cheston
and James V. Kelly, CFA, both of whom have been with Addison for over 5 years,
are responsible for day-to-day operation of the Fund. Mr. Cheston has been
responsible for overseeing the portfolio since 1986.
For the fiscal year ended June 30, 1999, the Fund paid investment advisory fees
of 0.75% of the average daily net assets of the Fund. The Adviser has agreed to
pay Janney an amount equal to 0.25% of the Fund's average net assets for
Janney's efforts in selling and marketing the shares of the Fund.
-6-
<PAGE>
Administration
PFPC, Inc. provides certain administrative and accounting services, including
bookkeeping, record maintenance, and preparation of filings required by the
Securities and Exchange Commission and federal and state tax authorities, for
the Fund. PFPC's annual fees, payable monthly, for these services equal 0.10% of
the Fund's average daily assets, with a minimum annual fee of $100,000. The Fund
also reimburses PFPC for certain disbursements. These amounts do not include
fees payable to the Transfer Agent and the Fund's custodian for their services.
PFPC is a wholly-owned subsidiary of the Custodian.
Shareholder Services
Janney provides office space to the Fund, oversees PFPC's performance of its
duties under the Administration and Accounting Services Agreement, oversees the
performance by the Custodian and Transfer Agent of their respective duties to
the Fund and responds to shareholder inquiries, for an annual fee equal to 0.25%
of the Fund's average daily net assets. This fee is in addition to the annual
distribution fee which Janney also receives from the Fund.
PURCHASING, SELLING AND EXCHANGING THE FUND SHARES
New Accounts
In order to open a new account, you must complete the Share Application that is
attached to this Prospectus and return it to your Janney broker. If you want to
invest in Fund shares through an IRA or other retirement plan, your broker will
provide you with the appropriate documents.
The Fund's minimum initial investment is $1,000 ($250 for an IRA account) with a
$50 minimum on subsequent purchases. This minimum may be waived to meet Internal
Revenue Code maximum contributions on IRA accounts.
When Can You Purchase Shares?
You may purchase shares of the Fund on any day that the New York Stock Exchange
is open for business (a "Business Day").
The Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
What Shares Will Cost
The price per share (the offering price) will be the net asset value per share
next determined after the Fund receives your purchase order. The net asset value
for one Fund share is the value of that share's portion of all of the net assets
in the Fund. The Fund's net asset value is calculated once each Business Day at
the regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m. Eastern time). To receive the current Business Day's net
asset value, the Fund must receive your purchase order before 4:00 p.m. Eastern
time.
-7-
<PAGE>
In calculating the net asset value, the Fund generally values its investment
portfolio at market price. If market prices are unavailable, fair value prices
may be determined in good faith using methods approved by the Board of
Directors.
Except with respect to certain orders for Fund shares to be invested in an IRA,
orders accepted by Janney before the close of business of the Exchange on any
day that the Exchange is open for business will be executed at the net asset
value determined as of the close of the Exchange on that day. Orders accepted by
Janney after the close of the Exchange will be executed at the net asset value
determined as of the close of the Exchange on the next trading day. Fund shares
ordered through the Fund's Pre-authorized Check Plan will be purchased at the
net asset value determined on the close of business of the Exchange on the date
each month the Custodian draws a check on your account. Fund shares purchased
through an automatic monthly transfer of funds from your account to the
Custodian will be purchased at the net asset value determined at the close of
business of the Exchange on the respective date such transfer is made.
Purchasing Additional Shares
1. Through the Pre-authorized Check Plan and Other Transfers of Funds from
Financial Institutions.
Once you are a Fund shareholder, you can make additional investments through the
Pre-authorized Check Plan for convenient automatic monthly investments. In
addition, certain financial institutions may allow you to request the automatic
transfer of $50 or more on a monthly basis to PNCBank, custodian for the Fund,
for investment in shares of the Fund.
2. Open Account Program
If you do not elect otherwise on your application to purchase Fund shares, you
are automatically enrolled in an Open Account Program. You may schedule your
purchases to suit your personal requirements. As each payment is received by the
Transfer Agent, full and fractional shares will be purchased at the next
effective offering price and proper entry is made on the books of the Fund.
3. By Phone
Current shareholders may also purchase shares by phone by calling their Janney
broker. Purchases must be paid within three business days of the phone order.
How to Sell or Redeem Shares
You can sell and receive cash for your Fund shares in two ways.
1. You may give your Janney broker an order. Janney will transmit your order to
the Fund for processing as a redemption request. Janney will not impose any
separate charge or fee for this service.
-8-
<PAGE>
2. If you hold your Fund shares in certificate form, or if you do not hold Fund
shares in a Janney account, you may send a written request for redemption to
Addison Capital Shares, Inc., c/o PFPC, Inc., P.O. Box 8916, Wilmington, DE
19899-8916. The request will be considered to be received in "good order"
only if:
o You have indicated in writing the number of shares to be redeemed and
your shareholder account number.
o The written request is signed by you and by any co-owner of the account
with exactly the same name or names used in establishing the account.
o The written request is accompanied by any certificates representing the
shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates.
o The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed by a national bank, a state bank (not including a savings
bank) or a trust company, or by Janney, or by any other member firm of
the New York, American, Boston, Midwest, Pacific or Philadelphia Stock
Exchanges.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption or repurchase. If you have a question
concerning the sale of Fund shares, contact your Janney broker.
If the redemption request is received by the Transfer Agent or Janney before the
close of business of the Exchange, the Shares will be redeemed at the net asset
value per share determined at the close of the Exchange on that day. Requests
received by the Transfer Agent or Janney after the close of business of the
Exchange or on a day when the Exchange is not open for business will be executed
at the net asset value determined at the close of the Exchange on its next
trading day.
Systematic Withdrawal Plan
You may elect to make systematic withdrawals from your Fund account at a minimum
of $50 on a monthly basis or $150 on a quarterly basis if you are purchasing or
already own shares with a net asset value of $10,000 or more. Please contact
Janney for further information.
Redemptions In Kind
The Fund generally pays redemption proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) the Fund might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). Although it is highly unlikely that your shares would ever
be redeemed in kind, you would probably have to pay brokerage costs to sell the
securities distributed to you, as well as taxes on any capital gains from the
sale, as with any other redemption.
Receiving Your Money
Normally, the Fund will send your sale proceeds within three business days after
it receives your request in good order, but it may take up to seven days. Your
proceeds can be wired to your bank account (subject to a wire fee, currently
$15) or sent to you by check. If you recently purchased your shares by check or
through Automated Clearing House (ACH), redemption proceeds may not be available
until your check has cleared (which may take up to 15 days from the date of
purchase).
-9-
<PAGE>
Exchange Privilege
Shares of the Fund may be exchanged for shares of the Janney Montgomery Scott
("JMS") Money Market Fund portfolios. Shares of the Fund and the JMS Money
Market Fund portfolios are exchanged at their respective net asset values.
However, when you exchange shares you are really selling your shares and then
buying other shares. The JMS Money Market portfolios do not presently impose any
sales charges. Further information concerning this privilege is contained in the
Fund's Statement of Additional Information.
Suspension of your right to sell shares
The Fund may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in the Fund's Statement of Additional Information.
Involuntary sale of your shares
If your account balance drops below the required minimum of $500, you may be
required to sell your shares. You will be given at least 60 days' written notice
to give you time to add to your account and avoid selling your shares.
Distribution of Fund Shares
Janney Montgomery Scott LLC is the distributor of the Fund's shares. Janney
receives no sales commissions for distributing the Fund's shares. However, the
Fund has adopted a shareholder distribution plan for its shares that allows the
Fund to pay fees to Janney for distribution in the amount of 0.65% of the Fund's
average daily net assets, but Janney has contractually agreed to reduce the fee
to 0.40%. In addition, the Fund pays Janney 0.25% of the Fund's average daily
net assets as a shareholder servicing fee. The Adviser also pays Janney,
directly out of its assets, 0.25% of the Fund's average daily net assets as an
additional incentive to market the Fund's shares.
RETIREMENT PLANS
An investment in Fund shares may be appropriate for IRAs as well as self
employed and corporate retirement plans. Investors who are considering
establishing such a plan may wish to consult their attorney or tax adviser with
respect to individual tax questions. Janney can make forms of self-directed IRAs
available (whether Traditional, Education, SEP, Simple or Roth).
The Internal Revenue Code requires the custodian of any IRA to furnish each
individual benefitting from an IRA with a copy of the governing instrument used
to establish the IRA and a disclosure statement satisfying the requirements of
regulations under Section 408 of the Internal Revenue Code no later than the
earlier of the date of establishment or purchase of the IRA. If, however, the
governing instrument and disclosure statement are not furnished to such
individual at least seven days preceding the earlier of the date of purchase or
establishment of the IRA, the individual must be permitted to revoke his IRA and
receive a full refund for a period of seven days from the earlier of those
dates. If the revocation period applies, Janney, as custodian of a Janney
self-directed IRA will hold the individual's initial payment to his IRA in a
suspense account until the expiration of the seven-day period. Thereupon, if the
IRA has not been revoked, such payment will be applied to the purchase of Fund
shares at the net asset value next calculated following such expiration date
plus the appropriate sales charge. No interest will be paid on funds held in
such suspense account. An order placed with Janney on behalf of a Janney
self-directed IRA will not be transmitted to the Fund until Janney receives a
check and completed IRA application.
-10-
<PAGE>
The option of making contributions to the above plans through regular payroll
deductions may be arranged with Janney and your employer. Additional information
with respect to these plans is available upon request from any Janney broker.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its investment income and capital gains, if any,
semi-annually as a dividend to shareholders.
If you own Fund shares on a Fund's dividend record date, you will be entitled to
receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution.
Alternatively, you may contact your Janney broker. Your election will be
effective for dividends and distributions paid after the Fund receives your
written notice. To cancel your election, send written notice to the Fund.
TAXES
Please consult your tax advisor regarding specific questions about federal,
state and local income taxes. We have summarized some important tax issues that
affect the Fund and its shareholders.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive are subject to federal, state
and local taxation, depending upon your tax situation. Distributions you receive
from the Fund may be taxable whether or not you reinvest them. Each sale or
exchange of the Fund's shares is a taxable event. Every January, you will
receive a form showing the taxable distributions paid to you in the previous
calendar year.
More information about taxes is in the Statement of Additional Information.
-11-
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the
Shares of the Fund. This information is intended to help you understand the
Fund's financial performance for the past five fiscal years. Some of this
information reflects financial information for a single Fund share. The total
returns in the table represent the rate that you would have earned (or lost) on
an investment in the Fund, assuming you reinvested all of your dividends and
distributions. This information has been audited by Tait, Weller & Baker,
independent auditors. Their report, along with the Fund's financial statements,
appears in the annual report that accompanies the Statement of Additional
Information. You can obtain the Fund's annual report, which contains more
performance information, at no charge by calling 1-800-331-3186.
Financial Highlights (for a Fund Share Outstanding Throughout the Period)
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<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at the beginning of year... $33.28 $31.53 $26.42 $22.92 $20.45
------ ------ ------ ------ ------
Income from Investment Operations
Net investment income...................... .08 .09 .15 .17 .22
Net realized and unrealized gains/(losses)
on investments........................... 1.96 5.41 7.60 5.42 3.77
---- ---- ----- ---- ----
Total from investment operations........... 1.88 5.50 7.75 5.59 3.99
---- ---- ----- ---- ----
Less Distributions
Dividends from net investment
income.................................... (.09) (.13) (.15) (.21) (.20)
Distributions from capital gains........... (1.67) (3.62) (2.49) (1.88) (1.32)
------ ------ ------ ------ ------
Total distributions........................ (1.76) (3.75) (2.64) (2.09) (1.52)
------ ------ ------ ------ ------
Net asset value at end of year............. $29.64 $33.28 $31.53 $26.42 $22.92
====== ====== ====== ====== ======
Total return(1)............................ (6.03)% 19.40% 32.20% 25.92% 21.11%
Ratios/Supplemental Data
Net assets at end of year (in 000's)....... $61,199 $81,512 $66,609 $50,704 $38,506
Ratio of expenses to average net assets.... 1.83% 1.75% 1.83% 1.96% 2.06%
Ratio of net income to average net assets.. 0.25% 0.30% 0.54% 0.69% 1.03%
Portfolio turnover rate.................... 25.77% 28.14% 29.48% 38.97% 42.82%
</TABLE>
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(1) Assumes an initial investment made at the net asset value last calculated
on the business day before the first day of each fiscal year and does not
reflect sales charges on investments. As of July 3, 1995, all sales charges
were waived by the Fund's distributor.
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<PAGE>
IF YOU WANT TO START A MONTHLY
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
o Complete both parts of the bank draft authorization in the panel to the
right
o Complete the Account Application on the next page
o Send
|_| A check made out for the total amount of your initial
investment
and
|_| a blank check marked "void" to:
PFPC, Inc.
c/o Addison Capital Shares, Inc.
P.O. Box 8916
Wilmington, DE 19899-8916
(The blank check marked "void" is required because the Transfer Agent must
obtain, and retain in its records, an exact replica of the coding at the bottom
of the voided check so that it can arrange through appropriate bank channels
monthly withdrawals from your check account.)
COMPLETE, DETACH AND MAIL WITH
COMPLETE SHARE APPLICATION
<PAGE>
TO BEGIN BANK DRAFT INVESTING
THROUGH YOUR CHECKING ACCOUNT
(Pre-Authorized Check Plan)
I hereby authorize PNCBank to draw $_______________ from my checking account
monthly, beginning with the 20th day of _______________ to be used to purchase
(month)
shares of Addison Capital Shares, Inc. for my account through the
________________________________________________________________________________
Name of Bank, Branch Name and Number (if any)
________________________________________________________________________________
Address of Bank or Branch
_________________________________________________ _____________________________
(Routing symbol)
This authorization is subject to the provisions on the reverse side.
Name(s)_________________________________________________________________________
Street__________________________________________________________________________
City________________________________State________Zip________
Note: Please enclose a blank check marked "void"
- ----------------------------------------
AUTHORIZATION TO HONOR BANK DRAFTS
DRAWN BY
PNCBANK
To:_____________________________________________________________________________
(Print Bank Name -- and Branch, if any)
________________________________________________________________________________
(Bank Address)
________________________________________________________________________________
For my convenience, I hereby request and authorize you to pay and charge to my
account checks drawn on my account by, and payable to the order of, PNCBank. I
agree that while this authorization remains in effect (1) your rights in respect
to each such check shall be the same as if it were signed personally by me, (2)
you shall be fully protected in honoring any such check and (3) if any such
check be dishonored, with or without cause, and whether inadvertently, you shall
be under no liability whatsoever.
This authorization shall remain in effect until you receive written revocation
signed by me.
________________________________________________________________________________
(Print Name of Depositor(s) As Shown On Bank Records)
________________________________________________________________________________
(Checking Account No.)
_____________ ________________________________________________________________
(Date) (Signature of Depositor As Shown On Bank Records)
-13-
<PAGE>
BANK DRAFT AUTHORIZATION
The authorization on the reverse side is subject to the following
provisions:
1. PNCBank shall collect the amount specified from the investor's
personal checking account, as authorized on the reverse side, by drawing
checks on such accounts to its own order.
2. Checks will be drawn once each month. The canceled checks will constitute
receipts for such amounts.
3. The privilege of making deposits under this service may be revoked by
PNCBank without prior notice if any check is not paid upon presentation.
PNCBank shall be under no obligation to notify the investor as to the
non-payment of any check.
4. This service may be discontinued by the investor by written notice to
PNCBank, which is received at least ten business days prior to the
collection date or at any time by PNCBank upon thirty days' written notice
prior to any collection date.
When this card has been completed, please mail to:
PFPC, Inc.
c/o Addison Capital Shares, Inc.
P.O. Box 8916
Wilmington, DE 19899-8916
Please enclose a voided blank check.
INDEMNIFICATION AGREEMENT
To: Bank named on the reverse side.
Your depositor executing the authorization on the reverse side is purchasing
shares of Addison Capital Shares, Inc. (the "Fund"), a mutual fund for which
PNCBank is custodian, and has authorized PFPC to collect the amounts indicated
for investment from his or her personal checking account by drawing checks on
such account to its order. In consideration of your compliance with such
depositor's request that you pay and charge to his or her account checks drawn
on such account by, and payable to the order of PNCBank, Janney Montgomery Scott
LLC ("Janney"), distributor for the Fund, hereby agrees:
1. To indemnify and hold you harmless from any loss you may suffer resulting
from or in connection with the execution and issuance of any check, whether
or not genuine, purporting to be drawn by or on behalf of and payable to
PNCBank on the account of your depositor executing the authorization on the
reverse side and received by you in the regular course of business through
normal banking channels for the purpose of payment, including any costs or
expenses reasonably incurred in connection with such loss, but excepting any
loss due to your payment of any check drawn against insufficient funds.
2. In the event that any such check shall be dishonored, whether with or
without cause, and whether intentionally or inadvertently, to indemnify you
and hold you harmless from any loss resulting from such dishonor, including
the costs and reasonable expenses.
Janney Montgomery Scott LLC
by Norman T. Wilde, Jr., President
Authorized by a resolution adopted by the Board of Directors of
Janney Montgomery Scott LLC
<PAGE>
See preceding page
for instructions to
start a monthly
investment program.
-14-
<PAGE>
ADDISON CAPITAL SHARES, INC.
SHARE APPLICATION
Send Completed Application to: ADDISON CAPITAL SHARES, INC.,
c/o JANNEY MONTGOMERY SCOTT LLC
2 BALA CYNWYD PLAZA, BALA CYNWYD, PA 19004
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNT REGISTRATION
Owner (print) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-| | |-| | | |
------------------------------------------------- ---------------------
Co-owner (if any) | | | | | | | | | | | | | | | | | | | | | | | | | | | |-| | | | | | | |
------------------------------------------------- ---------------------
Street Address | | | | | | | | | | | | | | | | | | | | | | | | | /_/ Exempt from Backup Withholding
------------------------------------------------- (For Instructions, see Step 3 on
last page)
| | | | | | | | | | | | | | | | | | | | | | | | |
-------------------------------------------------
City State Zip Code
*If joint registration is indicated, both must sign and the registration will be as joint tenants with right of survivorship and not
as tenants in common, unless otherwise specifically stated.
- ------------------------------------------------------------------------------------------------------------------------------------
SUBSEQUENT INVESTMENTS/DIVIDENDS AND DISTRIBUTIONS -- Minimum initial investment is $1,000; thereafter $50. I enclose a check in
the amount of $_______________.
|_| I intend without obligation, to make additional investments in the amount of $____________________.
Dividend and other distributions election: (please check applicable box; if no box checked, you will be deemed to have checked
box 1):
|_| 1. All dividends and distributions of realized securities profits shall be accepted in additional shares at net asset value.
|_| 2. All dividends shall be paid to me in cash and all distributions of realized securities profits will be accepted in additional
shares at net asset value.
|_| 3. All dividends and distributions of realized securities profits shall be paid to me in cash.
- ------------------------------------------------------------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN: Minimum required investment is $10,000.
|_| Monthly |_| Quarterly $____________________ Starting the _________ of __________________ Month ____________ Year
- ------------------------------------------------------------------------------------------------------------------------------------
APPLICANT(S) SIGNATURE(S) Sign below exactly as printed in Account Registration:
Under penalties of perjury, I certify (1) that the number shown on this form is my correct taxpayer identification number, and (2)
that I am not subject to backup withholding because (a) I have not been notified that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the Internal Revenue Service has notified me that I am no longer
subject to backup withholding. If you have been notified by the IRS that you are currently subject to backup withholding, strike
out phrase (2).
We hereby certify that each of the persons listed below has been duly elected, is now legally holding the office set opposite his
name and has the authority to make this authorization.
Citizenship: |_| U.S. |_| Other _______________ Telephone No. (_____)___________________. Please print titles below if signing for a
business or trust.
(Please provide)
X____________________________________________________________ ________________________________________________________________
(Signature) (President, Trustee, General Partner or Agent)
X____________________________________________________________ ________________________________________________________________
(Signature) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
MUST BE COMPLETED BY DEALER Dealer's Name and Address:
| | | | | | | | | | | | | | | | | | | | |
- ------------- ------------- -------------
Invoice Date No. of Shares Trade Date
| | | | | | | | | | | | | | | | | | | | |
- -----------------------------------------
Representative's Last Name and Number
| | | |-| | | |-| | | | |
-------------------------
(Area Code) Representative's Phone Number
| | | | | | | | | | | | | | | | | | | | |
- -----------------------------------------
Dealer Branch Branch Number
- --------------------------------------------------------------
Authorized Signature of Dealer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
_____________________________ More information about the Fund is available
_____________________________ without charge through the following:
ADDISON Statement of Additional Information
-----------------------------------
CAPITAL
The SAI dated November 1, 1999, includes
SHARES more detailed information about the Fund.
_____________________________ The SAI is on file with the SEC and is
_____________________________ incorporated by reference into this
prospectus. This means that the SAI, for
legal purposes, is a part of this
prospectus.
Investment Adviser Annual and Semi-Annual Reports
ADDISON CAPITAL MANAGEMENT ------------------------------
COMPANY
1608 Walnut Street These reports list the Fund's holdings and
Philadelphia, PA 19103 contain information from the Fund's manager
about strategies and recent market
conditions and trends. The reports also
contain detailed financial information about
the Fund.
Distributor/Shareholder To Obtain More Information:
Servicing
JANNEY MONTGOMERY SCOTT LLC By Telephone: Call 1-800-331-3186
1801 Market Street -------------
Philadelphia, PA 19103
By Mail: Write to the Fund at:
-------- PFPC, Inc.
c/o Addison Capital Shares,
Inc.
Transfer Agent P.O. Box 8916
PFPC, INC. Wilmington, DE 19899-8916
P.O. Box 8916
Wilmington, DE 19899-8916
From the SEC:
Independent Accountants -------------
TAIT, WELLER & BAKER
8 Penn Center Plaza, Suite 800 You can also obtain the SAI or the Annual or
Philadelphia, PA 19102 Semi-Annual Reports, as well as other
information about the Fund, from the SEC's
website ("http://www.sec.gov"). You may
review and copy documents at the SEC Public
Legal Counsel Reference Room in Washington, DC (for
MORGAN, LEWIS & BOCKIUS LLP information call 1-800-SEC-0330). You may
1701 Market Street request documents by mail from the SEC, upon
Philadelphia, PA 19103 payment of a duplicating fee, by writing to:
Securities and Exchange Commission, Public
Reference Section, Washington, DC
20549-6009.
The Fund's Investment Company Act
registration number is 811-4702
-16-
<PAGE>
======================
ADDISON CAPITAL SHARES
======================
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus, dated November 1, 1999, which
has been filed with the Securities and Exchange Commission. A copy of the
Prospectus is available without charge from Janney Montgomery Scott LLC (address
and telephone number listed below).
JANNEY MONTGOMERY SCOTT LLC
1801 Market Street
Philadelphia, Pennsylvania 19103
In Philadelphia, Pennsylvania (215)665-6000
Outside Philadelphia, Pennsylvania (800)331-3186
Dated: November 1, 1999
<PAGE>
Statement of Additional Information
November 1, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Fund Information...............................................................................B-3
Additional Information About Investment Limitations, Policies and Risks................................B-3
Risks.............................................................................................B-6
Year 2000.........................................................................................B-7
Additional Tax Information.............................................................................B-7
Additional Purchase and Redemption Information........................................................B-10
Pre-authorized Check Plan and Transfer of Funds from Financial Institutions......................B-10
Open Account Program.............................................................................B-11
Systematic Withdrawal Plan.......................................................................B-11
Redemption in Kind...............................................................................B-12
Exchange Privilege with JMS Money Market Fund Portfolios.........................................B-12
Valuation of Shares...................................................................................B-13
Calculation of Total Return...........................................................................B-13
Retirement Plans......................................................................................B-14
Additional Information Concerning the Fund's Management and Affiliations..............................B-14
Principal Shareholders................................................................................B-17
Investment Advisory and Other Services................................................................B-17
Portfolio Transactions and Brokerage..................................................................B-19
The Fund's Distributor................................................................................B-21
Description of Fund Shares............................................................................B-23
The Fund's Custodian, Transfer Agent and Dividend Disbursing Agent....................................B-24
The Fund's Legal Counsel..............................................................................B-24
Financial Statements..................................................................................B-24
The Fund's Independent Certified Public Accountants...................................................B-25
</TABLE>
B-2
<PAGE>
GENERAL FUND INFORMATION
Addison Capital Shares, Inc. (the "Fund") is an open-end diversified
management investment company which seeks long-term capital appreciation.
Important information concerning the Fund is included in the Fund's
Prospectus which may be obtained without charge from the Fund's distributor,
Janney Montgomery Scott LLC. Some of the information required to be in this
Statement of Additional Information is also included in the Fund's current
Prospectus. To avoid unnecessary repetition, references are made to related
sections of the Prospectus. In addition, the Prospectus and this Statement of
Additional Information omit certain information about the Fund and its business
that is contained in the registration statement respecting the Fund and its
Shares filed with the SEC. Copies of the registration statement as filed,
including such omitted items, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
June 3, 1986. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
its Shares under the Securities Act of 1933, as amended. The Fund's registration
statement was declared effective by the SEC on June 10, 1986 and the Fund began
operations. The Fund's Articles of Incorporation authorize the Board of
Directors to issue up to two billion full and fractional shares of capital
stock. The Fund presently has one class of shares known as Class A Common Stock.
The Fund's Board has no present intention of authorizing any additional classes
of shares. The Fund's Articles of Incorporation authorize the Board of Directors
to classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. However, the Fund's Board has no present intention of authorizing
any additional classes of shares.
ADDITIONAL INFORMATION ABOUT
INVESTMENT LIMITATIONS, POLICIES AND RISKS
In addition to the investment objectives and strategies described in
the Prospectus ("Summary" and "About the Fund"), the Fund has adopted certain
investment limitations that cannot be changed except by vote of a majority of
the Fund's outstanding voting securities. The Fund may not:
1. Borrow money, except for temporary purposes, in an aggregate
amount not to exceed 5% of the value of its total assets at
the time of borrowing. Although not a fundamental policy
subject to shareholder approval, the Fund intends to repay any
such money borrowed before any additional portfolio securities
are purchased.
B-3
<PAGE>
2. Mortgage, pledge or hypothecate any of its assets, except to
secure permitted borrowings up to 5% of the value of its total
assets at the time of borrowing.
3. Invest more than 5% of its total assets (taken at market value
at the time of the purchase) in securities of any one issuer,
other than the U.S. Government or its agencies and
instrumentalities, or buy more than 10% of the voting
securities or more than 10% of all the securities of any
issuer.
4. Invest more than 5% of its total assets (taken at market value
at the time of the purchase) in securities of companies that,
including their predecessors, have been in operation for less
than three years or in equity securities that are not readily
marketable.
5. Purchase securities on "margin".
6. Invest more than 25% of its total assets (taken at market
value) in any one industry.
7. Invest in securities issued by other investment companies,
except in connection with a merger, consolidation, acquisition
or reorganization, or by purchase in the open market of
securities of closed-end investment companies where no
underwriter or dealer commission or profit, other than a
customary brokerage commission, is involved and only if
immediately thereafter not more than 10% of the Fund's total
assets (taken at market value) would be invested in such
securities.
8. Purchase or sell commodities and commodity contracts.
9. Underwrite the securities of other issuers, except that the
Fund may invest in securities that are not readily marketable
without registration under the Securities Act of 1933, as
amended, if immediately after the making of such investment
not more than 5% of the value of the Fund's total assets
(taken at cost) would be so invested.
10. Make loans, except loans of portfolio securities, except to
the extent a repurchase agreement may be considered a loan and
except to the extent the purchase of a portion of an issue of
publicly distributed notes, bonds or other evidences of
indebtedness or deposits with banks and other financial
institutions may be considered loans.
11. Write or purchase put, call, straddle or spread options.
B-4
<PAGE>
12. Purchase or retain the securities of any issuer if the
officers or directors of the Fund, its investment advisers, or
other managers owning beneficially more than one-half of one
percent of such outstanding securities together own
beneficially more than five percent of such outstanding
securities.
13. Purchase or sell real estate, except that the Fund may invest
in readily marketable securities secured by real estate or
interests therein or in readily marketable securities issued
by companies that invest in real estate or interests therein.
14. Purchase or sell interests in oil and gas or other mineral
exploration or development programs, except that the Fund may
invest in so-called master limited partnerships which have oil
and gas interests so long as such partnerships are listed on
the New York Stock Exchange or the American Stock Exchange or
are included in the National Association of Securities
Dealers, Inc. ("NASD") National Market System.
15. Make any short sales of securities.
As noted above, the investment policies of the Fund described in the
preceding paragraphs, along with its objective described in the Prospectus, are
fundamental policies of the Fund and may not be changed without the vote of a
majority of the holders of the Fund's outstanding voting securities. Under the
Investment Company Act a "vote of a majority of the outstanding voting
securities" of the Fund means the affirmative vote of the lesser of (i) more
than 50% of the outstanding shares of the Fund; or (ii) 67% or more of the
shares present at a shareholders' meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy.
The Fund also may invest in foreign securities. It is presently the
Fund's intention that the value of investments in foreign securities which are
not traded on the New York or American Stock Exchange, or the NASDAQ National
Market System, will not exceed 10% of the value of its total assets.
Although not a fundamental policy subject to shareholder vote, so long
as the Fund's shares continue to be registered in certain states, the Fund may
not invest more than 5% of the value of its net assets, taken at the lower of
cost or market value, in warrants or invest more than 2% of the value of such
net assets in warrants not listed on the New York or American Stock Exchanges.
The Fund presently has no intention of purchasing any warrants during the
foreseeable future. In addition, although not a fundamental policy subject to
shareholder vote, so long as the Fund's shares continue to be registered in
certain states, the Fund may not make short sales of securities. Although not
prohibited by the Fund's fundamental investment policies, the Fund has no
present intention of loaning its portfolio securities to others.
B-5
<PAGE>
When cash is expected to be available only temporarily, the Fund may
invest in repurchase agreements. A repurchase agreement is an agreement under
which either U.S. Government obligations or high quality debt securities are
acquired from a securities dealer or bank subject to resale at an agreed upon
price and date. The resale price reflects an agreed upon interest rate which is
unrelated to the interest rate provided by the securities which are transferred.
In these transactions, the securities are held for the Fund by its custodian as
collateral until retransferred and will be supplemented by additional collateral
(without cost to the Fund) if necessary to maintain a total value equal to or in
excess of the value of the repurchase agreements. Repurchase agreements are
usually for periods of one week or less, but may be for longer periods. The Fund
will not enter into repurchase agreements of more than seven days' duration if
more than 10% of its net assets would be invested in such agreements and other
illiquid investments. The Fund's Adviser will monitor the credit-worthiness of
any party with whom the Fund has a then-outstanding repurchase agreement.
To the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund might
suffer a loss. If bankruptcy proceedings were commenced with respect to the
seller of the security, realization upon the collateral by the Fund could be
delayed or limited. However, the Fund has adopted standards for the parties with
whom it will enter into repurchase agreements which the Fund's Board of
Directors believes are reasonably designed to assure that each party presents no
serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase agreement.
The timing of purchases and sales of Fund securities will be made
primarily on the investment merits of the securities. Only secondarily will such
timing be influenced by whether any gain from such transactions would be
classified as short-term or long-term for tax purposes. This factor may be
expected to result from time to time in a higher rate of portfolio turnover than
if both factors were given equal weight. High portfolio activity increases the
Fund's transaction costs, including brokerage commissions. To the extent
short-term trading results in realization of gains on securities held less than
twelve months, shareholders are subject to taxes at ordinary income tax rates.
See "Tax Status of Dividends and Capital Gains Distributions". However, it is
anticipated that the Fund will not realize substantial short-term capital gains.
Risks
The following risk factors are presented for background. Additional
factors are described in the Prospectus under "Risks" and "Other Risks".
Equity Securities. Equity securities, including common stocks,
represent an ownership interest in a corporation and have the least claim on a
company's earnings and assets. In seeking investments for the Fund, the primary
consideration of the Fund's adviser, Addison Capital Management Company (the
"Adviser"), is to invest in securities which the Adviser believes are currently
undervalued due to inefficiencies in the market. However, in selecting such
securities, the opinions and judgments being exercised by the Adviser may be
contrary to those of the
B-6
<PAGE>
majority of investors. In certain instances, such opinions and judgments will
involve the risk of a correct judgment by the majority, or an individual
security or group of securities may remain depressed for an extended period of
time or even fall to a new low, in which case losses or only limited profits may
be incurred.
Illiquid Securities. The Fund may purchase illiquid securities, which
include securities whose disposition is restricted by the securities laws. The
number of potential purchasers and sellers, if any, for such securities is
limited, and the ability of the Fund to sell such securities at their fair
market value may be limited. It is expected that investments in illiquid
securities will not exceed 5% of the total assets of the Fund at cost.
Repurchase Agreements. The Fund may enter into repurchase agreements
with banks and broker-dealers under which the Fund acquires a security (usually
a U.S. Government security) for cash and obtains a simultaneous commitment from
the seller to repurchase the security at an agreed-upon price and date. The
resale price is in excess of the acquisition price and reflects the agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford an opportunity for the Fund to earn a return on temporarily
available cash at no market risk, although there is a risk that the seller may
default on its obligation to pay the agreed-upon sum at the re-delivery date.
Such a default may subject the Fund to expenses, delays and risks of loss.
Repurchase agreements with a maturity of more than seven days, taken together
with all of the Fund's other illiquid assets, will not exceed 15% of the Fund's
net assets. Repurchase agreements are considered loans under the Investment
Company Act.
Year 2000
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
that its system is expected to accommodate the year 2000 without material
adverse consequences to the Fund. The Fund and its shareholders may experience
losses if these assurances prove to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of portfolio securities or third
parties, such as custodians, banks, broker-dealers or others with which the Fund
does business.
ADDITIONAL TAX INFORMATION
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute
B-7
<PAGE>
for careful tax planning. Shareholders are urged to consult with their tax
advisors with specific reference to their own tax situation, including their
state and local tax liabilities.
Federal Income Tax Treatment of Dividends and Distributions
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Qualification as a Regulated Investment Company
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal income taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of
its net investment income (that generally includes dividends, taxable interest,
and the excess of net short-term capital gains over net long-term capital losses
less operating expenses) and at least 90% of its net tax exempt interest income,
for each tax year, if any, to its shareholders and also must meet several
additional requirements. Included among these requirements are the following:
(i) at least 90% of the Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities, or certain other
income; (ii) at the close of each quarter of the Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other securities, with
such other securities limited, in respect to any one issuer, to an amount that
does not exceed 5% of the value of the Fund's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary
B-8
<PAGE>
dividends to the extent of the Fund's current and accumulated earnings and
profits. In this event, distributions generally will be eligible for the
dividends-received deduction for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held the shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than
capital gains distributions) from a RIC generally qualify for the
dividends-received deduction to the extent of the gross amount of qualifying
dividends received by a Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, distributions from the Fund
generally will qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in October, November, or December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Sale or Exchange of Fund Shares
Generally, gain or loss on the sale or exchange of a Share will be
capital gain or loss that will be long-term if the Share has been held for more
than twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of a Fund with
respect to such Share are included in determining
B-9
<PAGE>
the shareholder's long-term capital gains), the shareholder must treat the loss
as a long-term capital loss to the extent of the amount of the prior capital
gains distribution (or any undistributed net capital gains of a Fund that have
been included in determining such shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). This loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.
Federal Excise Tax
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
State and Local Taxes
Depending upon state and local law, distributions by the Fund to
shareholders and the ownership of shares may be subject to state and local
taxes. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Pre-authorized Check Plan and Transfer of Funds from Financial Institutions
The Prospectus explains that you may buy additional shares of the Fund
through the Fund's Pre-authorized Check Plan. Under this plan, you may arrange
for automatic monthly investments in the Fund of $50 or more by authorizing the
Fund's custodian, PNCBank (the "Custodian"), to prepare a check each month drawn
on your checking account at a commercial bank. Each month the Custodian will
send a check to your bank for collection, and the proceeds of the check will be
used to buy shares of the Fund at the per share net asset value determined on
B-10
<PAGE>
the day the check is sent to your bank. You will receive a confirmation after
each purchase of additional shares through your checking account, and the
canceled check will be returned to you by your bank with your regular checking
account statement.
You may also buy additional shares of the Fund through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow you, on a pre-authorized basis, to have $50 or more
automatically transferred monthly to the Transfer Agent for investment in shares
of the Fund.
If your check is not honored by the institution it is drawn on, you may
be subject to extra charges in order to cover collection costs. These charges
may be deducted from your shareholder account.
Open Account Program
If you do not elect otherwise on your application to purchase Fund
shares, you are automatically enrolled in an Open Account Program. You may
schedule your purchases to suit your personal requirements and you are not
obligated in any way. As each payment is received, full and fractional shares
will be purchased at the net asset value next determined and proper entry is
made on the books of the Fund.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss in
declining markets.
Systematic Withdrawal Plan
You may also elect to make systematic withdrawals from your Fund
account of a minimum of $50 on a monthly basis or $150 on a quarterly basis if
you are purchasing or already own shares with a net asset value of $10,000 or
more. The amounts paid to you each month or quarter will be obtained by
redeeming sufficient shares from your account to provide the withdrawal amount
that you have specified. The Systematic Withdrawal Plan will also be available
for shares held in an IRA, Keogh Plan, SEP or corporate retirement plan. You may
change the monthly or quarterly amount to be paid to you without charge not more
than once a year by notifying Janney Montgomery Scott LLC ("Janney").
Redemptions will be made at net asset value determined as of the close of
business on the New York Stock Exchange (the "Exchange") on the 25th day of each
month or the 25th day of the last month of each quarter, whichever is
applicable. If the Exchange is not open for business on that day, the shares
will be redeemed at net asset value determined as of the close of business of
the Exchange on the preceding business day. The check for the withdrawal payment
will usually be mailed to you on the next business day following redemption. If
you elect to participate in the Systematic Withdrawal Plan, dividends and
distributions on all shares in your account must be automatically reinvested in
Fund shares. You may terminate the Systematic Withdrawal Plan at any time
B-11
<PAGE>
without charge or penalty. The Fund, the Fund's transfer agent (the "Transfer
Agent"), and Janney also reserve the right to modify or terminate the Systematic
Withdrawal Plan at any time.
Withdrawal payments will be treated as sales of shares rather than as
dividends or capital gains distributions. These payments will be taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and distributions,
the amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund if
you maintain a Systematic Withdrawal Plan because you may incur tax liabilities
in connection with such purchases and withdrawals. The Fund will not knowingly
accept purchase orders from you for additional shares if you maintain a
Systematic Withdrawal Plan unless your purchase is equal to at least one year's
scheduled withdrawals. In addition, if you maintain a Systematic Withdrawal Plan
you may not make periodic investments under the Pre-authorized Check Plan.
Redemption in Kind
In addition to the Fund's rights to suspend or delay redemptions noted
in the Fund's Prospectus, the Fund further reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for a
redemption or repurchase order by making payment in whole or in part by
securities valued in the same way as they would be valued for purposes of
computing the Fund's per share net asset value. If payment is made in
securities, you may incur brokerage expenses in converting those securities into
cash, and will be subject to fluctuation in the market price of those securities
until they are sold.
Exchange Privilege with JMS Money Market Fund Portfolios
Shareholders may redeem shares of the Fund and use the proceeds to
acquire shares of the JMS Money Market Fund, the JMS Tax-Free Money Market Fund
and the JMS Government Money Market Fund (the "JMS Funds") without any service
charge. For tax purposes, any such redemption of Fund shares or Independence
Fund shares will be regarded as a sale on which a capital gain or loss may be
realized by the shareholder.
The JMS Funds are open-end investment companies, the shares of which
are sold without sales commission, investing exclusively in money market
instruments (Money Market Fund), tax-exempt money market instruments (Tax-Free
Money Market Fund), and U.S. Government issued or guaranteed marketable debt
obligations (Government Money Market Fund). The Fund and the JMS Funds have
materially different investment objectives and policies, investment portfolios
and methods of operations. The Fund and the JMS Funds have separate managements
and investment advisers. Janney acts as distributor for the Fund and the JMS
Funds. The Exchange Privilege does not in any way constitute an offering or
recommendation on the part of the Fund of an investment in shares of any of the
JMS Funds. Any shareholder who considers
B-12
<PAGE>
acquiring JMS Fund shares should first obtain and review a Fund Prospectus
before exercising the Exchange Privilege.
The Exchange Privilege may be terminated at any time by the Fund or the
JMS Funds. However, in such event, six months prior written notice of
termination must be given to the shareholders who hold JMS Fund shares pursuant
to the Exchange Privilege.
VALUATION OF SHARES
As described in the Prospectus ("What Shares Will Cost"), the net asset
value per share of the Fund is determined once on each day on which the Exchange
is open, as of the close of the Exchange. The Fund expects that the days, other
than weekend days, that the Exchange will not be open are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of a Fund share is determined by dividing the value
of the total assets of the Fund, less liabilities, by the number of shares
outstanding. Net asset value is determined daily, as of the close of the
Exchange, on its customary business days. Securities owned by the Fund for which
market quotations are readily available are valued at current market value, or,
in their absence, at fair value as determined by the Fund's Board of Directors.
Securities traded on an exchange or NASD National Market System securities will
be normally valued at last sale prices. Other over-the-counter securities, and
securities traded on exchanges for which there is no sale on a particular day,
are valued at the mean of the latest closing bid and asked prices. Debt
instruments that mature in sixty or fewer days are valued at amortized cost.
CALCULATION OF TOTAL RETURN
From time to time, the Fund may advertise total return of the Fund.
These figures will be based on historical earnings and are not intended to
indicate future performance. Total return is a measure of the change in value of
an investment in the Fund over the period covered, which assumes any dividends
or capital gains distributions are reinvested immediately rather than paid to
the investor in cash. The formula for total return used herein includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year.
B-13
<PAGE>
Based on the foregoing, the average annual total return for the Fund
for the one-, five- and ten-year periods ended June 30, 1999, were as follows:
---------------------------------------------------------------------
Total Return
---------------------------------------------------------------------
One Year Five Years Ten Years
---------------------------------------------------------------------
-6.03% 15.9% 14.7%
---------------------------------------------------------------------
The Fund may from time to time include total return in information
furnished to present or prospective shareholders. The Fund may from time to time
also include total return and the ranking of those performance figures relative
to such figures for groups of mutual funds categorized by Lipper Analytical
Services, Morningstar, the Investment Company Institute and other similar
services as having the same investment objective as the Fund.
RETIREMENT PLANS
As noted in the Fund's Prospectus, an investment in Fund shares may be
appropriate for IRAs (whether Traditional, Educational, SEP, Simple or Roth),
and self-employed and corporate retirement plans. Unless the Fund is otherwise
directed, capital gains distributions and dividends received on Fund shares held
by any of these plans will be automatically reinvested in additional Fund shares
and will be exempt from taxation until distributed from the plans. Investors who
are considering establishing such a plan may wish to consult their attorneys or
tax advisers with respect to individual tax questions. The option of investing
in these plans through regular payroll deductions may be arranged with Janney
and your employer. Additional information with respect to these plans is
available upon request from any Janney broker.
Under the tax law as currently in effect, the Code imposes substantial
restrictions on your ability to make deductible contributions to an IRA.
ADDITIONAL INFORMATION CONCERNING THE
FUND'S MANAGEMENT AND AFFILIATIONS
The Fund's Board of Directors have overall responsibility for the
operation of the Fund.
The Fund's officers are responsible for the operation of the Fund under
the supervision of the Board of Directors. The directors and officers of the
Fund, their principal occupations during the past five years and other business
affiliations are set forth below. An asterisk (*) indicates directors who are
"interested persons" of the Fund as defined by the Investment Company Act. The
Fund's officers and directors own, as a group, less than 1% of the Fund's
outstanding shares.
B-14
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Fund During Past Five Years
- ---------------- ---------------- ----------------------
<S> <C> <C>
Radcliffe Cheston President and Chief President and Director of Addison Capital
1608 Walnut Street Executive Officer Management Company since May 1990; Vice
Philadelphia, PA 19103 President, Treasurer and Secretary of Addison
Capital Management Company and general
partner of its predecessor since January 1984.
Rudolph C. Sander* Chairman of the Board Chairman of the Board and Chairman of the
1801 Market Street and Director Executive Committee of Janney Montgomery
Philadelphia, PA 19103 Scott LLC.
Margaret M. Healy Director President, Rosemont College; Treasurer and
Rosemont College Chief Financial Officer, Bryn Mawr College,
Rosemont, PA 19010 1993-1995; Lecturer in Philosophy, Bryn
Mawr College, 1978-1995.
William R. Dimeling Director Partner, Dimeling, Schreiber & Park and its
1629 Locust Street predecessor, Dimeling & Schreiber, a private
Philadelphia, PA 19103 investment partnership since 1982; Trustee of
Pennsylvania Real Estate Investment Trust.
Charles E. Mather, III Director President and Director of Mather & Co.
226 Walnut Street (insurance brokers); Director, Christiana Bank
Philadelphia, PA 19106 & Trust (a state chartered bank not a member
of the Federal Reserve Board); Director and
President of Finance Company of Pennsylvania
(a registered investment company).
Charles J. Sullivan Vice President Senior Vice President and Director of Janney
1801 Market Street Montgomery Scott LLC.
Philadelphia, PA 19103
James W. Wolitarsky Treasurer, Chief Senior Vice President, Treasurer and Director
1801 Market Street Financial Officer and of Janney Montgomery Scott LLC.
Philadelphia, PA 19103 Chief Accounting Officer
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Fund During Past Five Years
- ---------------- ---------------- ----------------------
<S> <C> <C>
James V. Kelly, CFA Vice President Senior Vice President and Director of
1608 Walnut Street Addison Capital Management Company since
Philadelphia, PA 19103 August 1992; Vice President and Director of
Addison Capital Management Company since
October 1990; President of Sysdicon Investment
Counsel January 1989 to October 1990; Vice
President and Chief Equity Investment
Officer of Wilmington Trust Company January
1986 to January 1989.
James W. Jennings Secretary Partner, Morgan, Lewis & Bockius LLP.
1701 Market Street
Philadelphia, PA 19103
</TABLE>
Officers and directors of the Fund who are interested persons of the
Fund receive no salary or fees from the Fund. Directors of the Fund who are not
interested persons of the Fund receive an annual fee of $5,000 and related
expenses for each meeting of the Board of Directors attended by them.
The following Compensation Table shows aggregate compensation paid to
each of the Fund's Directors by the Fund in the year ended June 30, 1999. The
Fund is not part of a Fund complex, as that term is defined under the Securities
Exchange Act of 1934 (the "1934 Act").
B-16
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
====================================================================================================================================
(1) Name of Person, (2) Aggregate (3) Pension or Retirement (4) Estimated Annual (5) Total Compensation
Position Compensation From Benefits Accrued as part Benefits Upon From Registrant and Fund
Registrant for the fiscal of Fund Expenses Retirement Complex Paid to Directors
year ended June 30, 1999 for the fiscal year ended
June 30, 1999
====================================================================================================================================
<S> <C> <C> <C> <C>
*Rudolph C. Sander $0 $0 $0 $0
Chairman of the Board
and Director
Margaret M. Healy $5,000 $0 $0 $5,000
Director
William R. Dimeling $5,000 $0 $0 $5,000
Director
Charles E. Mather, III $5,000 $0 $0 $5,000
Director
====================================================================================================================================
</TABLE>
* A Trustee who is an "interested person" as defined in the Investment
Company Act.
Janney, a Delaware limited liability company, is wholly owned by Penn
Mutual Life Insurance Company, a life insurance company formed under the laws of
Pennsylvania, and another insurance subsidiary of Penn Mutual. The address of
Janney is 1801 Market Street, Philadelphia, Pennsylvania 19103. The address of
each of its parent companies described above is Independence Square,
Philadelphia, Pennsylvania.
PRINCIPAL SHAREHOLDERS
As of September 1, 1999, the Fund knew of no person who owned of record
or beneficially five percent or more of the Fund's shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Addison Capital Management Company (the "Adviser") serves as the Fund's
investment adviser. The Adviser is a wholly-owned subsidiary of Janney;
therefore, each of the companies listed immediately above may be deemed to
control the Adviser. The Adviser acts as the Fund's investment adviser under an
Investment Advisory Agreement dated September 8, 1986. The Agreement provides
that, subject to overall supervision by the Board of Directors of the Fund, the
Adviser will manage the investment affairs of the Fund. The Adviser will be
responsible for managing the Fund's portfolio and for making purchases and sales
of portfolio securities consistent with the Fund's investment objective and
policies described in the Prospectus and this Statement of Additional
Information.
B-17
<PAGE>
The Adviser receives for its services a management fee, calculated
daily and payable monthly, at an annual rate of 0.75% of the average daily net
assets of the Fund for the first $100 million of average daily net assets, 0.50%
of average daily net assets exceeding $100 million but less than $250 million,
and 0.25% of average daily net assets exceeding $250 million. For the fiscal
years ended June 30, 1997, June 30, 1998 and June 30, 1999 the Adviser received
$430,263, $564,974, and $506,771, respectively, in advisory fees from the Fund.
The advisory fee, and the annual management and distribution fees paid to
Janney, may be reduced on a pro rata basis under regulations in various states
where Fund shares are qualified for sale which impose limitations on the annual
expense ratio of the Fund.
The Investment Advisory Agreement was approved by the Fund's sole
shareholder on September 4, 1986 and by the Fund's shareholders at a meeting
held on October 29, 1987. It will remain in effect from year to year, provided
each annual continuance is approved in the manner required by the Investment
Company Act and, in respect to any continuance, if the Adviser does not notify
the Fund at least 60 days prior to each anniversary date of the Investment
Advisory Agreement that it does not desire such continuance. Each continuance
must be approved by a majority of the Board of Directors or by vote of the
holders of a majority of the outstanding voting securities of the Fund.
Additionally, the Investment Advisory Agreement, and each continuance hereof,
must be approved by vote of a majority of the directors of the Fund who are not
parties to the Investment Advisory Agreement or "interested" persons of such
parties as that term is defined in the Investment Company Act. The Fund's Board
of Directors, including all the non-interested Directors approved the
continuation of the Investment Advisory Agreement on September 1, 1999. The
Investment Advisory Agreement may be terminated by the Fund, without penalty, on
60 days' written notice to the Adviser and will terminate automatically in the
event of its assignment.
Under the Investment Advisory Agreement, the Fund has the non-exclusive
right to use the name "Addison" until that Investment Advisory Agreement is
terminated, or until the right is withdrawn in writing by the Adviser.
Under a Services Agreement between the Fund and Janney, Janney provides
office space to the Fund, supervises performance by PFPC, Inc. ("PFPC") and by
the Fund's Custodian of their respective duties, and responds to shareholders
inquiries, for an annual fee equal to 0.25% of the Fund's average daily net
assets. This fee is in addition to the annual distribution fee which Janney will
also receive from the Fund. See "The Fund's Distributor" below. Janney has
waived payment of this fee since commencement of the Fund's operations through
June 30, 1993. Commencing July 1, 1993, Janney began collecting this fee from
the Fund. For the years ended June 30, 1998 and June 30, 1999, Janney received
service fees of $188,325, and $168,924, respectively.
Pursuant to an Administration and Accounting Services Agreement dated
September 8, 1986 between PFPC and the Fund, PFPC performs accounting and
recordkeeping services for the Fund. For example, PFPC keeps all books and
records with respect to the Fund's security
B-18
<PAGE>
transactions, controls disbursements from the Fund, daily computes the net asset
value of the Fund, prepares monthly financial statements and security
transactions listings and quarterly broker security transactions summaries, and
provides various Fund statistical data on an ongoing basis as requested. PFPC
also prepares and files, on the Fund's behalf, the Fund's annual and quarterly
reports to the Securities and Exchange Commission, assists in the preparation of
federal and state tax returns, and assists generally in all aspects of the
Fund's operations other than those duties to be performed by the Custodian, the
Adviser and Janney. As fees for its services, PFPC receives an annual fee equal
to 0.10% of the Fund's average daily net assets, with a minimum annual fee of
$100,000 (a portion of which had been voluntarily waived prior to January 1,
1999). For the fiscal years ended June 30, 1997, June 30, 1998 and June 30,
1999, PFPC received fees of $75,000, $77,410, and $87,696, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As a general rule, the timing of the Fund's purchases and sales of
securities will be based primarily on the investment merits of the securities
and only secondarily will timing be influenced by whether capital gains will be
long-term or short-term. Thus, the turnover rate may vary greatly from year to
year or during periods within a year. The portfolio turnover rate is computed by
dividing the lesser of purchases or sales of securities for the period by the
average value of portfolio securities for that period. The Fund's portfolio
turnover rate for the fiscal years ended June 30, 1998 and June 30, 1999 was
28.14%, and 25.77%, respectively.
Under the Investment Advisory Agreement, the Adviser is responsible for
the execution of the Fund's portfolio transactions and must seek best execution
for such transactions. Best execution, however, does not mean that the Fund
necessarily will be paying the lowest commission or spread available. Rather,
the Fund also will take into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below), and any risk assumed by the executing
broker.
Consistent with the policy of best execution, the Adviser may give
consideration to research, statistical and other services furnished by brokers
or dealers to the Adviser for its use and may place orders with brokers who
provide supplemental investment and market research and securities and economic
analysis. Accordingly, the Investment Advisory Agreement also incorporates the
concepts of Section 28(e) of the 1934 Act by providing that, subject to the
approval of the Fund's Board of Directors, the Adviser may cause the Fund to pay
a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Fund. Such research services may be
useful to the Adviser in connection with services to clients other than the
Fund. For the fiscal year ended June 30, 1999, the Adviser directed transactions
for the Fund aggregating $43,833,690 to broker-dealers for research services,
for which the broker-dealers received $78,630.70 in commissions.
B-19
<PAGE>
From time to time the Fund may use Janney as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Janney will not exceed "usual and customary" brokerage commissions. Rule
17e-1 under the Investment Company Act defines "usual and customary commissions"
to include amounts which are "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time."
For the fiscal years ended June 30, 1997 and June 30, 1998, Janney received
brokerage commissions of $660 and $1,950, respectively, from the Fund. For the
fiscal year ended June 30, 1999, Janney received no brokerage commissions for
securities transactions.
The Adviser will also select other brokers to execute portfolio
transactions. In the over-the-counter market, the Fund generally will deal with
responsible primary market-makers unless a more favorable execution can
otherwise be obtained.
The Fund may not buy securities from, or sell to, Janney as principal.
However, the Fund's Board of Directors has adopted procedures in conformity with
Rule 10f-3 under the Investment Company Act whereby the Fund may purchase
securities that are offered in underwritings in which Janney is a participant.
The Board of Directors of the Fund will consider the possibilities of seeking to
recapture for the benefit of the Fund expenses of certain portfolio
transactions, such as underwriting commissions and tender offer solicitation
fees, by conducting such portfolio transactions through affiliated entities,
including Janney, only to the extent such recapture would be permissible under
applicable regulations, including the rules of the NASD and other
self-regulatory organizations.
Section 11(a)(1)(H) of the 1934 Act repeals the managed account
provisions of Section 11(a) to allow members of national securities exchanges to
effect transactions on such exchanges for managed accounts, i.e. accounts for
which members exercise investment discretion. Pursuant to Section 11(a)(1)(H),
Janney is permitted, as a member of a national securities exchange, to perform
functions other than execution in connection with a securities transactions for
the Fund on that exchange only if the Fund expressly consents by written
contract. The Fund has expressly provided such consent in accordance with
Section 11(a)(1)(H).
Investment decisions for the Fund are made independently from those of
other accounts advised by the Adviser. However, the same security may be held in
the portfolios of more than one account.
When two or more accounts simultaneously engage in the purchase or sale
of the same security, the prices and amounts will be equitably allocated among
each account. In some cases, this procedure may adversely affect the price or
quantity of the security available to a particular account. In other cases,
however, an account's ability to participate in large-volume transactions may
produce better executions and prices.
B-20
<PAGE>
THE FUND'S DISTRIBUTOR
Janney is the distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Fund and is the Fund's principal underwriter.
Janney's distribution services are performed on a "best effort" basis. Offering
of the Fund's shares will be continuous. The Underwriting Agreement obligates
Janney to pay for the printing and distribution of prospectuses and periodic
reports used in connection with the offering of Fund shares to prospective
investors, after the prospectuses and reports have been prepared, set in type
and mailed to existing shareholders at the Fund's expense, and for
supplementary sales literature and advertising costs. Rudolph C. Sander, who is
Chairman of the Board and a Director of the Fund, is also Chairman of the Board,
Chairman of the Executive Committee and a Director of Janney. Charles J.
Sullivan, a Vice President of the Fund, is also a Senior Vice President and
Director of Janney. James W. Wolitarsky, Treasurer of the Fund, is also Senior
Vice President, Treasurer and Director of Janney.
As compensation for its services, Janney receives an annual
distribution fee equivalent to 0.65% of the Fund's average daily net assets in
accordance with the Distribution Plan described below. However, commencing July
1, 1993, Janney waived a portion of this fee equal to 0.25% of the Fund's
average daily net assets. The Board of Directors of the Fund determined that
such a waiver was appropriate in view of Janney's decision to commence
collecting the service fee described above under "Investment Advisory and Other
Services". The distribution fee will be computed daily and paid monthly. For the
fiscal years ended June 30, 1997, June 30, 1998 and June 30, 1999, Janney
received fees of $229,473, $301,318, and $270,278, respectively, from the Fund
for distribution services.
Prior to July 3, 1995, Janney also received, upon each sale of Fund
shares, the entire amount of the applicable sales charge. Commencing on July 3,
1995, Janney waived the payment of the 3% sales charge on purchases of Fund
shares. At the same time, the Adviser agreed to pay Janney an amount equal to
0.25% of the Fund's average daily net assets from its own assets. The Board of
Directors of the Fund determined that in order to encourage sales of Fund
shares, it is reasonable to permit the Adviser to use its own assets to pay
Janney for its distribution efforts and to permit Janney to waive sales charges
on purchases of new Fund shares, and has approved Janney's continuation of such
waiver. Janney will not re-introduce this sales charge without the prior consent
of the Board, including a majority of the "non-interested" directors as defined
in the Investment Company Act.
The Fund has adopted a Distribution Plan ("Plan") which, among other
things, permits it to pay Janney the 0.65% distribution fee out of its net
assets. Janney uses most of the funds it receives to compensate sales personnel
and branch managers for their efforts in distributing Fund shares and keeping
shareholders informed about the Fund. The Plan was approved by the Fund's sole
shareholder on August 13, 1986 and, as required by Rule 12b-1 under the
Investment Company Act, was also approved by the Board of Directors of the Fund
on August 12, 1986,
B-21
<PAGE>
including a majority of the directors who were not "interested persons" of the
Fund as that term is defined in the Investment Company Act and who had no direct
or indirect financial interest in the operation of the Plan or the Underwriting
Agreement. In approving the Plan, in accordance with the requirements of Rule
12b-1, the directors considered various factors including the amount of the
distribution fee. The directors determined that there is a reasonable likelihood
that the Plan will benefit the Fund and the shareholders.
Although the payment by the Adviser to Janney in the amount of 0.25% of
the Fund's average net assets is made from the Adviser's own assets, the Board
of Directors has deemed such payment subject to the Plan. Accordingly, the Board
of Directors determined the payment from the Adviser is appropriate and
consistent with Rule 12b-1 and the Plan.
The Plan may be terminated by vote of a majority of the independent
directors of the Fund who have no direct or indirect financial interest in the
Plan or in the Underwriting Agreement, or by vote of a majority of the
outstanding voting securities of the Fund. Any change in the Plan that would
materially increase the distribution costs to the Fund requires shareholder
approval; otherwise the Plan may be amended by the directors, including a
majority of the independent directors, as described above.
The Plan continues in effect for successive one-year periods (from each
September 8 anniversary date), provided that each such continuance is
specifically approved by (i) the vote of a majority of the directors who are not
parties to the Underwriting Agreement or interested persons of any such party
and who have no direct or indirect financial interest in the Plan or Agreement;
and (ii) the vote of a majority of the entire Board of Directors. The Fund's
Board of Directors, including all non-interested directors, approved the
continuance of the Plan on September 1, 1999.
Rule 12b-1 requires that any person authorized to direct the
disposition of monies paid or payable by the Fund pursuant to the Plan or any
related agreement shall provide to the Fund's Board of Directors, and the
directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which expenditures were made. Rule 12b-1 also
provides that the Fund may rely on that rule only if the selection and
nomination of the Fund's independent directors are committed to the discretion
of such independent directors.
The Underwriting Agreement will continue in effect for successive
one-year periods subject to the same provisions for renewal as the Plan. In
addition, the Underwriting Agreement will terminate upon assignment or upon 60
days' notice, given prior to the second anniversary of the date of the agreement
and each anniversary thereafter, from Janney. The Fund may terminate the
Underwriting Agreement, without penalty, upon 60 days' notice, by a majority
vote of either its Board of Directors, the independent directors who have no
direct or indirect interest in the Plan or the Underwriting Agreement, or the
outstanding voting securities of the Fund.
B-22
<PAGE>
DESCRIPTION OF FUND SHARES
The Fund has authorized capital of two billion shares of common stock,
par value $0.001. Each share will be entitled to one vote for the election of
directors and on any matter submitted to a shareholder vote. Fractional shares
will have fractional voting rights. Voting rights will not be cumulative.
Pursuant to the Maryland General Corporation Law, the Fund is not required to
hold annual meetings of shareholders unless the Investment Company Act requires
action by the shareholders to elect members of the Board of Directors under
certain circumstances.
The Fund's Articles of Incorporation authorize the Board of Directors,
without shareholder approval (unless otherwise required by applicable law), to:
(i) sell and convey the Fund's assets to another management investment company
for consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Fund shares to be redeemed at a
price which is equal to their net asset value and which may be paid in cash or
by distribution of the securities or other consideration received from the sale
and conveyance; (ii) sell and convert the Fund's assets into money and, in
connection therewith, to cause all outstanding Fund shares to be redeemed at
their net asset value; or (iii) combine the Fund's assets with the assets
belonging to another portfolio of the Fund hereafter organized if the Board of
Directors reasonably determines that such combination will not have a material
adverse effect on the shareholders of the Fund and such other portfolio and, in
connection therewith, to cause all outstanding Fund shares to be redeemed or
converted into shares of another class of the Fund's capital stock at net asset
value. The exercise of such authority by the Board will be subject, however, to
the provisions of the Investment Company Act, including Section 13(a)(4) of that
Act which prohibits an investment company from changing the nature of its
business so as to cease being an investment company without the authorizing vote
of a majority of its outstanding voting securities.
Shares of the Fund are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Meetings of shareholders for the purpose of electing Directors
will normally not be held, except insofar as elections are required under the
Investment Company Act. Such circumstances would arise in the event that (i)
less than a majority of the Directors have been elected by shareholders, or (ii)
if, as a result of a vacancy, less than two-thirds of the Directors have been
elected by the shareholders, the vacancy will be filled only by a vote of the
shareholders. In addition, the Directors may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding Shares and filed
with the Fund's custodian or by a vote of the holders of two-thirds of the
outstanding Shares at a meeting called for the purpose. Such a meeting must be
held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon written request by ten or more shareholders, who have
been such for at least six months, and who hold shares constituting 1% of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Director, the Fund will undertake to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting
B-23
<PAGE>
shareholders). Except as set forth above, each Director shall continue to hold
office and may appoint his successor.
THE FUND'S CUSTODIAN, TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Cash and securities owned by the Fund will be held by PNCBank, Airport
Business Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania
19113, as Custodian pursuant to a Custodian Agreement. Under the Custodian
Agreement, the Custodian will (i) maintain a separate account in the name of the
Fund; (ii) disburse money on behalf of the Fund; and (iii) collect all income
and other payments on account of the Fund's portfolio securities.
PFPC, Inc., P.O. Box 8916, Wilmington, Delaware 19899-8916, will serve
as the Fund's transfer agent and dividend disbursing agent pursuant to a
Transfer Agency Agreement. Under the Transfer Agency Agreement, PFPC will (i)
issue and redeem shares of the Fund; (ii) process dividend and distribution
payments to shareholders; (iii) mail annual and semi-annual reports, dividend
notices and other shareholder communications; (iv) respond to correspondence by
shareholders and others; and (v) maintain shareholder accounts. Shareholders who
request a historical transcript of their account from the Transfer Agent will be
charged a fee based upon the number of years researched. The Fund reserves the
right, upon 60 days' written notice, to make other charges to investors to cover
administrative costs.
THE FUND'S LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia,
Pennsylvania 19103, serves as counsel to the Fund and has passed upon certain
matters in connection with this offering. Mr. Jennings, who is Secretary of the
Fund, is a partner in the firm. The firm also acts as counsel to the Adviser and
to Janney.
FINANCIAL STATEMENTS
The financial statements for the Fund for the fiscal year ended June
30, 1999 and the report of Tait, Weller & Baker, independent auditors, all of
which are included in the Funds' 1999 Annual Report to Shareholders, are hereby
incorporated by reference in this Statement of Additional Information. A copy of
the Fund's 1999 Annual Report to Shareholders must accompany the delivery of
this Statement of Additional Information.
B-24
<PAGE>
THE FUND'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800, Philadelphia,
Pennsylvania 19103 have been selected as the independent certified public
accountants for the Fund. The Financial Statements of the Fund which appear in
this Statement of Additional Information have been examined by Tait, Weller &
Baker whose report thereon appears elsewhere herein and has been included herein
in reliance upon the report of said firm of accountants, which is given upon
their authority as experts in accounting and auditing.
B-25
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(a) Articles of Incorporation dated June 3, 1986 are
incorporated herein by reference to Exhibit 1 of the
Registrant's Registration Statement on Form N-1A filed
with the SEC on June 10, 1986.
(b) By-Laws as amended on March 7, 1990 are incorporated
herein by reference to Exhibit 2 of Post-Effective
Amendment No. 5 to Registrant's Registration Statement on
Form N-1A filed with the SEC on October 26, 1990.
(c) Instruments Defining Rights of Security Holders is
incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form N-1A filed
with the SEC on June 10, 1986.
(d) Investment Advisory Agreement between the Registrant and
Addison Capital Management Company is incorporated herein
by reference to Exhibit 5 to the Registrant's Registration
Statement on Form N-1A filed with the SEC on June 10,
1986.
(e) (1) Underwriting Agreement between the Registrant
and Janney Montgomery Scott LLC is incorporated
herein by reference to Exhibit 6(a) to the
Registrant's Registration Statement on Form N-1A
filed with the SEC on June 10, 1986.
(2) Dealer Agreement between Janney Montgomery Scott
LLC and Penn Mutual Equity Services, Inc. (now,
Hornor Townsend & Kent, Inc.) is incorporated
herein by reference to Exhibit 6(b) to the
Registrant's Registration Statement on Form N-1A
filed with the SEC on June 10, 1986.
(f) None.
(g) Custodian Agreement between the Registrant and Provident
National Bank is incorporated herein by reference to
Exhibit 8 to the Registrant's Registration Statement on
form N-1A filed with the SEC on June 10, 1986.
(h) (1) Services Agreement between the Registrant and
Janney Montgomery Scott LLC is incorporated herein
by reference to Exhibit 9(a) to the Registrant's
Registration Statement on Form N-1A filed with the
SEC on June 10, 1986.
C-1
<PAGE>
(2) Administration and Accounting Services Agreement
between the Registrant and Provident Institutional
Management Corporation is incorporated herein by
reference to Exhibit 9(b) to the Registrant's
Registration Statement on Form N-1A filed with the
SEC on June 10, 1986.
(3) Transfer Agency Agreement between the Registrant
and Provident Financial Processing Corporation is
incorporated herein by reference to Exhibit 9(c)
to the Registrant's Registration Statement on Form
N-1A filed with the SEC on June 10, 1986.
(i) Opinion of Counsel, filed herewith.
(j) Consent of Tait, Weller & Baker, filed herewith.
(k) None.
(l) Agreement with Janney Montgomery Scott LLC for providing
Initial Capital is incorporated herein by reference to Exhibit
13A the Registrant's Registration Statement on Form N-1A filed
with the SEC on June 10, 1986.
(m) The Registrant's 12b-1 Plan is incorporated herein by
reference to Exhibit 15 to the Registrant's Registration
Statement on Form N-1A filed with the SEC on June 10, 1986.
(n) Not applicable.
(o) Powers of Attorney are incorporated herein by reference to
Exhibit 18 of Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A filed with the SEC on
August 27, 1993.
Item 24. Persons Controlled by or under Common Control with Registrant
Not Applicable.
Item 25. Indemnification
Article VII of the Registrant's Articles of Incorporation provides,
"The Corporation shall indemnify its present and past directors,
officers, employees, and agents, and persons who are serving or
have served at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or
C-2
<PAGE>
enterprise, to the maximum extent permitted by applicable law, in
such manner as may be provided in the By-Laws; provided, that no
director or officer of the Corporation shall be indemnified against
any liability to the Corporation or its stockholders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Corporation may purchase
insurance against any liability which may be asserted against or
incurred by any director or officer in such capacity or arising out
of his status as such (whether or not indemnification with respect
to such liability is permitted under these Articles of
Incorporation or any provision of law), as the Board of Directors
may determine."
Article VIII of the Registrant's By-Laws provides,
"ARTICLE VIII.1. Indemnification of Officers, Directors, Employees
and Agents. The Corporation shall indemnify its present and past
Directors, officers, employees, and agents, and persons who are
serving or have served at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or enterprise, to the maximum
extent provided and allowed by Md. Corp. and Assigns. Code
ss.2-418, as amended from time to time.
Article VIII.2. Limitations of Indemnification.
(a) Notwithstanding anything herein to the contrary, no
Director, officer, investment adviser, or principal underwriter of
the Corporation shall be indemnified for any liability, whether or
not there is an adjudication of liability, arising by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office or in
performance of its contract. Subject to the limitation of any
applicable law, the determination of whether or not there has been
such disabling conduct may be determined by (1) a final decision on
the merits by a court or other body before whom the proceeding was
brought that such person to be indemnified was not liable by reason
of such disabling conduct, or (2) in the absence of such a
decision, a reasonable determination, based upon a review of the
facts, that such person to be indemnified was not liable by reason
of such disabling conduct, by (i) the vote of a majority of a
quorum of directors which are neither "interested persons", as
defined in the 1940 Act ("disinterested directors") nor parties to
the proceeding, or (ii) whether or not such quorum is obtainable,
if a majority of a quorum of disinterested directors so directs, by
an independent legal counsel in a written opinion.
(b) Notwithstanding anything herein to the contrary, no
expenses (including attorneys' fees) incurred by the Corporation's
Directors and officers in any pending proceeding shall be paid by
the Corporation in advance unless such person to be indemnified, or
someone on his behalf, undertakes to repay the advance unless it is
C-3
<PAGE>
ultimately determined that he is entitled to indemnification and
(a) such person provides security for his undertaking, (2) the
Corporation is insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of the disinterested
directors who are not parties to the proceeding, or an independent
legal counsel (chosen by a majority of a quorum of disinterested
directors) in a written opinion, shall determine, based upon a
review of readily available facts, that there is reason to believe
that such person will ultimately be entitled to indemnification."
In the Underwriting Agreement between the Fund and Janney
Montgomery Scott LLC, the Fund has agreed to indemnify Janney
against any liability arising out of any alleged untrue statement
of material fact, or failure to state a material fact, in the
Fund's Registration Statement and Prospectus, except liabilities
arising from the Distributor's will misfeasance, bad faith, or
gross negligence, and liabilities arising from written
misstatements furnished by the Distributor for use in the
Registration Statement. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or
otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant
of express incurred or paid by trustees, officers or controlling
persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Adviser
Radcliffe Cheston, President, Treasurer and a director of Addison
Capital Management Company (the "Adviser") was a general partner of
a now dissolved partnership, also known as Addison Capital
Management Company (the "Predecessor"), an investment advisory
business from which the Adviser acquired its assets in April 1986.
Rudolph C. Sander, a director and Chairman of the Board of the
Adviser, is Chairman of the Board and Chairman of the Executive
Committee of Janney Montgomery Scott LLC, a brokerage and
investment banking firm which is the Fund's distributor.
C-4
<PAGE>
Item 27. Principal Underwriter
(a) Janney does not act as principal underwriter for
any other investment company.
(b) The Directors and executive officers of Janney
Montgomery Scott LLC as of August 1, 1999 are
listed below. Except as otherwise noted, each
person's principal business address is at Janney
Montgomery Scott LLC, 1801 Market Street,
Philadelphia, Pennsylvania 19103.
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- --------------------- ---------------------
<S> <C> <C>
Avallon, Richard 1st Vice President None
Barrett, William Joel(1) Sr. Vice President None
Bennett, Robert John 1st Vice President None
Berardino, Ronald Michael(1) Exec. Vice President and Manager None
Betz, William Raymond 1st Vice President None
Biggs, Randall 1st Vice President None
Brandreth, Sr., William Rea Sr. Vice President and Director None
Brodie, Nancy S. Manager None
Carlin, Jr., William James 1st Vice President None
Chelik, Robert John 1st Vice President None
Cook, Jr., Charles Beckwith(1) Vice Chair/Manager None
Croonquist, Jr., George Thomas Vice President None
Croonquist, Sr., George Thomas(2) Sr. Vice President and Manager None
Cully, Robert 1st Vice President None
Cunningham, David J. Secretary/Chief Operating Officer None
Day, Steve Woodward 1st Vice President None
DiCicco, Dominic Charles 1st Vice President None
Doyle, Lawrence Patrick 1st Vice President None
Eldredge, Jr., Ashton Goodliff Sr. Vice President and Manager None
Fenton, Joseph Patrick Sr. Vice President None
Foley, Michael C. Sr. Vice President and Manager None
Gardner, Herbert M.(1) Sr. Vice President None
Gibson, Vernon L. 1st Vice President None
Gonzalez, Jay Clark 1st Vice President None
Gray, John Joseph Exec. Vice President and Manager None
Howell, Christopher R. Sr. Vice President None
Hughes, John Patrick 1st Vice President None
Hunt, Lawrence David 1st Vice President None
Johnson, Lawrence Retlaw 1st Vice President None
Kashishian, Steven Sr. Vice President None
Kerr, Howard Brad 1st Vice President None
Kontul, Philip A. 1st Vice President None
Lagana, Thomas Frank 1st Vice President None
Langen, Robert Carl 1st Vice President None
Lee, Brian Westcott 1st Vice President None
Lichtenthal, Steven Mark Sr. Vice President None
Lombard, Jr., Jerome F. 1st Vice President None
Marks, Katherine A. 1st Vice President None
McAlenney, Jr., Edward Joseph 1st Vice President None
McCoy, Lance S. 1st Vice President None
McCrea, James Anthony 1st Vice President and Assistant Secretary None
Meminger, Alan Smith 1st Vice President None
Meyer, James Maurice Sr. Vice President and Manager None
Mielziner, Norman Kenneth 1st Vice President None
Mufson, Michael J. Sr. Vice President None
Onori, Paul Nicholas 1st Vice President None
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- --------------------- ---------------------
<S> <C> <C>
Patitucci, Michael Robert Sr. Vice President None
Purkiss, Richard Allen Sr. Vice President and Manager None
Radetzky, William Richard Sr. Vice President None
Reed, Robert 1st Vice President None
Reinhart, Peter 1st Vice President
Richards, II, Robert Kenneth 1st Vice President None
Rosato, Kenneth Vincento 1st Vice President None
Rubel, Steven K. 1st Vice President None
Ruello, John K. Sr. Vice President None
Rulon-Miller, William L. Sr. Vice President None
Sander, Rudolph Charles Chairman and Chairman Executive Committee Chairman and Director
Sanford, William Joseph 1st Vice President None
Schankel, Alan Miller Sr. Vice President and Manager None
Scherer, Howard B. 1st Vice President None
Simon, Gail Roberta 1st Vice President None
Spatacco, Michael Stephan Sr. Vice President None
Stark, Jeanette Louise 1st Vice President None
Sullivan, Charles John Sr. Vice President and Manager Vice President
Thornton, Richard Anson 1st Vice President and Asst. Treasurer None
Thompson, Richard A. 1st Vice President None
Tickner, Will S. Sr. Vice President None
Waitneight, Stephen Karl(3) 1st Vice President None
Warren, Frederick R. 1st Vice President None
Weissenborn, Stanton Sr. Vice President None
Whitaker, Jr., Arthur James 1st Vice President None
Wilde, Jr., Norman Taylor President, Chief Executive Officer and Manager None
Wolitarsky, James William Sr. Vice President, Treasurer and Manager Treasurer
</TABLE>
(1) Principal Business Address is Janney Montgomery Scott LLC, 26 Broadway,
New York, NY 10004.
(2) Principal Business Address is Janney Montgomery Scott LLC, 505 Main Street,
Hackensack, NJ 07601.
(3) Principal Business Address is Janney Montgomery Scott LLC, 1909 E. Marlton
Pike, Cherry Hill, NJ 08003.
Item 28. Location of Accounts and Records
--------------------------------
Books or other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules
promulgated thereunder, are maintained as follows:
(a) With the respect to Rule 31a-1(a);
(b)(1); (b)(2)(i); (3); and (7), the
required books and records are
maintained at the offices of the
Registrant's custodian: PNCBank,
Airport Business Center,
International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113.
(b) With respect to Rule 31a-1(a);
(b)(2)(ii), (iii); (5); (6); and (8)
the required books and records are
maintained at the offices of
Registrant's accounting and
administrative services agent: PFPC,
103 Bellevue Parkway, Wilmington,
Delaware 19809.
C-7
<PAGE>
(c) With respect to Rule 31a-1(a) and
(b)(2)(iv), the required books and
records are maintained at the
offices of Registrant's transfer
agent: PFPC, Inc., 3531 Silverside
Road, Wilmington, Delaware 19803.
(d) With respect to Rule 31a-1(d), the
required books and records are
maintained at the offices of the
Fund's distributor, Janney
Montgomery Scott LLC, 1801 Market
Street, Philadelphia,
Pennsylvania 19103.
(e) With respect to Rules 31a-1(a);
(b)(9); (10); (f), the required
books and records are maintained at
the offices of Registrant's
Investment Adviser: Addison Capital
Management Company, 1608 Walnut
Street, Philadelphia, Pennsylvania.
(f) With respect to records required by
Rule 31a-1(b)(4), the required books
and records are maintained at the
offices of Registrant's counsel:
Morgan, Lewis & Bockius LLP, 1701
Market Street, Philadelphia,
Pennsylvania 19103.
Item 29. Management Services
-------------------
None.
Item 30. Undertakings
------------
None.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment No. 14 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of
Philadelphia and Commonwealth of Pennsylvania, on the 27th day of August, 1999.
ADDISON CAPITAL SHARES, INC.
Registrant
/s/ Radcliffe Cheston
----------------------------
Radcliffe Cheston, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Radcliffe Cheston President and Chief Executive August 27, 1999
- ---------------------- Officer
Radcliffe Cheston
/s/ Radcliffe Cheston Chairman of the Board and August 27, 1999
- ---------------------- Director
Rudolph C. Sander*
/s/ Radcliffe Cheston Director August 27, 1999
- ----------------------
Margaret M. Healy*
/s/ Radcliffe Cheston Director August 27, 1999
- ----------------------
William R. Dimeling*
/s/ Radcliffe Cheston Director August 27, 1999
- ----------------------
Charles E. Mather, III*
/s/ Radcliffe Cheston Treasurer and Chief Financial August 27, 1999
- ---------------------- and Accounting Officer
James W. Wolitarsky*
/s/ Radcliffe Cheston
- ----------------------
*Radcliffe Cheston
Attorney-in-Fact
</TABLE>
C-9
<PAGE>
EDGAR EXHIBIT EXHIBIT INDEX
(a) Articles of Incorporation dated June 3, 1986
are incorporated herein by reference to
Exhibit 1 of the Registrant's Registration
Statement on Form N-1A filed with the SEC on
June 10, 1986.
(b) By-Laws as amended on March 7, 1990 are
incorporated herein by reference to Exhibit
2 of Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A filed with the SEC on October 26, 1990.
(c) Instruments Defining Rights of Security
Holders is incorporated herein by reference
to Exhibit 4 to the Registrant's
Registration Statement on Form N-1A filed
with the SEC on June 10, 1986.
(d) Investment Advisory Agreement between the
Registrant and Addison Capital Management
Company is incorporated herein by reference
to Exhibit 5 to the Registrant's
Registration Statement on Form N-1A filed
with the SEC on June 10, 1986.
(e) (1) Underwriting Agreement between the
Registrant and Janney Montgomery
Scott LLC is incorporated herein by
reference to Exhibit 6(a) to the
Registrant's Registration Statement
on Form N-1A filed with the SEC on
June 10, 1986.
(2) Dealer Agreement between Janney
Montgomery Scott LLC and Penn Mutual
Equity Services, Inc. (now, Hornor
Townsend & Kent, Inc.) is
incorporated herein by reference to
Exhibit 6(b) to the Registrant's
Registration Statement on Form N-1A
filed with the SEC on June 10, 1986.
(f) None.
(g) Custodian Agreement between the Registrant
and Provident National Bank is incorporated
herein by reference to Exhibit 8 to the
Registrant's Registration Statement on form
N-1A filed with the SEC on June 10, 1986.
(h) (1) Services Agreement between the
Registrant and Janney Montgomery
Scott LLC is incorporated herein by
reference to Exhibit 9(a) to the
Registrant's Registration Statement
on Form N-1A filed with the SEC on
June 10, 1986.
C-10
<PAGE>
(2) Administration and Accounting
Services Agreement between the
Registrant and Provident
Institutional Management Corporation
is incorporated herein by reference
to Exhibit 9(b) to the Registrant's
Registration Statement on Form N-1A
filed with the SEC on June 10, 1986.
(3) Transfer Agency Agreement between
the Registrant and Provident
Financial Processing Corporation is
incorporated herein by reference to
Exhibit 9(c) to the Registrant's
Registration Statement on Form N-1A
filed with the SEC on June 10, 1986.
EX-99.B (i) Opinion of Counsel, filed herewith.
EX-99.B (j) Consent of Tait, Weller & Baker, filed
herewith.
(k) None.
(l) Agreement with Janney Montgomery Scott LLC
for providing Initial Capital is
incorporated herein by reference to Exhibit
13A the Registrant's Registration Statement
on Form N-1A filed with the SEC on June 10,
1986.
(m) The Registrant's 12b-1 Plan is incorporated
herein by reference to Exhibit 15 to the
Registrant's Registration Statement on Form
N-1A filed with the SEC on June 10, 1986.
(n) Not Applicable.
(o) Powers of Attorney are incorporated herein
by reference to Exhibit 18 of Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement on Form N-1A filed
with the SEC on August 27, 1993.
C-11
<PAGE>
1701 Market Street MORGAN, LEWIS
Philadelphia, PA 19103 & BOCKIUS LLP
215-963-5000 C O U N S E L O R S A T L A W
Fax: 215-963-5299
August 15, 1999
Addison Capital Shares, Inc.
c/o Janney Montgomery Scott Inc.
2 Bala Cynwyd Plaza
Bala Cynwyd, PA 19004
Gentlemen:
We are furnishing this opinion with respect to the offer and sale from time to
time of shares of Class A Common Stock, par value $.001 per share (the "Shares")
of Addison Capital Shares, Inc., a Maryland corporation (the "Fund"), being
registered under the Securities Act of 1933 by Registration Statement on Form
N-1A (File No. 33-6364) of the Fund.
We have acted as counsel for the Fund since its incorporation on June 4, 1986,
and are familiar with the action taken by its directors to authorize the
issuance of the Shares. We have examined Articles of Incorporation, By-Laws, and
minute books of the fund, and such other certificates, documents, and opinions
of counsel as we deem necessary for the purposes of this opinion.
We supervised the action taken by the Fund to effect registration with the
Securities and Exchange Commission as an investment management company by the
filing of a Notification of Registration on Form N-8A under the Investment
Company Act of 1940. We have examined copies of a Registration Statement, as
amended, under said Act and under the Securities Act of 1933 on Form N-1A, in
the forms filed or to be filed with the Securities and Exchange Commission.
We assume that upon sales of the Shares the Fund will receive the net asset
value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a corporation legally organized and validly existing
under the laws of the state of Maryland. The authorized capital stock of the
Fund consists of 2,000,000,000 shares of Common Stock, par value $.001 per
share, of which 50,000,000 shares have been classified as Class A Common Stock.
2,064,964 shares of Class A Common Stock are
<PAGE>
Addison Capital Shares, Inc.
August 15, 1999
Page 2
presently issued and outstanding. All corporate action necessary for the issue
of up to 50,000,000 Shares currently being registered under the Securities Act
of 1933 has been taken.
2. Upon the issue of any of the Shares for cash at net asset value and
receipt by the Fund of the authorized consideration therefor, the Shares so
issued will be validly issued, fully paid and nonassessable by the Fund.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Securities Act
of 1933. We consent to the filing of this opinion in connection with and as a
part of said Registration Statement on Form N-1A and amendments thereto. We also
hereby consent and to the reference to our firm under the caption "The Fund's
Legal Counsel" in the Statement of Additional Information which is a part of the
Registration Statement.
Very truly yours,
/s/Morgan, Lewis & Bockius LLP
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<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment No. 14
to the Registration Statement on Form N-1A of Addison Capital Shares, Inc. and
to the use of our report dated July 9, 1999 on the financial statements and
financial highlights of the Addison Capital Shares, Inc. Such financial
statements and financial highlights appear in the 1999 Annual Report to
Shareholders which is incorporated by reference into the Statement of Additional
Information.
/s/TAIT, WELLER & BAKER
-----------------------
Philadelphia, Pennsylvania
August 23, 1999
