<PAGE>
- --------------------------------------------------------------------------------
Chairman's Letter
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
The volatility of the stock market continued to increase dramatically in the
last 6 months of 1999. While the major indexes were up again last year, market
leadership was concentrated in just a few sectors, technology being the most
visible. Value investing did not fare well in this climate.
It is impossible to predict with certainty the direction the market will
take in 2000. However, we believe those investors who take a long term view of
their portfolios and can afford to remain invested through the inevitable up and
down cycles will continue to be well rewarded in the equity market place. We
appreciate your continued support, and we feel the changes made in the
management of the Fund and in the investment objective will be positive moves.
Sincerely,
/s/ Rudolph C. Sander
---------------------
Rudolph C. Sander
1
<PAGE>
- --------------------------------------------------------------------------------
President's Letter February 2000
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
It is with great pleasure that I write to you as the new President of the
Buttonwood Capital Appreciation Fund (formerly Addison Capital Shares) as well
as a co-manager with Bill Woolbert of the Fund. Independence Capital Management
(ICMI), a wholly owned subsidiary of The Penn Mutual Life Insurance Company,
assumed responsibility for management of the Fund on December 31, 1999.
With the change in managers it was appropriate to also change the name of the
Fund. In today's marketplace it is difficult to find a distinctive, meaningful
name that has not been taken. The Buttonwood name has an investment history that
dates to the beginnings of investing in this country. The New York Stock
Exchange traces its origins to an agreement between twenty-four brokers reached
in 1792. This agreement was signed under the shade of a Buttonwood tree and is
often referred to as the Buttonwood Agreement. We would like to think of the
changes made in the Fund management and direction as a new beginning, one that
will enjoy the success and life of the original Buttonwood Agreement.
ICMI uses and investment style that concentrates on companies with consistent
histories of earnings growth. We believe that stock performance is determined by
earnings growth and that companies exhibiting earnings above expectations are
likely to produce above average performance. We have found over time that the
companies displaying the qualities of consistency and predictability that we
value tend to be larger, well-established companies. We also believe in
diversification. You will find our portfolios to have representation in all the
major economic sectors of the market. Consistency of results is important to us
and our diversification strategy is critical in achieving this goal.
As you may appreciate, there are differences between our investment approach
and that of the former manager. While there are many holdings that are
consistent with our approach, many are not. We have made a number of changes
already and will continue to take opportunities the market gives us to fully
implement our strategy. In this process of change it is our goal to create a
portfolio that will be competitive with other Growth & Income funds as well as
with the popular averages.
We also intend to be active in marketing the Fund. Our record of performance,
investment personnel, and strategies are known through the Janney Montgomery
Scott system as well as other distribution channels that may be interested in
using the Fund. A larger Fund would make the transition process easier and
eventually reduce per share costs to shareholders.
Because the December 31, 1999 statement does not reflect many of the changes
we have made since assuming control we have provided a list of new positions
taken in the Fund. This list is meant to be reflective of the type of company we
intend to use in the Fund, not an exhaustive list of actual purchases and sales.
Additional changes will have been made since the writing of this letter.
New Positions in the Buttonwood Fund
------------------------------------
General Electric Merck
Tyco International MBNA
Home Depot IBM
McGraw Hill Nokia
Kimberly Clark Microsoft
Procter & Gamble Motorola
Amgen Texas Instruments
Johnson & Johnson AT&T
Medtronic Vodafone
We have also begun to use convertible issues to help sustain the income level
of the Fund, such as issues from CVS and Nextell. We will continue to look for
attractive issues in this area.
2
<PAGE>
Some comment does need to be made about the extraordinary market returns of
1999. 1999 was the fifth consecutive year of 20% or better returns for the S&P
500. It was also the ninth consecutive year of positive returns for the index.
The market, not just in 1999 but for most of the decade has been driven by the
powerful combination of stable economic growth, falling inflation and interest
rates, and consistently growing corporate profits. This has allowed for share
prices to advance on both higher earnings and higher valuation. The principal
beneficiaries of this trend have been companies able to produce consistently
higher earnings results. 1999 diverged somewhat from the trend of the 1990's as
interest rates actually rose from their year-end 1998 levels. This capped
valuation generally for the market and placed pressure on earnings to generate
returns. Those companies producing or expected to produce accelerating earnings
tended to outperform, such as Technology. The year 2000 seems at the beginning
to offer a similar environment to 1999. The U.S. economy is expected to continue
to advance and corporate profits should be better than in 1999. Some concern has
been expressed regarding the level of inflation and interest rates. This is
critically important as higher inflation would begin to undermine the valuation
of the market. We see little evidence of structural problems of inflation, and
as a consequence believe the market can advance on earnings progress in 2000.
We are very appreciative of the opportunity to manage the Buttonwood Capital
Appreciation Fund and look forward to providing to you a top quality investment
product.
Sincerely,
/s/ Richardson T. Merriman
--------------------------
Richardson T. Merriman
3
<PAGE>
================================================================================
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
December 31, 1999 (Unaudited)
================================================================================
Number
of Value
Shares (Note A)
- --------------------------------------------------------------------------------
COMMON STOCK - 98.5%
- --------------------------------------------------------------------------------
Aerospace-- 3.0%
Textron, Incorporated ............................. 16,000 $1,227,000
----------
Automobiles & Related-- 2.6%
General Motors Corporation ........................ 15,000 1,090,312
----------
Banking-- 5.0%
Chase Manhattan Corporation ....................... 15,000 1,165,312
First Union Corporation ........................... 28,000 918,750
----------
2,084,062
----------
Capital Goods -- 3.2%
Ingersoll Rand Corporation ........................ 24,000 1,321,500
----------
Chemicals-- 3.2%
Du Pont (E.I.) De Nemours
and Company ...................................... 20,000 1,317,500
----------
Computer Services-- 1.7%
SunGard Data Systems,
Incorporated** ................................... 30,000 712,500
----------
Computers-- 5.6%
Compaq Computer, Incorporated ..................... 40,200 1,087,912
----------
Gateway 2000, Incorporated** ...................... 17,000 1,225,062
----------
2,312,974
----------
Conglomerates -- 1.4%
Tyco International Ltd ............................ 15,000 583,125
----------
Construction Materials-- 1.4%
Vulcan Materials Company .......................... 14,640 584,685
----------
Consumer Products-- 1.2%
Procter & Gamble Company .......................... 4,500 493,031
----------
Electronics-- 2.0%
Intel Corporation ................................. 10,000 823,125
----------
Finance-- 5.5%
Citigroup, Incorporated ........................... 15,000 833,437
Morgan Stanley Dean Witter
& Company ........................................ 10,000 1,427,500
----------
2,260,937
----------
Forest Products -- 1.5%
Champion International
Corporation ...................................... 10,000 619,375
----------
<PAGE>
Number
of Value
Shares (Note A)
- --------------------------------------------------------------------------------
Healthcare & Medical Equipment-- 1.2%
Johnson & Johnson ................................. 5,200 $484,250
----------
Home Furnishing/Housewares-- 2.6%
Ethan Allen Interiors,
Incorporated ..................................... 34,000 1,090,125
----------
Insurance-- 10.3%
Allstate Corporation .............................. 36,000 864,000
American General Corporation ...................... 16,000 1,214,000
American International
Group, Incorporated .............................. 11,061 1,195,971
Reliastar Financial Corporation ................... 25,000 979,688
----------
4,253,659
----------
International Oils-- 6.9%
BP Amoco PLC ...................................... 23,760 1,409,265
Exxon Corporation ................................. 18,000 1,450,125
----------
2,859,390
----------
Machinery -- 3.0%
Pentair, Incorporated ............................. 32,000 1,232,000
----------
Natural Gas-- 3.2%
Columbia Energy Group ............................. 21,100 1,334,575
----------
Office Equipment-- 2.6%
International Business Machines
Corporation ...................................... 4,500 486,000
Xerox Corporation ................................. 25,000 567,188
----------
1,053,188
----------
Oil Equipment & Services-- 3.1%
Halliburton Company ............................... 32,000 1,288,000
----------
Paper & Forest Products-- 2.9%
Rayonier, Incorporated ............................ 25,000 1,207,813
----------
Personal Services-- 1.2%
Kimberly-Clark Corporation ........................ 7,800 508,950
----------
Publishing-- 4.4%
Knight Ridder, Incorporated ....................... 22,000 1,309,000
McGraw-Hill Cos, Incorporated ..................... 8,000 493,000
----------
1,802,000
----------
Retail Merchandising-- 6.4%
BJ's Wholesale Club,
Incorporated** ................................... 36,000 1,314,000
Dayton Hudson Corporation ......................... 18,000 1,321,875
----------
2,635,875
----------
4
<PAGE>
================================================================================
ADDISON CAPITAL SHARES, INC.
Schedule of Portfolio Investments
June 30, 1999
================================================================================
Number
of Value
Shares (Note A)
- --------------------------------------------------------------------------------
Retail Store-- 2.6%
Ross Stores, Incorporation ....................... 60,000 $1,076,250
----------
Technology-- 1.2%
Motorola, Incorporated ........................... 3,500 515,375
----------
Telecommunications-- 2.3%
Lucent Technologies,
Incorporated .................................... 6,000 448,875
MCI Worldcom, Incorporated** ..................... 9,750 517,359
----------
966,234
----------
Utilities-- Electric-- 2.3%
Duke Energy Corporation .......................... 19,332 969,017
----------
Utilities-- Natural Gas-- 2.6%
NICOR, Incorporated .............................. 32,886 1,068,795
----------
Utilities-- Telephone-- 2.4%
GTE Corporation .................................. 14,000 987,875
----------
TOTAL COMMON STOCK
(Cost $26,076,477) 40,763,497
----------
TEMPORARY INVESTMENTS - 3.0%
Temporary Investment Fund ........................ 622,167 $622,167
Temporary Investment
Cash Fund ........................................ 622,167 622,167
----------
TOTAL TEMPORARY INVESTMENTS
(Cost $1,244,334) $1,244,334
----------
TOTAL INVESTMENTS
(Cost $27,320,811*) .............................. 101.5% 42,007,831
----------
Liabilities in excess of
Other Assets ..................................... (1.5%) (638,502)
------ ----------
Net Assets .......................................... 100.0% $41,369,329
===== ===========
================================================================================
* Aggregate cost for federal income tax purposes was $27,320,811. The aggregate
gross unrealized appreciation (depreciation) for all securities is as follows:
Gross Appreciation ................. $14,783,397
Gross Depreciation ................. (96,377)
-----------
Net Appreciation ................... $14,687,020
===========
See Notes to Financial Statements
5
<PAGE>
================================================================================
Statement of Assets and Liabilities
December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost $27,320,811).............................$42,007,831
Receivables:
Dividends.......................................................... 52,023
Interest........................................................... 3,625
Fund shares sold................................................... 80
Prepaid expense...................................................... 3,348
-----------
Total Assets................................................ 42,066,907
-----------
LIABILITIES:
Payable:
Fund shares repurchased............................................ 612,319
Accrued expenses..................................................... 85,259
-----------
Total Liabilities........................................... 697,578
-----------
NET ASSETS ............................................................$41,369,329
===========
Shares Outstanding..................................................... 1,622,606
===========
NET ASSET VALUE PER SHARE ($41,369,329 / 1,622,606 shares)............. $25.50
===========
- ----------------------------------------------------------------------------------
Net Assets consist of:
Paid-in capital......................................................$24,878,254
Undistributed net investment income.................................. 35,994
Undistributed net realized gains..................................... 1,768,061
Unrealized appreciation on investments............................... 14,687,020
-----------
$41,369,329
===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
================================================================================
Statement of Operations
For the Six Months Ended December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Income:
Dividends............................................................ $521,215
Interest............................................................. 32,141
-----------
Total income....................................................... 553,356
-----------
Expenses:
Investment advisory fees............................................. 192,959
Distribution fees.................................................... 102,912
Shareholder servicing fees........................................... 64,320
Administration fees.................................................. 50,272
Transfer agent fees.................................................. 29,990
Audit fees........................................................... 11,795
Legal fees........................................................... 13,105
Insurance............................................................ 9,717
Custodian fees....................................................... 8,627
Printing............................................................. 8,838
Directors' fees...................................................... 9,007
Federal and state registration fees.................................. 8,480
Franchise taxes...................................................... 2,941
Miscellaneous........................................................ 4,418
-----------
Total expenses..................................................... 517,381
-----------
Net investment income............................................ 35,975
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from security transactions......................... 3,373,126
Decrease in unrealized appreciation on investments................... (7,036,689)
-----------
Net realized and unrealized loss on investments.................. (3,663,563)
-----------
Net decrease in net assets resulting from operations..................... ($3,627,588)
===========
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
For the Six Months
ended For the Year
December 31, 1999 ended
(Unaudited) June 30, 1999
- --------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
Operations:
<S> <C> <C>
Net investment income $35,975 $167,249
Net realized gain from security transactions 3,373,126 2,880,655
Change in unrealized depreciation of investments (7,036,689) (8,536,960)
----------- ----------
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations. (3,627,588) (5,489,056)
----------- ----------
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ($0.03 and $0.09 per share, respectively) (54,515) (212,483)
Capital gains ($2.40 and $1.67 per share, respectively) (4,485,774) (4,082,558)
----------- ----------
Total distributions (4,540,289) (4,295,041)
----------- ----------
Capital share transactions:
Net (decrease) in net assets derived
from capital share transactions* (11,661,720) (10,528,835)
----------- ----------
Total (decrease) in net assets (19,829,597) (20,312,932)
----------- ----------
- --------------------------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------------------------
Beginning of period 61,198,927 81,511,859
----------- ----------
End of period** $41,369,329 $61,198,927
=========== ============
==================================================================================================
* Capital share transactions are as follows:
Shares Value
For the six months ended December 31, 1999 ----------- ------------
Shares purchased 6,725 $179,551
Shares reinvested 159,329 4,295,077
Shares redeemed (608,412) (16,136,349)
----------- ------------
Net decrease (442,358) ($11,661,721)
=========== ============
For the year ended June 30, 1999
Shares purchased 92,691 $ 2,689,318
Shares reinvested 130,052 4,150,518
Shares redeemed (607,025) (17,368,671)
----------- ------------
Net decrease (384,282) ($10,528,835)
=========== ============
</TABLE>
** Undistributed net investment income $35,993 & $54,534, respectively
See Notes to Financial Statements.
8
<PAGE>
================================================================================
Financial Highlights
================================================================================
The Table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
For the six months
ended
December 31, 1999
(Unaudited) Years ended June 30,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 29.64 $33.28 $31.53 $26.42 $22.92 $20.45
------- ------ ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment income $0.02 $ 0.08 $ 0.09 $ 0.15 $ 0.17 $ 0.22
Net gains on securities (both
realized and unrealized) (1.74) (1.96) 5.41 7.60 5.42 3.77
------- ------ ------- ------- ------- -------
Total from investment operations (1.72) (1.88) 5.50 7.75 5.59 3.99
LESS DISTRIBUTIONS
Dividends from net investment
income (0.03) (0.09) (0.13) (0.15) (0.21) (0.20)
Distributions from capital gains (2.40) (1.67) (3.62) (2.49) (1.88) (1.32)
------- ------ ------- ------- ------- -------
Total distributions (2.43) (1.76) (3.75) (2.64) (2.09) (1.52)
------- ------ ------- ------- ------- -------
Net asset value, end of year $ 25.50 $29.64 $33.28 $31.53 $26.42 $22.92
======= ====== ======= ======= ======= =======
Total Return (1) (6.00)%** (6.03)% 19.40% 32.20% 25.92% 21.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) $41,369 $61,199 $81,512 $66,609 $50,704 $38,506
Ratio of expenses to average
assets 2.01%* 1.83% 1.75% 1.82% 1.96% 2.06%
Ratio of net investment income
to average net assets 0.14%* 0.25% 0.30% 0.54% 0.69% 1.03%
Portfolio Turnover 16.85% 28.14% 28.14% 29.48% 38.97% 42.82%
Average Commission Rate
Per Share (2) $0.0644 $0.0621 $0.0631 $0.0673 - -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(1) Exclusive of deduction of sales charge on investment.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
This report has been prepared for Shareholders and may be distributed to others
only preceded or accompanied by a current prospectus.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Notes to Financial Statements
December 31, 1999
================================================================================
A. Addison Capital Shares, Inc. (the "Fund") was organized as a Maryland
corporation on June 4, 1986. The Fund is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. Significant accounting policies relating to the Fund are as follows:
Security Valuation -- Portfolio securities which are traded on a national
securities exchange or included in the NASDAQ National Market System are
valued at the last sales price. Securities traded on an exchange or NASDAQ
for which there has been no sale on that day and other over-the-counter
securities are valued at the mean between the closing bid and asked prices.
Debt instruments having a maturity of 60 days or less are valued at
amortized cost.
Securities Transactions and Investment Income -- Securities transactions are
accounted for on trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis;
dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders -- Substantially all of the
Fund's net investment income and net realized capital gains, if any, will be
distributed to shareholders on an annual basis.
Federal Income Taxes -- No provision is made for Federal income taxes as it
is the Fund's intention to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be
sufficient to relieve it from all or substantially all Federal income taxes.
B. Addison Capital Management Company (Addison Capital), a wholly-owned
subsidiary of Janney Montgomery Scott LLC (Janney), serves as the Fund's
investment adviser. For its services as adviser, Addison Capital receives a fee,
computed daily and paid monthly, at an annual rate of .75% of the Fund's first
$100 million in average net assets, .50% of the next $150 million in average net
assets, and .25% of average net assets in excess of $250 million.
PFPC Inc., an indirect subsidiary of PNC Bank Corp., serves as the Fund's
administrative and accounting agent. As compensation for these services, PFPC
Inc. receives a fee computed daily and paid monthly, at an annual rate of .10%
of the Fund's average net assets or $100,000, whichever is greater.
PFPC Trust Company acts as the Fund's custodian. PFPC Inc. also acts as the
Fund's transfer agent and dividend
disbursing agent.
Pursuant to an Underwriting Agreement with the Fund, Janney, a wholly-owned
subsidiary of Independence Square Properties, Inc., which is in turn wholly
owned by Penn Mutual Life Insurance Company, serves as the Fund's distributor.
As compensation for these services, Janney receives a fee from the Fund,
computed daily and paid monthly, at an annual rate of .40% of the Fund's average
net assets. Janney did not receive brokerage commissions for the six months
ended December 31, 1999.
Under a Services Agreement between the Fund and Janney, Janney will provide
office space to the Fund, will supervise performance by PFPC Trust Company and
PFPC Inc. of their respective duties, and will respond to shareholders'
inquiries for an annual fee equal to .25% of the Fund's average daily net
assets.
If expenses borne by the Fund in any fiscal year exceed expense limitations
imposed by applicable state securities regulations, Janney and Addison Capital
may reduce their fees on a pro-rata basis to the extent required by such
regulations. No such reduction was required for the six months ended December
31, 1999.
10
<PAGE>
================================================================================
Notes to Financial Statements
December 31, 1999 (Continued)
================================================================================
Certain officers and directors of the Fund are officers and/or directors of
Addison Capital and Janney. The law firm of Morgan, Lewis & Bockius, a member of
which is also an officer of the Fund, received $13,105 from the Fund for legal
services rendered during the six months ended December 31, 1999.
C. Purchases and sales of securities, other than short-term obligations,
aggregated $8,429,016 and $23,893,672,
respectively, for the six months ended December 31, 1999.
D. As of July 3, 1995 Fund shares are sold at their net asset value. As of that
date all sales charges are eliminated for all Fund share purchases.
E. Effective January 1, 2000 the Funds' Board of Directors has approved
Independence Capital Management, Inc. to serve as the Fund's Advisor.
Independence Capital Management, Inc. is a wholly own subsidiary of the Penn
Mutual Life Insurance Co.
For its services as adviser, Independence Capital Management, Inc. will
receive a fee, computed daily and paid monthly at an annual rate of .75% of the
Fund's first $100 million in average net assets, .50% of the next $150 million
in average net assets, and .25% of average net assets in excess of $250 million.
11
<PAGE>
Directors & Officers
Rudolph C. Sander
Chairman of the Board
Richardson T. Merriman
President & Chief Executive
Margaret M. Healy
Director [GRAPHIC OMMITTED]
Charles E. Mather, III ====================
Director BUTTONWOOD
William R. Dimeling --------------------
Director CAPITAL APPRECIATION
James Wolitarsky ====================
Treasurer, Chief Accounting Officer
& Chief Financial Officer
James V. Kelly
Vice President
Michael R. Patitucci
Vice President
Charles J. Sullivan
Vice President
James W. Jennings
Secretary
Investment Adviser
ADDISON CAPITAL MANAGEMENT CO.
1608 Walnut Street
Philadelphia, PA 19103
Distributor
JANNEY MONTGOMERY SCOTT llc
1801 Market Street [GRAPHIC OMMITTED]
Philadelphia, PA 19103
Administrator
PFPC, INC.
103 Bellevue Parkway
Wilmington, DE 19809
Semi-Annual Report
Transfer Agent PFPC, INC. to Shareholders
103 Bellevue Parkway December 31, 1999
Wilmington, DE 19809
