UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10201
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The Appleton Funds
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(Exact name of registrant as specified in charter)
45 Milk Street, Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip code)
James I. Ladge, 45 Milk Street, Boston, Massachusetts 02109
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(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 362-8000
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Date of fiscal year end: 12/31
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Date of reporting period: 06/30/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report for Appleton Equity Growth Fund.
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APPLETON EQUITY GROWTH FUND
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Semi-Annual Report
June 30, 2004
(Unaudited)
Investment Adviser Administrator
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APPLETON PARTNERS, INC. INTEGRATED FUND SERVICES, INC.
45 Milk Street, Eighth Floor 221 East Fourth Street
Boston, MA 02109 Suite 300
Cincinnati, OH 45202
1-877-712-7753
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Dear Fellow Shareholders:
The U.S. equity markets staged an impressive comeback in 2003 due to one of the
most accommodative fiscal and monetary environments in recent history. In early
2003, leading economic indicators were depressed and corporate profits were at
their lowest level in years. Massive fiscal and monetary stimuli, combined with
relatively low valuation levels, helped the S&P soar 39.86% from February 28,
2003 to March 1, 2004. Investors hoping for similar results in 2004 have thus
far been frustrated as general markets remain near the breakeven level. For the
six months ended June 30, 2004, the Fund had a total return of 3.28%, slightly
below the S&P 500 Index's (the Fund's bench mark) total return of 3.44% for the
same period. Through June of this year, the Dow rose 0.81% while the S&P rose
3.44%. As we entered the second quarter of 2004, both corporate profits and
economic indicators had already significantly rebounded. Questions have since
arisen surrounding both economic strength and corporate profit growth.
For the remainder of this year and into 2005, challenges and opportunities lie
ahead. Consumers and corporations have benefited from the historically low
interest rates, record refinancings and tax refunds. As each of these factors
wane, spending may also slow. The Fed has initiated the first of what could be
several interest rate increases in its attempt to maintain moderate inflation
and growth. The price of oil has increased from $32 a barrel in early 2003 to a
high of $42 a barrel this past June, and though the economy has become less
dependent on oil, higher energy prices have reduced disposable income. The
Chinese government has recently undertaken a series of measures aimed at slowing
their domestic economic growth to avoid a surge in inflation. A significant
slowdown in the booming Chinese economy would be a blow to the many U.S.
corporations that export products to China. In addition, several non-economic
factors continue to weigh on the markets, including the uncertainty in Iraq, the
ongoing threat of terrorism, and the upcoming presidential election.
Despite these challenges, several opportunities still exist for investors.
During the past year, we increased our exposure to more economically sensitive
sectors which benefited from the strengthening economy and the cyclical rebound
in equities. While that strategy did well for us last year, we recognize that
the economic backdrop may be changing and that those sectors that provided
leadership last year may not do so again in the future. We are focusing on the
following four sectors for continued earnings growth.
o Energy: Strong global demand, recent questions over supplies,
continued turmoil in the Middle East, all should keep oil prices at
inflated levels boosting profits across the sector.
o Health Care: As baby boomers continue to age, demand should
accelerate for pharmaceuticals and other health care services.
o Staples: Consistent earnings growth and relatively high dividend
yields should warrant a premium during periods of uncertainty.
o Financials: Financial institutions braced for higher interests rates
should be in position to prosper.
While these are currently attractive sectors, we need to be nimble and diligent
in our pursuit of positive returns to you, our shareholder. We will continue to
monitor the global economy and adjust our positions as conditions warrant.
Very Truly Yours,
/s/ James I. Ladge
James I. Ladge, CFA
President
APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
June 30, 2004
(Unaudited)
SHARES VALUE
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COMMON STOCKS -- 96.2%
CONSUMER, CYCLICAL -- 12.5%
3,100 BorgWarner, Inc. $ 135,687
3,300 Brinker International, Inc.* 112,596
3,250 Lowe's Companies, Inc. 170,787
3,500 Newell Rubbermaid, Inc. 82,250
1,750 NIKE, Inc. 132,563
2,500 Pulte Homes, Inc. 130,075
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763,958
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CONSUMER, NON-CYCLICAL -- 10.2%
4,000 Avon Products, Inc. 184,560
3,000 PepsiCo, Inc. 161,640
3,000 Procter & Gamble Co. 163,320
2,250 Wal-Mart Stores, Inc. 118,710
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628,230
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ENERGY -- 10.4%
4,000 Apache Corp. 174,200
4,400 Exxon Mobil Corp. 195,404
3,000 Teekay Shipping Corp. 112,140
3,500 Weatherford International Ltd.* 157,430
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639,174
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FINANCIAL SERVICES -- 15.9%
2,498 Bank of America Corp. 211,381
3,500 Citigroup, Inc. 162,750
6,000 Friedman, Billings, Ramsey Group, Inc. 118,740
3,000 Merrill Lynch & Co., Inc. 161,940
4,000 SAFECO Corp. 176,000
2,500 Wells Fargo & Co. 143,075
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973,886
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HEALTHCARE -- 15.8%
2,500 Forest Laboratories, Inc. 141,575
2,750 Johnson & Johnson 153,175
4,000 Merck & Co., Inc. 190,000
5,400 Pfizer, Inc. 185,112
4,000 Pharmaceutical Product Development, Inc.* 127,080
2,000 Quest Diagnostics, Inc.* 169,900
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966,842
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APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
June 30, 2004
(Unaudited)
SHARES VALUE
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INDUSTRIAL -- 7.2%
2,000 Caterpiller, Inc. $ 158,880
4,500 General Electric Co. 145,800
1,500 United Technologies Corp. 137,220
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441,900
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MATERIALS -- 2.9%
4,500 Praxair, Inc. 179,595
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TECHNOLOGY -- 19.3%
1,800 3M Co. 162,018
6,000 Applied Materials* 117,720
5,750 Check Point Software Tech* 155,193
5,500 Cisco Systems* 130,350
6,500 Flextronics International Ltd.* 103,675
1,250 International Business Machines Corp. 110,188
3,500 International Game Technology 135,100
4,000 Jabil Circuit, Inc.* 100,720
6,000 Microsoft Corp. 171,359
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1,186,323
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TELECOMMUNICATIONS -- 2.0%
3,350 Verizon Communications, Inc. 121,237
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TOTAL COMMON STOCKS $ 5,901,145
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MONEY MARKETS -- 4.1%
250,278 First American Treasury Fund $ 250,278
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TOTAL INVESTMENT SECURITIES -- 100.3% (Cost $5,582,996) $ 6,151,423
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%) (16,341)
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NET ASSETS -- 100.0% $ 6,135,082
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*Non-income producing security.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
ASSETS
Investment securities:
At acquisition cost $ 5,582,996
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At value $ 6,151,423
Dividends receivable 6,039
Receivable for capital shares sold 9
Receivable from Adviser 5,130
Other assets 2,827
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TOTAL ASSETS 6,165,428
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LIABILITIES
Payable to affiliates 6,292
Other accrued expenses and liabilities 24,054
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TOTAL LIABILITIES 30,346
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NET ASSETS $ 6,135,082
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NET ASSETS CONSIST OF
Paid-in capital $ 7,881,218
Accumulated net investment loss (2,778)
Accumulated net realized losses from security transactions (2,311,785)
Net unrealized appreciation on investments 568,427
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NET ASSETS $ 6,135,082
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Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 927,603
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Net asset value, offering price and redemption price per share $ 6.61
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See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2004
(Unaudited)
INVESTMENT INCOME
Dividends $ 42,130
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EXPENSES
Investment advisory fees 29,923
Accounting services fees 15,000
Administration fees 12,000
Transfer agent fees 12,000
Professional fees 10,961
Trustees' fees and expenses 9,500
Distribution expenses 7,481
Postage and supplies 7,215
Custodian fees 1,919
Insurance expense 1,680
Registration fees 1,189
Pricing expense 230
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TOTAL EXPENSES 109,098
Fees waived and expenses reimbursed by the Adviser (64,190)
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NET EXPENSES 44,908
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NET INVESTMENT LOSS (2,778)
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REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses from security transactions (40,087)
Net change in unrealized appreciation/depreciation on
investments 222,593
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NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 182,506
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 179,728
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See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the
Six Months
Ended For the
June 30, Year Ended
2004 December 31,
(Unaudited) 2003
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FROM OPERATIONS
Net investment loss $ (2,778) $ (10,798)
Net realized losses from security
transactions (40,087) (351,133)
Net change in unrealized appreciation/
depreciation on investments 222,593 1,410,289
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Net increase in net assets from operations 179,728 1,048,358
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 532,454 643,881
Payments for shares redeemed (121,131) (247,229)
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Net increase in net assets from capital share
transactions 411,323 396,652
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TOTAL INCREASE IN NET ASSETS 591,051 1,445,010
NET ASSETS
Beginning of period 5,544,031 4,099,021
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End of period $ 6,135,082 $ 5,544,031
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CAPITAL SHARE ACTIVITY
Sold 80,277 113,318
Redeemed (18,410) (41,318)
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Net increase in shares outstanding 61,867 72,000
Shares outstanding, beginning of period 865,736 793,736
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Shares outstanding, end of period 927,603 865,736
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See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding
Throughout Each Period
For the
Six Months
Ended For the For the For the
June 30, Year Ended Year Ended Year Ended
2004 December 31, December 31, December 31,
(Unaudited) 2003 2002 2001(a)
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Net asset value at beginning of period $ 6.40 $ 5.16 $ 7.56 $ 10.00
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Income (loss) from investment operations:
Net investment loss 0.00 (b) (0.01) (0.03) (0.03)
Net realized and unrealized gains (losses) on
investments 0.21 1.25 (2.37) (2.41)
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Total from investment operations 0.21 1.24 (2.40) (2.44)
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Net asset value at end of period $ 6.61 $ 6.40 $ 5.16 $ 7.56
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Total return 3.28% (c) 24.03% (31.75%) (24.40%)
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Net assets at end of period $ 6,135,082 $ 5,544,031 $ 4,099,021 $ 4,781,914
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Ratio of net expenses to average net assets 1.50% (d) 1.50% 1.50% 1.50%
Ratio of net investment loss to average net assets (0.09%)(d) (0.22%) (0.56%) (0.47%)
Portfolio turnover rate 27% (d) 58% 56% 34%
(a) The Fund commenced operations on December 31, 2000.
(b) Amount rounds to less than $0.01.
(c) Not annualized.
(d) Annualized.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The Appleton Funds (the Trust) is registered under the Investment Company Act of
1940, as amended, (the 1940 Act), as a diversified, no-load, open-end management
investment company. The Trust was organized as an Ohio business trust on October
31, 2000. The Trust currently offers one series of shares to investors: the
Appleton Equity Growth Fund (the Fund). The Trust was capitalized on December
29, 2000, when the initial shares of the Fund were purchased at $10 per share.
Except for the initial purchase of shares, the Trust had no operations prior to
the commencement of operations on December 31, 2000.
The Fund seeks long-term growth of capital by investing primarily in common
stocks.
The following is a summary of the Fund's significant accounting policies:
Securities valuation - The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern time). Securities quoted by NASDAQ are valued at
the NASDAQ Official Closing Price. Securities for which market quotations are
not readily available are valued at their fair value as determined in good faith
in accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
Share valuation - The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding, rounded to the nearest cent. The offering and
redemption price per share are equal to the net asset value per share.
Investment income and distributions to shareholders - Interest income is accrued
as earned. Dividend income is recorded on the ex-dividend date. Dividends
arising from net investment income are declared and paid annually. Net realized
short-term capital gains, if any, may be distributed throughout the year and net
realized long-term capital gains, if any, are distributed at least once each
year. Income dividends and capital gain distributions are determined in
accordance with income tax regulations.
Security transactions - Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
Estimates - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Federal income tax - It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which the Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare and pay as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital gains
(earned during the twelve months ended October 31) plus undistributed amounts
from prior years.
The following information is computed on a tax basis as of December 31, 2003:
Cost of portfolio investments $ 5,228,869
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Gross unrealized appreciation on investments $ 717,957
Gross unrealized depreciation on investments (372,123)
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Net unrealized appreciation on investments $ 345,834
Capital loss carryforwards (2,271,698)
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Total accumulated deficit $ (1,925,864)
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The Fund's capital loss carryforwards in the above table expire as follows:
Amount December 31,
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$254,452 2009
$1,650,125 2010
$367,121 2011
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$2,271,698
==============
These capital loss carryforwards may be utilized in the current and future years
to offset gains, if any, prior to distributing such gains to shareholders.
The Fund has not made any taxable distributions to shareholders since its
inception (December 31, 2000).
2. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$1,006,449 and $793,896, respectively.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Appleton
Partners, Inc. (the Adviser), Integrated Fund Services, Inc. (IFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust, or of IFS Fund Distributors, Inc. (the
Distributor), the Trust's principal underwriter.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement between the Trust and the Adviser,
the Adviser manages the Fund's investments. For these services, the Fund pays
the Adviser an advisory fee, which is computed and accrued daily and paid
monthly, at an annual rate of 1.00% of its average daily net assets.
Pursuant to a written contract between the Adviser and the Fund, the Adviser has
agreed to waive a portion of its advisory fees and/or assume certain expenses of
the Fund, other than brokerage commissions, extraordinary items, interest and
taxes, to the extent annual Fund operating expenses exceed 1.50% of the Fund's
average daily net assets. The Adviser has agreed to maintain these expense
limitations with regard to the Fund through December 31, 2004. For the six
months ended June 30, 2004, the Adviser waived $29,923 of advisory fees and
reimbursed the Fund for $34,267 of other operating expenses.
ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
Under the terms of an Administration, Accounting and Transfer Agency Agreement
between the Trust and IFS, IFS supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services for the Fund. IFS supervises the preparation of tax
returns, reports to shareholders of the Fund, reports to and filings with the
Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For these administrative
services, IFS receives a monthly fee based on the Fund's average daily net
assets, subject to a monthly minimum fee.
IFS maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. For these transfer agency and shareholder
services, IFS receives a monthly fee per shareholder account, subject to a
monthly minimum fee. In addition, the Fund pays IFS out-of-pocket expenses
including, but not limited to, postage and supplies.
IFS also calculates the daily net asset value per share and maintains the
financial books and records of the Fund. For these accounting services, IFS
receives a monthly fee, based on current net assets, from the Fund. In addition,
the Fund pays IFS certain out-of-pocket expenses incurred by IFS in obtaining
valuations of the Fund's portfolio securities.
DISTRIBUTION PLAN
The Fund has adopted a plan of distribution (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan permits the Fund to pay for expenses incurred in
the distribution and promotion of the Fund's shares including but not limited
to, the printing of prospectuses, statements of additional information and
reports used for sales purposes, advertisements, expenses of preparation and
printing of sales literature, promotion, marketing and sales expenses and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Trust.
The Plan limits payment of distribution expenses in any fiscal year to a maximum
of 0.25% of the Fund's average daily net assets. For the six months ended June
30, 2004, the Fund accrued and the Adviser subsequently reimbursed $7,481 of
distribution expenses under the Plan.
UNDERWRITING AGREEMENT
The Trust has entered into an Underwriting Agreement on behalf of the Fund with
the Distributor. Pursuant to the Underwriting Agreement, the Distributor acts as
principal underwriter and, as such, is the exclusive agent for distribution of
shares of the Fund. The Distributor receives no compensation for its services
and is an affiliate of IFS.
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risks of loss to be remote.
================================================================================
Proxy Voting Policies and Procedures
The Adviser is responsible for exercising the voting rights associated with the
securities purchased and held by the Fund. A description of the policies and
procedures the Adviser uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-617-338-0700. It is also available on
the Securities and Exchange Commission's website at http://www.sec.gov.
ITEM 2. CODE OF ETHICS.
At the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to its principal executive officer and principal
financial officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that the registrant does not
have an audit committee financial expert. The Trustees determined that no member
of the Audit Committee was qualified to be considered an audit committee
financial expert.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
(f) Not Applicable
(g) Not Applicable
(h) Not Applicable
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. RESERVED
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED END
MANAGEMENT INVESTMENT COMPANIES. Not Applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUNDS. Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable.
-2-
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of
a date within 90 days of the filing date of this report.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a) (1) Not Applicable.
(2) Certifications required by Item 10(a)(2) of Form N-CSR are filed
herewith.
(b) Certification required by Item 10(b) of Form N-CSR is filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Appleton Funds
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By (Signature and Title)
/s/ James I. Ladge
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James I. Ladge
President and Treasurer
Date: September 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ James I. Ladge
- -----------------------
James I. Ladge
President and Treasurer
Date: September 8, 2004