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
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
Date of fiscal year end: 12/31
Date of reporting period: 12/31/04
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
Annual Report
December 31, 2004
Investment Adviser Administrator
------------------ -------------
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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[LOGO] APPLETON FUNDS
January 18, 2005
The key driver for equity markets in 2004 was an accelerating economy with mild
inflation. This combination has enabled corporate profits to accelerate and
Chairman Greenspan to raise interest rates at a "measured pace." So what is it
that to date has made this cyclical recovery unique?
>> The US dollar is 28% weaker than its 2002 peak which contributed to
an increasing trade imbalance, producing record levels of foreign
investment in our Treasury market ... approximately 43% of all
outstanding Treasury debt. Despite recent reports indicating that
this trend is abating somewhat, it is far from reversing itself, and
it deserves to be monitored.
>> Inflation remains in check as productivity growth, globalization of
the workforce, and internet distribution have all helped to contain
the pricing power in the market, and was further comforted by the
Fed's pronouncement that their expectations for underlying inflation
were relatively low. Already in early 2005, productivity growth has
stabilized, employment is showing signs of recovery, and the markets
will be sensitive to any indication that pricing power has the
ability to reach the end user. The uncertainty of the oil markets is
part of the landscape that can disrupt equilibrium at any time, but
it appears to have stabilized at the moment.
>> The Fed has repeatedly communicated in a very transparent way to the
markets that "it perceived the upside and downside risks to
sustainable growth and price stability to be roughly equal.... And
the accommodation could be removed at a measured pace." Because this
Fed has so much credibility in the markets, the early panic to
higher rates across the curve that can occur at the outset of a
rising rate cycle, has not transpired ... at least not to date.
Throughout the first three quarters of 2004, U.S. equity investors were growing
increasingly impatient, as major indices hovered around breakeven and failed to
follow through on the impressive gains achieved during the previous year.
Rapidly escalating energy prices, uncertainty over the Presidential election,
difficulties in Iraq and the threat of higher interest rates all converged to
keep a lid on equity returns through the end of October. The re-election in
early November, however, removed a significant overhang and proved to be a
catalyst for higher equity prices for the remaining two months of the quarter.
Investor optimism was further emboldened by a sudden $15 per barrel pullback in
the price of oil and continued assurances from Chairman Greenspan that the Fed
would be accommodative and raise rates at a "measured pace". For the first time
in many months, market participants were able to put their fears aside and focus
on the health of the economy - an economy which continued to surge as GDP
registered a solid 3.9% in the third quarter. For the year, all of the major
indices reported positive gains. For the year ended December 31, 2004, the Fund
returned 7.04% compared to the S&P 500 Index, the Fund's benchmark, which
returned 10.88% during the same period. Sector leadership was provided by Energy
which gained 29%, Utilities which advanced 20% and Telecommunications and
Industrials which each gained 16%. Healthcare, hurt by big pharmaceuticals and
registering a gain of only .20%, and Technology at 2%, were laggards.
As we enter 2005, the underlying strength of the US economy is evident as GDP
appears to be growing at a healthy 4% pace and the nation has added over 600,000
new jobs in the last three months. Consumer confidence levels have recently
surged and inflationary pressures have yet to surface. While the economic
backdrop may appear ideal for future equity gains, higher interest rates and
decelerating corporate earnings growth may present a challenging environment for
equity markets. After increasing by 15% in 2003 and 19% in 2004, corporate
earnings growth is expected to decelerate to the mid single-digits in each of
the next two years. In addition, the impact of the Federal Reserve's rate
increases should begin to ripple through the economy.
In a period of rising interest rates and decelerating earnings growth, we would
favor the more defensive sectors such as consumer staples and healthcare, which
are less cyclical and tend to outperform in such an environment. We will also
favor large cap, dividend paying stocks with exposure to international markets.
On the year we would look for performance to be back-end loaded with gains in
the mid to high single-digit range.
Sincerely,
/s/ James I. Ladge
James I. Ladge, CFA
President
Comparison of the Change in Value of a $10,000 Investment in the
Appleton Equity Growth Fund and the S&P 500 Index
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Appleton Equity Growth Fund
Average Annual Total Returns*
1 Year Since Inception**
7.04% (9.02%)
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[LINE CHART OMITTED]
Appleton
Equity S&P 500 Russell 1000
Date Growth Fund Index Growth
12/31/00 10,000 10,000 10,000
01/31/01 10,650 10,355 10,691
02/28/01 9,180 9,411 8,876
03/31/01 8,110 8,814 7,910
04/30/01 9,050 9,499 8,910
05/31/01 8,870 9,563 8,779
06/30/01 8,360 9,330 8,576
07/31/01 8,310 9,238 8,362
08/31/01 7,630 8,660 7,678
09/30/01 6,560 7,961 6,911
10/31/01 6,940 8,113 7,274
11/30/01 7,670 8,735 7,973
12/31/01 7,560 8,812 7,958
03/31/02 7,250 8,836 7,752
06/30/02 5,910 7,652 6,304
09/30/02 4,850 6,330 5,356
12/31/02 5,160 6,864 5,738
03/31/03 5,140 6,648 5,677
06/30/03 5,740 7,671 6,489
09/30/03 5,900 7,874 6,743
12/31/03 6,400 8,832 7,445
03/31/04 6,670 8,982 7,504
06/30/04 6,610 9,137 7,650
09/30/04 6,420 8,966 7,249
12/31/04 6,851 9,793 7,914
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Past performance is not predictive of future performance.
* The returns shown do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
** Fund inception was December 31, 2000.
Tabular Presentation of Portfolio
As of December 31, 2004
Sector (% of Net Assets)
Consumer, Cyclical 8.9%
Consumer, Non-Cyclical 16.8%
Energy 11.6%
Financial Services 17.0%
Healthcare 12.7%
Industrial 14.8%
Materials 3.0%
Technology 13.0%
Telecommunications 2.0%
Money Markets 0.8%
Liabilities in Excess of Other Assets (0.6%)
-----
100.0%
=====
APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
December 31, 2004
Market
Shares Value
- ------ -----
COMMON STOCKS -- 99.8%
CONSUMER, CYCLICAL -- 8.9%
3,100 BorgWarner, Inc. $ 167,927
1,750 NIKE, Inc. 158,708
2,500 Pulte Homes, Inc. 159,500
1,750 Starwood Hotels & Resorts Worldwide, Inc. 102,200
----------
588,335
----------
CONSUMER, NON-CYCLICAL -- 16.8%
4,000 Avon Products, Inc. 154,800
4,500 Kellogg Co. 200,970
3,000 PepsiCo, Inc. 156,600
2,750 Potash Corp. of Saskatchewan, Inc. 228,414
3,000 Procter & Gamble Co. 165,240
4,000 Target Corp. 207,720
----------
1,113,744
----------
ENERGY -- 11.6%
4,000 Apache Corp. 202,280
3,750 Baker Hughes, Inc. 160,013
4,400 Exxon Mobil Corp. 225,544
3,500 Weatherford International Ltd.* 179,550
----------
767,387
----------
FINANCIAL SERVICES -- 17.0%
4,996 Bank of America Corp. 234,761
3,500 Citigroup, Inc. 168,630
9,000 Friedman, Billings, Ramsey Group, Inc. 174,510
3,000 Merrill Lynch & Co., Inc. 179,310
4,000 SAFECO Corp. 208,960
2,500 Wells Fargo & Co. 155,375
----------
1,121,546
----------
HEALTHCARE -- 12.7%
3,250 C.R. Bard, Inc. 207,935
2,750 Johnson & Johnson 174,405
5,400 Pfizer, Inc. 145,206
1,000 Quest Diagnostics, Inc. 95,550
2,750 Zimmer Holdings, Inc.* 220,330
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843,426
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APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
December 31, 2004
Market
Shares Value
- ------ -----
INDUSTRIAL -- 14.8%
1,800 3M Co. $ 147,726
4,200 Burlington Northern Santa Fe Corp. 198,702
3,500 Danaher Corp. 200,935
2,250 Eaton Corp. 162,810
4,500 General Electric Co. 164,250
2,500 Teekay Shipping Corp. 105,275
----------
979,698
----------
MATERIALS -- 3.0%
4,500 Praxair, Inc. 198,675
----------
TECHNOLOGY -- 13.0%
5,750 Check Point Software Tech* 141,623
5,500 Cisco Systems* 106,150
1,250 International Business Machines Corp. 123,225
4,500 Iron Mountain, Inc.* 137,205
4,000 Jabil Circuit, Inc.* 102,320
6,000 Microsoft Corp. 160,260
3,500 Symantec Corp.* 90,160
----------
860,943
----------
TELECOMMUNICATIONS -- 2.0%
3,350 Verizon Communications, Inc. 135,709
----------
TOTAL COMMON STOCKS $6,609,463
----------
MONEY MARKETS -- 0.8%
56,174 First American Treasury Fund $ 56,174
----------
TOTAL INVESTMENT SECURITIES -- 100.6% (Cost $5,923,998) $6,665,637
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.6%) (40,043)
----------
NET ASSETS -- 100.0% $6,625,594
==========
*Non-income producing security.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS
Investment securities:
At acquisition cost $ 5,923,998
===========
At market value $ 6,665,637
Dividends receivable 8,121
Receivable from Adviser 8,483
Other assets 1,517
-----------
TOTAL ASSETS 6,683,758
-----------
LIABILITIES
Income distributions payable 7,715
Payable to affiliates 6,497
Payable to Trustees 12,182
Other accrued expenses and liabilities 31,770
-----------
TOTAL LIABILITIES 58,164
-----------
NET ASSETS $ 6,625,594
===========
NET ASSETS CONSIST OF
Paid-in capital $ 8,152,726
Accumulated net realized losses from security transactions (2,268,771)
Net unrealized appreciation on investments 741,639
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NET ASSETS $ 6,625,594
===========
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 969,540
===========
Net asset value, offering price and redemption price per share $ 6.83
===========
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
INVESTMENT INCOME
Dividends $ 111,737
---------
EXPENSES
Investment advisory fees 61,168
Accounting services fees 30,000
Administration fees 24,000
Transfer agent fees 24,000
Trustees' fees and expenses 21,000
Professional fees 17,000
Distribution expenses 15,292
Compliance fees and expenses 7,500
Custodian fees 7,000
Postage and supplies 6,698
Insurance expense 3,390
Reports to shareholders 3,000
Registration fees 2,442
Pricing expense 1,200
---------
TOTAL EXPENSES 223,690
Fees waived and expenses reimbursed by Adviser (131,893)
---------
NET EXPENSES 91,797
---------
NET INVESTMENT INCOME 19,940
---------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 2,927
Net change in unrealized appreciation/depreciation on investments 395,805
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 398,732
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 418,672
=========
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the For the
Year Ended Year Ended
December 31, December 31,
2004 2003
----------- -----------
FROM OPERATIONS
Net investment income (loss) $ 19,940 $ (10,798)
Net realized gains (losses) from security transactions 2,927 (351,133)
Net change in unrealized appreciation/depreciation on investments 395,805 1,410,289
----------- -----------
Net increase in net assets from operations 418,672 1,048,358
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (19,940) --
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,139,428 643,881
Proceeds from shares reinvested 12,224 --
Payments for shares redeemed (468,821) (247,229)
----------- -----------
Net increase in net assets from capital share transactions 682,831 396,652
----------- -----------
TOTAL INCREASE IN NET ASSETS 1,081,563 1,445,010
NET ASSETS
Beginning of year 5,544,031 4,099,021
----------- -----------
End of year $ 6,625,594 $ 5,544,031
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ --
----------- -----------
CAPITAL SHARE ACTIVITY
Sold 172,476 113,318
Reinvested 1,790 --
Redeemed (70,462) (41,318)
----------- -----------
Net increase in shares outstanding 103,804 72,000
Shares outstanding, beginning of year 865,736 793,736
----------- -----------
Shares outstanding, end of year 969,540 865,736
=========== ===========
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Year
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2004 2003 2002 2001(a)
------------- ------------- ------------- -------------
Net asset value at beginning of year $ 6.40 $ 5.16 $ 7.56 $ 10.00
------------- ------------- ------------- -------------
Income (loss) from investment operations:
Net investment income (loss) 0.02 (0.01) (0.03) (0.03)
Net realized and unrealized gains
(losses) on investments 0.43 1.25 (2.37) (2.41)
------------- ------------- ------------- -------------
Total from investment operations 0.45 1.24 (2.40) (2.44)
------------- ------------- ------------- -------------
Less distributions:
Dividends from net investment income (0.02) -- -- --
------------- ------------- ------------- -------------
Net asset value at end of year $ 6.83 $ 6.40 $ 5.16 $ 7.56
============= ============= ============= =============
Total return 7.04% 24.03% (31.75%) (24.40%)
============= ============= ============= =============
Net assets at end of year $ 6,625,594 $ 5,544,031 $ 4,099,021 $ 4,781,914
============= ============= ============= =============
Ratio of net expenses to average net assets 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income (loss) to
average net assets 0.33% (0.22%) (0.56%) (0.47%)
Portfolio turnover rate 40% 58% 56% 34%
(a) The Fund commenced operations on December 31, 2000.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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.
The Fund commenced 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). Portfolio securities traded on stock
exchanges are valued at their last sales price as of the close of the regular
session of trading on the day the securities are being valued. 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. Money
market instruments are valued at amortized cost, which approximates market
value.
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. Differences between book and tax
distributions are considered temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are reclassified within
the composition of net assets based on their federal tax basis treatment;
temporary differences do not require reclassifications.
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 tax character of distributions paid for the years ended December 31, 2004
and 2003 was as follows:
2004 2003
---- ----
From ordinary income $19,940 $ --
The following information is computed on a tax basis as of December 31, 2004:
Cost of portfolio investments $ 5,923,998
===========
Gross unrealized appreciation on investments $ 1,002,816
Gross unrealized depreciation on investments (261,177)
-----------
Net unrealized appreciation on investments $ 741,639
Post-October loss (3,959)
Capital loss carryforwards (2,264,812)
-----------
Total accumulated deficit $(1,527,132)
===========
During the year ended December 31, 2004, the Fund utilized $6,886 of capital
loss carryforwards. The remaining capital loss carryforwards in the above table
expire as follows:
Amount December 31,
---------- ------------
$ 247,566 2009
$1,650,125 2010
$ 367,121 2011
----------
$2,264,812
==========
The Fund elected to defer until its subsequent tax year capital losses incurred
after October 31, 2004. These capital loss carryforwards and post-October losses
may be utilized in future years to offset gains, if any, prior to distributing
such gains to shareholders.
2. Investment Transactions
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$3,092,098 and $2,387,452, 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, and/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, 2005. For the year
ended December 31, 2004, the Adviser waived $61,168 of advisory fees and
reimbursed the Fund for $70,725 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 average daily 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 year ended December 31,
2004, the Fund accrued and the Adviser subsequently reimbursed $15,292 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.
COMPLIANCE SERVICES AGREEMENT
Under the terms of the Compliance Services Agreement between the Trust and IFS,
IFS provides certain compliance services to the Trust, including developing and
assisting in implementing a compliance program for IFS on behalf of the funds
and providing administrative support services to the Funds' Compliance Program
and Chief Compliance Officer.
4. Commitments and Contingencies
The Fund indemnifies the Trust's officers and Trustees for certain liabilities
that might arise from their performance of their duties to the Fund.
Additionally, 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.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
of the Appleton Funds
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Appleton Equity Growth Fund (the "Fund") of
the Appleton Funds as of December 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights presented
herein for the year ended December 31, 2001 were audited by other auditors whose
report dated February 20, 2002, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Appleton Equity Growth Fund of the Appleton Funds as of December 31, 2004, and
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 20, 2005
APPLETON EQUITY GROWTH FUND
OTHER ITEMS (UNAUDITED)
December 31, 2004
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 and information
regarding how those proxies were voted during the twelve month period ended June
30, 2004 are available without charge, upon request, by calling 1-617-338-0700.
They are also available on the Securities and Exchange Commission's website at
http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The Trust files a complete listing of portfolio holdings for each Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q beginning
with the September 2004 quarter. The complete listing (i) is available on the
Commission's website; (ii) may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC; and (iii) will be made available to
shareholders upon request by calling 1.800.543.0407. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
DIVIDEND RECEIVED DEDUCTION
For corporate shareholders, 100% of the ordinary dividends paid during the year
ended December 31, 2004 qualify for the corporate dividend received deduction.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including reinvested dividends or other distributions; and (2) ongoing
costs, including investment advisory fees; distribution (12b-1) fees; and other
Fund expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (July 1, 2004 through December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six
Months Ended December 31, 2004" to estimate the expenses you paid on your
account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund's and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Net Expense Ratio Total Return Beginning Ending Expenses Paid During
Annualized Six Months Ended Account Value Account Value the Six Months Ended
December 31, 2004 December 31, 2004 July 1, 2004 December 31, 2004 December 31, 2004*
----------------- ----------------- ------------ ----------------- --------------------
Appleton Equity Growth Fund
Actual 1.50% 3.64% $ 1,000.00 $ 1,036.40 $ 7.68
Hypothetical 1.50% 2.51% $ 1,000.00 $ 1,017.60 $ 7.61
- ----------
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by [number of days in most
recent fiscal half-year/366] (to reflect the one-half year period).
APPLETON EQUITY GROWTH FUND
MANAGEMENT OF THE TRUST (UNAUDITED)
December 31, 2004
Listed in the charts below is basic information regarding the Trustees and
Officers of the Trust.
Number of
Portfolios
in Fund
Complex Other Directorships
Current Position with Overseen Held by Trustee
Trust and Length of Principal Occupation(s) by Outside the Fund
Name/Address/Age Time Served During Last 5 yrs Trustee Complex
====================================================================================================================================
INTERESTED TRUSTEES*:
James I. Ladge President, Trustee Vice President, Appleton 1 N/A
45 Milk Street, 8th Floor (December 2000 - Present) Partners, Inc.
Boston, MA 02109 Treasurer (1993 - Present)
Age: 35 (December 2003 - Present)
Douglas C. Chamberlain Trustee President, Appleton Partners, Inc. 1 N/A
45 Milk Street, 8th Floor (December 2000 - Present) (1998 - Present)
Boston, MA 02109
Age: 56
DISINTERESTED TRUSTEES:
Jack W. Aber Trustee Professor, Boston University 1 Director, Manager
Boston University School of (December 2000 - Present) (1972- Present) Funds Director, Third
Management Avenue Funds
595 Commonwealth Avenue
Boston, MA 02215
Age: 66
John M. Cornish, Esq. Trustee Partner, Choate, Hall & Stewart 1 Director, Thompson
Choate Hall & Stewart (December 2000 - Present) (1985 - Present) Steel Company
53 State Street
Boston, MA 02109
Age: 56
Grady B. Hedgespeth Trustee Trustee, Chief Investment 1 N/A
ICA Group (December 2000 - Present) Officer, New Markets Equity Fund
One Harvard Street, Suite 200 (March 2000 - November 2001);
Brookline, MA 02445 President, Fleet Development
Age: 48 Ventures
(1996 - 2000)
President, ICA Group, a
non-profit consulting firm
(March 2002 - 2004);
Senior Vice President, CFO,
Seedco
(2004-Present)
OFFICERS:
Michelle D. Hubley Secretary and Chief Vice President & Chief N/A N/A
45 Milk Street, 8th Floor Compliance Officer Compliance Officer of Appleton
Boston, MA 02109 (December 2004 - Present) Partners, Inc.
Age: 47 (1995 - Present)
* All Interested Trustees are such because of their interest in the investment
adviser, as defined in the Investment Company Act of 1940.
The Statement of Additional Information contains additional information about
the Trustees and is available without charge upon request by calling
1-877-71-Apple.
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 has at
least one audit committee financial expert. Mr. Jack Aber is the registrant's
"audit committee financial expert" and is "independent" (as each term is defined
in Item 3 of Form N-CSR).
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. Audit fees totaled $17,168 for the December 31, 2004 fiscal year
and $12,500 for the December 31, 2003 fiscal year, including fees associated
with the annual audit and filings of the registrant's Form N-1A and Form N-SAR.
(b) Audit-Related Fees. There were no audit-related fees for the December 31,
2004 or December 31, 2003 fiscal years.
(c) Tax Fees. Tax fees totaled $16,000 for the December 31, 2004 fiscal year and
$21,000 for the December 31, 2003 fiscal year and consisted of fees for tax
compliance services during both years.
(d) All Other Fees. There were no other fees for the December 31, 2004 or
December 31, 2003 fiscal years.
(e) (1) Audit Committee Pre-Approval Policies. The Audit Committee's
pre-approval policies describe the types of audit, audit-related, tax and other
services that may receive the general pre-approval of the Audit Committee. The
pre-approval policies provide that annual audit service fees, tax services not
specifically granted pre-approval, services exceeding pre-approved cost levels
and other services that have not received general pre-approval will be subject
to specific pre-approval by the Audit Committee. The pre-approval policies
further provide that the Committee may grant general pre-approval to other audit
services (statutory audits and services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings), audit-related
services (accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "audit services," assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities, agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters and assistance with
internal control reporting requirements under Form N-SAR and Form N-CSR), tax
services that have historically been provided by the auditor that the Committee
believes would not impair the independence of the auditor and are consistent
with the SEC's rules on auditor independence and permissible non-audit services
classified as "all other services" that are routine and recurring services.
(e)(2) All services described in paragraphs (b) through (d) of Item 4 were
approved by the Audit Committee.
(f) Not applicable
(g) The aggregate non-audit fees for services to the registrant, its investment
adviser and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant were $1,600 for the
fiscal year ended December 31, 2004 and $1,500 for the fiscal year ended
December 31, 2003, including services provided prior to May 6, 2003, the
effective date of the pre-approval process.
(h) Not applicable
Item 5. Audit Committee of Listed Registrants.
Not applicable
Item 6. Schedule of Investments.
The Schedule of Investments in securities of unaffiliated issuers is included in
the Annual Report.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant does not have procedures by which shareholders may recommend
nominees to its Board of Trustees.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the 1940 Act) the
registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures are effective as of a date within 90 days of the filing
date of this report.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the registrant's second fiscal half-year that
have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics for Senior Financial Officers is filed herewith
(a)(2) Certifications required by Item 12(a) of Form N-CSR are filed herewith.
(a)(3) Not applicable.
(b) Certification required by Item 12(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
By (Signature and Title)
/s/ James I. Ladge
- -----------------------
James I. Ladge
President and Treasurer
Date: March 11, 2005
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: March 11, 2005