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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
45 Milk Street, Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
James I. Ladge, 45 Milk Street, Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 878-4000
----------------------------
Date of fiscal year end: 12/31
--------
Date of reporting period: 12/31/07
--------
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.
================================================================================
APPLETON EQUITY GROWTH FUND
---------------------------
Annual Report
December 31, 2007
Investment Adviser Administrator
------------------ -------------
Appleton Partners, Inc. JPMorgan
45 Milk Street, Eighth Floor 303 Broadway
Boston, MA 02109 Suite 900
Cincinnati, OH 45202
1-877-712-7753
================================================================================
[logo] APPLETON FUNDS
Dear Shareholder,
In 2007, the Fund displayed strong performance both on a relative and absolute
basis. The Fund finished the year gaining 19.15% and outpaced the S&P 500, which
finished the year up 5.49%. Global expansion and a weakened dollar aided the
large-cap multinationals and the Fund capitalized on this via Industrial names
such as Precision Castparts, Ametek, and Honeywell. Other companies that
significantly contributed to the Fund's performance were Garmin and Apple, which
both showed solid growth due to strong product trends. The Fund maintains a
substantial relative underweight in the Financial Services sector and remains
overweight in the Healthcare sector.
The year provided a rebound for U.S. large stocks as they, in general,
outperformed U.S. small and international markets. During the last quarter, the
stock market reacted negatively with all major stock market indices showing
declines accompanied by very high volatility. Three issues seemed to dominate
the economic scenario in the fourth quarter: continuous negative press on
sub-prime mortgages and housing, oil prices breaking $100 per barrel, and the
risk of recession. Below, we offer our thoughts about this past quarter and the
months ahead.
In an effort to analyze and understand the combination of events which influence
our economy and the markets, there is a tendency for investors to rely on the
phrase "it's different this time." Usually, for a period of time, perhaps even
years, it really is different. However, it is not different forever. In terms of
the credit issues, we think it's appropriate to use the statement, "but it is
different this time" in a very specific context. No, the tightened credit
environment will not be a permanent state of affairs any more this time than in
the past, but we believe its impact will last longer than is generally still
believed by most investors and economists.
As we have seen, any "fix" will be fraught with political overtones that will
likely extend the time before a real solution is found. As often happens with
political expedience, the law of unintended consequence will likely rear its
head. For example, what if the heat of the political pressures induces rates to
be frozen for a select group of borrowers? It may be beneficial for those
borrowers; however, what is the long-term impact of forcing change or breaking
contracts between investors and borrowers by Federal fiat? Once done, will
investors buy future packages of mortgages whose terms may change within several
years or will mortgage investors decide to go elsewhere, thus reducing the
long-term potential supply of housing credit? We need to remember that elections
come but every two years for the House of Representatives and every four for the
Presidency, a fact that doesn't get lost on elected officials.
A further explanation offers that house prices are declining nationally, a first
in decades. The importance of the house price decline comes about because
Americans have substituted home price appreciation for conventional savings. If
home prices decline long enough or steeply enough, it seems most likely that the
consumer would start saving more and spending less, thus bringing about a
consumer recession.
Since the founding of the Federal Home Loan Bank System in 1932, the Federal
Government has been very much involved in the home financing process. In
addition to the System's role in housing finance, two other Government Sponsored
Enterprises (GSE), Fannie Mae and Freddie Mac, have become extremely important
to housing finance in recent years. These GSE's have been major buyers and
packagers of mortgages, and distributors of these packages to global investors.
There has been substantial concern about the size of these entities,
particularly since the borrowings of these entities carry the implicit, although
not explicit, guarantee of the Federal Government.
The maximum size of the mortgages Fannie and Freddie finance is tied to an index
published by the Office of Federal Housing Enterprise Oversight (OFHEO), the
Federal agency that regulates these GSE's. While the maximum conventional loan
these entities can guarantee stabilized at $417,000 for 2006, 2007, and again
for 2008, this figure represented a cumulative increase since the year 2000 of
over 65% and is now nearly $200,000 more than the most recent median U.S. home
price of about $221,000 as compiled by the National Association of Realtors.
In turn, OFHEO calculates the conventional loan limit based on data it receives
from the Federal Housing Finance Board (FHFB). FHFB is the organization that
regulates the Federal Home Loan Bank System which is the oldest federal agency
involved in mortgage financing. Their calculation of the average home price in
October 2007 was $295,573, down $10,685 from the average of $306,258 in October
2006. Ultimately, however, this figure was massaged until it reached the
conventional loan limit of $417,000. Further, had it not been changed recently,
the formula used to calculate the maximum conventional loan would have lowered
the maximum conventional loan to about $402,000 for 2008. Thus, it is logical to
question if these three entities (OFHEO, Fannie and Freddie) really helped make
housing more affordable or if they were major contributors to the current
housing issues at hand.
Shifting to energy, a central focus has been whether oil prices will rise beyond
$100. While admittedly not oil-price forecasters, we have several observations
about where we seem to be in the oil cycle, and as an analogy, we look to the
Dow Jones Industrial Average when it first broke the 1000 level on an intra-day
basis nearly 41 years ago.
Our recent analysis showed the number of barrels of crude oil products entering
this country in the twelve months ending September 2007 was actually 3.6% lower
than the same twelve month period a year earlier. Further, we researched how
these volume changes had affected oil prices over the last 25 years. We examined
the data for West Texas Intermediate crude (typically the American benchmark for
crude and very similar to the non-US price) using similar methodology. In the
last 10 years, there has been a very strong, positive relationship between the
total twelve month level of imports and the twelve month rolling average of the
domestic price of crude, i.e., they move up together and down together.
In 1966, even though the Dow Jones intra-day edged above 1000 during two days in
January and two days in February, they never closed above 1000. In late 1972 and
early 1973, the average closed above 1000 for about two months before again
rolling over. It tried and failed again in the mid 1970's, but it was not until
November 1982 that it broke through on a sustained basis. Thus, while it is
possible that oil breaks $100 per barrel, there is good reason based on history
and the current amount of speculative hype to be skeptical that oil will make a
sustained upward run after its first penetration of the $100 price.
Do the current housing issues and the high price of oil squeezing the consumer
mean that we will definitely enter recession? While a consumer recession is
increasingly likely and not to be ruled out, much of its negative potential drag
on U.S. GDP will be absorbed by our trading partners, as our consumer product
imports decline and our exports continue to increase. In fact, exports as a
share of our economy are over 12% of GDP, the highest percentage in the 60 years
for which we have maintained data.
In sum, the outlook that we have held for quite a while continues. Overall
growth is expected to remain below the long-term average, but is still likely to
remain positive largely because of the continued export offset, even if the
consumer weakens further, as seems very likely.
We continue to focus our portfolio management on securities showing above
average profit gains that are reasonably priced relative to the market and their
historic trends. We expect to find that the beneficiaries of continued global
economic expansion and industrialization will be well represented in portfolios
and recognize that a lower rate of growth in the U.S. economy will likely be
felt by those from whom we import, thus somewhat muting the acute impact of the
slowdown on U.S. corporations.
Best wishes for a peaceful and healthy New Year.
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, S&P 500 Index
and the Russell 1000 Growth Index
[LINE CHART]
Appleton Equity S&P 500 Russell 1000
Date Growth Fund Index Growth Index
---- ----------- ----- ------------
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
03/31/05 6,861 9,583 7,591
06/30/05 6,720 9,714 7,777
09/30/05 6,821 10,064 8,089
12/31/05 7,021 10,274 8,329
03/31/06 7,302 10,707 8,586
06/30/06 7,111 10,552 8,251
09/30/06 7,302 11,150 8,576
12/31/06 7,583 11,897 9,085
03/31/07 7,773 11,973 9,193
06/30/07 8,325 12,725 9,824
09/30/07 8,927 12,983 10,237
12/31/07 9,035 12,551 10,158
----------------------------------------
Appleton Equity Growth Fund
Average Annual Total Returns*
1 Year 5 Year Since Inception**
19.15% 11.86% (1.44%)
----------------------------------------
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, 2007
Sector (% of Net Assets)
Consumer, Cyclical 6.7%
Consumer, Non-Cyclical 8.2%
Energy 12.6%
Financial Services 7.7%
Healthcare 19.3%
Industrial 12.3%
Materials 5.2%
Technology 14.3%
Telecommunications 2.8%
Utilities 2.7%
Money Markets 8.8%
Liabilities in Excess of Other Assets (0.6%)
-----
100.0%
=====
APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
December 31, 2007
Market
Shares Value
COMMON STOCKS -- 91.8%
CONSUMER, CYCLICAL -- 6.7%
2,375 Garmin Ltd. $ 230,375
5,200 McDonald's Corp. 306,332
8,000 The Walt Disney Co. 258,240
--------------------
794,947
--------------------
CONSUMER, NON-CYCLICAL -- 8.2%
5,750 Kellogg Co. 301,473
4,000 PepsiCo, Inc. 303,600
4,987 Procter & Gamble Co. 366,146
--------------------
971,219
--------------------
ENERGY -- 12.6%
3,000 Apache Corp. 322,620
3,000 Baker Hughes, Inc. 243,300
4,400 Exxon Mobil Corp. 412,235
2,500 Schlumberger Ltd. 245,925
3,650 Smith International, Inc. 269,553
--------------------
1,493,633
--------------------
FINANCIAL SERVICES -- 7.7%
4,325 American Express Co. 224,987
4,000 Bank of America Corp. 165,040
4,500 MetLife, Inc. 277,290
8,000 Wells Fargo & Co. 241,520
--------------------
908,837
--------------------
HEALTHCARE -- 19.3%
3,800 Baxter International, Inc. 220,590
4,000 Becton, Dickinson & Co. 334,320
7,000 Gilead Sciences, Inc.* 322,070
4,500 Henry Schein, Inc.* 276,300
7,000 Respironics, Inc.* 458,359
4,700 Stryker Corp. 351,184
7,300 VCA Antech, Inc.* 322,879
--------------------
2,285,702
--------------------
INDUSTRIAL -- 12.3%
7,000 AMETEK, Inc. 327,880
3,750 Caterpillar, Inc. 272,100
8,850 General Electric Co. 328,070
4,025 Honeywell International, Inc. 247,819
APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS, Continued
December 31, 2007
Market
Shares Value
COMMON STOCKS -- 91.8%, Continued
INDUSTRIAL -- 12.3%, Continued
2,000 Precision Castparts Corp. $ 277,400
--------------------
1,453,269
--------------------
MATERIALS -- 5.2%
5,950 Ecolab, Inc. 304,700
3,500 Praxair, Inc. 310,485
--------------------
615,185
--------------------
TECHNOLOGY -- 14.3%
7,750 Amphenol Corp. 359,367
1,550 Apple Computer, Inc.* 307,024
10,000 Cisco Systems* 270,700
3,000 MEMC Electronic Materials, Inc.* 265,470
6,000 Microsoft Corp. 213,600
12,500 Oracle Corp.* 282,250
--------------------
1,698,411
--------------------
TELECOMMUNICATIONS -- 2.8%
8,000 AT&T, Inc. 332,480
--------------------
UTILITIES -- 2.7%
3,500 Veolia Environnement - ADR 318,430
--------------------
TOTAL COMMON STOCKS $ 10,872,113
--------------------
MONEY MARKETS -- 8.8% 1,044,265
1,044,265 Fidelity Money Market Fund --------------------
TOTAL INVESTMENT SECURITIES -- 100.6%
(Cost $9,101,170) $ 11,916,378
LIABILITIES IN EXCESS OF OTHER ASSETS --(0.6%) (74,436)
--------------------
NET ASSETS -- 100.0% $ 11,841,942
====================
*Non-income producing security
ADR American Depositary Receipt
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2007
ASSETS
Investment securities:
At acquisition cost $ 9,101,170
============
At market value $ 11,916,378
Dividends receivable 16,180
Receivable from Adviser 1,250
------------
TOTAL ASSETS 11,933,808
------------
LIABILITIES
Distributions payable to shareholders 30,343
Payable to other affiliates 27,244
Payable to Trustees 6,266
Other accrued expenses and liabilities 28,013
------------
TOTAL LIABILITIES 91,866
------------
NET ASSETS $ 11,841,942
============
NET ASSETS CONSIST OF
Paid-in capital $ 10,920,439
Accumulated net realized losses from security transactions (1,893,705)
Net unrealized appreciation on investments 2,815,208
------------
NET ASSETS $ 11,841,942
============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value) 1,320,572
============
Net asset value, offering price and redemption price per share $ 8.97
============
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2007
INVESTMENT INCOME
Dividends $ 200,425
--------------
EXPENSES
Investment advisory fees 100,269
Accounting services fees 30,000
Administration fees 24,000
Transfer agent fees 24,000
Distribution expenses 25,067
Professional fees 20,068
Trustees' fees and expenses 17,106
Compliance fees and expenses 15,046
Postage and supplies 12,688
Custodian fees 6,765
Insurance expense 3,300
Reports to shareholders 3,102
Registration fees 1,663
Pricing expense 1,502
--------------
TOTAL EXPENSES 284,576
Fees waived and expenses reimbursed by Adviser (134,028)
--------------
NET EXPENSES 150,548
--------------
NET INVESTMENT INCOME 49,877
--------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 317,877
Net change in unrealized appreciation/depreciation on
investments 1,360,795
--------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 1,678,672
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,728,549
==============
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,
2007 2006
------------ ------------
FROM OPERATIONS
Net investment income (loss) $ 49,877 $ (4,381)
Net realized gains from security transactions 317,877 46,618
Net change in unrealized appreciation/depreciation on investments 1,360,795 550,737
------------ ------------
Net increase in net assets from operations 1,728,549 592,974
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From investment income (49,877) --
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 2,717,575 2,083,189
Reinvestment of distributions 19,533 --
Payments for shares redeemed (997,175) (1,116,513)
------------ ------------
Net increase in net assets from capital share transactions 1,739,933 966,676
------------ ------------
TOTAL INCREASE IN NET ASSETS 3,418,605 1,559,650
NET ASSETS
Beginning of year 8,423,337 6,863,687
------------ ------------
End of year $ 11,841,942 $ 8,423,337
============ ============
ACCUMULATED NET INVESTMENT INCOME $ -- $ --
------------ ------------
CAPITAL SHARE ACTIVITY
Sold 326,730 288,091
Reinvested 2,178 --
Redeemed (122,190) (154,135)
------------ ------------
Net increase in shares outstanding 206,718 133,956
Shares outstanding, beginning of year 1,113,854 979,898
------------ ------------
Shares outstanding, end of year 1,320,572 1,113,854
============ ============
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 For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2007 2006 2005 2004 2003
-------------- ------------- ------------- ------------- -------------
Net asset value at beginning of year $ 7.56 $ 7.00 $ 6.83 $ 6.40 $ 5.16
-------------- ------------- ------------- ------------- -------------
Income (loss) from investment operations:
Net investment income (loss) 0.04 (0.00)(a) (0.01) 0.02 (0.01)
Net realized and unrealized gains
on investments 1.41 0.56 0.18 0.43 1.25
-------------- ------------- ------------- ------------- -------------
Total from investment operations 1.45 0.56 0.17 0.45 1.24
-------------- ------------- ------------- ------------- -------------
Less distributions:
Dividends from net investment
income (0.04) -- -- (0.02) --
-------------- ------------- ------------- ------------- -------------
Net asset value at end of year $ 8.97 $ 7.56 $ 7.00 $ 6.83 $ 6.40
============== ============= ============= ============= =============
Total return 19.15% 8.00% 2.49% 7.04% 24.03%
============== ============= ============= ============= =============
Net assets at end of year $ 11,841,942 $ 8,423,337 $ 6,863,687 $ 6,625,594 $ 5,544,031
============== ============= ============= ============= =============
Ratio of net expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income (loss) to
average net assets 0.50% (0.06%) (0.11%) 0.33% (0.22%)
Portfolio turnover rate 36% 50% 85% 40% 58%
(a) Amount rounds to less than $0.01.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
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.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. As of December 31, 2007, the Fund does not believe the
adoption of SFAS No. 157 will impact the amounts reported in the financial
statements, however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain of the measurements
reported on the statement of changes in net assets for a fiscal period.
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 continue 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, 2007
and 2006 was as follows:
2007 2006
---- ----
From ordinary income $49,877 $ -
The following information is computed on a tax basis as of December 31, 2007:
Cost of portfolio investments $ 9,101,170
===========
Gross unrealized appreciation on investments $ 2,891,015
Gross unrealized depreciation on investments (75,807)
-----------
Net unrealized appreciation on investments $ 2,815,208
Post-October losses (88,351)
Capital loss carryforwards (1,805,354)
-----------
Total accumulated earnings $ 921,503
===========
During the year ended December 31, 2007, the Fund utilized $406,228 of capital
loss carryforwards. The remaining capital loss carryforwards in the above table
expire as follows:
Amount December 31,
---------------- --------------
$1,438,233 2010
367,121 2011
----------------
$1,805,354
================
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.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 was
required for fiscal years beginning after December 15, 2006 and was to be
applied to all open tax years as of the effective date. The Fund has analyzed
its tax positions taken on Federal income tax returns for all open tax years
(tax years ended December 31, 2004 through 2007) for purposes of implementing
FIN 48 and has concluded that no provision for income tax is required in the
financial statements.
2. Investment Transactions
For the year ended December 31, 2007, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$4,441,692 and $3,374,368, respectively.
3. Transactions with Affiliates
Certain trustees and officers of the Trust are also officers of Appleton
Partners, Inc. (the Adviser), JPMorgan Chase Bank, N.A. (JPMorgan) 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, 2008. For the year
ended December 31, 2007, the Adviser waived $100,269 of advisory fees and
reimbursed the Fund for $8,692 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 JPMorgan, JPMorgan supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for the Fund. JPMorgan 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, JPMorgan receives a monthly fee based on the Fund's
average daily net assets, subject to a monthly minimum fee.
JPMorgan 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, JPMorgan receives a monthly fee per shareholder
account, subject to a monthly minimum fee. In addition, the Fund pays JPMorgan
out-of-pocket expenses including, but not limited to, postage and supplies.
JPMorgan also calculates the daily net asset value per share and maintains the
financial books and records of the Fund. For these accounting services, JPMorgan
receives a monthly fee, based on average daily net assets, from the Fund. In
addition, the Fund pays JPMorgan certain out-of-pocket expenses incurred by
JPMorgan 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,
2007, the Fund accrued and the Adviser subsequently reimbursed $25,067 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.
Compliance Services Agreement
Under the terms of the Compliance Services Agreement between the Trust and
JPMorgan, JPMorgan provides certain compliance services to the Trust, including
developing and assisting in implementing a compliance program for JPMorgan on
behalf of the funds and providing administrative support services to the Funds'
Compliance Program and Chief Compliance Officer.
In addition, the Trust has contracted with JPMorgan to provide certain
compliance services on behalf of the Trust. Subject to the direction of the
Trustees of the Trust, JPMorgan developed and assisted in implementing a
compliance program for JPMorgan on behalf of the Fund and; provides
administrative support services to the Fund's Compliance Program and Chief
Compliance Officer. For these services, JPMorgan receives a quarterly fee from
the Trust.
4. Commitments and Contingencies
The Fund indemnifies the Trust's officers and Trustees for certain liabilities
that might arise from the 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, 2007, 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 five 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Fund's internal control over financial reporting. Our audit
included 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, 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, 2007, by correspondence with
the custodian. We believe that our audit 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 at December 31, 2007, 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 its financial highlights
for each of the five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 19, 2008
APPLETON EQUITY GROWTH FUND
OTHER ITEMS
December 31, 2007 (Unaudited)
DIVIDENDS RECEIVED DEDUCTION
For corporate shareholders, 100% of ordinary dividends paid during the year
ended December 31, 2007 qualify for the corporate dividends received deduction.
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 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 the Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q. 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.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Fund, you incur 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, 2007 through December 31, 2007).
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, 2007" 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 Ending Account Expenses Paid During
Ratio Annualized Beginning Account Value December the Six Months Ended
December 31, 2007 Value July 1, 2007 31, 2007 December 31, 2007 *
- --------------------------------------------------------------------------------------------------------
Appleton Equity
Growth Fund
Actual 1.50% $ 1,000.00 $ 1,085.30 $ 7.88
Hypothetical 1.50% $ 1,000.00 $ 1,017.61 $ 7.63
* 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/365] (to reflect the one-half year period).
APPLETON EQUITY GROWTH FUND
ADVISORY AGREEMENT APPROVAL (unaudited)
December 31, 2007
The Board of Trustees of the Fund, including a majority of the Trustees who are
not interested persons of the Trust (the "Independent Trustees"), reviewed and
approve the Trust's Investment Advisory Agreement with the Adviser at a meeting
held on December 10, 2007.
The Adviser made a presentation to the Board with information requested by the
Independent Trustees. Such information included (i) information confirming the
financial condition of the Adviser and the Investment Adviser's profitability
derived from its relationship with the Fund; (ii) a description of the personnel
and services provided by the Adviser; (iii) comparative information on fees and
investment performance; and (iv) information regarding brokerage and portfolio
transactions. Comparative fee and performance information was provided through
an independent third party.
The Board reviewed and discussed financial information provided by the Adviser.
The Board reviewed and considered the Adviser's profitability derived from its
relationship with the Fund and it was noted that the potential profitability was
within ranges generally determined to be reasonable, given the services rendered
and the Fund's performance and services provided. The Board determined that the
Adviser is solvent and sufficiently well capitalized to perform the ongoing
responsibilities to the Fund and to satisfy its obligations under the Act and
the advisory agreement.
The Board reviewed the advisory fee and the effective investment advisory fee
rate paid by the Fund and the appropriateness of such advisory fee. The Board
reviewed and considered any economies of scale which could be realized by the
Fund and how the current advisory fee for the Fund reflects the economies of
scale for the benefit of the shareholders of the Fund, noting that at this stage
of the Fund in view of its relatively small size, no such economies of scale had
been realized.
The Board also reviewed and considered the fees or other payments received by
the Adviser. Specifically, the Board reviewed and considered comparison of fees
charged by investment advisers to fund peers of the Fund, noting that the
Adviser's fees were generally in line with fund peers. The Board also considered
and reviewed information regarding brokerage, observing that the Fund, in light
of its size, generates relatively little in brokerage fees.
The Board reviewed and considered the qualifications of the portfolio manager to
manage the portfolio of the Fund, including his history managing equity
investments generally and his experience with the types of securities included
in the Fund's portfolio, as well as his background and expertise and the amount
of time he would be able to devote to the affairs of the Fund. The Board
concluded, in light of the particular requirements of the Fund and its
investment program, that it was satisfied with the professional qualifications
and overall commitment to the Fund of the portfolio manager.
The Board considered the nature, extent and quality of services rendered to the
Fund by the Adviser and the investment performance of the Fund based on the data
provided which included comparisons with the public markets as represented by
indices and with peer funds. The Board determined that in light of the data
taken as a whole and the nature of the investment program of the Fund, the
investment performance was reasonable and acceptable. The Board concluded that
the Fund's fees paid to the adviser were reasonable in light of comparative
performance and advisory fee information, costs of the services provided and
profits to be realized and benefits derived by the Adviser from its relationship
with the Fund.
Based on this review, which included an executive session of the Trustees, it
was the consensus of the Independent Trustees that the continuation of the
Investment Advisory Agreement is in the best interest of the Fund and its
shareholders.
APPLETON EQUITY GROWTH FUND
MANAGEMENT OF THE TRUST (UNAUDITED)
December 31, 2007
Listed in the charts below is basic information regarding the Trustees and
officers of the Trust.
Number of Other
Portfolios in Directorships
Fund Complex Held by Trustee
Current Position with Trust Principal Occupation(s) Overseen by Outside the Fund
Name/Address/Age and Length of Time Served During Last 5 yrs Trustee Complex
====================================================================================================================================
INTERESTED TRUSTEES*:
James I. Ladge, CFA President, Trustee Senior Vice President, Appleton 1 N/A
45 Milk Street, 8th Floor (December 2000 - Present) Partners, Inc. (1993 - Present)
Boston, MA 02109 Treasurer
Age: 39 (December 2003 - Present)
Douglas C. Chamberlain, CFA Trustee President, Appleton Partners, Inc. 1 N/A
45 Milk Street, 8th Floor (December 2000 - Present) (1998 - Present)
Boston, MA 02109
Age: 60
DISINTERESTED TRUSTEES:
Jack W. Aber, PhD Trustee Professor, Boston University 1 Director, Manager
Boston University School of (December 2000 - Present) (1972- Present) Funds
Management Director, Third
595 Commonwealth Avenue Avenue Funds
Boston, MA 02215
Age: 70
John M. Cornish, Esq. Trustee Partner, Choate, Hall & Stewart 1 Director, Thompson
Choate Hall & Stewart (December 2000 - Present) (1985 - Present) Steel Company
2 International Place
Boston, MA 02110
Age: 60
Grady B. Hedgespeth Trustee Trustee, Chief Investment Officer, New 1 N/A
11088 San Andrew Drive (December 2000 - Present) Markets Equity Fund
New Market, MD 21774 (March 2000 - November 2001);
Age: 52 President, Fleet Development Ventures
(1996 - 2000)
President, ICA Group, a non-profit
consulting firm
(March 2002 - 2004);
Senior Vice President, CFO,
Seedco
(2004-2005)
Independent Consultant
(2005 - Present)
OFFICERS:
Michele D. Hubley Secretary and Chief Vice President & Chief Compliance N/A N/A
45 Milk Street, 8th Floor Compliance Officer Officer of Appleton Partners, Inc.
Boston, MA 02109 (December 2004 - Present) (1995 - Present)
Age: 50
* 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.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to its principal executive officers and principal
financial officers. During the period covered by this report, no amendments were
made to the provisions of the code of ethics, nor did the registrant grant any
waivers, including any implicit waivers, from the provisions of the code of
ethics.
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 $19,000 for the December 31, 2007 fiscal year
and $17,500 for the December 31, 2006 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,
2007 or December 31, 2006 fiscal years.
(c) Tax Fees. Tax fees totaled $2,750 for the December 31, 2007 fiscal year and
$2,500 for the December 31, 2006 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, 2007 or
December 31, 2006 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 $2,750 for the
fiscal year ended December 31, 2007 and $2,500 for the fiscal year ended
December 31, 2006.
(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 Principal Executive and Financial Officers was filed
on March 3, 2006 with Form N-CSR for period ending December 31, 2005 and
is hereby incorporated by reference.
(a)(2) Certifications required by Item 12(a)(2) of Form N-CSR are 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 4, 2008
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 4, 2008