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APPLETON FUNDS
PROSPECTUS
DECEMBER 29, 2000
The Securities and Exchange Commission has not approved nor disapproved these
securities, nor has the Securities and Exchange Commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
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PROSPECTUS December 29, 2000
APPLETON FUNDS
221 EAST FOURTH STREET, SUITE 300
CINCINNATI, OHIO 45202
877-71-APPLE
APPLETON EQUITY GROWTH FUND
The Appleton Equity Growth Fund (the "Fund"), a separate series of the
Appleton Funds (the "Trust"), seeks long-term growth of capital by investing
primarily in common stocks.
Appleton Partners, Inc. (the "Adviser"), 45 Milk Street, Eighth Floor,
Boston, Massachusetts 02109, manages the Fund's investments.
This Prospectus includes important information about the Fund that you
should know before investing. You should read the Prospectus and keep it for
future reference.
TABLE OF CONTENTS
RISK/RETURN SUMMARY ........................................................ 2
EXPENSE INFORMATION ........................................................ 4
PRIOR PERFORMANCE OF THE ADVISER ........................................... 5
HOW TO PURCHASE SHARES ..................................................... 6
SHAREHOLDER SERVICES ....................................................... 7
HOW TO REDEEM SHARES ....................................................... 8
DIVIDENDS AND DISTRIBUTIONS ................................................ 9
TAXES ...................................................................... 10
OPERATION OF THE FUND ...................................................... 11
DISTRIBUTION PLAN .......................................................... 11
THE DISTRIBUTOR ............................................................ 12
CALCULATION OF SHARE PRICE ................................................. 12
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RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek long-term growth of capital by
investing primarily in common stocks.
The Board of Trustees may change the Fund's investment objective without
shareholder approval, but only after shareholders have been notified and after
this Prospectus has been revised accordingly. Unless otherwise indicated, all
investment practices, strategies and limitations of the Fund are nonfundamental
policies that the Board of Trustees may change without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in common stocks. By combining macro-economic and micro-economic
factors, the Fund seeks the best positioned companies within the fastest growing
industries. In pursuing the Fund's investment objective, the Adviser first
employs top-down analysis to select specific industry groups demonstrating
growth potential. A bottom-up approach is then used to select particular
companies within the industry groups.
The Adviser believes that as the world becomes more complex, it is no
longer possible to invest by focusing solely on an individual company. The top
down, macro-economic environment within and around which the company operates,
must be assessed and understood. Recognizing this reality, and the dynamism of
both the U.S. and the global economy, the Adviser asks a number of evolving
questions:
o What global causes (war, recession, technology revolution) could alter the
projected profit outlook?
o What are the demographic trends, not only in the U.S. but abroad, and what
will their impact be on the economy in the coming years?
o What public policy issues, whether political, monetary or regulatory, could
impact industry growth?
These basic questions allow the Adviser to develop a focus list of industries
that it believes will sustain high profit growth given the current and future
economic, financial and political scenarios.
Once industry sectors have been identified, the Adviser's research process
continues with bottom up or micro-economic analysis, to find individual stocks
that can be placed on the buy list. The Adviser believes there are certain
characteristics that are generally found in growing companies, characteristics
that may be unique, but if not unique at least give their owners a competitive
edge. The Adviser begins by reviewing revenue growth, market share and price
control, not only for individual companies, but their competitors. The Adviser
considers such factors as a company's management team, new products and overall
financial outlook. This
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intensive fundamental research narrows the potential portfolio down to a
manageable list of 50-70 candidates. Thus, by combining top down and bottom up
research, the Adviser will maintain a portfolio of 25-35 stocks that it believes
are the best companies within the fastest growing industries.
When the Adviser believes substantial price risks exist for common stocks
because of uncertainties in the investment outlook or, when in the Adviser's
judgment, it is otherwise warranted in selling to manage the Fund's portfolio,
the Fund may temporarily hold, for defensive purposes, all or a portion of its
assets in short-term obligations such as bank debt instruments (certificates of
deposit, bankers' acceptances and time deposits), commercial paper, shares of
money-market investment companies, U.S. Government or agency obligations having
a maturity of less than one year, or repurchase agreements. The Fund may also
invest a substantial portion of its assets in such instruments at any time to
maintain liquidity or pending selection of investments in accordance with its
policies. If the Fund takes such a temporary defensive position, it may not
pursue or achieve its investment objective.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The return on and value of an investment in the Fund will fluctuate in
response to stock market movements. Stocks and securities convertible into
common stocks are subject to market risks, such as rapid increase or decrease in
a stock's value or liquidity, and fluctuations due to a company's earnings,
economic conditions and other factors beyond the control of the Adviser. As a
result, there is a risk that you could lose money by investing in the Fund.
An investment in the Fund is not a deposit of a bank and it is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other agency.
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EXPENSE INFORMATION
Shareholder Fees (fees paid directly from your investment)........... None
----------------
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
------------------------------
Management Fees ..................................................... 1.00%
Distribution (12b-1) Fees............................................ .25%
Other Expenses....................................................... .75%(1)
-----
Total Annual Fund Operating Expenses................................. 2.00%
=====
Fee Waiver and Expense Reimbursement ................................ .50%(2)
=====
Net Expenses......................................................... 1.50%(2)
=====
(1) Other Expenses are based on estimated amounts for the current fiscal year.
(2) 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 "Expense Limitation Agreement"). The Adviser has agreed to maintain
these expense limitations with regard to the Fund through December 31,
2001.
Example
-------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year $153
3 Years 579
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PRIOR PERFORMANCE OF THE ADVISER
The investment performance illustrated below represents the composite
performance of all the separate accounts (the "Equity Composite") managed by the
Adviser which were managed with investment objectives, policies and strategies
substantially similar to those to be employed by the Adviser in managing the
Fund. The Adviser has been managing portfolios for individual clients since its
origin in 1986. The data is provided to illustrate past performance of the
Adviser in managing such accounts.
The performance data below represents the prior performance of the Equity
Composite and not the prior performance of the Fund and should not be relied
upon by investors as an indication of future performance of the Fund. As a point
of comparison for the Equity Composite, the performance of the Standard & Poor's
500 Stock Index (the "S&P 500 Index") is also presented. The S&P 500 Index is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange, the American Stock Exchange and Over The
Counter market.
ANNUALIZED RETURNS - FOR PERIODS ENDED SEPTEMBER 30, 2000
Equity Composite S&P 500 Index
---------------- -------------
1 year 27.34% 13.37%
3 years 21.22% 16.49%
5 years 25.64% 21.76%
While the Adviser will employ for the Fund investment objectives, policies
and strategies that are substantially similar to those that were employed in
managing the Equity Composite, the Adviser, in managing the Fund, will be
subject to certain restrictions imposed by the Investment Company Act of 1940
and the Internal Revenue Code on its investment activities to which, as the
investment adviser to the Composite, it was not previously subject. Examples
include limits on the percentage of assets invested in securities of issuers in
a single industry and requirements on distributing income to shareholders. Such
restrictions, if they had been applicable to the Composite, may have adversely
affected the performance results of the Composite.
The Fund may incur operating expenses that were not incurred by the Equity
Composite. It is anticipated that the fees and expenses of the Fund will be
higher than those of the Composite, which will lower performance results. While
the Composite incurs inflows and outflows of cash, there can be no assurance
that the continuous offering of the Fund's shares and its obligation to redeem
its shares will not impact the Fund's performance.
The performance of the Composite, which is unaudited, has otherwise been
computed by the Adviser in accordance with the standards formulated by the
Association for Investment Management and Research ("AIMR"). This method of
calculating performance differs from the standardized methodology used by mutual
funds to calculate performance and results in a total return different from that
derived from the standardized methodology.
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HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $1,000
($500 for tax-deferred retirement plans). The Fund will accept accounts with
less than the stated minimum from employees of the Adviser and its affiliates
and may, in the Adviser's sole discretion, accept certain other accounts with
less than the stated minimum initial investment.
Shares of the Fund are sold on a continuous basis at the net asset value
("NAV") next determined after receipt of a purchase order by the Trust. Purchase
orders received by dealers prior to the close of the regular session of trading
on the New York Stock Exchange (the "Exchange") on any business day, generally
4:00 p.m., Eastern Time, and transmitted to Integrated Fund Services, Inc. (the
"Transfer Agent"), P.O. Box 5354, Cincinnati, Ohio 45201-5354 by 5:00 p.m.,
Eastern Time, that day are confirmed at that day's NAV. It is the dealers'
responsibility to transmit properly completed orders so that the Transfer Agent
will receive them by 5:00 p.m., Eastern Time. Dealers may charge a fee for
effecting purchase orders. Direct purchase orders received by the Transfer Agent
by the close of the regular session of trading on the Exchange on any business
day, generally 4:00 p.m., Eastern Time, are confirmed at that day's NAV. Direct
investments received by the Transfer Agent after 4:00 p.m., Eastern Time, and
orders received from dealers after 5:00 p.m., Eastern Time, are confirmed at the
NAV next determined on the following business day.
INITIAL INVESTMENTS BY MAIL. You may open an account and make an initial
investment in the Fund by sending a check and a completed account application
form to The Appleton Equity Growth Fund, P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable to the "Appleton Equity Growth Fund."
An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust reserves the
rights to limit the amount of investments and to refuse to sell to any person.
You should be aware that the Fund's account application contains provisions
in favor of the Trust, the Distributor, the Transfer Agent, and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services made available to investors.
If your order to purchase shares is canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or the Transfer Agent in the transaction.
INITIAL INVESTMENTS BY WIRE. You may also purchase shares of the Fund by
wire. Please telephone the Transfer Agent (Nationwide call toll-free
1-877-71-APPLE ) for instructions. You should be prepared to mail or fax us a
completed, signed account application.
Your investment will be made at the NAV next determined after your wire is
received together with either telephoned, faxed, or mailed instructions or with
the completed, signed
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account application as indicated above. If the Trust does not receive timely and
complete account information there may be a delay in the investment of your
money and any accrual of dividends. Your bank may impose a charge for sending
your wire. There is presently no fee for receipt of wired funds, but the
Transfer Agent reserves the right to charge shareholders for this service upon
30 days' prior notice to shareholders.
ADDITIONAL INVESTMENTS. You may purchase and add shares to your account by
mail or by bank wire. Checks should be sent to The Appleton Equity Growth Fund,
P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the
"Appleton Equity Growth Fund." Bank wires should be sent as instructed by the
Transfer Agent. Each additional purchase request must contain the name of your
account and your account number to permit proper crediting to your account.
While there is no minimum amount required for subsequent investments, the Trust
reserves the right to impose such requirement.
SHAREHOLDER SERVICES
Contact the Transfer Agent (Nationwide call toll-free 1-877-71-APPLE) for
additional information about the shareholder services described below.
Automatic Withdrawal Plan
-------------------------
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $100 each. There is no
charge for this service.
Tax-Deferred Retirement Plans
-----------------------------
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
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Direct Deposit Plans
--------------------
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account on either the 15th or
the last business day of the month. The minimum initial and subsequent
investments must be $100 under the plan. The Transfer Agent pays the costs
associated with these transfers, but reserves the right, upon 30 days' written
notice, to make reasonable charges for this service. Your depository institution
may impose its own charge for debiting your account that would reduce your
return from an investment in the Fund.
HOW TO REDEEM SHARES
You may redeem shares of the Fund each day that the Trust is open for
business. You will receive the NAV per share next determined after receipt by
the Transfer Agent of your redemption request in the form described below.
Payment is normally made within 3 business days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to 15 days
from the purchase date. To eliminate this delay, you may purchase shares of the
Fund by certified check or wire.
BY MAIL. You may redeem shares of the Fund on each day that the Trust is
open for business by sending a written request to the Transfer Agent. The
request must state the number of shares or the dollar amount to be redeemed and
your account number. The request must be signed exactly as your name appears on
the Trust's account records. If the shares to be redeemed have a value of
$25,000 or more, your signature must be guaranteed by any eligible guarantor
institution, including banks, brokers and dealers, municipal securities brokers
and dealers, government securities brokers and dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. If the name(s) or the address on your account has been
changed within 30 days of your redemption request, your signature must be
guaranteed regardless of the value of the shares being redeemed.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, the Fund's Custodian will
charge you a processing fee. The Trust reserves the right, upon 30 days' written
notice, to change the processing fee. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account. If the address where the redemption is to be mailed
is other than the existing address of record a signature guarantee is required.
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THROUGH BROKER-DEALERS. You may also redeem shares by placing a wire
redemption request through a securities broker or dealer. Unaffiliated
broker-dealers may charge you a fee for this service. You will receive the NAV
per share next determined after receipt by the Trust or its agent of your wire
redemption request. It is the responsibility of broker-dealers to properly
transmit wire redemption orders.
ADDITIONAL REDEMPTION INFORMATION. You will receive the NAV per share next
determined after receipt by the Transfer Agent of your redemption request in the
form described above. Payment is normally made within 3 business days after
tender in such form, provided that payment in redemption of shares purchased by
check will be effected only after the check has been collected, which may take
up to 15 days from the purchase date. To eliminate this delay, you may purchase
shares of the Fund by certified check or wire. At the discretion of the Trust or
the Transfer Agent, corporate investors and other associations may be required
to furnish an appropriate certification authorizing redemptions to ensure proper
authorization.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than 3 business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the Fund
may make payment for shares redeemed in portfolio securities of the Fund taken
at current value.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to require you to redeem all of your
shares in the Fund on 30 days' written notice if the value of your shares in the
Fund is less than $1,000 due to redemption, or such other minimum amount as the
Fund may determine from time to time. An involuntary redemption constitutes a
sale. You should consult your tax adviser concerning the tax consequences of
involuntary redemptions. You may increase the value of your shares in the Fund
to the minimum amount within the 30 day period. Each share of the Fund is
subject to redemption at any time if the Board of Trustees determines, in its
sole discretion, that failure to so redeem may have materially adverse
consequences to all or any of the shareholders of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and both long-term and short-term
capital gains distributions reinvested in additional
shares.
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Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option - income distributions and capital gains distributions paid
in cash.
You should indicate your choice of option on your application. If no option
is specified on your application, distributions will automatically be reinvested
in additional shares. All distributions will be based on the NAV in effect on
the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for 6
months, your dividends may be reinvested in your account at the then-current NAV
and your account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
TAXES
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. The Fund intends to distribute substantially all of its net
investment income and any realized capital gains for each year of its operation
to its shareholders. Distributions of net investment income and net realized
short-term capital gains, if any, are taxable to investors as ordinary income.
Dividends distributed by the Fund from net investment income may be eligible, in
whole or in part, for the dividends received deduction available to
corporations.
Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by the Fund are taxable to you
as capital gains, without regard to the length of time you have held your Fund
shares. Capital gains distributions may be taxable at different rates depending
on the length of time the Fund holds its assets. Redemptions of shares of the
Fund are taxable events on which a shareholder may realize a gain or loss. Due
to the investment strategies used by the Fund, distributions are generally
expected to consist of net capital gains; however, the nature of the Fund's
distributions could vary in any given year.
The Fund will mail a statement indicating the amount and federal income tax
status of all distributions made during the year. The Fund's distributions may
be subject to federal income tax whether distributions are taken in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
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OPERATION OF THE FUND
The Fund is a diversified series of The Appleton Funds (the "Trust"), an
open-end management investment company organized as an Ohio business trust on
October 31, 2000. The Board of Trustees supervises the business activities of
the Trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Fund.
The Trust retains Appleton Partners, Inc. (the "Adviser"), 45 Milk Street,
Eighth Floor, Boston, Massachusetts 02109, to manage the Fund's investments.
Established in 1986, Appleton Partners, in addition to managing private accounts
of individuals, also invests for corporations, foundations and pension and
profit-sharing plans. The Fund pays the Adviser a fee for its services at an
annual rate of 1.00% of the average value of its daily net assets.
James I. Ladge, CFA, is a Senior Vice President of the Adviser and is
primarily responsible for managing the Fund's portfolio. Mr. Ladge has been
Director of Research and a Portfolio Manager for equity and fixed-income clients
since 1998. He previously served as a Research Analyst for the Adviser beginning
in 1993. Prior to that, he worked at State Street Bank and Trust Company. Mr.
Ladge was awarded a B.A. from Syracuse University and his M.B.A. from Boston
University. He received his Chartered Financial Analyst (CFA) designation in
1995.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Trust
has adopted a plan of distribution (the "Plan"), under which the Fund may
directly incur or reimburse the Adviser or the Distributor for certain
distribution-related expenses, including:
o payments to securities dealers and others who are engaged in the sale of
shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of such shares;
o expenses of maintaining personnel who engage in or support distribution of
shares or who render shareholder support services not otherwise provided by
the Transfer Agent;
o expenses of formulating and implementing marketing and promotional
activities, including direct mail promotions and mass media advertising;
o expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Fund;
o expenses of obtaining such information, analyses and reports with respect
to marketing and promotional activities as the Trust may, from time to
time, deem advisable; and
o any other expenses related to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is 0.25%
of the Fund's average daily net assets. Because these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales loads.
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THE DISTRIBUTOR
IFS Fund Distributors, Inc. (the "Distributor") is the Trust's principal
underwriter and, as such, is the exclusive agent for distribution of shares of
the Fund. The Distributor is obligated to sell the Fund's shares on a best
efforts basis only against purchase orders for the shares. Shares of the Fund
are offered to the public on a continuous basis.
CALCULATION OF SHARE PRICE
On each day that the Trust is open for business, the share price ("NAV") of
the shares of the Fund is determined as of the close of the regular session of
trading on the Exchange, currently 4:00 p.m., Eastern time. The Trust is open
for business on each day the Exchange is open for business and on any other day
when there is sufficient trading in the Fund's investments that its NAV might be
materially affected. The NAV per share of the Fund is calculated by dividing the
sum of the value of the securities held by the Fund plus cash or other assets
minus all liabilities (including estimated accrued expenses) by the total number
of shares outstanding of the Fund, rounded to the nearest cent.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the Exchange on the
day the securities are being valued, or, if not traded on a particular day, at
the closing bid price, (2) securities traded in the over-the-counter market, and
which are not quoted by NASDAQ, are valued at the last sale price (or, if the
last sale price is not readily available, at the last bid price as quoted by
brokers that make markets in the securities) as of the close of the regular
session of trading on the Exchange on the day the securities are being valued,
(3) securities which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most representative
market, and (4) securities (and other assets) 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. The NAV per share of the Fund will
fluctuate with the value of the securities it holds.
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APPLETON FUNDS
45 Milk Street, Eighth Floor
Boston, Massachusetts 02109
BOARD OF TRUSTEES
Jack W. Aber
Douglas C. Chamberlain
John M. Cornish
Grady B. Hedgespeth
James I. Ladge
INVESTMENT ADVISER
APPLETON PARTNERS, INC.
45 Milk Street, Eighth Floor
Boston, Massachusetts 02109
DISTRIBUTOR
IFS FUND DISTRIBUTORS, INC.
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
INDEPENDENT AUDITOR
PRICEWATERHOUSECOOPERS LLP
100 East Broad Street
Columbus, OH 43215
LEGAL COUNSEL
MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
One Financial Center
Boston, Massachusetts 02111
TRANSFER AGENT
INTEGRATED FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICES
Nationwide: (Toll-Free) 1-877-71-APPLE
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Additional information about the Fund is included in the Statement of
Additional Information ("SAI") is hereby incorporated by reference in its
entirety. Additional information about the Fund's investments will be available
in the Fund's annual and semiannual reports to shareholders. The Fund's annual
report will include a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the last
fiscal year.
To obtain a free copy of the SAI, or other information about the Fund, or
to make inquiries about the Fund, please call 1-877-71-APPLE.
Information about the Fund, including the SAI, can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-202-942-8090. Reports and other information about
the Fund is available on the EDGAR Database on the Commission's Internet site at
http:/www.sec.gov. Copies of information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
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THE APPLETON FUNDS
------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
December 29, 2000
The Appleton Funds
45 Milk Street, Eighth Floor
Boston, Massachusetts 02109
THE TRUST......................................................................2
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..................................2
QUALITY RATINGS OF CORPORATE BONDS AND
PREFERRED STOCKS.............................................................8
INVESTMENT LIMITATIONS .......................................................10
TRUSTEES AND OFFICERS ........................................................12
THE INVESTMENT ADVISER .......................................................13
THE DISTRIBUTOR...............................................................14
DISTRIBUTION PLAN.............................................................14
SECURITIES TRANSACTIONS.......................................................15
PORTFOLIO TURNOVER ...........................................................17
CALCULATION OF SHARE PRICE ...................................................17
TAXES.........................................................................17
REDEMPTION IN KIND ...........................................................18
HISTORICAL PERFORMANCE INFORMATION ...........................................18
CUSTODIAN.....................................................................21
AUDITORS .....................................................................21
INTEGRATED FUND SERVICES, INC.................................................21
STATEMENT OF ASSETS AND LIABILITIES...........................................22
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of The Appleton Funds (the "Trust") dated
December 29, 2000. A copy of the Trust's Prospectus can be obtained by writing
the Trust at 221 East Fourth Street, Suite 300, Cincinnati, Ohio 45202 or by
calling the Trust nationwide toll-free 1-877-71-APPLE.
<PAGE>
THE TRUST
---------
The Appleton Funds 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").
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to the Fund with each other share of the Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares so long as the proportionate beneficial
interest in the assets belonging to the Fund are in no way affected. In case of
any liquidation of the Fund, the holders of shares of the Fund being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to the Fund. No shareholder is liable to further
calls or to assessment by the Fund without his or her express consent.
Shares of the Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Trust does not normally hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon removal of any Trustee when requested to do so in
writing by shareholders holding not less than 10% of the Trust's outstanding
shares. The Trust will comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 (the "1940 Act") in order to facilitate
communications among shareholders.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Risk/Return Summary") appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, and as provided under the 1940 Act, the term "majority" of the
outstanding shares of the Fund means the lesser of (1) 67% or more of the Fund's
outstanding shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting or (2)
more than 50% of the outstanding shares of the Fund.
SMALL CAPITALIZATION COMPANIES. The Fund may, from time to time, invest a
portion of its assets in small, unseasoned companies. A small capitalization
company has a market capitalization of $1 billion or less at the time of the
Fund's investment. In the Adviser's opinion, the small cap market may, at times,
offer more opportunity for above-average growth and entrepreneurial impact.
Also, small cap companies are often acquisition targets for larger companies.
2
<PAGE>
While smaller companies generally have potential for rapid growth, they
often involve higher risks because they lack the management experience,
financial resources, product diversification and competitive strengths of larger
corporations. In addition, in many instances, the securities of smaller
companies are traded only over-the-counter on a regional exchange and the
frequency and volume of their trading is substantially less than is typical of
larger companies. The securities of smaller companies may, therefore, be subject
to wider price fluctuations. When making large sales, the Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time.
U.S. GOVERNMENT OBLIGATIONS. If the Adviser believes that market indicators
point to lower interest rates, the Fund may invest up to 35% of its total assets
in U.S. Government obligations or other fixed-income securities of any maturity.
When investing in fixed income securities, the Adviser will select primarily
"investment grade" securities rated at least Baa by Moody's or BBB by S&P or, if
not rated, of equivalent quality in the Adviser's opinion. Fixed income
securities are acquired primarily for their income return and secondarily for
capital appreciation.
U.S. Government obligations include securities that are issued or
guaranteed by the United States Treasury, by various agencies of the United
States Government, and by various instrumentalities that have been established
or sponsored by the United States Government. U.S. Treasury obligations are
backed by the "full faith and credit" of the United States Government. Other
U.S. Government Obligations may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment, and may
not be able to assert a claim against the United States in the event the agency
or instrumentality does not meet its commitments. Shares of the Fund are not
guaranteed or backed by the United States Government.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Fund's
Custodian at the Federal Reserve Bank. The Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result thereof, more than
15% of the value of its net assets would be invested in such securities and
other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's question of the securities and normally would be
within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate
3
<PAGE>
effective for the period of time the Fund's money will be invested in the
securities, and will not be related to the coupon rate of the purchased
security. At the time the Fund enters into a repurchase agreement, the value of
the underlying security, including accrued interest, will equal or exceed the
value of the repurchase agreement, and in the case of a repurchase agreement
exceeding one day, the seller will agree that the value of the underlying
security, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from the Fund to the seller subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the securities purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the security under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the security. If a court characterized the transaction as a loan and the Fund
has not perfected a security interest in the security, the Fund may be required
to return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, the Fund would be at the risk
of losing some or all of the principal and income involved in the transaction.
As with any unsecured debt obligation purchased for the Fund, the Adviser seeks
to minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case, the seller. Apart from the risk
of bankruptcy or insolvency proceedings, there is also the risk that the seller
may fail to repurchase the security, in which case the Fund may incur a loss if
the proceeds to the Fund of the sale of the security to a third party are less
than the repurchase price. However, if the market value of the securities
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank letters of credit (or any combination thereof), which
collateral will be required to be maintained at all times in an amount equal to
at least 100% of the current value of the loaned securities plus accrued
interest. It is the present intention of the Fund, which may be changed without
shareholder approval, that loans of portfolio securities will not be made if as
a result the aggregate of all outstanding loans exceeds one-third of the value
of the Fund's total assets. Securities lending will afford the Fund the
opportunity to earn additional income because the Fund will continue to be
entitled to the interest payable on the loaned securities and also will either
receive as income all or a portion of the interest on the investment of any cash
loan collateral or, in the case of collateral other than cash, a fee negotiated
with the borrower. Such loans will be terminable at any time. Loans of
securities involve risks of delay in receiving additional collateral or in
recovering the securities lent or even loss of rights in the collateral in the
event of the insolvency of the borrower of the
4
<PAGE>
securities. The Fund will have the right to regain record ownership of loaned
securities in order to exercise beneficial rights. The Fund may pay reasonable
fees in connection with arranging such loans.
Under applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, at least equal the value of the
loaned securities. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. The Fund receives amounts equal to the dividends or interest on loaned
securities and also receives one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral, or (c) interest on short-term debt
securities purchased with such collateral; either type of interest may be shared
with the borrower. The Fund may also pay fees to placing brokers as well as
custodian and administrative fees in connection with loans. Fees may only be
paid to a placing broker provided that the Trustees determine that the fee paid
to the placing broker is reasonable and based solely upon services rendered,
that the Trustees separately consider the propriety of any fee shared by the
placing broker with the borrower, and that the fees are not used to compensate
the Adviser or any affiliated person of the Trust or an affiliated person of the
Adviser or other affiliated person. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and permit the Fund to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or of banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to two hundred seventy days) unsecured promissory notes issued by corporations
in order to finance their current operations. The Fund will only invest in
commercial paper rated A-1 by Standard & Poor's Ratings Group ("S&P") or Prime-1
by Moody's Investors Service, Inc. ("Moody's") or unrated paper of issuers who
have outstanding unsecured debt rated AA or better by S&P or Aa or better by
Moody's. Certain notes may have floating or variable rates. The Fund will not
invest in variable and floating rate notes with a demand notice period exceeding
seven days if, as a result thereof, more than 15% of the value of its net assets
would be invested in such securities and other illiquid securities, unless, in
the judgment of the Adviser, subject to the direction of the Board of Trustees,
such note is liquid.
5
<PAGE>
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the parent company and the relationships which exist with the
issuer; and recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1. Commercial paper rated A-1 (highest quality)
by S&P has the following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated "A" or better, although in
some cases "BBB" credits may be allowed; the issuer has access to at least two
additional channels of borrowing; basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and the reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1.
FOREIGN SECURITIES. Subject to the Fund's investment policies and quality
and maturity standards, the Fund may invest from time to time in the securities
(payable in U.S. dollars) of foreign issuers through the purchase of American
Depository Receipts (certificates of ownership issued by a United States bank or
trust company as a convenience to investors in lieu of the underlying shares
which such bank or trust company holds in custody) or other securities of
foreign issuers that are publicly traded in the United States. Because the Fund
may invest in foreign securities, an investment in the Fund involves risks that
are different in some respects from an investment in a fund which invests only
in securities of U.S. domestic issuers.
Foreign investments may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
6
<PAGE>
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but normally have a short duration and are distributed by the
issuer to its shareholders. The Fund does not presently intend to invest more
than 5% of its net assets at the time of purchase in warrants and rights other
than those that have been acquired in units or attached to other securities.
BORROWING AND PLEDGING. The Fund may borrow money from banks provided that,
immediately after any such borrowing, there is asset coverage of 300% for all
borrowings of the Fund. The Fund will not make any borrowing that would cause
its outstanding borrowings to exceed one-third of its total assets. The Fund may
pledge assets in connection with borrowings but will not pledge more than
one-third of its total assets. Borrowing magnifies the potential for gain or
loss on the portfolio securities of the Fund and, therefore, if employed,
increases the possibility of fluctuation in the Fund's net asset value. This is
the speculative factor known as leverage. The Fund's policies on borrowing and
pledging are fundamental policies that may not be changed without the
affirmative vote of a majority of its outstanding shares. It is the Fund's
present intention, which may be changed by the Board of Trustees without
shareholder approval, to limit its borrowings during the coming year to 5% of
its total assets and to borrow only for emergency or extraordinary purposes and
not for leverage.
PREFERRED STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. The Fund
may also invest in preferred stocks or securities convertible into common stocks
(such as convertible bonds, convertible preferred stocks and warrants) which are
rated at the time of purchase in the four highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's
Ratings Group ("S&P") (AAA, AA, A or BBB) or unrated securities the Adviser
determines to be of comparable quality. After the Fund purchases a security,
that security may cease to be rated or its rating may be reduced; the Adviser
will consider such an event to be relevant in its determination of whether the
Fund should continue to hold that security.
ADDITIONAL INFORMATION ON FIXED-INCOME SECURITIES. Preferred stocks and
bonds rated Baa or BBB have speculative characteristics such that changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to pay principal and interest, or to pay the preferred stock
obligations, than is the case with higher grade securities.
Investments in fixed-income securities are subject to inherent market risks
and fluctuations in value due to changes in earnings, economic conditions,
quality ratings and other factors beyond the control of the Adviser.
Fixed-income securities are also subject to price fluctuations based upon
changes in the level of interest rates, which will generally result in all those
securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise. As a result, the return and net asset
value of a Fund will fluctuate.
7
<PAGE>
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
-------------------------------------------------------
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds and convertible debt in which the Fund may
invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
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<PAGE>
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB and B - Bonds rated BB or B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such bonds will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Fund may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba - An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
9
<PAGE>
b - An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB and B - Preferred stock rated BB and B are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay preferred
stock obligations. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
INVESTMENT LIMITATIONS
----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Fund. These limitations may not be
changed without the affirmative vote of a majority of the outstanding shares of
the Fund.
Under these fundamental limitations, the Fund MAY NOT:
(1) Issue senior securities, pledge its assets or borrow money, except that it
may borrow from banks as a temporary measure (a) for extraordinary or
emergency purposes, in amounts not exceeding 5% of the Fund's total assets,
or (b) in order to meet redemption requests that might otherwise require
untimely disposition of portfolio securities if, immediately after such
borrowing, the value of the Fund's assets, including all borrowings then
outstanding, less its liabilities (excluding all borrowings), is equal to
at least 300% of the aggregate amount of borrowings then outstanding, and
may pledge its assets to secure all such borrowings;
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<PAGE>
(2) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter under the federal securities laws in connection
with the disposition of portfolio securities;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(4) Make short sales of securities or maintain a short position, or write,
purchase or sell puts, calls or combinations thereof, except as stated in
the Prospectus or this Statement of Additional Information or except short
sales "against the box;"
(5) Make loans of money or securities, except that the Fund may (i) invest in
repurchase agreements and commercial paper; (ii) purchase a portion of an
issue of publicity distributed bonds, debentures or other debt securities;
and (iii) acquire private issues of debt securities subject to the
limitations on investments in illiquid securities;
(6) Write, purchase or sell commodities, commodities contracts, futures
contracts or related options;
(7) Invest more than 25% of its total assets in the securities of issuers in
any particular industry (other than securities the United States
Government, its agencies or instrumentalities);
(8) Invest for the purpose of exercising control or management of another
issuer;
(9) Invest in interests in oil, gas or other mineral exploration or development
programs, except that the Fund may invest in the securities of companies
(other than those which are not readily marketable) which own or deal in
such things;
(10) Purchase or sell interests in real estate or real estate limited
partnerships (although it may invest in real estate investment trusts and
purchase securities secured by real estate or interests therein, or issued
by companies or investment trusts which invest in real estate or interests
therein);
(11) Invest more than 15% of its net assets in illiquid securities;
(12) Purchase the securities of any issuer if such purchase at the time thereof
would cause less than 75% of the value of the total assets of the Fund to
be invested in cash and cash items (including receivables), securities
issued by the U.S. Government, its agencies or instrumentalities,
securities of other investment companies, and other securities for the
purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the
Fund and to not more than 10% of the outstanding voting securities of such
issuer; or
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<PAGE>
(13) Invest in securities of other investment companies, other than to the
extent permitted by Section 12(d) of the 1940 Act.
With respect to the percentages adopted by the Trust as maximum limitations
on the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
The Trust does not intend to pledge, mortgage or hypothecate the assets of
the Fund. The Fund does not intend to make short sales of securities "against
the box" in the coming year as described in investment limitation 4. The
statements of intention in this paragraph reflect nonfundamental policies which
may be changed by the Board of Trustees without shareholder approval.
TRUSTEES AND OFFICERS
---------------------
The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the 1940 Act, is indicated by an asterisk.
Estimated Annual
Compensation
Name Age Position Held From the Trust
-------------------------- --- ------------- ----------------
*James I. Ladge 32 Trustee $0
*Douglas C. Chamberlain 53 Trustee $0
Jack W. Aber 63 Trustee $5,000
John M. Cornish 53 Trustee $5,000
Grady B. Hedgespeth 45 Trustee $5,000
Tina D. Hosking 32 Secretary $0
Lisa R. Oliverio 30 Treasurer $0
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
JAMES I. LADGE, CFA, 45 Milk Street, Boston, Massachusetts 02109, is Vice
President of the Adviser and a Director of Research and a Portfolio Manager for
equity and fixed-income clients. He has been with Appleton since 1993. Prior to
that, he worked as a Portfolio Accountant at State Street Bank and Trust
Company. Mr. Ladge was awarded a B.A. from Syracuse University and his M.B.A.
from Boston University. He received his Chartered Financial Analyst (CFA)
designation in 1995.
DOUGLAS C. CHAMBERLAIN, 45 Milk Street, Boston, Massachusetts 02109, is
President of Appleton Partners. He has been with Appleton since October 1988.
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<PAGE>
JACK W. ABER, 595 Commonwealth Avenue, Boston, Massachusetts 02215, is a
Professor at Boston University. He has been with Boston University since
November 1995.
JOHN M. CORNISH, ESQ., 53 State Street, Boston, Massachusetts 02109, is a
Partner with the law firm of Choate, Hall & Stewart. He has been at Choate, Hall
& Stewart since July 1985. He is also a director of Thompson Steel Company since
January 2000.
GRADY B. HEDGESPETH, 1300 Pennsylvania Avenue, NW, Washington, DC 20004, is
the Chief Investment Officer at New Markets Equity Fund. He has been with New
Markets Equity Fund since March 2000. Prior to that he was President of Fleet
Boston Financial, and Regional President of Bay Banks, Inc.
TINA D. HOSKING, 221 East Fourth Street, Cincinnati, Ohio, is Vice
President and Associate General Counsel of Integrated Fund Services, Inc. (a
registered transfer agent) and IFS Fund Distributors, Inc. (a registered
broker-dealer).
LISA R. OLIVERIO, CPA, 221 East Fourth Street, Cincinnati, Ohio, is the
Financial Reporting Manager of Integrated Fund Services, Inc. Prior to joining
Integrated, she was employed by Arthur Andersen LLP.
Each non-interested Trustee will receive an annual retainer of $2,000 and a
$1,000 fee for each Board meeting attended ($500 for each telephonic meeting)
and will be reimbursed for travel and other expenses incurred in the performance
of their duties.
THE INVESTMENT ADVISER
----------------------
Appleton Partners, Inc. (the "Adviser") is the Fund's investment adviser
and a registered investment adviser under the Investment Advisers Act of 1940.
Mr. Chamberlain is a controlling shareholder and a principal of the Adviser,
and, as such, may directly or indirectly receive benefits from the advisory fees
paid to the Adviser. Under the terms of the advisory agreement between the Trust
and the Adviser, the Adviser manages the Fund's investments. The Fund pays the
Adviser a fee computed and accrued daily and paid monthly at an annual rate of
1.00% of its average daily net assets.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Fund may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Adviser bears promotional expenses in connection with the
distribution of the Fund's shares to the extent that such expenses are not
assumed by the Fund under its plan of distribution (see below). The compensation
and expenses of any officer, Trustee or employee of the Trust who is an officer,
director, employee or stockholder of the Adviser are paid by the Adviser.
13
<PAGE>
By its terms, the Trust's advisory agreement will remain in force until
December 12, 2002 and from year to year thereafter, subject to annual approval
by (a) the Board of Trustees or (b) a vote of the majority of the Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Trust's advisory agreement may be terminated at any time, on
sixty days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of the Fund's outstanding voting securities,
or by the Adviser. The advisory agreement automatically terminates in the event
of its assignment, as defined by the 1940 Act and the rules thereunder.
THE DISTRIBUTOR
---------------
IFS Fund Distributors, Inc. (the "Distributor") is the Trust's principal
underwriter and, as such, is the exclusive agent for distribution of Fund's
shares of the Fund. The Distributor is obligated to sell the Fund's shares on a
best efforts basis only against purchase orders for the shares. Shares of the
Fund are offered to the public on a continuous basis. Tina D. Hosking is an
officer of both the Distributor and the Trust.
DISTRIBUTION PLAN
-----------------
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under
the 1940 Act (the "Plan"), which 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 expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .25% of the Fund's
average daily net assets. Unreimbursed expenses will not be carried over from
year to year.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act generally prohibits banks from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or appropriate regulatory agencies, management of
the Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by regulatory authorities, and the
overall return to those shareholders availing themselves of the bank services
will be lower than to those shareholders who do not. The Fund
14
<PAGE>
may from time to time purchase securities issued by banks that provide such
services; however, in selecting investments for the Fund, no preference will be
shown for such securities.
Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Fund's shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.
The continuance of the Plan and Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not "interested persons" of the
Trust and have no direct or indirect financial interest in the Plan (the
"Independent Trustees") at a meeting called for the purpose of voting on such
continuance. The Plan may be terminated at any time by a vote of a majority of
the Independent Trustees or by a vote of the holders of a majority of the
outstanding shares of the Fund. In the event the Plan is terminated in
accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Adviser after the termination date. The Plan may
not be amended to increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the Plan must be
approved by a vote of the Trust's Board of Trustees and by a vote of those
Trustees who are not interested persons of the Trust.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund, which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. In addition, the selection
and nomination of those Trustees who are not "interested persons" of the Trust
are committed to their discretion during such period.
SECURITIES TRANSACTIONS
-----------------------
Decisions to buy and sell securities for the Fund and the placing of the
Fund's securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received.
15
<PAGE>
Generally, the Fund attempts to deal directly with the dealers who make a
market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer. Principal securities transactions are generally traded
on a net basis and these transactions do not normally involve brokerage
commissions. When securities are traded on a net basis (without commission)
through broker-dealers and banks acting for their own account, such firms
attempt to profit from buying at the bid price and selling at the higher asked
price of the market, the difference being referred to as the spread. The cost of
principal transactions by the Fund will include dealer or underwriter spreads.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Fund and/or other accounts over which the
Adviser exercises investment discretion and to pay such brokers a commission in
excess of the commission another broker would charge if the Adviser determines
in good faith that the commission is reasonable in relation to the value of the
brokerage and research services provided. The determination may be viewed in
terms of a particular transaction or the Adviser's overall responsibilities with
respect to the Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Adviser and other affiliates
of the Trust may effect securities transactions which are executed on a national
securities exchange or in the over-the-counter market conducted on an agency
basis. The Fund will not effect any brokerage transactions in its portfolio
securities with the Adviser if such transactions would be unfair or unreasonable
to its shareholders. Over-the-counter transactions will be placed either
directly with principal market makers or with broker-dealers. Although the Fund
does not anticipate any ongoing arrangements with other brokerage firms,
brokerage business may be transacted from time to time with other firms. Neither
the Adviser, nor affiliates of the Trust or the Adviser, will receive reciprocal
brokerage business as a result of the brokerage business transacted by the Fund
with other brokers.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to its objective of seeking best execution of
portfolio transactions, the Adviser may consider sales of shares of the Fund as
a factor in the selection of brokers and dealers to execute portfolio
transactions of the Fund.
16
<PAGE>
CODE OF ETHICS. The Trust, the Adviser and the Distributor have each
adopted a Code of Ethics under Rule 17j-1 of the 1940 Act which permits Fund
personnel to invest in securities for their own accounts. The Codes of Ethics
adopted by the Trust, the Adviser and the Distributor are on public file with,
and are available from, the SEC.
PORTFOLIO TURNOVER
------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover (100% or more) involves correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Fund. The Adviser anticipates that the Fund's portfolio turnover
rate normally will not exceed 100%. A 100% turnover rate would occur if all of
the Fund's portfolio securities were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate.
CALCULATION OF SHARE PRICE
--------------------------
The share price (net asset value) of the shares of the Fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Trust may also be open for business on other days in
which there is sufficient trading in the Fund's portfolio securities that its
net asset value might be materially affected. For a description of the methods
used to determine the share price, see "Calculation of Share Price" in the
Prospectus.
TAXES
-----
The Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. To so qualify the Fund must, among other things, (i) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currency, or certain other income
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in stock, securities or
currencies; and (ii) diversify its holdings so that at the end of each quarter
of
17
<PAGE>
its taxable year the following two conditions are met: (a) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, securities of other regulated investment companies and other
securities (for this purpose such other securities will qualify only if the
Fund's investment is limited in respect to any issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer) and (b) not more than 25% of the value of the Fund's assets is
invested in securities of any one issuer (other than U.S. Government securities
or securities of other regulated investment companies).
The Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the 1940 Act. This election will
require the Fund to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any ninety day period for any one
shareholder. Should payment be made in securities, the redeeming shareholder
will generally incur brokerage costs in converting such securities to cash.
Portfolio securities which are issued in an in-kind redemption will be readily
marketable.
HISTORICAL PERFORMANCE INFORMATION
----------------------------------
From time to time, the Fund may advertise average annual total return.
Average Annual total return figures are based on historical earnings and are not
intended to indicate future performance. Average annual total return quotations
will be computed by finding the average
18
<PAGE>
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1,5 and 10 year periods at the end of the 1, 5 or 10 year
periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions. If the Fund has been in existence less than
one, five or ten years, the time period since the date of the initial public
offering of shares will be substituted for the periods stated.
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation may
also indicate average annual compounded rates of return over periods other than
those specified for average annual total return. A nonstandardized quotation of
total return will always be accompanied by the Fund's average annual total
return as described above.
From time to time, the Fund may advertise its yield. A yield quotation is
based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
Yield = 2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends d = the maximum offering price per share on
the last day of the period
16
<PAGE>
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on a historical
earning and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis ("Lipper") measures total return
and average current yield for the mutual fund industry and ranks individual
mutual fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. Morningstar, Inc. ("Morningstar") is an
independent rating service that publishes bi-weekly Mutual Fund Values. Mutual
Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks. The Fund may provide comparative
performance information as published in Lipper and Morningstar. In addition, the
Fund may use comparative performance information of relevant indices, including
the S&P 500 Index and the Dow Jones Industrial Average. The S&P 500 Index is an
unmanaged index of 500 stocks, the purpose of which is to portray the pattern of
common stock price movement. The Dow Jones Industrial Average is a measurement
of general market price movement for 30 widely held stocks listed on the New
York Stock Exchange.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
20
<PAGE>
CUSTODIAN
---------
Firstar Bank, N.A. ("Firstar") has been retained to act as Custodian for
the Fund's investments. Firstar acts as the Fund's depository, safekeeps its
portfolio securities, collects all income and other payments with respect
thereto, disburses funds as instructed and maintains records in connection with
its duties.
AUDITORS
--------
The firm of PricewaterhouseCoopers LLP has been selected as independent
accountants for the Fund for the fiscal year ending December 31, 2001.
PricewaterhouseCoopers LLP performs an annual audit of the Trust's financial
statements and advises the Fund as to certain accounting matters.
INTEGRATED FUND SERVICES, INC.
------------------------------
The Trust has retained Integrated Fund Services, Inc. (the "Transfer
Agent") to act as its transfer agent. The Transfer Agent 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. The Transfer Agent receives from the Fund for its services as
transfer agent a fee payable monthly at an annual rate of $25 per account,
provided, however, that the minimum fee is $2,000 per month. In addition, the
Fund pays out-of-pocket expenses, including but not limited to, postage,
envelopes, checks, drafts, forms, reports, record storage and communication
lines.
The Transfer Agent also provides accounting and pricing services to the
Fund. For calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties,
the Fund pays the Transfer Agent a fee in accordance with the following
schedule:
Monthly Fee Average Monthly Net Assets
----------- --------------------------
$2,500 $ 0 - $100,000,000
3,500 100 - 200,000,000
4,500 200 - 300,000,000
5,500 + .001% Over - 300,000,000
of assets over $300,000,000
The Fund will reimburse Integrated for the cost of external pricing
services used by the Fund. The costs of pricing is approximately $.12 per
security per day for equity securities and $.45 per security per day for
fixed-income securities.
The .001% on assets over $300,000,000 represents the asset-based fee
Integrated is charged by SunGard.
21
<PAGE>
The Transfer Agent also provides administrative services to the Fund. In
this capacity, the Transfer Agent supplies non-investment related statistical
and research data, internal regulatory compliance services and executive and
administrative services. The Transfer Agent 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 the performance of these
administrative services, the Fund pays the Transfer Agent a fee at the annual
rate of .150% of the average value of its daily net assets up to $25,000,000,
.125% of such assets from $25,000,000 to $50,000,000 and .100% of such assets in
excess of $50,000,000, provided, however, that the minimum fee is $2,000 per
month.
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
The financial statements and independent auditor's report of the Appleton
Equity Growth Fund are attached to this document.
22
<PAGE>
THE APPLETON FUNDS
THE APPLETON EQUITY GROWTH FUND
STATEMENTS OF ASSETS AND LIABILITIES
December 15, 2000
================================================================================
ASSETS
Cash $ 100,000
------------
TOTAL ASSETS 100,000
------------
LIABILITIES
------------
TOTAL LIABILITIES 0
------------
Net assets for shares of beneficial
interest outstanding $ 100,000
============
Shares outstanding 10,000
============
Net asset value, redemption price and
offering price per share $ 10.00
============
The accompanying notes are an integral part of this statement.
<PAGE>
THE APPLETON EQUITY GROWTH FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 15, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND REGISTRATION
The Appleton Equity Growth Fund (the Fund) is a diversified series of the
Appleton Funds, a diversified open-end management investment company established
as an Ohio Business Trust under a Declaration of Trust dated October 31, 2000.
On December 15, 2000, 10,000 shares of the Fund were issued for cash at $10.00
per share. The Fund has had no operations except for the initial issuance of
shares. As of December 15, 2000, all outstanding shares were held by Appleton
Partners, Inc., who purchased these initial shares in order to provide the Trust
with its required capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with accounting principles generally accepted in the
United States of America ("GAAP").
A. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported changes in net assets
during the reporting period. Actual results could differ from those
estimates.
B. ORGANIZATION AND PREPAID INITIAL REGISTRATION EXPENSES
Expenses incurred by the Trust in connection with the organization and
the initial public offering of shares have been or will be paid by Appleton
Partners, Inc. (the Advisor).
C. FEDERAL INCOME TAXES
The Fund intends to qualify annually for treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of
1986, as amended, and, if so qualified, will not be liable for federal
income taxes to the extent earnings are distributed to shareholders on a
timely basis.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The Appleton Equity Growth Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Appleton Equity
Growth Fund (the "Fund") at December 15, 2000, in conformity with accounting
principles generally accepted in the United States of America. This financial
statement is the responsibility of the Fund's management; our responsibility is
to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
December 19, 2000
