UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10201
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The Appleton Funds
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(Exact name of registrant as specified in charter)
45 Milk Street, Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip code)
James I. Ladge, 45 Milk Street, Boston, Massachusetts 02109
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(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 362-8000
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Date of fiscal year end: 12/31
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Date of reporting period: 06/30/06
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Stockholders.
Semi-annual Report for Appleton Equity Growth Fund.
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[LOGO] APPLETON FUNDS
APPLETON EQUITY GROWTH FUND
---------------------------
Semi-Annual Report
June 30, 2006
(Unaudited)
Investment Adviser Administrator
------------------ -------------
Appleton Partners, Inc. Integrated Investment Services, Inc.
45 Milk Street, Eighth Floor 303 Broadway
Boston, MA 02109 Suite 1100
Cincinnati, OH 45202
1-877-712-7753
================================================================================
[LOGO] APPLETON FUNDS
Dear Shareholder,
The Fund got off to a solid start in January with strong performances from the
market-leading energy and industrial sectors. As we approached spring, however,
the optimism of the New Year had faded, and was replaced by concerns of an
economic slowdown. This sentiment led to sell-offs in a number of market
sectors. Industrial and technology stocks, which had performed well early in the
first quarter, were the weakest performers in the second quarter. This
significant reversal in some of the Fund's early top performers, combined with
declines in some specific technology names caused overall fund performance below
the benchmark of the S&P 500. For the first six months of 2006, the Fund
returned 1.29% compared to the 2.71% return of the S&P 500. Below we offer our
thoughts on occurrences in the markets, as well as expectations going forward.
We entered 2006 with our economy in its fifth consecutive year of expansion.
While projections called for a modestly slower pace of growth, the financial
markets embraced the continued expansion with both rising interest rates and
stock prices. However, as the second quarter progressed, this optimism was
replaced by fears of inflation, and concerns that the Federal Reserve would
ultimately tighten monetary policy too much. The trigger was a series of
statements by various officials of the Federal Reserve Board and its Regional
Bank presidents regarding their discomfort with current levels of inflation and
their very strong desire to prevent higher inflation expectations from becoming
imbedded in the public's mind. With 16 one-quarter point rate increases already
in place by the Federal Reserve Board's Open Market Committee over the past two
years, it was hardly a surprise when the Fed raised rates for the 17th time at
its late June meeting.
As a result, global financial and commodity markets declined sharply in price
before recovering moderately by the end of the quarter. Despite solid
fundamentals from most companies, selling was widespread and indiscriminate, as
those stocks which had been the strongest showed some of the sharpest declines.
The idea of selling the strongest stock is not unusual during such declines, as
those stocks and markets that have risen the most are often perceived as the
most liquid and easiest to sell. As a result, the second quarter saw the Fund
experience a reversal between the sectors which underperformed and outperformed.
During the intra-quarter decline and the second quarter overall, small growth
stocks and global emerging markets declined the most, as larger capitalization
stocks, while still declining, declined the least. By economic sector, the more
defensive areas such as energy, consumer staples and utilities performed best,
while the traditional, historically high-growth sectors of healthcare and
technology performed the poorest. This was manifested in the Fund as well, but
with the greatest return over the entire six month period being generated by the
industrial sector.
In the real economy, life was much calmer. It is normal for the real economy to
evolve more slowly than the seemingly hyperactive stock and commodity markets.
As the second quarter ended, data continued to accumulate and suggest that
overall economic growth would gradually slow, although not all data was pointing
in that direction. We have seen repeatedly that the economy displays significant
inertia, and like a massive ship, is slow to change direction; however once the
turn has started, it is common to worry that the change may go too far. The
market seemingly over-emphasized this sentiment as stocks started to decline.
The market will likely continue to be preoccupied with the number of the rate
hikes still to come, a phenomenon which may likely mean continued volatility.
The data released on the Housing market also provides a window into the state of
the consumer's capacity to spend. During the first half of this year, there was
continued new order and inventory data that indicated that both new and used
home markets were slowing. The slowing of house price inflation is likely to
increase the consumer savings rate over a number of quarters ultimately slowing
the rate of domestic economic growth. To date, however, there is no evidence of
a shift to greater savings. In fact, the personal savings rate in May, the last
data available, was even more negative at -1.7%, while consumer spending was
98.1% of disposable personal income, the highest level seen during the nearly 60
years of available data.
With personal consumption expenditures at 70% of our economy, and the U.S.
roughly 32% of the global economy, the American consumer represents about 22% of
the global economy. Thus, with the U.S. consumer driving global spending,
concerns over a domestic consumer slowdown rippled throughout the global
markets. It is notable, however, that despite investor concerns about a slowing
economy, the emergence of China and India as large and rapidly growing global
spenders would likely work to offset some of the impact of the American
consumer's spending slowdown. Furthermore, domestic capital spending has shown
substantial strength.
Corporate profits continue to rise, with both dollar levels and share of
national income at record levels. Like the overall economy, corporate profits
have been expected to slow their rate of gain for some time, but have yet to do
so. Thus, while a slowdown in U.S. consumer spending would have far reaching
ramifications, it appears as if currently the market decline is more a function
of investor sentiment than actual evidence of a slower economy and lessened
profitability.
As we make decisions on Fund selections, we continue to focus on securities
showing above average profit gains that are reasonably priced relative to the
market and to their own history. We expect that the beneficiaries of continued
global economic expansion will be well represented in the Fund. Emphasis will
continue on the energy sector, as the demand for energy worldwide combined with
higher profits for the large exploration and production majors translates into
more revenue and profitability for the service and drilling sector. Industrial
stocks which should continue to benefit from the ongoing global expansion will
also be an emphasis. We are deemphasizing consumer discretionary stocks which
would likely be most negatively affected with slower rates of economic growth,
and technology stocks, as so many tech companies display more promise than
results.
Sincerely,
/s/ James I. Ladge
James I. Ladge, CFA
President
Tabular Presentation of Portfolio
As of June 30, 2006
(Unaudited)
Sector (% of Net Assets)
Consumer, Cyclical 9.2%
Consumer, Non-Cyclical 10.9%
Energy 10.9%
Financial Services 16.9%
Healthcare 12.2%
Industrial 15.8%
Materials 4.8%
Technology 15.4%
Money Markets 4.2%
Liabilities in Excess of Other Assets (0.3%)
---------------------
100.0%
=====================
APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
June 30, 2006 (Unaudited)
Market
Shares Value
COMMON STOCKS -- 96.1%
CONSUMER, CYCLICAL -- 9.2%
2,000 Garmin Ltd. $ 210,880
2,600 Lowe's Companies, Inc. 157,742
3,400 Target Corp. 166,158
6,250 The Walt Disney Company 187,500
-----------
722,280
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CONSUMER, NON-CYCLICAL -- 10.9%
2,950 Kellogg Co. 142,869
3,700 PepsiCo, Inc. 222,148
3,937 Procter & Gamble Co. 218,897
3,200 Walgreen Co. 143,488
1,900 Whole Foods Market, Inc. 122,816
-----------
850,218
-----------
ENERGY -- 10.9%
2,925 Baker Hughes, Inc. 239,411
3,400 Exxon Mobil Corp. 208,590
5,100 Smith International, Inc. 226,797
2,700 Valero Energy Corp. 179,604
-----------
854,402
-----------
FINANCIAL SERVICES -- 16.9%
4,325 American Express Co. 230,177
5,196 Bank of America Corp. 249,927
3,500 Citigroup, Inc. 168,840
2,350 Jones Lang LaSalle, Inc. 205,743
3,975 MetLife, Inc. 203,560
3,950 Wells Fargo & Co. 264,965
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1,323,212
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HEALTHCARE -- 12.2%
2,475 Amgen, Inc.* 161,444
4,000 Henry Schein, Inc.* 186,920
1,650 Johnson & Johnson 98,868
2,375 Quest Diagnostics, Inc. 142,310
3,950 UnitedHealth Group, Inc. 176,881
5,800 VCA Antech, Inc.* 185,194
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951,617
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APPLETON EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
June 30, 2006 (Unaudited)
Market
Shares Value
INDUSTRIAL -- 15.8%
3,500 AMETEK, Inc. 165,830
2,550 Burlington Northern Santa Fe Corp. 202,088
3,750 Caterpiller, Inc. 279,300
5,525 General Electric Co. 182,104
4,000 Honeywell International, Inc. 161,200
4,150 Precision Castparts Corp. 248,004
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1,238,526
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MATERIALS -- 4.8%
3,800 Praxair, Inc. 205,200
4,000 The Scotts Miracle-Gro Co. 169,280
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374,480
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TECHNOLOGY -- 15.4%
3,900 Adobe Systems, Inc. 118,404
3,400 Amphenol Corp. 190,264
3,500 Apple Computer, Inc.* 199,920
7,200 Cisco Systems* 140,616
11,500 EMC Corp.* 126,155
5,350 Jabil Circuit, Inc. 136,960
6,000 Microsoft Corp. 139,800
3,800 QUALCOMM, Inc. 152,266
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1,204,385
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TOTAL COMMON STOCKS $ 7,519,120
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MONEY MARKETS -- 4.2%
327,251 First American Treasury Fund $ 327,251
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TOTAL INVESTMENT SECURITIES -- 100.3% (Cost $7,100,892) $ 7,846,371
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%) (24,269)
-----------
NET ASSETS -- 100.0% $ 7,822,102
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*Non-income producing security.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
ASSETS
Investment securities:
At acquisition cost $ 7,100,892
===========
At market value $ 7,846,371
Dividends receivable 3,477
Receivable from Adviser 3,395
Other assets 2,798
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TOTAL ASSETS 7,856,041
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LIABILITIES
Payable to other affiliates 17,498
Payable for capital shares redeemed 8,830
Other accrued expenses and liabilities 7,611
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TOTAL LIABILITIES 33,939
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NET ASSETS $ 7,822,102
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NET ASSETS CONSIST OF
Paid-in capital $ 9,105,349
Accumulated net investment loss (4,835)
Accumulated net realized losses from security transactions (2,023,891)
Net unrealized appreciation on investments 745,479
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NET ASSETS $ 7,822,102
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Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) 1,102,653
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Net asset value, offering price and redemption price per share $ 7.09
===========
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2006
(Unaudited)
INVESTMENT INCOME
Dividends $ 52,135
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EXPENSES
Investment advisory fees 37,953
Accounting services fees 15,000
Administration fees 12,000
Transfer agent fees 12,000
Professional fees 9,776
Distribution expenses 9,488
Trustees' fees and expenses 7,841
Compliance fees and expenses 7,500
Custodian fees 2,848
Postage and supplies 1,894
Insurance expense 1,680
Reports to shareholders 1,488
Registration fees 955
Pricing expense 592
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TOTAL EXPENSES 121,015
Fees waived and expenses reimbursed by Adviser (64,045)
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NET EXPENSES 56,970
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NET INVESTMENT LOSS (4,835)
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 234,309
Net change in unrealized appreciation/depreciation
on investments (158,197)
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NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 76,112
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 71,277
=========
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the
Six Months
Ended For the
June 30, Year Ended
2006 December 31,
(Unaudited) 2005
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FROM OPERATIONS
Net investment loss $ (4,835) $ (7,444)
Net realized gains from security transactions 234,309 10,571
Net change in unrealized appreciation/depreciation on investments (158,197) 162,037
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Net increase in net assets from operations 71,277 165,164
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,659,314 1,274,271
Payments for shares redeemed (772,176) (1,201,342)
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Net increase in net assets from capital share transactions 887,138 72,929
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TOTAL INCREASE IN NET ASSETS 958,415 238,093
NET ASSETS
Beginning of period 6,863,687 6,625,594
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End of period $ 7,822,102 $ 6,863,687
============ ============
ACCUMULATED NET INVESTMENT LOSS $ (4,835) $ --
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CAPITAL SHARE ACTIVITY
Sold 230,116 186,535
Redeemed (107,361) (176,177)
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Net increase in shares outstanding 122,755 10,358
Shares outstanding, beginning of period 979,898 969,540
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Shares outstanding, end of period 1,102,653 979,898
============ ============
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding
Throughout Each Period
For the
Six Months
Ended For the For the For the For the For the
June 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2006 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2005 2004 2003 2002 2001(a)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at beginning of period $ 7.00 $ 6.83 $ 6.40 $ 5.16 $ 7.56 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from investment
operations:
Net investment income (loss) 0.00(b) (0.01) 0.02 (0.01) (0.03) (0.03)
Net realized and unrealized gains
(losses) on investments 0.09 0.18 0.43 1.25 (2.37) (2.41)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment operations 0.09 0.17 0.45 1.24 (2.40) (2.44)
------------ ------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment
income -- -- (0.02) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at end of period $ 7.09 $ 7.00 $ 6.83 $ 6.40 $ 5.16 $ 7.56
============ ============ ============ ============ ============ ============
Total return 1.29%(c) 2.49% 7.04% 24.03% (31.75%) (24.40%)
============ ============ ============ ============ ============ ============
Net assets at end of period $ 7,822,102 $ 6,863,687 $ 6,625,594 $ 5,544,031 $ 4,099,021 $ 4,781,914
============ ============ ============ ============ ============ ============
Ratio of net expenses to average net
assets 1.50%(d) 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income (loss)
to average net assets (0.13%)(d) (0.11%) 0.33% (0.22%) (0.56%) (0.47%)
Portfolio turnover rate 55%(d) 85% 40% 58% 56% 34%
(a) The Fund commenced operations on December 31, (2000.)
(b) Amount rounds to less than $0.01.
(c) Not annualized.
(d) Annualized.
See accompanying notes to financial statements.
APPLETON EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (Unaudited)
1. Significant Accounting Policies
The Appleton Funds (the Trust) is registered under the Investment Company Act of
1940, as amended, (the 1940 Act), as a diversified, no-load, open-end management
investment company. The Trust was organized as an Ohio business trust on October
31, 2000. The Trust currently offers one series of shares to investors: the
Appleton Equity Growth Fund (the Fund). The Trust was capitalized on December
29, 2000, when the initial shares of the Fund were purchased at $10 per share.
The Fund commenced operations on December 31, 2000.
The Fund seeks long-term growth of capital by investing primarily in common
stocks.
The following is a summary of the Fund's significant accounting policies:
Securities valuation - The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern time). Portfolio securities traded on stock
exchanges are valued at their last sales price as of the close of the regular
session of trading on the day the securities are being valued. Securities quoted
by NASDAQ are valued at the NASDAQ Official Closing Price. Securities for which
market quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees. Money
market instruments are valued at amortized cost, which approximates market
value.
Share valuation - The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding, rounded to the nearest cent. The offering and
redemption price per share are equal to the net asset value per share.
Investment income and distributions to shareholders - Interest income is accrued
as earned. Dividend income is recorded on the ex-dividend date. Dividends
arising from net investment income are declared and paid annually. Net realized
short-term capital gains, if any, may be distributed throughout the year and net
realized long-term capital gains, if any, are distributed at least once each
year. Income dividends and capital gain distributions are determined in
accordance with income tax regulations. Differences between book and tax
distributions are considered temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are reclassified within
the composition of net assets based on their federal tax basis treatment;
temporary differences do not require reclassifications.
Security transactions - Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
Estimates - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Federal income tax - It is the Fund's policy to continue to comply with the
special provisions of the Internal Revenue Code applicable to regulated
investment companies. As provided therein, in any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare and pay as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital gains
(earned during the twelve months ended October 31) plus undistributed amounts
from prior years.
The Fund paid no dividend distributions for the year ended December 31, 2005.
The following information is computed on a tax basis as of December 31, 2005:
Cost of portfolio investments $ 5,983,970
===========
Gross unrealized appreciation on investments $ 968,673
Gross unrealized depreciation on investments (64,997)
-----------
Net unrealized appreciation on investments $ 903,676
Capital loss carryforwards (2,258,200)
-----------
Total accumulated deficit $(1,354,524)
===========
The gross unrealized appreciation, gross unrealized depreciation and Federal
income tax cost of the Fund's portfolio investments as of June 30, 2006 are
$1,058,550, $313,071 and $7,100,892, respectively.
During the year ended December 31, 2005, the Fund utilized $6,612 of capital
loss carryforwards. The remaining capital loss carryforwards in the above table
expire as follows:
Amount December 31,
------------- ---------------
$ 240,954 2009
$1,650,125 2010
$ 367,121 2011
-------------
$2,258,200
=============
These capital loss carryforwards may be utilized in future years to offset
gains, if any, prior to distributing such gains to shareholders.
Certain reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements have been made to the components
of capital. The reclassifications resulted from the difference in the tax
treatment of net investment losses. These reclassifications have no impact on
the net assets or net asset value per share of the Fund and are designed to
present the Fund's capital accounts on a tax basis. For the year ended December
31, 2005, the Fund reclassified $7,444 of net investment losses to paid-in
capital on the Statement of Assets and Liabilities.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Management believes that the
adoption of FIN 48 will have no impact on the financial statements of the Funds.
2. Investment Transactions
For the six months ended June 30, 2006, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$2,716,634 and $2,033,599, respectively.
3. Transactions with Affiliates
Certain trustees and officers of the Trust are also officers of Appleton
Partners, Inc. (the Adviser), Integrated Investment Services, Inc. (Integrated),
formerly Integrated Fund Services, Inc., the administrative services agent,
shareholder servicing and transfer agent, and accounting services agent for the
Trust, and/or of IFS Fund Distributors, Inc. (the Distributor), the Trust's
principal underwriter.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement between the Trust and the Adviser,
the Adviser manages the Fund's investments. For these services, the Fund pays
the Adviser an advisory fee, which is computed and accrued daily and paid
monthly, at an annual rate of 1.00% of its average daily net assets.
Pursuant to a written contract between the Adviser and the Fund, the Adviser has
agreed to waive a portion of its advisory fees and/or assume certain expenses of
the Fund, other than brokerage commissions, extraordinary items, interest and
taxes, to the extent annual Fund operating expenses exceed 1.50% of the Fund's
average daily net assets. The Adviser has agreed to maintain these expense
limitations with regard to the Fund through December 31, 2006. For the six
months ended June 30, 2006, the Adviser waived $37,953 of advisory fees and
reimbursed the Fund for $26,092 of other operating expenses.
ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
Under the terms of an Administration, Accounting and Transfer Agency Agreement
between the Trust and Integrated, Integrated supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for the Fund. Integrated supervises the
preparation of tax returns, reports to shareholders of the Fund, reports to and
filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For these
administrative services, Integrated receives a monthly fee based on the Fund's
average daily net assets, subject to a monthly minimum fee.
Integrated maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. For these transfer
agency and shareholder services, Integrated receives a monthly fee per
shareholder account, subject to a monthly minimum fee. In addition, the Fund
pays Integrated out-of-pocket expenses including, but not limited to, postage
and supplies.
Integrated also calculates the daily net asset value per share and maintains the
financial books and records of the Fund. For these accounting services,
Integrated receives a monthly fee, based on average daily net assets, from the
Fund. In addition, the Fund pays Integrated certain out-of-pocket expenses
incurred by Integrated in obtaining valuations of the Fund's portfolio
securities.
DISTRIBUTION PLAN
The Fund has adopted a plan of distribution (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan permits the Fund to pay for expenses incurred in
the distribution and promotion of the Fund's shares including but not limited
to, the printing of prospectuses, statements of additional information and
reports used for sales purposes, advertisements, expenses of preparation and
printing of sales literature, promotion, marketing and sales expenses and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Trust.
The Plan limits payment of distribution expenses in any fiscal year to a maximum
of 0.25% of the Fund's average daily net assets. For the six months ended June
30, 2006, the Fund accrued and the Adviser subsequently reimbursed $9,488 of
distribution expenses under the Plan.
UNDERWRITING AGREEMENT
The Trust has entered into an Underwriting Agreement on behalf of the Fund with
the Distributor. Pursuant to the Underwriting Agreement, the Distributor acts as
principal underwriter and, as such, is the exclusive agent for distribution of
shares of the Fund. The Distributor receives no compensation for its services
and is an affiliate of Integrated.
COMPLIANCE SERVICES AGREEMENT
Under the terms of the Compliance Services Agreement between the Trust and
Integrated, Integrated provides certain compliance services to the Trust,
including developing and assisting in implementing a compliance program for
Integrated on behalf of the funds and providing administrative support services
to the Funds' Compliance Program and Chief Compliance Officer.
4. Commitments and Contingencies
The Fund indemnifies the Trust's officers and Trustees for certain liabilities
that might arise from the performance of their duties to the Fund. Additionally,
in the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risks of loss to be remote.
APPLETON EQUITY GROWTH FUND
OTHER ITEMS
June 30, 2006
(Unaudited)
PROXY VOTING POLICIES AND PROCEDURES
The Adviser is responsible for exercising the voting rights associated with the
securities purchased and held by the Fund. A description of the policies and
procedures the Adviser uses in fulfilling this responsibility and information
regarding how those proxies were voted during the twelve month period ended June
30 are available without charge, upon request, by calling 1-617-338-0700. They
are also available on the Securities and Exchange Commission's website at
http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The Trust files a complete listing of portfolio holdings for the Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q. The
complete listing (i) is available on the Commission's website; (ii) may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC;
and (iii) will be made available to shareholders upon request by calling
1.800.543.0407. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Fund, you incur ongoing costs, including investment
advisory fees; distribution (12b-1) fees; and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (January 1, 2006 through June 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six
Months Ended June 30, 2006" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund's and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Net Expense Ratio Beginning Ending Expenses Paid During
Annualized Account Value Account Value the Six Months Ended
June 30, 2006 January 1, 2006 June 30, 2006 June 30, 2006*
----------------- --------------- -------------- --------------------
Appleton Equity Growth Fund
Actual 1.50% $ 1,000.00 $ 1,012.90 $ 7.49
Hypothetical 1.50% $ 1,000.00 $ 1,017.36 $ 7.50
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* Expenses are equal to the Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by [number of days in most
recent fiscal half-year/365] (to reflect the one-half year period).
Item 2. Code of Ethics.
Not required in semi-annual report filing.
Item 3. Audit Committee Financial Expert.
Not required in semi-annual report filing.
Item 4. Principal Accountant Fees and Services.
Not required in semi-annual report filing.
Item 5. Audit Committee of Listed Companies.
Not applicable.
Item 6. Schedule of Investments.
The schedule is included as part of the report to shareholders filed under Item
1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds.
Not applicable.
Item 8. Portfolio Managers of Closed-End Funds.
Not Applicable.
Item 9. Purchases of Equity Securities by Closed-End Funds.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of
a date within 90 days of the filing date of this report.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a) (1) Code of Ethics. Not required in semi-annual report filing.
(a) (2) The certification required by Rule 30a-2 of the Investment Company
Act of 1940, as amended (the "1940 Act") is attached hereto.
(b) The certification required by Rule 30a-2(b) of the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 is attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Appleton Funds
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By (Signature and Title)
/s/ James I. Ladge
James I. Ladge
President and Treasurer
Date: September 7, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ James I. Ladge
James I. Ladge
President and Treasurer
Date: September 7, 2006