SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 12 X
(Check appropriate box or boxes)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT X
COMPANY ACT OF 1940
Post-Effective Amendment No. 12
PAUZE` FUNDS - File Nos. 33-71562 and 811-8148
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(Exact Name of Registrant as Specified in Charter)
14340 Torrey Chase Blvd., Ste. 170, Houston, Texas 77014
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (281) 444-6012
Philip C. Pauze`, President, Pauze` Funds, 14340 Torrey Chase Blvd. Ste. 170
Houston, Texas 77014
---------------------------------------
(Name and Address of Agent for Service)
With Copy To:
Donald S. Mendelsohn
Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower
Cincinnati, Ohio 45202
Release Date: November 26, 1997
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered
Omit from the facing sheet reference to the other Act if the Registration
Statement or amendment is filed under only one of the Acts. Include the
"Approximate Date of Proposed Public Offering" and "Title of Securities Being
Registered" only where securities are being registered under the Securities Act
of 1933.
<PAGE>
PAUZE` FUNDS
PAUZE` TOMBSTONE FUND
FORM N-1A
CROSS REFERENCE SHEET
FORM N-1A
PART A CAPTION OR
ITEM NO. LOCATION IN PROSPECTUS
- --------- --------------------------------------------------------------
1 Cover Page
2 Summary of Fees and Expenses
3 Supplement to Prospectus
4 The Fund; Investment Objective and Risk Considerations;
Investment Policies and Risks; Management of the Fund; General
Information; Supplement to Prospectus
5 Management of the Fund
5a NONE
6 General Information; How to Redeem Shares; Shareholder Services;
Distributions and Taxes
7 How to Purchase Shares; Additional Information About Purchases;
Reductions and Waivers of the Sales Charge; Other Policies that
Affect your Sales Charge; How to Redeem Shares; Rule 12b-1
Distribution Plan; Valuing Fund Shares; Supplement to Prospectus
8 How to Redeem Shares
9 NONE
16 Management of the Fund
19 Valuing Fund Shares
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FORM N-1A
PART B CAPTION OR LOCATION IN
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
- --------- -------------------------------------------------------------
10 Cover Page
11 Table of Contents
12 NONE
13 Investment Objective and Policies; Investment Limitations
14 Management of the Fund
15 General Information
16 Investment Advisory Services; Administrative Services; Rule 12b-1
Distribution Plan; Custodian; Independent Accountants
17 Portfolio Transactions
18 General Information
19 NONE
20 Tax Status
21 Rule 12b-1 Distribution Plan
22 Calculation of Performance Data
23 Financial Statements
<PAGE>
SUPPLEMENT DATED NOVEMBER 26, 1997
TO PROSPECTUS DATED MAY 1, 1997
PAUZE` TOMBSTONE FUND(TM)
The following financial highlights for the period ended October 31, 1997,
are derived from the unaudited financial statements of the Fund. The financial
highlights are an integral part of, and should be read in conjunction with, the
unaudited financial statements. The unaudited financial statements of the Fund
are included in the Semi-Annual Report to Shareholders for the period ended
October 31, 1997 and are incorporated by reference in the Fund's Statement of
Additional Information.
FINANCIAL HIGHLIGHTS
for the six months ended
October 31, 1997 (Unaudited)
Class A Class B
------- -------
Net asset value, Beginning of period $10.00 $10.00
------ ------
Income from investment operations:
Net investment income (0.04) (0.07)
Net realized and unrealized gain (loss)
on investments (0.89) (0.89)
------ ------
Total from investment operations (0.93) (0.96)
------ ------
Less distributions to shareholders:
None
Net asset value, end of period $9.07 $9.04
====== ======
Total investment return (1) (18.6%) (19.2%)
Ratios/Supplemental Data:
Net assets, end of period $1,262,845 $2,898,473
Ratio of expenses to average
net assets (1)(2) 2.92% 3.72%
Ratio of net investment income
to average net assets (1)(2) (1.72%) (2.54%)
Portfolio turnover rate 35.2% 35.2%
(1) Annualized
(2) Net investment income is net of expense reimbursements and fee waivers of
$.002 and $.002 per share for Class A and Class B, respectively. Had such
reimbursements not been made, the annualized expense ratio would have been
3.34% and 4.16% for Class A and Class B, respectively, and the annualized
net investment income ratio would have been (2.16%) and (2.98%) for Class A
and Class B respectively.
At the end of the Section entitled "Other Policies That Affect Your Sales
Charge," pages 11-12 of the Prospectus, the following language should be
inserted:
"Under certain circumstances, the Distributor may increase or decrease the
reallowance amounts paid to participating broker-dealers for sales of Class
A and Class B shares."
The following language should be read in conjunction with the Sections
entitled "Investment Objective and Risk Considerations", pages 4-5 of the
Prospectus, "Index Performance", pages 5-6 of the Prospectus and "Investment
Policies and Risks", pages 6-8 of the Prospectus:
"Under normal market conditions, the Fund will invest in the common stocks
of the companies that comprise the Pauze` Tombstone Common Stock Index(TM)
(the "Index") in approximately the same proportions as those common stocks
have in the Index. However, when the Adviser determines that market
conditions so warrant, the Fund's investments in those common stocks may
vary from their proportions in the Index, and at times such variance may be
significant. Any such variance will make it more likely that the Fund's
performance will vary from the performance of the Index."
As of October 31, 1997, the Angelus Funeral Home PreNeed Trust and the
Angelus Rosedale Endowment Care Fund may be deemed to control the Fund as a
result of their beneficial ownership of Fund shares.
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, has been
selected as independent accountants for the Trust for the fiscal year ending
April 30, 1998.
<PAGE>
PAUZE` FUNDS(TM)
PAUZE` TOMBSTONE FUND(TM)
(Information, Shareholder Services and Requests)
1-800-327-7170
P.O. Box 844
Conshohocken, PA 19428-0844
(To Purchase Shares)
1-888-647-5436
PROSPECTUS
May 1, 1997
The investment objective of the Pauze` Tombstone Fund(TM) is to provide
shareholders with long term capital appreciation. The Fund seeks to achieve its
objective by investing primarily in all or a representative group of equity
securities comprising the Pauze` Tombstone Common Stock Index(TM). The Index is
a new unmanaged index developed by Pauze` Swanson Capital Management Co.,(TM)
the Fund's Advisor, to track the performance of the publicly traded common stock
of companies which derive at least 15% of their revenues from the provision of
goods and/or services to the death care sector of the economy. The Fund's
performance therefore will be largely dependent on the performance of that
sector. The Fund is a non-diversified fund, and this Prospectus provides
information relating to the additional risks associated with
non-diversification.
This Prospectus provides information a prospective investor ought to know
before investing and should be retained for future reference. A Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") dated May 1, 1997, which is incorporated herein by
reference and can be obtained without charge by calling the Fund at the phone
number listed above. The SEC maintains a Web Site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Investments in the Fund involve investment risk including possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
SUMMARY OF FEES AND EXPENSES................................................. 2
THE FUND .................................................................... 3
INVESTMENT OBJECTIVE AND RISK CONSIDERATIONS................................. 3
INDEX PERFORMANCE............................................................ 5
INVESTMENT POLICIES AND RISKS................................................ 6
HOW TO PURCHASE SHARES....................................................... 8
ADDITIONAL INFORMATION ABOUT PURCHASES....................................... 11
REDUCTIONS AND WAIVERS OF THE SALES CHARGE................................... 12
OTHER POLICIES THAT AFFECT YOUR SALES CHARGE................................. 12
HOW TO EXCHANGE SHARES....................................................... 15
SHAREHOLDER SERVICES......................................................... 19
RULE 12b-1 DISTRIBUTION PLAN................................................. 20
VALUING FUND SHARES.......................................................... 20
DISTRIBUTIONS AND TAXES...................................................... 21
MANAGEMENT OF THE FUND....................................................... 22
GENERAL INFORMATION.......................................................... 25
PERFORMANCE INFORMATION...................................................... 26
<PAGE>
SUMMARY OF FEES AND EXPENSES
The following summary is provided to assist you in understanding the
various costs and expenses a shareholder in the Fund could bear directly and
indirectly. Annual operating expenses are shown as a percentage of average daily
net assets. Because shares of the Fund were not offered prior to the date of
this prospectus, annual operating expenses of the Fund are based on estimated
expenses. Shareholder transaction expenses for the Fund are expressed as a
percentage of the public offering price, cost per transaction or as otherwise
noted. The Example should not be considered a representation of future Fund
performance or expenses, both of which may vary.
Class Class
A B
Shareholder Transaction Expenses
Maximum sales charge on purchases
(as a percentage of offering price)...................... 3.75% None
Maximum contingent deferred sales charge imposed on
redemption (as a percentage of original
purchase price)(1)....................................... None 3.75%
Account Closing Fee
(does not apply to exchanges)............................ $ 10 $ 10
Exchange fee............................................. None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee. ......................................... 0.38% 0.38%
12b-1 Fees(2)............................................ 0.25% 1.00%
Other Expenses, including Transfer Agency
and Accounting Services Fees............................. 0.50% 0.50%
Total Fund Operating Expenses............................ 1.13% 1.88%
A shareholder who requests delivery of redemption proceeds by wire will be
subject to a $10 charge. International wires will be higher.
(1) The maximum contingent deferred sales charge (CDSC) as set forth in the
table applies to redemptions of shares within one year of purchase. The CDSC
decreases over time, to zero, and the Class B shares become no-load Class A
shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales load permitted by the National Association of Securities
Dealers.
2
<PAGE>
Hypothetical Example of Effect on Fund Expenses
You would pay the following expenses on a $1,000 investment if, for each
year for the next three years, Fund expenses are as described above and annual
return is 5%.
1 Year 3 Years
------ -------
Class A(1)
Assuming a complete redemption at end of period (2) $59 $83
Assuming no redemption at end of period $49 $73
Class B
Assuming a complete redemption at end of period (2)(3) $68 $105
Assuming no redemption $19 $59
(1) Assumes deduction at the time of purchase of maximum 3.75% mutual sales
charge.
(2) Included in these estimates is the account closing fee of $10 for each
period. This is a flat charge which does not vary with the size of your
investment. Accordingly, for investments larger than $1,000, your total expenses
could be substantially lower in percentage terms than this illustration.
(3) Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
THE FUND
Pauze` Tombstone Fund(TM) (the "Fund") was organized as a series of Pauze`
Funds(TM) (the "Trust") on January 29, 1997, and commenced operations on May 1,
1997. This Prospectus offers shares of the Fund and each share represents an
undivided, proportionate interest in the Fund. The investment adviser to the
Fund is Pauze` Swanson Capital Management Co.(TM) (the "Advisor").
INVESTMENT OBJECTIVE AND RISK CONSIDERATIONS
The investment objective of the Fund is to provide shareholders with long
term capital appreciation. The Fund seeks to achieve its objective by investing
primarily in all or a representative group of equity securities comprising the
Pauze` Tombstone Common Stock Index(TM) (the "Index"), a new unmanaged index
developed by the Advisor to track the performance of the publicly traded common
stock of companies which derive at least 15% of their revenues (based solely on
information provided by each company, which may or may not be accurate) from the
provision of goods and/or services to the death care sector of the economy. The
Fund's performance therefore will be largely dependent on the performance of
that market sector (see "Index Performance" on page 7).
The Fund is an index fund, which means that it attempts to replicate the
performance of the Index by investing in the stocks of the Index in proportion
to their weightings in the Index. Each stock in the Index is weighted by its
market capitalization (total market value
3
<PAGE>
attributable to death care) relative to the aggregate market capitalization of
all securities in the Index. Only the percentage of market capitalization
attributable to death care will be included in the Index. For example, if 15% of
a company's revenue is derived from death care, then 15% of the company's market
capitalization will be included in the Index, and a change in the company's
share price will result in a smaller change to the Index than would otherwise be
the case. As the market capitalizations of the stocks in the Index rise and fall
due to changes in share price, the Index will rise and fall to reflect the
aggregate change, and the weightings of each stock in the Index will change. The
Index includes only U.S. companies (or foreign companies whose stock is traded
on a U.S. stock exchange) which have a market capitalization attributable to
death care of at least $15 million. As of March 31, 1997, nine companies were
included in the Index. They had market capitalizations ranging from $81.7
million to $7.1 billion, and the aggregate market capitalization of the Index
approximated $12.5 billion.
Because the Fund invests primarily in the stocks of the death care
companies comprising the Index, a shareholder's investment will be subject to
the risks affecting that sector of the economy. The death care sector consists
of companies whose primary business is concentrated in one or more of three
broad categories: (1) funeral services, (2) cemetery services, (3) funeral and
cemetery support goods and services. Any regulatory, demographic or other
economic factor particularly affecting the death care industry could have a
material adverse impact on the Fund. For example, some states and regulatory
agencies may adopt regulations affecting solicitation and/or cancellation of
preneed sales of products and services, or prohibiting common ownership of
funeral homes and cemeteries in the same market. Also, changes in demographic
patterns (such as increases in cremation rates) may result in decreased revenues
for the companies in the Index. For the most part, the death care sector has
highly fragmented ownership, and despite considerable consolidation in recent
years (primarily through acquisitions), public companies still represent less
than one quarter of death care revenues. While this leaves considerable room for
growth of the companies included in the Index, there is no guarantee that
current consolidation and acquisition trends will continue.
In this regard, shareholders should be aware that as of March 31, 1997
there were only nine companies included in the Index, and that one company
comprised approximately 55%, two companies comprised approximately 73%, and four
companies comprised approximately 93% of the aggregate market capitalization of
the Index. Until the number and weightings of the companies in the Index are
substantially changed, the Fund's performance will be dominated by the
performance of those four companies, and any development affecting the sector as
a whole or those companies in particular will have a substantial impact on the
Fund. The Fund is a non-diversified fund, and, as such, presents substantially
more investment risk and potential for volatility than a mutual fund which is
diversified. The Fund is not a complete investment program, and an investment in
the Fund should be considered only a portion of your overall investment
portfolio.
4
<PAGE>
INDEX PERFORMANCE
Although the Index was first published in January 1997, the Advisor has
reconstructed its performance for earlier years. As of December 31, 1985, the
Index would have been comprised of two companies. The third Index company would
have been added on May 1, 1990, the fourth on October 1, 1991, the fifth on
December 1, 1992, the sixth on July 1, 1994, the seventh on October 1, 1994, the
eighth on April 1, 1996 and the ninth on August 1, 1996.
For the purpose of creating a performance history, the performance of the
Index has been calculated on a monthly basis from January 1, 1986 through
December 31, 1996. Beginning on January 1, 1997, the Index has been calculated
on a daily basis.
The past performance of the Index should not be considered indicative of
the future performance of the Fund. Moreover, future performance of the Fund
will in all likelihood vary (possibly substantially) from the performance of the
Index. See "Investment Policies and Risks".
PAUZE` TOMBSTONE COMMON STOCK INDEX(TM)
HISTORICAL ANNUAL PERFORMANCE
December 31, 1985 - 100.00
December 31, 1986 - 130.13
December 31, 1987 - 118.98
December 31, 1988 - 109.48
December 31, 1989 - 117.08
December 31, 1990 - 138.02
December 31, 1991 - 191.71
December 31, 1992 - 208.33
December 31, 1993 - 284.84
December 31, 1994 - 267.09
December 31, 1995 - 368.30
December 31, 1996 - 483.50
COMPARATIVE RATES OF RETURN FOR VARIOUS INDICES
AS OF DECEMBER 31, 1996
THE INDEX DJIA S&P 500 Russell 3000
One Year 30.99% 25.78% 20.08% 19.02%
Five Year 20.30% 15.25% 12.16% 12.33%
Ten Year 14.01% 13.01% 11.82% 11.59%
Eleven Year 15.39% 13.85% 12.07% 11.69%
(1) These figures represent simple annualized price appreciation of each index
for the given time period.
(2) Dividend re-investment, if any, is not included in the calculations.
(3) Eleven year figure represents inception date of the Index as reconstructed.
(4) The Index base date is 1/1/86 at Base index valuation of 100.
(5) Data Source for DJIA, S&P 500 and Russell 300 Index - Bloomberg Financial
Services.
(6) Data Source for the Index-Pauze` Swanson Capital Management Co.(TM)
5
<PAGE>
INVESTMENT POLICIES AND RISKS
Under normal market conditions, the Fund will invest primarily in the common
stocks of the companies that comprise the Index, in approximately the same
proportions as those common stocks have in the Index. However, the Fund may
invest in common stocks that are not included in the Index and, for temporary
defensive purposes under adverse market conditions, may hold a substantial
portion of its assets in cash equivalents, short term fixed income securities or
U.S. government repurchase agreements. The Fund may also invest in such
investments at any time to maintain liquidity, to meet regulatory requirements
or pending selection of investments in accordance with its policies. Thus, there
will not necessarily be a high correlation between the Fund's portfolio and the
Index at all times.
Although the Fund attempts to replicate the performance of the Index, the Fund's
ability to do so will also be affected by factors such as the size of the Fund's
portfolio, transaction costs, management fees and expenses, brokerage
commissions, timing of cash flows into and out of the Fund, the Fund's policy of
minimizing transaction costs and tax liability from capital gains distributions,
and changes in securities markets and the Index itself. Further, because the
Index is dominated by only a few companies, changes in the status of any of
these companies will have a pronounced effect on the performance of the Index
and the Fund. Tax laws and other regulatory requirements may prohibit the Fund
from investing in these companies to the extent necessary to mirror their
representation in the Index, which may cause the Fund's performance to differ
from that of the Index. See "Distributions and Taxes -- Dividend and Capital
Gain Distributions" for a discussion of the consequences of failure to meet
requirements under the Internal Revenue Code. In such a situation, the Advisor
will choose other investments to attempt to otherwise approximate the Index's
performance. The Advisor will try to minimize the impact of the above described
factors on the variation between the Fund's performance and that of the Index,
but there is no assurance that the Advisor will be successful in doing so.
The Index is a market capitalization weighted index, with each stock affecting
the Index in proportion to its total market value attributable to death care.
The Advisor, as developer and owner of the Index, is responsible for selecting
and maintaining the list of stocks to be included in the Index. Only stocks of
companies which derive at least 15% of their revenues from the provision of
goods and/or services to the death care sector of the economy and have market
capitalization attributable to death care of at least $50 million are eligible
for inclusion. In addition, the company must either be a U.S. company, or if
not, its stock must be traded on a U.S. stock exchange. Inclusion of a stock in
the Index in no way implies an opinion by the Advisor as to the stock's
attractiveness as an investment. The Index is unmanaged, and the Advisor is
therefore obligated to include in the Index any stock which meets the above
described criteria for inclusion.
6
<PAGE>
The Index is composed primarily of smaller capitalization companies.
Smaller capitalization companies may experience higher growth rates and higher
failure rates than do larger capitalization companies. Companies in which the
Fund is likely to invest may have limited product lines, markets or financial
resources and may lack management depth. The trading volume of securities of
smaller capitalization companies is normally less than that of larger
capitalization companies and, therefore, may disproportionately affect their
market price, tending to make them rise more in response to buying demand and
fall more in response to selling pressure than is the case with larger
capitalization companies.
The Fund is subject to market risk because it invests primarily in common
stocks. Market risk is the possibility that common stock prices will decline
over short or even extended periods. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when stock prices
generally decline. Because of the risks associated with investing in the
companies that comprise the Index, the Fund is intended to be a long term
investment vehicle and is not designed to provide investors with a means of
speculating on short term market movements.
The Fund may enter into repurchase agreements. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a U.S. Government obligation (which may be of any maturity) and the seller
agrees to repurchase the obligation at a future time at a set price, thereby
determining the yield during the purchaser's holding period (usually not more
than seven days from the date of purchase). Any repurchase transaction in which
the Fund engages will require 102% collateralization of the seller's obligation
during the entire term of the repurchase agreement. In the event of a bankruptcy
or other default of the seller, the Fund could experience both delays in
liquidating the underlying security and losses in value. However, the Fund
intends to enter into repurchase agreements only with banks with assets of $1
billion or more and registered securities dealers determined by the Advisor
(subject to review by the Board of Trustees) to be creditworthy.
The Fund may engage in option transactions involving individual securities
and market indexes. An option involves either (a) the right or the obligation to
buy or sell a specific instrument at a specific price until the expiration date
of the option, or (b) the right to receive payments or the obligation to make
payments representing the difference between the closing price of a market index
and the exercise price of the option expressed in dollars times a specified
multiple until the expiration date of the option. Options are sold (written) on
securities and market indexes. The purchaser of an option on a security pays the
seller (the writer) a premium for the right granted but is not obligated to buy
or sell the underlying security. The purchaser of an option on a market index
pays the seller a premium for the right granted, and in return the seller of
such an option is obligated to make the payment. A writer of an option may
terminate the obligation prior to expiration of the option by making an
offsetting purchase of an identical option. Options are traded on organized
exchanges and in the over-the-counter markets. Options on the Pauze` Tombstone
Common Stock IndexTM are not currently traded on an exchange or in the
over-the-counter markets. To cover the potential obligations involved in writing
options, the Fund will own the underlying security, or the Fund will segregate
with the Custodian (a) high grade liquid debt assets sufficient to purchase the
underlying security, or (b) high grade liquid debt assets equal to the market
value of the stock index.
7
<PAGE>
The purchase and writing of options requires additional skills and
techniques beyond normal portfolio management, and involves certain risks. The
purchase of options limits the Fund's potential loss to the amount of the
premium paid and can afford the Fund the opportunity to profit from favorable
movements in the price of an underlying security to a greater extent than if
transactions were effected in the security directly. However, the purchase of an
option could result in the Fund losing a greater percentage of its investment
than if the transaction were effected directly. When the Fund writes a call
option, it will receive a premium, but it will give up the opportunity to profit
from a price increase in the underlying security above the exercise price as
long as its obligation as a writer continues, and it will retain the risk of
loss should the price of the security decline. When the Fund writes a put
option, it will assume the risk that the price of the underlying security or
instrument will fall below the exercise price, in which case the Fund may be
required to purchase the security or instrument at a higher price than the
market price of the security or instrument. In addition, there can be no
assurance that the Fund can effect a closing transaction on a particular option
it has written. Further, the total premium paid for any option may be lost if
the Fund does not exercise the option or, in the case of over-the-counter
options, the writer does not perform its obligations.
The Fund may make short and long term loans of its portfolio securities.
Under the lending policy authorized by the Board of Trustees and implemented by
the Advisor in response to requests of broker-dealers or institutional investors
which the Advisor deems qualified, the borrower must agree to maintain
collateral, in the form of cash or U.S. government obligations, with the Fund on
a daily mark-to-market basis in an amount at least equal to 100% of the value of
the loaned securities. The Fund will continue to receive dividends or interest
on the loaned securities and may terminate such loans at any time or reacquire
such securities in time to vote on any matter which the Board of Trustees
determines to be serious. With respect to loans of securities, there is the risk
that the borrower may fail to return the loaned securities or that the borrower
may not be able to provide additional collateral.
The Fund may purchase securities on a when-issued or delayed delivery
basis, provided, at the time of purchase, no more than 5% of the Fund's total
assets are committed to such purchases. The Fund may borrow money for temporary
or emergency purposes in an amount not exceeding 5% of the Fund's total assets
at the time the borrowing is made. Reverse repurchase agreements are considered
borrowings for this purpose.
HOW TO PURCHASE SHARES
The Fund offers its shares in two classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within seven years of purchase.
Shares of the Fund are sold on a continuous basis, and you may invest any amount
you choose (up to $5,000,000), as often as you wish, subject to a minimum
initial investment of $1,000 and subsequent investments of $500. Shares of the
Fund are purchased at the net asset value per share next determined after the
order is received and accepted by the Distributor, plus any applicable sales
charge for Class A shares. When opening an account, it is important that you
provide the Distributor with
8
<PAGE>
your correct taxpayer identification number (social security or employer
identification number).
If you are investing in this Fund for the first time, you will need to set
up an account. Your financial advisor will help you fill out and submit an
application. You may also make a direct initial investment by completing and
signing the investment application which accompanies this Prospectus and mailing
it, together with a check or money order made payable to: Pauze` Tombstone
Fund(TM), Declaration Service Company, P.O. Box 844, Conshohocken, Pennsylvania
19428-0844.
When you place an order for the Fund's shares, you must specify which class
of shares you wish to purchase. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These differences are
summarized in the table below.
<TABLE>
<CAPTION>
Sales Charge Distribution & Other Information
Service Fees
<S> <C> <C> <C>
Class A Maximum initial sales charge of No distribution Initial sales charge waived
3.75% fee; service fee or reduced for certain
of 0.25% of purchases
average daily net
assets
Class B No initial sales charge; CDSC of distribution fee Shares convert to Class A
3.75% declines to 0% after seven of 0.75%; service after seventh year; CDSC
years fee of 0.25% of waived in certain
average daily net circumstances
assets
</TABLE>
Conversion of Class B shares to Class A Shares -- Seven years after Class B
shares are originally purchased, Class B shares will convert to Class A shares
and will no longer be subject to a distribution fee. The conversion will be on
the basis of relative net asset values of the two classes, without the
imposition of any sales charge. Class B shares purchased through reinvested
dividends and other distributions will convert to Class A shares on a pro rata
basis with Class B shares not purchased through reinvestment.
Considerations in determining whether to purchase Class A or Class B shares --
you should consider the information below in determining whether to purchase
Class A or Class B shares.
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Sales charges on purchase or redemption
If you purchase Class A Shares If you purchase Class B Shares
You will not have all of your money All of your money is invested in
invested. Part of your purchase price shares of stock. However, you will
will go to pay the sales charge. You pay a declining sales charge if you
will not pay a sales charge when you redeem your shares within seven years
redeem your shares. of purchase.
Ongoing Expenses
If you purchase Class A Shares If you purchase Class B Shares
Your shares will have a lower ongoing The distribution and service fees for
expense ratio than Class B shares. Class B shares will cause your shares
to have a higher ongoing expense ratio
and to pay lower dividends than Class
A shares.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the example in the "Sales charge and Fund
expenses" section of the Prospectus illustrates the charges applicable to each
class of shares.
By mail: When making subsequent investments by mail, enclose your check
with the return remittance portion of the confirmation of your previous
investment or indicate on your check or a separate piece of paper your name,
address and account number and mail to the address set forth above. Third party
checks will not be accepted.
By telephone: Once your account is open, you may make investments by
telephone by calling 1-888-647-5436. The maximum telephone purchase is the
lesser of $5,000,000 or ten times the value of the shares owned, calculated at
the last available net asset value. Payment for shares purchased by telephone is
due within three business days after the date of the transaction. If your
telephone order to purchase shares is cancelled due to nonpayment (whether or
not your check has been processed by the Fund), you will be responsible for any
loss incurred by the Trust by reason of such cancellation. Investments by
telephone are not available in any Fund retirement account administered by the
Administrator or its agents.
By wire: You may make your initial or subsequent investments in the Pauze`
Funds(TM) by wiring funds. To do so, call the Investor Information Department at
1-888-647-5436 for a confirmation number and wiring instructions.
By Automatic Investment Plan: Once your account is open, you may make
investments automatically by completing the automatic investment plan form
authorizing Pauze` Funds(TM) to draw on your bank account regularly by check for
as little as $30 a month beginning within thirty (30) days after the account is
opened. You should inquire at your bank whether
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it will honor debits through the Automated Clearing House ("ACH") or, if
necessary, preauthorized checks. You may change the date or amount of your
investment any time by written instruction received by Pauze` Funds(TM) at least
five business days before the change is to become effective.
To assure proper receipt, please be sure your bank includes the Fund name
and the account number that has been assigned to you. If you are opening a new
account, please complete the Account Registration Form and mail it to the "New
Account" address above after completing your wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the Fund and Custodian
Bank are open for business.
There are no wire fees charged by the Trust for purchases of $1,000 or
more. A $10 wire fee will be charged by the Trust on wire purchases of less than
$1,000. Your bank may charge wire fees for this service.
ADDITIONAL INFORMATION ABOUT PURCHASES
Purchase policies:
o Investments must be received and accepted in the Distributor's offices on a
business day before 4:00 p.m. Eastern time to be included in your account
that day and to receive that day's share price. Otherwise, your purchase
will be processed the next business day and you will pay the next day's
share price.
o The maximum single purchase allowed is $5 million. Any individual order for
$5 million or more must be pre-approved by the Distributor prior to placing
the order or it will be rejected. This maximum individual amount allowed
for investment may change from time to time.
o Wire orders can be accepted only on days when your bank, the Fund and the
Fund's Distributor and Custodian are open for business.
o Wire purchases are completed when wired payment is received and the Fund
accepts the purchase.
o The Distributor and the Fund are not responsible for any delays that occur
in wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application or investment for any
reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
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REDUCTIONS AND WAIVERS OF THE SALES CHARGE
Class A -- initial sales charge alternative
On purchases of Class A shares, you pay a 3.75% sales charge on the first
$250,000 of your total investment and less on subsequent investments.
Total Investment Sales Charge as a
% of:*
Public Offering Net Invested Dealer
Price Amount Reallowance
as Percentage
of Public
Offering Price
Up to $250,000 3.75% 3.90% 3.25%
Next $250,000 3.25% 3.36% 2.85%
Next $250,000 3.00% 3.09% 2.70%
Next $250,000 2.00% 2.04% 1.80%
$1,000,000 or more 1.00% 1.00% .90%
* To calculate the actual sales charge on an investment greater than $250,000
and less than $1,000,000, amounts for each applicable increment must be
totaled. See the Statement of Additional Information ("SAI").
Reductions of the sales charge on Class A Shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now
o the amount of your existing investment in the Fund, if any, and
o the amount you and your primary household group are investing or have
invested in other funds in the Pauze` Funds(TM) that carry a sales
charge. (The primary household group consists of accounts in any
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a
shared primary residence and have joint property or other insurable
interests.)
OTHER POLICIES THAT AFFECT YOUR SALES CHARGE
IRA purchases or other employee benefit plan purchases made through a
payroll deduction plan or through a plan sponsored by an employer, association
of employers,
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employee organization or other similar entity, may be added together to reduce
the sales charge for all shares purchased through that plan.
Waivers of the sales charge for Class A Shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund,
Declaration Service Company ("DSC" or the "Administrator"), Declaration
Distributors, Inc. ("DDI" or the "Distributor") or their subsidiaries,
spouses and unmarried children under 21.
o Current or retired Pauze` Swanson(TM) employees, their spouses and
unmarried children under 21.
o Qualified employee benefit plans using a daily transfer record keeping
system offering participants daily access to Pauze` Funds(TM).
o Shareholders who have at least $5 million invested in funds of the Pauze`
Funds(TM). If the investment is redeemed in the first year after purchase,
a CDSC of 1% will be charged on the redemption. The CDSC will be waived
only in the circumstances described for waivers for Class B shares.
o Purchases made with dividend or capital gain distributions from the load
shares of another fund in the Pauze` Funds(TM).
Class B -- contingent deferred sales charge alternative
Class B shares are sold subject to a contingent deferred sales charge
("CDSC"). Under this purchase alternative, all of the purchase payment for Class
B shares is immediately invested in the Fund. The Advisor pays the Distributor a
fee or commission of 3.75% and is reimbursed by the Fund over time by charging
an additional Rule 12b-1 fee of .75% to the Class B shares. The Distributor pays
the pariticpating broker/dealer's fee or commission of 3.25%. The CDSC assures
that the Advisor is reimbursed for funding the broker-dealer's fee.
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of years, including the year of purchase, between
purchase and redemption. The following table shows the declining scale of
percentages that apply to redemptions during each year after purchase:
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If a redemption is The percentage rate for
made during the: the CDSC is:
First year 3.75%
Second year 3.75%
Third year 3.25%
Fourth year 2.75%
Fifth year 2.25%
Sixth year 1.75%
Seventh year 1.25%
Thereafter -0-
A CDSC is imposed on Class B shares if, within the time frames set forth,
you redeem an amount that causes the current value of your account to fall below
the total dollar amount of Class B shares purchased subject to the CDSC. The
CDSC will not be imposed on the redemption of Class B shares acquired as
dividends or other distributions, or on any increase in the net asset value of
the redeemed Class B shares above the original purchase price. Thus, the CDSC
will be imposed on the lower of net asset value or purchase price. Redemptions
will be processed in a manner intended to minimize the amount of redemption that
will be subject to the CDSC. When calculating the CDSC, it will be assumed that
the redemption is made first of Class B shares acquired as dividends, second of
shares that have been held for over the prescribed time and finally of shares
held for less than the prescribed time.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 3.75% because a redemption after 15
months would take place during the second year after purchase.
Waivers of the sales charge for Class B shares
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by a Trustee, officer or employee of the Fund or DSC or its
subsidiaries,
o Held in a trusteed employee benefit plan.
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Services
To help you track and evaluate the performance of your investments, DSC
provides these services:
o Quarterly statements listing all of your holdings and transactions
during the previous three months.
o Yearly tax statements featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares, along with
distribution information which simplifies tax calculations.
HOW TO EXCHANGE SHARES
You have the privilege of exchanging some or all of your shares for shares
of the same class of any other of the Pauze` Funds(TM) which are properly
registered for sale in your state. An exchange involves the simultaneous
redemption (sale) of shares of one fund and purchase of shares of another fund
at the respective closing net asset value and is a taxable transaction.
By telephone: You will automatically have the privilege to direct Pauze`
Funds to exchange your shares by calling toll free 1- 800-327-7170. In
connection with such exchanges, neither the Fund nor the Transfer Agent will be
responsible for acting upon any instructions reasonably believed by them to be
genuine. The shareholder, as a result of this policy, will bear the risk of
loss. The Fund and/or its Transfer Agent will, however, employ reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including requiring some form of personal identification, providing written
confirmation, and tape recording conversations); and if the Fund and/or its
Transfer Agent do not employ reasonable procedures, they may be liable for
losses due to unauthorized or fraudulent transactions.
By mail: You may direct Pauze` Funds(TM) in writing to exchange your
shares. The request must be signed exactly as the name appears on the
registration. (Before writing, read "Additional Information About Exchanges.")
Additional Information about Exchanges
(1) All exchanges are subject to the minimum investment requirements and
any other applicable terms set forth in the prospectus for the Fund whose shares
are being acquired.
(2) There currently is no charge for exchanges. However, the Trust reserves
the right to impose a $5 charge, which would be paid to the Transfer Agent, for
each exchange transaction out of any fund account, to cover administrative costs
associated with handling these exchanges.
(3) As with any other redemption, the Fund reserves the right to hold
redemption proceeds for up to seven days. In such event, the purchase side of
the exchange transaction will also be delayed. You will be notified immediately
if a Fund is exercising said right.
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<PAGE>
(4) Shares may not be exchanged unless you have furnished Pauze` Funds(TM)
with your tax identification number, certified as prescribed by the Internal
Revenue Code and Regulations, and the exchange is to an account with like
registration and tax identification number.
(5) The exchange privilege may be modified or terminated at any time. The
exchange fee and other terms of the privilege are subject to change.
HOW TO REDEEM SHARES
You may redeem any or all of your shares at will. The Trust redeems shares
at the net asset value next determined after it has received and accepted a
redemption request in proper order. Redemption requests must be received prior
to the time the next determined net asset value per share is computed (generally
4:00 p.m. Eastern time, Monday through Friday) to be effective that day.
By mail: Your written request for redemption in proper form to Declaration
Service Company, P.O. Box 844, Conshohocken, Pennsylvania 19428-0844. For
express or registered mail, send your request to Declaration Service Company,
Suite 6160, 555 North Lane, Conshohocken, Pennsylvania 19428. To be in "proper
form" requires delivery to the Transfer Agent of:
(1) a written request for redemption signed by each registered owner
exactly as the shares are registered, the account number and the number of
shares or the dollar amount to be redeemed;
(2) signature guarantees when required (see "Signature Guarantee" page 14);
and
(3) such additional documents as are customarily required to evidence the
authority of persons effecting redemptions on behalf of corporations, executors,
trustees and other fiduciaries. Redemptions will not become effective until all
documents in the form required have been received by the Transfer Agent. (Before
writing, read "Additional Information About Redemptions.")
By telephone: Redemptions may be made by telephone, provided you have
completed the Telephone Redemption Authorization section of the purchase
application. Upon proper authority and instruction, redemptions will be wired
(for a separate bank wire charge) to the bank account identified on the account
registration or, for amounts of $15,000 or less, redemptions will be mailed to
the address on the account registration. In connection with telephone
redemptions, neither the Fund nor the Transfer Agent will be responsible for
acting upon any instructions reasonably believed by them to be genuine. The Fund
and/or its Transfer Agent will, however, employ reasonable procedures to confirm
that instructions communicated by telephone are genuine (including requiring
some form of personal identification, providing written confirmations, and tape
recording conversations); and if the Fund or its Transfer Agent do not employ
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent transactions.
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Special Redemption Arrangements
Special arrangements may be made by institutional investors, or on behalf
of accounts established by brokers, advisors, banks or similar institutions, to
have redemption proceeds transferred by wire to pre-established accounts upon
telephone instructions. For further information call the Trust at
1-800-327-7170.
Signature Guarantee
Redemptions in excess of $15,000 currently require a signature guarantee. A
signature guarantee is required for all redemptions, regardless of the amount
involved, when proceeds are to be paid to someone other than the registered
owner of the shares to be redeemed, or if proceeds are to be mailed to an
address other than the registered address of record. A signature guarantee
verifies the authenticity of your signature and the guarantor must be an
eligible guarantor. In order to be eligible, the guarantor must be a participant
in a STAMP program (a Securities Transfer Agents Medallion Program). You may
call the Transfer Agent at 1-800-327-7170 to determine whether the entity that
will guarantee the signature is an eligible guarantor.
Redemption Proceeds May Be Sent To You:
By mail: If your redemption check is mailed, it is usually mailed within 48
hours of receipt of the redemption request; however, the Trust reserves the
right to hold redemption proceeds for up to seven days. If the shares to be
redeemed were purchased by check, the redemption proceeds will not be mailed
until the purchase check has cleared. You may avoid this requirement by
investing by bank wire (Federal funds). Redemption checks may be delayed if you
have changed your address in the last 30 days. Please notify the Trust promptly
in writing of any change of address.
By wire: You may authorize the Trust to transmit redemption proceeds by
wire provided you send written instructions with a signature guarantee at the
time of redemption or have completed the banking information portion of the
Telephone Redemption Authorization on the purchase application. Proceeds from
your redemption will usually be transmitted on the first business day following
the redemption. However, the Trust reserves the right to hold redemptions for up
to seven days. If the shares to be redeemed were purchased by check, the
redemption proceeds will not be wired until the purchase check has cleared,
which may take up to seven days. There is a $10 charge to cover the wire, which
is deducted from redemption proceeds.
Additional Information About Redemptions
(1) Redemptions of Class B shares of the Fund may be subject to a CDSC if
the shares are redeemed within the holding period prescribed in the applicable
Distribution Plan. See Class B - Contingent Deferred Sales Charge Alternative on
page 11 for the applicable holding period.
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<PAGE>
(2) The redemption price may be more or less than your cost, depending on
the net asset value of the Fund's portfolio next determined after your request
is received.
(3) A request to redeem shares in an IRA or similar retirement account must
be accompanied by an IRS Form W4-P and must state a reason for withdrawal as
specified by the IRS. Proceeds from the redemption of shares from a retirement
account may be subject to withholding tax.
(4) The Trust has the authority to redeem existing accounts and to refuse a
potential account the privilege of having an account in the Trust if the Trust
reasonably determines that the failure to so redeem, or to so prohibit, would
have a material adverse consequence to the Trust and its shareholders.
(5) Excessive short-term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Trust has reserved the
right to refuse investments from shareholders who engage in short-term trading.
(6) The Fund has filed an election with the Securities and Exchange
Commission which permits the Fund to make redemption payments in whole or in
part in securities or other property. However, the Fund has committed to pay in
cash all redemptions for any shareholder, limited in amount with respect to each
shareholder during any ninety day period to the lesser of (a) $250,000 or (b)
one percent of the net asset value of the Fund at the beginning of such period.
Account Closing Fee
In order to reduce Fund expenses, an account closing fee of $10 will be
assessed to shareholders who redeem all shares in their Fund account and direct
that redemption proceeds be directed to them by mail or wire. The charge is
payable directly to the Fund's Transfer Agent which, in turn, will reduce its
charges to the Fund by an equal amount. The account closing fee does not apply
to exchanges between other funds of the Trust.
The purpose of the charge is to allocate to redeeming shareholders a more
equitable portion of the Transfer Agent's fee, including the cost of tax
reporting, which is based upon the number of shareholder accounts. When a
shareholder closes an account, the Fund must continue to carry the account on
its books, maintain the account records and complete year-end tax reporting.
With no assets, the account cannot pay its own expenses and imposes an unfair
burden on remaining shareholders.
Small Accounts
Fund accounts which fall, for any reason other than market fluctuations,
below $1,000 at any time during a month will be subject to a small account
charge of $5 for that month which is deducted the next business day. The charge
is payable directly to the Fund's Transfer Agent which, in turn, will reduce its
charges to the Fund by an equal amount. The purpose of the charge is to allocate
the cost of maintaining shareholder accounts more equitably among shareholders.
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Active automatic investment plan, UGMA/UTMA, and retirement plan accounts
administered by the Administrator or its agents or its affiliates will not be
subject to the small account charge.
In order to reduce expenses of a Fund, the Trust may redeem all of the
shares in any shareholder account, other than an active automatic investment
plan, UGMA/UTMA and retirement plan accounts, if, for a period of more than
three months, the account has a net value of $500 or less and the reduction in
value is not due to market action. If the Fund elects to close such accounts, it
will notify shareholders whose accounts are below the minimum of its intention
to do so, and will provide those shareholders with an opportunity to increase
their accounts by investing a sufficient amount to bring their accounts up to
the minimum amount within ninety (90) days of the notice. No account closing fee
will be charged to investors whose accounts are closed under the mandatory
redemption provision.
SHAREHOLDER SERVICES
DSC, P.O. Box 844, Conshohocken, PA 19428-0844, acts as transfer and
dividend paying agent for all Fund accounts. Simply write or call the Investor
Information Department at 1-800-327-7170 for prompt service on any questions
about your account.
Confirmation Statements
Shareholders normally will receive a yearly confirmation statement and
after each transaction showing the activity in the account. However, when
account activity is produced solely from dividend reinvestment, confirmation
statements will be mailed only on a monthly basis.
Other Services
The Trust has available a number of plans and services to meet the special
needs of certain investors. Plans available include, but are not limited to:
(1) payroll deduction plans, including military allotments;
(2) custodial accounts for minors;
(3) a flexible, systematic withdrawal plan; and
(4) various retirement plans such as IRA, 403(b)(7), 401(k) and
employer-adopted defined benefit and defined contribution plans.
There is an annual charge for each retirement plan fund account with
respect to which a service provider acts as custodian. If this charge is not
paid separately prior to the last business day of a calendar year or prior to a
total redemption, it will be deducted from the shareholder's account.
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Application forms and brochures describing these plans and services can be
obtained from the Transfer Agent by calling 1-888-327-7170.
RULE 12b-1 DISTRIBUTION PLAN
A plan of distribution has been adopted under Rule 12b-1 of the Investment
Company Act of 1940 for the Fund, with separate provisions for each class of
shares. The plan provides that the Fund will pay a servicing or Rule 12b-1 fee
of 0.25% of the Fund's average net assets (1/12 of 0.25% monthly) to the Advisor
for its ongoing services to prospective and existing Fund shareholders,
including payments to persons or institutions for performing certain servicing
functions for Fund shareholders. These payments will generally be based on a
percentage of the value of Fund shares held by the institution's clients. With
respect to Class B shares, the distribution plan provides that the Fund will use
Fund assets allocable to those shares to pay the Advisor additional Rule 12b-1
fees of 0.75% of said assets (1/12 of 0.75% monthly) for its services and
expenditures related to the distribution of Class B shares, including fees paid
to broker-dealers for sales and promotional services. The fees received by the
Advisor for either class of shares during any year may be more or less than its
costs of providing distribution and shareholder services to the class of shares.
See "Summary of Fees and Expenses" at page 3 and "Rule 12b-1 Distribution Plan"
in the Statement of Additional Information.
VALUING FUND SHARES
The value of an individual share in any class of the Fund (the net asset
value) is calculated by dividing the net assets attributable to the class, by
the number of shares outstanding of the class, rounded to the nearest cent. Net
asset value per share is determined as of the close of the New York Stock
Exchange (4:00 p.m., Eastern time) on each day that the exchange is open for
business, and on any other day on which there is sufficient trading in the
Fund's securities to materially affect the net asset value. The net asset value
per share of the Fund will fluctuate.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Advisor's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Advisor determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith by the Advisor, subject to review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Advisor believes such prices accurately reflect the fair market value of such
securities. A pricing service utilizes electronic data processing techniques
based on yield spreads relating to securities with similar characteristics to
determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. When prices are not readily available from
a pricing
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service, or when restricted or illiquid securities are being valued, securities
are valued at fair value as determined in good faith by the Advisor, subject to
review of the Board of Trustees. Short term investments in fixed income
securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued by using the amortized
cost method of valuation, which the Board has determined will represent fair
value.
DISTRIBUTIONS AND TAXES
As a shareholder you are entitled to your share of the Fund's distributed
net income and any net gains realized on its investments. The Fund intends to
distribute dividends and capital gains distributions to qualify as a regulated
investment company and to avoid paying corporate income and excise taxes.
Dividend and capital gains distributions will have tax consequences you should
know about.
Dividend and capital gain distributions
The Fund intends to distribute substantially all of its net investment
income as dividends to its shareholders at the end of each calendar quarter.
Short-term capital gains are distributed at the end of the calendar year and are
included in net investment income. Dividends for each share class will be
calculated at the same time, in the same manner and will be the same amount
prior to deduction of expenses. Expenses attributable solely to a class of
shares will be paid exclusively by that class. Class B shareholders will receive
lower per share dividends that Class A shareholders because ongoing expenses for
Class B are higher than for Class A.
The Fund realizes long-term capital gains whenever it sells securities held
for more than one year for a higher price than it paid for them. The Fund
intends to distribute substantially all of its net realized long-term capital
gains, if any, at the end of the calendar year as capital gain distributions.
Before they are distributed, net long-term capital gains are included in the
value of each share. After they are distributed, the value of each share drops
by the per-share amount of the distribution. (If your distributions are
reinvested, the total value of your holdings will not change.)
The Advisor anticipates that the Fund's portfolio will be highly
concentrated, and diversification requirements under the Internal Revenue Code
will in all likelihood necessitate the sale of securities at the end of each
quarter for the Fund to qualify as a regulated investment company. These sales
may result in the realization of additional capital gains, and there is no
guarantee that the Fund will be able to qualify as a regulated investment
company and thereby avoid paying corporate taxes.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay distributions to
you in cash, or
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o you direct the Fund to invest your distributions in any publicly
available Pauze` Fund(TM) for which you have previously opened an
account. You pay no sales charge on shares purchased through
reinvestment of distributions from the Fund into another Pauze` Fund.
The reinvestment price is the net asset value at the close of business on
the day the distribution is paid. (Your quarterly statement will confirm the
amount invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared
after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the then-current
net asset value and make future distributions in the form of additional shares.
Taxes
Distributions are subject to federal income tax and also may be subject to
state and local taxes. Distributions are taxable in the year the Fund pays them
regardless of whether you take them in cash or reinvest them.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
Buying a dividend creates a liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you
sell shares for more than their cost, the difference is a capital gain. Your
gain may be either short term (for shares held for one year or less) or long
term (for shares held for more than one year).
Important: The foregoing tax information is a brief and selective summary
of certain federal tax rules that apply to the Fund. Tax matters are highly
individual and complex, and you should consult a qualified tax advisor about
your personal situation.
MANAGEMENT OF THE FUND
Trustees
The Fund is a series of the Pauze` Funds (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust on
October 15, 1993. The Trust's headquarters are at 14340 Torrey Chase Blvd.,
Suite 170, Houston, Texas 77014. The business and affairs of the Fund are
managed by the Trust's Board of Trustees. The Trustees establish policies, as
well as review and approve contracts and their continuance. The
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Trustees also elect the officers and select the Trustees to serve as executive
and audit committee members.
The Investment Advisor
Pauze`, Swanson & Associates Investment Advisors Inc. d/b/a Pauze` Swanson
Capital Management Co.(TM) (the "Advisor"), 14340 Torrey Chase Blvd., Suite 170,
Houston, Texas 77014, under an investment advisory agreement with the Trust,
furnishes investment advisory and management services to the Fund. The Advisor
is a Texas corporation which was registered with the Securities and Exchange
Commission as an investment advisor in December, 1993. Philip C. Pauze`, the
Funds' portfolio manager and owner of the Advisor, and David D. Jones, the
Fund's assistant portfolio manager, have been responsible for the day-to-day
management of the Fund since its inception.
Mr. Pauze` has specialized in providing investment management for the
assets of pre- need funeral accounts, trusts, small institutions, and retirement
plans since 1985. Mr. Pauze` assisted the California Funeral Directors
Association in establishing the California Master Trust (the "CMT") and has
managed to investment portfolio since inception. CMT's investment performance
has been highly rated by independent evaluators. In addition to the CMT, Mr.
Pauze` serves as the financial consultant to the government bond portfolio of
the Pennsylvania Funeral Trust, to the American Funeral Trust, a nationwide
funeral trust, and to the California and Pennsylvania Funeral Directors
Association's Retirement Plans. Mr. Pauze` has over eleven years experience
managing assets for companies involved in the death care industry. In this
regard, shareholders should understand that while Mr. Pauze` has extensive
experience with the death care industry, the Fund has no operating history and
Mr. Pauze` has no experience managing a portfolio consisting of death care
industry stocks. Mr. Pauze` has been President of the Trust since January 10,
1994.
Mr. Jones has held positions as Vice President, Global Trading Division,
Security Pacific Bank, Los Angeles; Senior Repo Trader, Bank of America, San
Francisco; and Government Securities Trader, BancTEXAS, Dallas. Mr. Jones
presently is the portfolio manager for the Pauze` U.S. Government Short Term
Bond Fund(TM) and the Pauze` U.S. Government Intermediate Term Bond Fund(TM),
and is the assistant portfolio manager for the Pauze` U.S. Government Total
Return Bond Fund(TM). Mr. Jones is a graduate of the University of Texas at
Austin with a Bachelor of Arts degree in economics and a cum laude graduate of
Saint Mary's Law School in San Antonio, Texas with a juris doctorate degree. Mr.
Jones is a licensed attorney in the State of Texas and is a registered principal
of the New York Stock Exchange. Shareholders should be aware that while Mr.
Jones has extensive experience in the fixed-income securities industry, he has
no experience managing a portfolio consisting of death care industry stocks.
The Advisor furnishes an investment program for the Fund, determines,
subject to the overall supervision and review of the Board of Trustees of the
Trust, what investments should be purchased, sold and held, and makes changes on
behalf of the Trust in the investments of the Fund. The Advisory Agreement with
the Trust provides for the Fund to pay the Advisor a monthly management fee
equal to an annual rate of .38% of the Fund's average daily net assets.
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Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Advisor may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions. It is anticipated that GS2 Securities, Inc. a registered
broker-dealer of which Mr. Pauze` and Mr. Jones are registered representatives,
will receive brokerage commissions from the Fund.
The Administrator
DSC, under an Administration Agreement with the Trust dated February 13,
1996, generally administers the affairs of the Trust. Terence P. Smith,
President of DSC, has been a Trustee of the Trust since February 13, 1996.
Under the Administration Agreement, the Administrator, subject to the
overall supervision and review of the Board of Trustees of the Trust, supervises
parties (other than the Advisor) providing services to the Trust, provides the
Trust with office space, facilities and business equipment, and provides the
services of executive and clerical personnel for administering the affairs of
the Trust.
The Administration Agreement provides for the Trust to pay the
Administrator an annual fee of $24,000 for the first class of shares, per
portfolio; $16,000 for the second class of shares, per portfolio; and, $12,000
for each additional class, per portfolio. This fee is borne by the Fund and
allocated among the classes pro rata based on their respective net assets.
DSC also provides transfer agency, dividend disbursing and accounting
services to the Funds for which it receives separate compensation. The Transfer
Agency and Shareholder Services Agreement with the Trust provides for the Trust
to pay DSC an annual fee of $18.00 per account with a minimum annual fee of
$18,000 for the first year, $21,000 for the second year and $24,000 thereafter.
These fees cover the usual transfer agency functions. In addition, the Fund
bears certain other transfer agent expenses such as the costs of record
retention and postage, plus the telephone and line charges (including the
toll-free 800 service) used by shareholders to contact the transfer agent.
Transfer agent fees and expenses, including reimbursed expenses, are reduced by
the amount of small account charges and account closing fees, if any, the
transfer agent is paid.
DSC performs bookkeeping and accounting services, and determines the daily
net asset value for the Fund. The Accounting Services Agreement with the Trust
provides for the Trust to pay DSC an annual fee of $22,000 for the first class
of shares, per portfolio; $15,000 for the second class of shares, per portfolio;
and $10,000 for each additional class of shares, per portfolio.
The Distributor
On February 13, 1996, pursuant to the Fund's Distribution Plan, the Trust
entered into a Distribution Agreement with DDI, P.O. Box 844, Conshohocken, PA
19428, an affiliate of DSC, pursuant to which the Distributor has agreed to act
as the Trust's agent in connection with the distribution of Fund shares. The
Distributor's responsibilities include
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acting as agent in states where designated agents are required, reviewing and
filing all advertising and promotional materials, and monitoring and reporting
to the Board of Trustees on Trust distribution plans. For such services, it will
be paid a fixed annual fee of $20,000 and will be reimbursed for expenses
incurred on behalf of the Trust. The Advisor is committed to pay all sums, if
any, that exceed the amount allowed under the Fund's 12b-1 Plan.
The Trust pays all other expenses for its operations and activities, and
each Fund pays its allocable portion of these expenses. The expenses borne by
the Trust include the charges and expenses of any shareholder servicing agents,
custodian fees, legal and auditors' expenses, brokerage commissions for
portfolio transactions, the advisory fee, extraordinary expenses, expenses of
shareholder and trustee meetings, expenses for preparing, printing and mailing
proxy statements, reports and other communications to shareholders, and expenses
of registering and qualifying shares for sale, among others.
GENERAL INFORMATION
Fundamental Policies
The investment limitations set forth in the Statement of Additional
Information as fundamental policies may not be changed without the affirmative
vote of the majority of the outstanding shares of the fund. The investment
objective of the Fund may be changed without the affirmative vote of a majority
of the outstanding shares of the Fund. Any such change may result in the Fund
having an investment objective different from the objective which the
shareholders considered appropriate at the time of investment in the Fund.
Shareholders will be given thirty days' prior notice of any change in the Fund's
investment objective.
Portfolio turnover
The Fund does not intend to purchase or sell securities for short term
trading purposes. The Fund will, however, sell portfolio securities as
weightings in the Index change and for regulatory compliance reasons. It is
anticipated that the Fund will have a portfolio turnover rate of less than 200%.
The brokerage commissions incurred by the Fund will generally be higher than
those incurred by a fund with a lower portfolio turnover rate. The higher
portfolio turnover rate may result in the realization of more net capital gains,
and any distributions derived from such gains may be ordinary income for federal
tax purposes.
Shareholder Rights
The shares of each share class making up the Fund represent an interest in
that Fund's assets only (and profits or losses), and in the event of
liquidation, each share of the Fund would have the same rights to dividends and
assets as every other share of the Fund (except that expenses attributable
solely to a class of shares will be borne by that share class).
No annual or regular meeting of shareholders is required; however, the
Trustees may call meetings to take action on matters which require shareholder
vote and other matters as to which Trustees determine shareholder vote is
necessary or desirable. Subject to Section 16(a)
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<PAGE>
of the 1940 Act, the Trustees may elect their own successors and may appoint
Trustees to fill vacancies, including vacancies caused by an increase in the
number of Trustees by action of the Board of Trustees.
As a shareholder, you have voting rights over the Fund's fundamental
policies. You are entitled to one vote for each whole share, and fractional
votes for fractional shares, you own. Shares of the Fund do not have cumulative
voting rights. On matters affecting an individual series, a separate vote of
shareholders of the series is required. On matters affecting an individual class
of shares, a separate vote of shareholders of the class is required. The series'
shares are fully paid and non-assessable by the Trust, have no pre-emptive or
subscription rights, and are fully transferable, with no conversion rights.
Prior to the offering made by this Prospectus, Pauze` Swanson Capital
Management Company purchased for investment all of the outstanding shares of the
Fund and as a result may be deemed to control the Fund.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders or
prospective shareholders, the Fund may compare its performance, in terms of its
total return, to that of other mutual funds with similar investment objectives
and to stock or other indices. For example, the Fund may compare its performance
to rankings prepared by Lipper Analytical Services, Inc. ("Lipper"), a widely
recognized independent service which monitors the performance of mutual funds,
to Morningstar's Mutual Fund Values, or to the Consumer Price Index. Performance
information and rankings as reported in Changing Times, Business Week,
Institutional Investor, the Wall Street Journal, Mutual Fund Forecaster, No-Load
Investor, Money Magazine, Forbes, Fortune and Barrons magazine may also be used
in comparing performance of the Fund. Performance comparisons shall not be
considered as representative of the future performance of the Fund.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specified period that, if applied
to a hypothetical $1,000 initial investment, would produce the redeemable value
of that investment at the end of the period, assuming reinvestment of all
dividends and distributions and with recognition of all recurring charges. The
Fund may also utilize a total return for differing periods computed in the same
manner but without annualizing the total return.
The standard total return results may not take into account the additional
Rule 12b-1 fees for Class B. Similarly, the results do not take into account
recurring and nonrecurring charges for optional services which only certain
shareholders elect and which involve nominal fees such as a fee for exchanges.
Further, the results may not take into account the CDSC for the Class B shares.
These fees have the effect of reducing the actual return realized by
shareholders to whom such fees apply.
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INVESTMENT ADVISOR
Pauze` Swanson Capital Management Co.(TM)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428
PAUZE` FUNDS(TM)
Pauze` Tombstone Fund(TM)
Pauze` U.S. Government Total Return Bond Fund (TM)
Pauze` U.S. Government Intermediate Term Bond Fund (TM)
Pauze` U.S. Government Short Term Bond Fund (TM)
Be sure to retain this Prospectus. It contains valuable information.
DISTRIBUTOR
Declaration Distributors, Inc.
P.O. Box 844
Conshohocken, PA 19428
CUSTODIAN
Star Bank, NA
425 Walnut Street
Cincinnati, OH 45202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
30 South Seventeenth Street
Philadelphia, PA 19103
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or the Fund's Statement of
Additional Information incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offering by the Fund in any jurisdiction
in which such offering may not lawfully be made.
<PAGE>
PAUZE` FUNDS(TM)
PAUZE` TOMBSTONE FUND(TM)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus but should be
read in conjunction with the Fund's Prospectus dated May 1, 1997 and the
Supplement to the Prospectus dated November 26, 1997 (collectively, the
"Prospectus") which may be obtained from Declaration Service Company ("DSC" or
the "Administrator"), P.O. Box 844, Conshohocken, Pennsylvania 19428-0844.
The date of this Statement of Additional Information is
November 26, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION.......................................................... 2
INVESTMENT OBJECTIVES AND POLICIES........................................... 3
INVESTMENT LIMITATIONS....................................................... 4
PORTFOLIO TRANSACTIONS....................................................... 7
MANAGEMENT OF THE FUND....................................................... 9
INVESTMENT ADVISORY SERVICES................................................. 11
ADMINISTRATOR SERVICES....................................................... 12
TRANSFER AGENCY AND OTHER SERVICES........................................... 13
RULE 12b-1 DISTRIBUTION PLAN................................................. 13
ADDITIONAL INFORMATION ON REDEMPTIONS........................................ 15
CALCULATION OF PERFORMANCE DATA.............................................. 15
TAX STATUS................................................................... 17
CUSTODIAN ................................................................... 18
INDEPENDENT ACCOUNTANTS...................................................... 19
FINANCIAL STATEMENTS......................................................... 19
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GENERAL INFORMATION
Pauze` Funds (the "Trust") is an open-end management investment company and
is a voluntary association of the type known as a "business trust" organized
under the laws of the Commonwealth of Massachusetts. There are several series
within the Trust, each of which represents a separate diversified portfolio of
securities (collectively referred to herein as the "Portfolios" and individually
as a "Portfolio").
The assets received by the Trust from the issue or sale of shares of each
Portfolio, and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are allocated to the Portfolio. They constitute the
underlying assets of the Portfolio, are required to be segregated on the books
of accounts, and are to be charged with the expenses with respect to the
Portfolio. In the event additional portfolios are created, any general expenses
of the Trust, not readily identifiable as belonging to the Portfolio, shall be
allocated by or under the direction of the Board of Trustees (the "Trustees") in
such manner as the Trustees determine to be fair and equitable.
Shares represent a proportionate interest in the Portfolio. Shares of each
Portfolio have been divided into classes with respect to which the Trustees have
adopted allocation plans regarding expenses specifically attributable to a
particular class of shares. Subject to such an allocation, all shares are
entitled to such dividends and distributions, out of the income belonging to the
Portfolio, as are declared by the Trustees. Upon liquidation of the Trust,
shareholders of the Portfolio are entitled to share pro rata, adjusted for
expenses attributable to a particular class of shares, in the net assets
belonging to the Portfolio available for distribution.
Under the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required; however, the Trustees may call meetings to take action
on matters which require shareholder vote and other matters which Trustees
determine shareholder vote is necessary or desirable. Whether appointed by prior
Trustees or elected by shareholders, an "Independent" Trustee serves as Trustee
of the Trust for a period of six years. However, the Trustees' terms are
staggered so that the terms of at least 25% of the Board of Trustees will expire
every three years. Trustees will stand for election in 1999. A Trustee whose
term is expiring may be re-elected. Thus, shareholder meetings will ordinarily
be held only once every three years unless otherwise required by the Investment
Company Act of 1940 (the "1940 Act").
On any matter submitted to shareholders, the holder of each share is
entitled to one vote per share (with proportionate voting for fractional
shares). Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of the
shares voting for the election of Trustees can elect 100% of the Trust's
Trustees, and the holders of less than 50% of the shares voting for the election
of Trustees will not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully
transferable. There are no conversion rights.
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Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
As of October 31, 1997, the following persons may be deemed to beneficially
own five percent (5%) or more of the Fund: Angelus Funeral Home PreNeed Trust,
3875 S. Crenshaw Blvd., Los Angeles, CA 90008 -- 27.52%; Angelus Rosedale
Endowment Care Fund, 1831 W. Washington Blvd., Los Angeles, CA 90007 -- 15.25%;
ABN AMRO Chicago Corp., P.O. Box 6108, Chicago, IL 60680 -- 10.80%; Cowen &
Company, Financial Square, New York, NY 10005 -- 5.60%; Everen Securities, 111
East Kilburn Avenue, Milwaukee, WI 53202 -- 5.10%.
As of October 31, 1997, Angelus Funeral Home PreNeed Trust and Angelus
Rosedale Endowment Care Fund may be deemed to control the fund as a result of
their beneficial ownership of the shares of the Fund. As of October 31,1997, the
officers and trustees as a group owned less than 1% of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the investment
objectives and policies of the Pauze` Tombstone Fund (the "Fund") in the Fund's
Prospectus.
Forward Commitments and Reverse Repurchase Agreements
The Fund may purchase securities on a when-issued or delayed delivery
basis, with payment and delivery taking place at a future date. The price and
interest rate that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The Fund may enter into such forward
commitments if it holds, and maintains until the settlement date in a separate
account at the Fund's Custodian, cash or U.S. government securities in an amount
sufficient to meet the purchase price. Forward commitments involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Any change in value could increase fluctuations in the Fund's
share price and yield. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio, a Fund
may dispose of a commitment prior the settlement if the Advisor deems it
appropriate to do so.
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve sales of portfolio securities by the Fund to member banks of
the Federal Reserve System or recognized securities dealers, concurrently with
an agreement by the Fund to repurchase the same securities at a later date at a
fixed price, which is generally equal to the original sales price plus interest.
The Fund retains record ownership and the right to receive interest and
principal payments on the portfolio security involved. The Fund's objective in
3
<PAGE>
such a transaction would be to obtain funds to pursue additional investment
opportunities whose yield would exceed the cost of the reverse repurchase
transaction. Generally, the use of reverse repurchase agreements should reduce
portfolio turnover and increase yield. In connection with each reverse
repurchase agreement, the Fund will direct its Custodian to place cash or U.S.
government obligations in a separate account in an amount equal to the
repurchase price. In the event of bankruptcy or other default by the purchaser,
the Fund could experience both delays in repurchasing the portfolio securities
and losses. Assets of the Fund may be pledged in connection with borrowings.
When a separate account is maintained in connection with forward commitment
transactions to purchase securities or reverse repurchase agreements, the
securities deposited in the separate account will be valued daily at market for
the purpose of determining the adequacy of the securities in the account. If the
market value of such securities declines, additional cash, U.S. government
obligations or liquid high grade debt obligations will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase or repurchase securities. To the extent
funds are in a separate account, they will not be available for new investment
or to meet redemptions. Reverse repurchase agreements constitute a borrowing by
the Fund and, together with all other borrowings, will not represent more than
5% of the net assets of the Fund.
Securities purchased on a forward commitment basis, securities subject to
reverse repurchase agreements and the securities held in the Fund's portfolio
are subject to changes in market value based upon the public's perception of the
creditworthiness of the issuer and changes in the level of interest rates (which
will generally result in all of those securities changing in value in the same
way, i.e., all those securities experiencing appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, if in order to
achieve a higher level of income, the Fund remains substantially fully invested
at the same time that it has purchased securities on a forward commitment basis
or entered into reverse repurchase transactions, there will be a possibility
that the market value of the Fund's assets will have greater fluctuation.
With respect to 75% of the total assets of the Fund, the value of the
Fund's commitments to purchase or repurchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the commitment
to purchase or repurchase such securities is made; provided, however, that this
restriction does not apply to U.S. government obligations or repurchase
agreements with respect thereto. In addition, the Fund will maintain an asset
coverage of 300% for all of its borrowings and reverse repurchase agreements.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), i.e.,
they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
4
<PAGE>
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices which may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is an asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is (a) consistent with or permitted by the
Investment Company Act of 1940, as amended, the rules and regulations
promulgated thereunder or interpretations of the Securities and Exchange
Commission or its staff and (b) as described in the Prospectus and the Statement
of Additional Information.
3. Underwriting. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total assets
in a particular industry other than the death care industry. This limitation is
not applicable to
5
<PAGE>
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum limitations
on its investment policies and limitations, an excess above the fixed percentage
will not be a violation of the policy or limitation unless the excess results
immediately and directly from the acquisition of any security or the action
taken. This paragraph does not apply to the borrowing policy set forth in
paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment company,
whether organized as a trust, association or corporation, or a personal holding
company, may be merged or consolidated with or acquired by the Trust, provided
that if such merger, consolidation or acquisition results in an investment in
the securities of any issuer prohibited by said paragraphs, the Trust shall,
within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such
portion thereof as shall bring the total investment therein within the
limitations imposed by said paragraphs above as of the date of consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.
3. Margin Purchases. The Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Short Sales. The Fund will not effect short sales of securities unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short.
5. Options. The Fund will not purchase or sell puts, calls, options,
straddles or futures contracts except as described in the Prospectus or the
Statement of Additional Information.
6. Illiquid Investments. The Fund will not invest in securities for which
there are legal or contractual restrictions on resale or other illiquid
securities.
6
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Trust, the
Advisor is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the Advisor
seeks the best qualitative 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 Advisor generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
The Advisor is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Advisor exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Advisor 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 Advisor's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities transactions may
also be used by the Advisor in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Advisor in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
Advisor, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the Advisor
that the review and study of the research and other information will not reduce
the overall cost to the Advisor of performing its duties to the Fund under the
Agreement.
While the Fund does not deem it practicable and in its best interests to
solicit competitive bids for commission rates on each transaction, consideration
is regularly given to posted commission rates as well as other information
concerning the level of commissions charged on comparable transactions by
qualified brokers.
The Fund has no obligation to deal with any broker or dealer in the
execution of its transactions. However, it is contemplated that GS2 Securities,
Inc., ("GS2") in its capacity as a registered broker-dealer, will effect
substantially all securities transactions which are executed on a national
securities exchange and over-the-counter transactions conducted on an agency
basis. Such transactions will be executed at competitive commission rates
through Pershing, Inc.
7
<PAGE>
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers, if the same or a better price, including
commissions and executions, is available. Fixed income securities are normally
purchased directly from the issuer, an underwriter or a market maker. Purchases
include a concession paid by the issuer to the underwriter and the purchase
price paid to a market maker may include the spread between the bid and asked
prices.
Under the Investment Company Act of 1940, persons who may be affiliated
with an affiliate of the Advisor (such as GS2) may be prohibited from dealing
with the Fund as a principal in the purchase and sale of securities. Therefore,
GS2 will not serve as the Fund's dealer in connection with over-the-counter
transactions. However, GS2 may serve as the Fund's broker in over-the-counter
transactions conducted on an agency basis and will receive brokerage commissions
in connection with such transactions. Such agency transactions will be executed
through Pershing, Inc.
The Fund will not effect any brokerage transactions in its portfolio
securities with GS2 if such transactions would be unfair or unreasonable to Fund
shareholders, and the commissions will be paid solely for the execution of
trades and not for any other services. The Agreement provides that affiliates of
affiliates of the Advisor may receive brokerage commissions in connection with
effecting such transactions for the Fund. In determining the commissions to be
paid to GS2, it is the policy of the Fund that such commissions will, in the
judgment of the Trust's Board of Trustees, be (a) at least as favorable to the
Fund as those which would be charged by other qualified brokers having
comparable execution capability and (b) at least as favorable to the Fund as
commissions contemporaneously charged by GS2 on comparable transactions for its
most favored unaffiliated customers, except for customers of GS2 considered by a
majority of the Trust's disinterested Trustees not to be comparable to the Fund.
The disinterested Trustees from time to time review, among other things,
information relating to the commissions charged by GS2 to the Fund and its other
customers, and rates and other information concerning the commissions charged by
other qualified brokers.
The Agreement does not provide for a reduction of the Advisor's fee by the
amount of any profits earned by GS2, Philip Pauze` or David Jones from brokerage
commissions generated from portfolio transactions of the Fund.
While the Fund contemplates no ongoing arrangements with any other
brokerage firms, brokerage business may be given from time to time to other
firms. GS2 will not receive reciprocal brokerage business as a result of the
brokerage business placed by the Fund with others.
To the extent that the Trust and another of the Advisor's clients seek to
acquire the same security at about the same time, the Trust may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, the Trust may not be able to obtain
as large an execution of an order to sell or as high a price for any particular
portfolio security if the other client desires to sell the same portfolio
security
8
<PAGE>
at the same time. On the other hand, if the same securities are bought or sold
at the same time by more than one client, the resulting participation in volume
transactions could produce better executions for the Trust. In the event that
more than one client wants to purchase or sell the same security on a given
date, the purchases and sales will normally be made by random client selection.
MANAGEMENT OF THE FUND
The Trustees and Officers of the Trust, and their principal occupations
during the past five years are set forth below, along with their business
address.
<TABLE>
<CAPTION>
Name, Address & Age Trust position Principal Occupation
- ---------------- -------------- --------------------
<S> <C> <C>
Philip C. Pauze` ** President and President of Pauze`, Swanson & Associates Investment
4340 Torrey Chase Blvd. Trustee Advisors, Inc., d/b/a Pauze` Swanson Capital Management Co.,
Suite 170 an asset management firm specializing in management of fixed
Houston, Texas 77014 income portfolios since April 1993. Owner of Philip C.
Age: Pauze` & Associates, a management consulting firm since
April 1993. Vice President/Registered Representative with
Shearson Lehman Brothers from 1988 to 1993. Financial
Consultant to California Master Trust since 1986. Financial
consultant to the Funeral Trust (Series) since 1993.
Terence P. Smith** Secretary, President and Chief Operating Officer of the companies of
Suite 6160, 555 North Lane Treasurer, the Declaration Group (including Declaration Service
Conshohocken, PA 19428 Chief, Company, which provides the Trust's transfer agency,
Age: Accounting accounting and administrative services and Declaration
Officer and Distributors, Inc., a registered broker-dealer, which
Trustee provides distribution service to the Trust) since 1988. Vice
President Operations of Declaration Holdings, Inc. from
September 1987 to September 1988. Executive Vice President
of Review Management (an investment manager and distributor)
from 1984 to 1987. CPA, served on tax and audit staff of
Peat Marwick Main & Co., Philadelphia, from 1981 to 1984.
9
<PAGE>
Paul J. Hilbert Trustee Attorney with the firm of Paul J. Hilbert & Associates,
2301 FM 1960 West Houston, Texas, practicing civil law since 1975. Legislator,
Houston, TX 77068 Texas House of Representatives since 1982.
Age: 48
Gordon Anderson Trustee President, RAJ Development Corporation: investor, developer
1806 Elk River Rd. and home builder. (July 1, 1997) Superintendent of Schools
Retired Houston, TX 77090 for Spring Independent School District, Houston, Texas.
Age: 61
Wayne F. Collins** Trustee Retired. From September 1991 to February 1994 was Vice
32 Autumn Crescent President of Worldwide Business Planning of the Compaq
The Woodlands, TX 77381 Computer Corporation. Served Compaq Computer Corporation as
Age: 56 Vice President of Materials Operations from September 1988
to September 1991; Vice President, Materials and Resources
from April 1985 to September 1991; Vice President, Corporate
Resources from June 1983 to September 1988.
** This Trustee may be deemed an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
Robert J. Pierce Trustee Richard Pierce Funeral Service since 1967, serving in such
1791 #2 Silverado Trail capacities as President and General Manager. In addition, in
Napa, CA 94558 June 1997, became Vice President of Stewart Enterprises,
Age: 50 Inc., Western Division, and COO of Northern California
Region.
</TABLE>
Trustee fees are Trust expenses and each portfolio pays a portion of the
Trustee fees. The compensation paid to the Trustees of the Trust for the fiscal
year ended December 31, 1996 is set forth below.
10
<PAGE>
Aggregate Compensation
from Trust (the Trust is
Name not in a Fund complex) Total Compensation
---- ---------------------- ------------------
Philip C. Pauze` $0 $0
Terrence P. Smith $0 $0
Paul Hilbert $7,000 $7,000
Wayne Collins $7,000 $7,000
Gordon Anderson $7,000 $7,000
INVESTMENT ADVISORY SERVICES
Pauze`, Swanson & Associates Investment Advisors, Inc., dba Pauze` Swanson
Capital Management Co., an investment management firm (the "Advisor"), pursuant
to an Advisory Agreement, provides investment advisory and management services
to the Trust. It will compensate all personnel, officers and trustees of the
Trust if such persons are employees of the Advisor or its affiliates. The Trust
pays the expense of printing and mailing prospectuses and sales materials used
for promotional purposes.
The Advisory Agreement was approved by the Board of Trustees of the Trust
(including a majority of the "disinterested Trustees") and by vote of a majority
of the outstanding voting securities of the Total Return Fund (another Portfolio
of the Trust) in December 1995. The terms of the votes approving the Advisory
Agreement provide that it will continue until October 17, 1996, and from year to
year thereafter as long as it is approved at least annually both (i) by a vote
of a majority of the outstanding voting securities of the Fund (as defined in
the Investment Company Act of 1940 [the "Act"]) or by the Board of Trustees of
the Trust, and (ii) by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically if it is assigned. The Advisory Agreement was
approved with respect to the Fund on February 28, 1997.
The names "Pauze`(TM)", "Swanson(TM)", "Pauze` Swanson(TM)", "Pauze` U.S.
Government Short Term Bond Fund(TM)", "Pauze` U.S. Government Intermediate Term
Bond Fund(TM)", "Pauze` U.S. Government Total Return Bond Fund(TM)", "Pauze`
Tombstone Fund(TM)", and "Pauze` Tombstone Common Stock Index(TM)" are
trademarks of the Pauze` Swanson Capital Management Co., all rights reserved.
The Pauze` Tombstone Common Stock Index is a copyrighted proprietary product of
the Pauze` Swanson Capital Management Co., all rights reserved. The Trust is
licensed to use the above-listed names under a separate agreement attached to
and made a part of the Advisory Agreement. The Trust's right to use the names
"Pauze`", "Swanson", "Pauze` Swanson", "Pauze` U.S. Government Short Term Bond
Fund", "Pauze` U.S. Government Intermediate Term Bond Fund", "Pauze` U.S.
Government Total Return Bond Fund, "Pauze`
11
<PAGE>
Tombstone Fund", and "Pauze` Tombstone Common Stock Index(TM)" automatically
terminates upon termination of the Advisory Agreement. The Trust is licensed to
publish the Index under a separate agreement attached to and made a part of the
Advisory Agreement. The Trust's right to publish the Index automatically
terminates upon termination of the Advisory Agreement.
For more information, see "Management of the Fund" in the Prospectus.
ADMINISTRATOR SERVICES
Declaration Service Company ("DSC" or "Administrator") provides day-to-day
administrative services to the Trust. As described in the Fund's Prospectus, the
Administrator will provide the Trust with office space, facilities and simple
business equipment, and will generally administer the Trust's business affairs
and provide the services of executive and clerical personnel for administering
the affairs of the Trust. It will compensate all personnel, officers and
Trustees of the Trust if such persons are employees of the Administrator or its
affiliates. The Trust pays the expense of printing and mailing prospectuses and
sales materials used for promotional purposes.
The Board of Trustees of the Trust (including a majority of the
"disinterested Trustees") approved the Administration Agreement, dated February
13, 1996 with DSC. The terms of the Administration Agreement provide that it
will continue initially for two years, and from year to year thereafter as long
as it is approved at least annually (i) by a vote of a majority of the Board of
Trustees of the Trust, and (ii) by a vote of a majority of the Trustees who are
not parties to the Administration Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Administration Agreement may be terminated on 90 days' written
notice by either party prior to commencement of a renewal date and will
terminate automatically if it is assigned.
For more information, see "Management of the Fund" in the Prospectus.
The Trust pays all other expenses for its operations and activities. As
additional Portfolios are added in the future, each Portfolio of the Trust will
pay its allocable portion of the expenses. The expenses borne by the Trust
include the charges and expenses of any transfer agents and dividend disbursing
agents, custodian fees, legal and auditors' expenses, bookkeeping and accounting
expenses, brokerage commissions for portfolio transactions, taxes, if any, the
administrative fee, extraordinary expenses, expenses of issuing and redeeming
shares, expenses of shareholder and trustee meetings, expenses for preparing,
printing and mailing proxy statements, reports and other communications to
shareholders, expenses of registering and qualifying shares for sale, fees of
Trustees who are not "interested persons" of the Advisor and Administrator,
expenses of attendance by officers and Trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues
12
<PAGE>
of such organizations, expenses of preparing and setting in type prospectuses
and periodic reports and expenses of mailing them to current shareholders,
fidelity bond premiums, cost of maintaining the books and records of the Trust,
and any other charges and fees not specifically enumerated.
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the Trust under the
Administration Agreement, the Administrator provides transfer agent and dividend
disbursement agent services pursuant to the Transfer Agency and Shareholder
Services Agreement as described in the Fund's Prospectus under "Management of
the Fund/ The Administrator." In addition, bookkeeping and accounting services
are also provided. The Board of Trustees approved the Transfer Agency and
Accounting Services Agreement, effective February 13, 1996, with the same
duration and termination provisions as the Administration Agreement.
RULE 12b-1 DISTRIBUTION PLAN
As described under "Rule 12b-1 Distribution Plan" in the Fund's Prospectus,
in February 1997 the Trustees approved adoption of a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act (the "Distribution Plan"). The Distribution
Plan allows the Fund to pay the Advisor for expenditures in connection with
sales and promotional services related to the distribution of Fund shares,
including personal services provided to prospective and existing Fund
shareholders, which includes the cost of: preparation and distribution of
prospectus and promotional materials; making slides and charts for
presentations; assisting shareholders and prospective investors in understanding
and dealing with the Fund; and travel and out-of-pocket expenses (e.g., copy and
long distance telephone charges) related thereto.
The Fund's Distribution Plan provides for a "Base Amount for all Classes of
Shares" reciting that Fund assets will be utilized to pay the Advisor a fee of
0.25% of the Fund's average annual net assets for its ongoing services and
expenditures in connection with sales, promotional and administrative services
related to the distribution of Fund shares, including personal services provided
by persons or institutions to prospective and existing Fund shareholders.
The Fund's Distribution Plan also provides for an "Additional Amount for
Class B shares" reciting that Fund assets attributable to Class B Shares in
specific shareholder accounts will be utilized, to the extent not covered by the
Contingent Deferred Sales Charge ("CDSC"), to pay the Advisor a fee of 0.75% of
the Fund's average annual net assets for its services and expenditures related
to the distribution of Fund shares, including fees paid by the Advisor to
broker-dealers for sales and promotional services as follows:
Gross Commission 3.75%
Annual Rule 12b-1 Fee 0.75%
(paid for 7 years)
13
<PAGE>
Contingent Deferred Sale Charge by Year:
year 1 3.75%
year 2 3.75%
year 3 3.25%
year 4 2.75%
year 5 2.25%
year 6 1.75%
year 7 1.25%
Thereafter -0-
NOTES:
B Shares convert to A Shares when CDSC expires. Each investment would be
considered a new investment.
Expenses which the Fund incurs pursuant to the Distribution Plan are
reviewed quarterly by the Board of Trustees. On an annual basis the Distribution
Plan is reviewed by the Board of Trustees as a whole, and the Trustees who are
not "interested persons" as that term is defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of the Distribution
Plans ("Qualified Trustees"). In their review of the Distribution Plan, the
Board of Trustees, as a whole, and the Qualified Trustees determine whether, in
their reasonable business judgment and in light of their fiduciary duties under
state law and under Section 36(a) and (b) of the 1940 Act, there is a reasonable
likelihood that the Distribution Plan will benefit the Fund and its
shareholders. The Distribution Plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
shares of the Fund.
On February 13, 1996, in light of and subject to the Distribution Plan, the
Trust entered into a Distribution Agreement with Declaration Distributors, Inc.
("DDI"), an affiliate of DSC as described in the Fund's Prospectus under
"Management of the Fund/The Administrator". Terence P. Smith, a Trustee of the
Trust, is the President and Chief Executive Officer of DDI. The terms of the
Distribution Agreement provide that it will continue for an initial period of
two years and from year to year thereafter as long as it is approved at least
annually both (i) by a vote of a majority of the Board of Trustees of the Trust,
and (ii) by a vote of a majority of the Trustees who are not parties to the
Distribution Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement was made applicable to the Fund as of February 28, 1997.
The Distribution Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically if it is assigned.
14
<PAGE>
Except for Mr. Smith, the Trust is unaware of any Trustee or any interested
person of the Fund who has a direct or indirect financial interest in the
operation of the Distribution Plan.
The Trust expects that the Distribution Plan will be used to pay a "service
fee" to persons who provide personal services to prospective and existing Fund
shareholders and to compensate broker-dealers for sales and promotional
services. Shareholders of the Fund will benefit from these services and the
Trust expects to benefit from economies of scale as more shareholders are
attracted to the Fund.
ADDITIONAL INFORMATION ON REDEMPTIONS
Suspension of Redemption Privileges
The Trust may suspend redemption privileges or postpone the date of payment
for up to seven days, but cannot do so for more than seven days after the
redemption order is received except during any period (1) when the bond markets
are closed, other than customary weekend and holiday closing, or trading on the
Exchange is restricted as determined by the Securities and Exchange Commission
("SEC"), (2) when an emergency exists, as defined by the SEC, which makes it not
reasonably practicable for the Trust to dispose of securities owned by it or not
reasonably practicable to fairly determine the value of its assets, or (3) as
the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
Total Return
The Fund may advertise performance in terms of average annual total return
for 1, 5 and 10 year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (exponential number)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the year or period;
The calculation assumes all charges are deducted from the initial $1,000
payment and assumes all dividends and distributions by the Fund are reinvested
at the price stated in
15
<PAGE>
the Prospectus on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts. The Fund's average
annual return for the six month period ended October 31, 1997 was 18.6% for
Class A Shares and 19.2% for Class B Shares.
Nonstandardized Total Return
The Fund may provide the above described standard total return results for
a period which ends as of not earlier than the most recent calendar quarter end
and which begins either twelve months before or at the time of commencement of
the Fund's operations. In addition, the Fund may provide nonstandardized total
return results for differing periods, such as for the most recent six months.
Such nonstandardized total return is computed as otherwise described under
"Total Return" except that no annualization is made.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average.
In addition, the performance of the Fund may be compared to other groups of
mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
TAX STATUS
Taxation of the Fund
As stated in its Prospectus, the Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the
16
<PAGE>
"Code"). Accordingly, the Fund will not be liable for federal income taxes on
its taxable net investment income and capital gain net income that are
distributed to shareholders, provided that the Fund distributes at least 90% of
its net investment income and net short-term capital gain for the taxable year.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive in each taxable year less
than 30% of its gross income from the sale or other disposition of stock or
securities held less than three months (the "30% test"), and (c) satisfy certain
diversification requirements at the close of each quarter of the Fund's taxable
year. It is anticipated that the Advisor may be required to adjust the
composition of the Fund's portfolio at the end of each quarter in order to
qualify as a regulated investment company.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its net capital gains for the twelve-month period ending on October
31 of the calendar year and (3) any portion (not taxable to the Fund) of the
respective balance from the preceding calendar year. The Fund intends to make
such distributions as are necessary to avoid imposition of this excise tax.
Taxation of the Shareholder
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if
the Fund pays the dividends during the following January. To the extent net
investment income of the Fund arises from dividends on domestic common or
preferred stock, some of the Fund's distributions will qualify for the 70%
corporate dividends-received deduction. All Shareholders will be notified
annually regarding the tax status of distributions received from the Fund.
Distributions by the Fund will result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares of the Fund just prior to a distribution. The
price of such shares purchased at that time includes the amount of any
forthcoming distribution. Those investors purchasing the Fund's shares just
prior to a distribution may receive a return of investment upon distribution
which will nevertheless be taxable to them.
17
<PAGE>
A shareholder of the Fund should be aware that a redemption of shares
(including any exchange into another Portfolio) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of the long term capital gain recognized.
Other Tax Considerations
Distributions to shareholders may be subject to additional state, local and
non-U.S. taxes, depending on each shareholder's particular tax situation.
Shareholders subject to tax in certain states may be exempt from state income
tax on distributions made by the Fund to the extent such distributions are
derived from interest on direct obligations of the United States Government.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in shares of the Fund.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian of
the Fund's investments. The Custodian acts as the Fund's depository, safekeeps
its portfolio securities, collects all income and other payments with respect
thereto, disburses funds at the Fund's request and maintains records in
connection with its duties.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103 has been
selected as independent accountants for the Trust for the fiscal year ending
April 30, 1998. Tait, Weller & Baker performs an annual audit of the Fund's
financial statements and provides financial, tax and accounting consulting
services as requested.
FINANCIAL STATEMENTS
The unaudited financial statements required to be included with the
Statement of Additional Information for the period from May 1, 1997
(commencement of operations) through October 31, 1997 is incorporated herein by
reference to the Fund's Semi-Annual Report to Shareholders for the period ended
October 31, 1997.
18
<PAGE>
PAUZE` FUNDS
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Included in Part A: Unaudited Financial Highlights for the six
months ended October 31, 1997.
Included in Part B: The following unaudited financial statements
are hereby incorporated by reference to the Fund's Semi-Annual
Report to Shareholders for the period ended October 31, 1997:
(1) Unaudited Schedule of Investments - October 31, 1997.
(2) Unaudited Statement of Assets and Liabilities -October 31,
1997.
(3) Unaudited Statement of Operations for the six month
period ended October 31, 1997.
(4) Unaudited Statement of Changes in Net Assets for the six
month period ended October 31, 1997.
(5) Unaudited Financial Highlights Table for the six months
ended October 31, 1997.
(6) Notes to Financial Statements.
(b) Exhibits
Exhibit No. Description of Exhibit
(1) (a) Declaration of Trust, Amended and Restated Master Trust
Agreement, dated February 9, 1996, (incorporated by
reference to Post-Effective Amendment #5 filed February
15, 1996).
(b) Amendment No. 1 to Amended and Restated Master Trust
Agreement, dated April 9, 1996, (incorporated by
reference to Post-Effective Amendment #6 filed May 2,
1996).
<PAGE>
(c) Amendment No. 2 to Amended and Restated Master Trust
Agreement, dated January 30, 1997, (incorporated by
reference to Post-Effective Amendment #9 filed February
5, 1997).
(d) Amendment No. 3 to Amended and Restated Master Trust
Agreement, dated April 30, 1997, (incorporated by
reference to Post-Effective Amendment #10 filed May 6,
1997).
(2) By-laws of Registrant (incorporated by reference to Initial
Registration Statement filed November 10, 1993).
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Advisory Agreement between Registrant and Pauze`,
Swanson & Associates Investment Advisors, Inc., dated
November 1, 1993, (incorporated by reference to
Pre-Effective Amendment #1 filed January 6, 1994).
(b) Amendment to Advisory Agreement between Registrant and
Pauze`, Swanson & Associates Investment Advisors, Inc.
dated June 1, 1996, reflecting change in fees and
addition of two new funds (incorporated by reference to
Post-Effective Amendment #7 filed July 1996).
(c) Advisory Agreement between Registrant and Pauze`,
Swanson & Associates Investment Advisors, Inc., dated
February 28, 1997, covering Pauze` Tombstone Fund
(incorporated by reference to Post-Effective Amendment
#10 filed May 6, 1997).
(6) Amended and Restated Distribution Agreement among
Registrant, Declaration Distributors, Inc. and Pauze`
Swanson Capital Management Co., dated September 12, 1997, is
filed herewith.
(7) Not Applicable.
(8) (a) Custodian Agreement between Registrant and Star Bank,
N.A. dated August 1, 1996 (incorporated by reference to
Post-Effective Amendment #7 filed July 1996).
(b) Revised Appendix A to Custodian Agreement between
Registrant and Star Bank N.A. is filed herewith.
<PAGE>
(9) (a) Transfer Agency and Shareholder Services Agreement
between Registrant and Declaration Service Company,
dated February 13, 1996, (incorporated by reference to
Post-Effective Amendment #5 filed February 15, 1996).
(b) Accounting Services Agreement between Registrant and
Declaration Service Company, dated February 13, 1996,
(incorporated by reference to Post-Effective Amendment
#5 filed February 15, 1996).
(c) Administration Agreement between Registrant and
Declaration Service Company dated February 13, 1996,
(incorporated by reference to Post-Effective Amendment
#5 filed February 15, 1996).
(10) (a) Opinion and Consent of Counsel with respect to Total
Return Fund, Intermediate Term Fund, and Short Term
Fund (incorporated by reference to Post-Effective
Amendment #6 filed May 2, 1996).
(b) Opinion and Consent of Counsel with respect to Pauze`
Tombstone Fund (incorporated by reference to
Post-Effective Amendment #9 filed February 5, 1997).
(11) Consent of Independent Accountants - None
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) (a) Copy of 12b-1 Plan for Pauze` U.S. Government Total
Return Bond Fund (incorporated by reference to Initial
Registration Statement filed November 10, 1993).
(b) Copy of 12b-1 Plan for Class A, B and C shares of the
Pauze` U.S. Government Total Return Bond Fund as
amended June 21, 1996, (incorporated by reference to
Post-Effective Amendment #7 filed July 1996).
(c) Copy of 12b-1 Plan for Pauze` U.S. Government
Intermediate Term Bond Fund as amended June 21, 1996
(incorporated by reference to Post-Effective Amendment
#7 filed July 1996).
<PAGE>
(d) Copy of 12b-1 Plan for Pauze` U.S. Government Short
Term Bond Fund as amended June 21, 1996 (incorporated
by reference to Post-Effective Amendment #7 filed July
1996).
(e) Copy of 12b-1 Plan for Pauze` Tombstone Fund dated
February 28, 1997 (incorporated by reference to
Post-Effective Amendment #10 filed May 6, 1996).
(16) Schedule for computation of performance quotation provided
in the Registration Statement in response to Item 22
(incorporated by reference to Post-Effective Amendment #1
filed July 10, 1994).
(17) Financial Data Schedule - None.
(18) Copy of amended and restated plan entered into by Registrant
pursuant to Rule 18f-3 (incorporated by reference to
Post-Effective Amendment #10 filed May 6, 1997).
(19) Powers of Attorney for the Trust, the Trustees and Officers
(incorporated by reference to Post-Effective Amendment #11
filed August 29, 1997).
ITEM 25. Persons Controlled by or under Common Control with Registrant
Information pertaining to persons controlled by or under common control
with Registrant is incorporated by reference to the Statement of Additional
Information of the Pauze` U.S. Government Total Return Bond Fund, Pauze`
U.S. Government Short Term Bond Fund and the Pauze` U.S. Government
intermediate Term Bond Fund contained in Part B of the Registration
Statement at the section entitled "Principal Holders of Securities."
ITEM 26. Number of Holders of Securities
The number of record holders, as of November 19, 1997, of each class of
securities of the Registrant.
<TABLE>
<CAPTION>
Title of Class Number of
Record Holders
<S> <C> <C>
Pauze` U.S. Government Total Return Bond Fund No-Load 28
Class A 0
Class B 6
Class C 0
Pauze` U.S. Government Short Term Bond Fund No-Load 7
Class A 5
Class B 1
Class C 0
Pauze` U.S. Government Intermediate Term No-Load 4
Bond Fund Class A 0
Class B 12
Class C 0
Pauze` Tombstone Fund Class A 129
Class B 96
</TABLE>
<PAGE>
ITEM 27. Indemnification
Under Article VI of the Registrant's Master Trust Agreement, each of its
Trustees and officers or person serving in such capacity with another
entity at the request of the Registrant (a "Covered Person") shall be
indemnified (from the assets of the Sub-Trust or Sub-Trusts in question)
against all liabilities, including, but not limited to, amounts paid in
satisfaction of judgments, in compromises or as fines or penalties, and
expenses, including reasonable legal and accounting fees, incurred by the
Covered Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal before any court or
administrative or legislative body, in which such Covered Person may be or
may have been involved as a party or otherwise or with which such person
may be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Trustee or officer, director or
trustee, except with respect to any matter as to which it has been
determined that such Covered Person (i) did not act in good faith in the
reasonable belief that such covered Person's action was in or not opposed
to the best interests of the Trust or (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Persons's office (either and
both of the conduct described in (i) and (ii) being referred to hereafter
as "Disabling Conduct"). A determination that the Covered Person is not
entitled to indemnification may be made
<PAGE>
by (i) a final decision on the merits by a court or other body before whom
the proceeding was brought that the person to be indemnified was not liable
by reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of
evidence of Disabling conduct, or (iii) a reasonable determination, based
upon a review of the facts, that the indemnitee was not liable by reason of
Disabling Conduct by (a) a vote of the majority of a quorum of Trustees who
are neither "interested persons" of the Trust as defined in Section
1(a)(19) of the 1940 Act nor parties to the proceeding, or (b) as
independent legal counsel in a written opinion.
ITEM 28. Business and Other Connections of Investment Advisor and Investment
Administrator
Philip C. Pauze`
Current Affiliations:
PAUZE`, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
President and Member of the Board of Directors:
10/21/93 to Present
PAUZE` FUNDS(TM)
P.O. Box 844
Conshohocken, PA 19428
President, Portfolio Manager, and Member Board of Directors:
November 1, 1993 to Present.
GS2 SECURITIES, INC.
250 E. Wisconsin Avenue, Suite 800
Milwaukee, WI 53202
Broker/Dealer Branch Officer Manager: 1993 to Present
Licensed Registered Representative: 1993 to Present
David D. Jones
Current Affiliations:
PAUZE`, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
Executive Vice President, Treasurer & Board Member:
May 19, 1997 to Present
Vice President: February 1997 to May 1997
Assistant Vice President: June 1, 1996 to February, 1997
Portfolio Manager and Assistant Portfolio Manager to the
Pauze` Funds(TM): June 1, 1996 to Present
GS2 SECURITIES, INC.
250 E. Wisconsin Avenue, Suite 800
Milwaukee, WI 53202
Licensed Registered Representative: June 1, 1996 to
Present
Previous Affiliations:
COX & SMITH INCORPORATED 112 East Pecan Street San Antonio, TX
78205
Associate Attorney: March 1, 1994 to June 1, 1996
<PAGE>
Patricia S. Dobson
Current Affiliations:
PAUZE`, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
Vice President: December 1996 to Present
Corporate Secretary and Member of the Board of Directors:
May 19, 1997 to Present
Assistant Vice President: October 1995 to December 1996
PAUZE` FUNDS(TM)
P.O. Box 844
Conshohocken, PA 19428
Assistant Secretary: June 13, 1997 to Present
GS2 SECURITIES, INC.
250 E. Wisconsin Avenue, Suite 800
Milwaukee, WI 53202
Licensed Registered Representative: 1993 to Present
ITEM 29. Principal Underwriters
Registrant has entered into a Distribution Agreement with Declaration
Distributors, Inc., ("DDI"). Terence P. Smith, Secretary and a member of
Registrant's Board of Trustees, is President of DDI.
ITEM 30. Location of Accounts and Records
All accounts and records maintained by the Registrant are kept at the
Administrator's office located at Suite 6160, 555 North Lane, Conshohocken,
Pennsylvania 19428-0844.
<PAGE>
All accounts and records maintained by Star Bank N.A. custodian for
Registrant are maintained in Cincinnati, Ohio.
ITEM 31. Not Applicable
ITEM 32. Undertakings
Registrant undertakes to call a meeting of shareholders for purposes of
voting upon the question of removal of one or more Trustees when requested
in writing to do so by the holders of at least 10% of the Trust's
outstanding shares, and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940 relating
to shareholder communications.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and it has duly caused this
Amendment to the Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized in the city of Conshohocken, state
of Pennsylvania, on the 26th day of November, 1997.
PAUZE` FUNDS
By: /S/ TERRENCE P. SMITH
----------------------------
Terrence P. Smith
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
*
- --------------------------
Gordon Anderson
*
- --------------------------
Wayne F. Collins
*
- --------------------------
Paul Hilbert
*
- --------------------------
Philip C. Pauze`
*
- --------------------------
Robert J. Pierce
*
- --------------------------
Terrence P. Smith
*by /S/ TERRENCE P. SMITH Attorney-In-Fact
- --------------------------
Terrence P. Smith
<PAGE>
EXHIBIT INDEX
Page
----
1. Amended and Restated Distribution Agreement......................EX-99.B6
2. Revised Appendix A to Custodian Agreement........................EX-99.B8
EXHIBIT EX-99.B6
PAUZE` FUNDS
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED DISTRIBUTION AGREEMENT (the "Agreement") is made
as of the 12th day of September, 1997 by and among Pauze` Funds (the "Fund"), a
Massachusetts business trust, Pauze` Swanson Capital Management Co. (the
"Adviser"), a Texas corporation, and Declaration Distributors, Inc. (the
"Distributor"), a Pennsylvania corporation.
WITNESSETH THAT:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and has registered its shares of common stock (the "Shares") under the
Securities Act of 1933, as amended (the "1933 Act") in one or more distinct
series of Shares (the "Portfolio" or "Portfolios");
WHEREAS, the Adviser has been appointed investment adviser to the Fund;
WHEREAS, the Distributor is a broker-dealer registered with the U.S.
Securities and Exchange Commission (the "SEC") and a member in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, each Portfolio has adopted a plan of distribution (the
"Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act relating to the
payment by the Fund of distribution expenses with respect to the Portfolio;
<PAGE>
WHEREAS, the Fund, the Adviser and the Distributor previously have entered
into an agreement dated February 13, 1996 pursuant to which the Distributor has
been providing distribution services to the Portfolios identified on Schedule A,
as amended from time to time;
WHEREAS, the Fund, the Adviser and the Distributor desire to enter into
this Amended and Restated Agreement pursuant to which the Distributor will
continue to provide distribution services to the Portfolios of the Fund
identified on Schedule A, as may be amended from time to time, on the terms and
conditions hereinafter set forth; and
WHEREAS, this Agreement has been approved with respect to each Portfolio by
the Fund's Board of Trustees, including the disinterested Trustees, in
conformity with Section 15 of the 1940 Act and Rule 12b-1 under the 1940 Act.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Fund, the Adviser and the Distributor,
intending to be legally bound hereby, agree as follows:
1. Appointment of Distributor. The Fund hereby appoints the Distributor as
its principal distributor for the distribution of the Shares, and the
Distributor hereby accepts such appointment under the terms of this Agreement.
The Fund shall not sell any Shares to any person except to fill orders for the
Shares received through the Distributor; provided, however, that the foregoing
appointment shall not apply: (i) to Shares issued or sold in connection with the
merger or consolidation of any other investment company with the Fund or the
acquisition by purchase or otherwise of all or substantially all of the assets
of any investment company or substantially all of the outstanding shares of any
such company
-2-
<PAGE>
by the Fund; (ii) to Shares which may be offered by the Fund to its shareholders
for reinvestment of cash distributed from capital gains or net investment income
of the Fund; or (iii) to Shares which may be issued to shareholders of other
funds who exercise any exchange privilege set forth in the Fund's Prospectus; or
(iv) directly through the Fund's transfer agent in the manner set forth in the
Registration Statement. Notwithstanding any other provision hereof, the Fund may
terminate, suspend, or withdraw the offering of the Shares whenever, in its sole
discretion, it deems such action to be desirable, and the Distributor shall
process no further orders for Shares after it receives notice of such
termination, suspension or withdrawal.
As used in this Agreement, the term "Registration Statement" shall mean the
registration statement most recently filed by the Fund with the Securities and
Exchange Commission and effective under the 1933 Act and the 1940 Act, as such
Registration Statement is amended by any amendments thereto at the time in
effect, and the terms "Prospectus" and "Statement of Additional Information"
shall mean, respectively, the form of prospectus and statement of additional
information with respect to the Portfolios filed by the Fund as part of the
Registration Statement, or as they may be amended from time to time.
2. Fund Documents. The Fund has provided the Distributor with properly
certified or authenticated copies of the following Fund related documents in
effect on the date hereof: the Fund's organizational documents, including Master
Trust Agreement and By-Laws; the Fund's Registration Statement, including all
exhibits thereto; the Fund's most current Prospectus and Statement of Additional
Information; and resolutions of the Fund's
-3-
<PAGE>
Board of Trustees authorizing the appointment of the Distributor and approving
this Agreement. The Fund shall promptly provide to the Distributor copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing. The Fund shall provide to the Distributor copies of all other
information which the Distributor may reasonably request for use in connection
with the distribution of Shares, including, but not limited to, a certified copy
of all financial statements prepared for the Fund by its independent public
accountants. The Fund shall also supply the Distributor with such number of
copies of the current Prospectus, Statement of Additional Information and
shareholder reports as the Distributor shall reasonably request.
3. Distribution Services. The Distributor shall sell and repurchase Shares
as set forth below, subject to the registration requirements of the 1933 Act and
the rules and regulations thereunder, and the laws governing the sale of
securities in the various states ("Blue Sky Laws"):
a. The Distributor, subject to applicable federal and state laws and
the Master Trust Agreement and By-Laws, agrees to sell the Shares from time to
time during the term of this Agreement upon the terms described in the
Registration Statement.
b. The public offering price of the Shares of each Portfolio (and, with
respect to each Portfolio offering multiple classes of Shares, the Shares of
each class of such Portfolio) shall be the respective net asset value of the
Shares of the Portfolio as next determined by the Fund following receipt of an
order at the Distributor's principal office plus the applicable initial sales
charge, if any.
-4-
<PAGE>
c. The net asset value of the Shares shall be determined in the manner
provided in the then current Prospectus and Statement of Additional Information.
The net asset value of the Shares shall be calculated by the Fund or by another
entity on behalf of the Fund. The Distributor shall have no duty to inquire into
or liability for the accuracy of the net asset value per Share as calculated.
d. Upon receipt of purchase instructions, the Distributor shall
transmit such instructions to the Fund or its transfer agent for registration of
the Shares purchased.
The Distributor is authorized to collect the gross proceeds derived
from the sale of Shares, remit the net asset value thereof to the Fund upon
receipt of the proceeds, and retain any initial sales charge less any
reallowance paid to dealers (the "Net Sales Charges"). The Distributor, in light
of Fund policies, procedures and disclosure documents, shall also have the right
to take all actions which, in the Distributor's judgment, are necessary to
effect the distribution of Shares. The Distributor in its discretion may enter
into agreements to sell Shares to such registered and qualified retail dealers
as it may select at the public offering price less the reallowance established
in the Prospectus. In making agreement with such dealers, the Distributor shall
act only as principal and not as agent for the Fund.
e. The Distributor, for the account of the Fund, may repurchase the
Shares at such prices and upon such terms and conditions as shall be specified
in the Registration Statement (the "Repurchase Price"). Such price shall reflect
the subtraction of the contingent deferred sales charge, if any, computed in
accordance with and in the manner set forth in the Registration Statement. At
the end of each business day, the Distributor shall
-5-
<PAGE>
notify the Fund and the Fund's transfer agent of the number of shares redeemed,
and the identity of the shareholders or dealers offering Shares for repurchase.
Upon such notice, the Fund shall pay the Distributor the Repurchase Price in
cash or in the form of a credit against monies due the Fund from the Distributor
as proceeds from the sale of Shares. The Distributor will receive no commission
or other renumeration for repurchasing Shares. Any contingent deferred sales
charge shall be paid to the Adviser as repayment for financing the payment of
the sales commission for such shares. The Fund reserves the right to suspend
such repurchase right upon written notice to the Distributor. The Distributor
further agrees to receive and transmit promptly to the Fund's transfer agent,
shareholder and dealer requests for redemption of Shares.
f. Nothing in this Agreement shall prevent the Distributor or any
"affiliated person" from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that the Distributor expressly agrees that it shall
not for its own account purchase any Shares of the Fund except for investment
purposes and that it shall not for its own account sell any such Shares except
for redemption of such Shares by the Fund, and that it shall not undertake
activities which, in its judgment, would adversely affect the performance of its
obligations to the Fund under this Agreement.
4. Distribution Support Services. In addition to the sale and
repurchase of Shares, the Distributor shall perform the distribution
support services set forth on Schedule B attached hereto, as may be amended from
time to time. Such distribution support services shall include: Review of sales
and marketing literature and submission to the NASD;
-6-
<PAGE>
NASD record keeping; and quarterly reports to the Fund's Board of Trustees. Such
distribution support services may also include: fulfillment services, including
telemarketing, printing, mailing and follow-up tracking of sales leads; and
licensing adviser or Fund personnel as registered representatives of the
Distributor and related supervisory activities.
5. Best Efforts. The Distributor shall use best efforts in connection with
the distribution of Shares. The Distributor shall have no obligation to sell any
specific number of Shares and shall only sell Shares against orders received
therefor. The Fund shall retain the right to refuse at any time to sell any of
its Shares for any reason deemed adequate by it.
6. Compliance. In furtherance of the distribution services being provided
hereunder, the Distributor and the Fund agree as follows:
a. The Distributor shall comply with the Rules of Fair Practice of the
NASD and the securities laws of any jurisdiction in which it sells, directly or
indirectly, Shares.
b. The Distributor shall require each dealer with whom the Distributor
has a selling agreement to conform to the applicable provisions hereof and the
Registration Statement, and neither Distributor nor any such dealer shall
withhold the placing of purchase orders so as to make a profit thereby.
c. The Fund agrees to furnish to the Distributor sufficient copies of
any agreements, plans, communications with the public or other materials it
intends to use in connection with any sales of Shares in a timely manner in
order to allow the Distributor to review, approve and file such materials with
the appropriate regulatory authorities and obtain
-7-
<PAGE>
clearance for use. The Fund agrees not to use any such materials until so filed
and cleared for use by appropriate authorities and the Distributor.
d. The Distributor, at its own expense, shall qualify as a broker or
dealer, or otherwise, under all applicable Federal or state laws required to
permit the sale of Shares in such states as shall be mutually agreed upon by the
parties; provided, however that the Distributor shall have no obligation to
register as a broker or dealer under the Blue Sky Laws of any jurisdiction if it
determines that registering or maintaining registration in such jurisdiction
would be uneconomical.
e. The Distributor shall not, in connection with any sale or
solicitation of a sale of the Shares, or make or authorize any representative,
service organization, broker or dealer to make, any representations concerning
the Shares except those contained in the Fund's most current Prospectus and
Statement of Additional Information covering the Shares and in communications
with the public or sales materials approved by the Distributor and the Fund as
information supplemental to such Prospectus and Statement of Additional
Information.
7. Expenses. Expenses shall be allocated as follows:
a. The Fund shall bear the following expenses: preparation, setting
in type, and printing of sufficient copies of the Prospectus and Statement of
Additional Information for distribution to existing shareholders; preparation
and printing of reports and other communications to existing shareholders;
distribution of copies of the Prospectus, Statement of Additional Information
and all other communications to existing shareholders; registration of the
Shares under the Federal securities laws; qualification of the Shares for
-8-
<PAGE>
sale in the jurisdictions mutually agreed upon by the Fund and the Distributor;
transfer agent/shareholder servicing agent services; supplying information,
prices and other data to be furnished by the Fund under this Agreement; any
original issue taxes or transfer taxes applicable to the sale or delivery of the
Shares or certificates therefor; and items covered by the Distribution Plan.
b. To the extent not covered by the Distribution Plan, the Adviser
shall pay all other expenses incident to the sale and distribution of the Shares
sold hereunder, including, without limitation: printing and distributing copies
of the Prospectus, Statement of Additional Information and reports prepared for
use in connection with the offering of Shares for sale to the public;
advertising in connection with such offering, including public relations
services, sales presentations, media charges, preparation, printing and mailing
of advertising and sales literature; data processing necessary to support a
distribution effort; distribution and shareholder servicing activities of
broker-dealers and other financial institutions; filing fees required by
regulatory authorities for sales literature and advertising materials; any
additional out-of-pocket expenses incurred in connection with the foregoing and
any other costs of distribution. The Distributor hereby agrees to reimburse the
Adviser for the above expenses incident to the sale and distribution of the
Shares sold hereunder to the extent of 80% of the Net Sales Charges paid to the
Distributor during the applicable period.
8. Compensation. For the distribution and distribution support services
provided by the Distributor pursuant to the terms of this Agreement, the Fund
shall, pursuant to the Distribution Plan, pay to the Distributor the
compensation set forth in Schedule A attached
-9-
<PAGE>
hereto, which schedule may be amended from time to time. To the extent not
covered by the Distribution Plan, the Adviser shall pay to Distributor the
compensation set forth in Schedule A and shall also reimburse the Distributor
for its out-of-pocket expenses related to the performance of its duties
hereunder, including, without limitation, telecommunications charges, postage
and delivery charges, record retention costs, reproduction charges and traveling
and lodging expenses incurred by officers and employees of the Distributor. If
this Agreement becomes effective subsequent to the first day of the month or
terminates before the last day of the month, the Fund shall pay to the
Distributor a distribution fee that is prorated for that part of the month in
which this Agreement is in effect. All rights of compensation and reimbursement
under this Agreement for services performed by the Distributor as of the
termination date shall survive the termination of this Agreement.
9. Use of Distributor's Name. The Fund shall not use the name of the
Distributor or any of its affiliates in the Prospectus, Statement of Additional
Information, sales literature or other material relating to the Fund in a manner
not approved prior thereto in writing by the Distributor; provided, however,
that the Distributor shall approve all uses of its and its affiliates' names
that merely refer in accurate terms to their appointments or that are required
by the Securities and Exchange Commission (the "SEC") or any state securities
commission; and further provided, that in no event shall such approval be
unreasonably withheld.
10. Use of Fund's Name. Neither the Distributor nor any of its affiliates
shall use the name of the Fund or material relating to the Fund on any forms
(including any checks, bank drafts or bank statements) for other than internal
use in a manner not
-10-
<PAGE>
approved prior thereto in writing by the Fund; provided, however, that the Fund
shall approve all uses of its name that merely refer in accurate terms to the
appointment of the Distributor hereunder or that are required by the SEC or any
state securities commission; and further provided, that in no event shall such
approval be unreasonably withheld.
11. Liability of Distributor. The duties of the Distributor shall be
limited to those expressly set forth herein, and no implied duties are assumed
by or may be asserted against the Distributor hereunder. The Distributor may, in
connection with this Agreement employ agents or attorneys in fact, and shall not
be liable for any loss arising out of or in connection with its actions under
this Agreement, so long as it acts in good faith and with due diligence, and is
not negligent or guilty of any willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under this
Agreement. As used in this Section 11 and in Section 12 (except the second
paragraph of Section 12), the term "Distributor") shall include directors,
officers, employees and other agents of the Distributor.
12. Indemnification of Distributor. The Fund shall indemnify and hold
harmless the Distributor against any and all liabilities, losses, damages,
claims and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and investigation expenses incident thereto) which the
Distributor may incur or be required to pay hereafter, in connection with any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which the Distributor may be involved as
a party or otherwise or with which the Distributor may be threatened,
-11-
<PAGE>
by reason of the offer or sale of the Fund shares prior to the effective date of
this Agreement.
Any director, officer, employee, shareholder or agent of the Distributor
who may be or become an officer, Trustee, employee or agent of the Fund, shall
be deemed, when rendering services to the Fund or acting on any business of the
Fund (other than services or business in connection with the Distributor's
duties hereunder), to be rendering such services to or acting solely for the
Fund and not as a director, officer, employee, shareholder or agent, or one
under the control or direction of the Distributor, even though receiving a
salary from the Distributor.
The Fund agrees to indemnify and hold harmless the Distributor, and each
person, who controls the Distributor within the meaning of Section 15 of the
1933 Act, or Section 20 of the Securities Exchange Act of 1934, as amended
("1934 Act"), against any and all liabilities, losses, damages, claims and
expenses, joint or several (including, without limitation, reasonable attorneys'
fees and disbursements and investigation expenses incident thereto) to which
they, or any of them, may become subject under the 1933 Act, the 1934 Act, the
1940 Act or other federal or state laws or regulations, at common law or
otherwise, insofar as such liabilities, losses, damages, claims and expenses (or
actions, suits or proceedings in respect thereof) arise out of or relate to any
untrue statement or alleged untrue statement of a material fact contained in a
Prospectus, Statement of Additional Information, supplement thereto, sales
literature or other written information prepared by the Fund and provided by the
Fund to the Distributor for the Distributor's use hereunder, or arise out of or
relate to any omission or alleged omission to state therein a material fact
-12-
<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading. The Distributor (or any person controlling the Distributor) shall
not be entitled to indemnity hereunder for any liabilities, losses, damages,
claims or expenses (or actions, suits or proceedings in respect thereof)
resulting from (i) an untrue statement or omission or alleged untrue statement
or omission made in the Prospectus, Statement of Additional Information, or
supplement, sales or other literature, in reliance upon and in conformity with
information furnished in writing to the Fund by the Distributor specifically for
use therein or (ii) the Distributor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations in the
performance of this Agreement.
The Distributor agrees to indemnify and hold harmless the Fund, and each
person who controls the Fund within the meaning of Section 15 of the 1933 Act,
or Section 20 of the 1934 Act, against any and all liabilities, losses, damages,
claims and expenses, joint or several (including, without limitation reasonable
attorneys' fees and disbursements and investigation expenses incident thereto)
to which they, or any of them, may become subject under the 1933 Act, the 1934
Act, the 1940 Act or other federal or state laws, at common law or otherwise,
insofar as such liabilities, losses, damages, claims or expense arise out of or
relate to any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus or Statement of Additional Information or any
supplement thereto, or arise out of or related to actions or oral
representations of Distributor's associated persons and to any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, if based upon
information furnished in writing to the Fund by the Distributor specifically for
use therein.
-13-
<PAGE>
A party seeking indemnification hereunder (the "Indemnitee") shall give
prompt written notice to the party from whom indemnification is sought
("Indemnitor") of a written assertion or claim of any threatened or pending
legal proceeding which may be subject to indemnity under this Section; provided,
however, that failure to notify the Indemnitor of such written assertion or
claim shall not relieve the Indemnitor of any liability arising from this
Section. The Indemnitor shall be entitled, if it so elects, to assume the
defense of any suit brought to enforce a claim subject to this Indemnity and
such defense shall be conducted by counsel chosen by the Indemnitor and
satisfactory to the Indemnitee; provided, however, that if the defendants
include both the Indemnitee and the Indemnitor, and the Indemnitee shall have
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnitor
("conflict of interest"), the Indemnitor shall not have the right to elect to
defend such claim on behalf of the Indemnitee, and the Indemnitee shall have the
right to select separate counsel to defend such claim on behalf of the
Indemnitee. In the event that the Indemnitor elects to assume the defense of any
suit pursuant to the preceding sentence and retains counsel satisfactory to the
Indemnitee, the Indemnitee shall bear the fees and expense of additional counsel
retained by it, except for reasonable investigation costs which shall be borne
by the Indemnitor. If the Indemnitor (i) does not elect to assume the defense of
a claim, (ii) elects to assume the defense of a claim but chooses counsel that
is not satisfactory to the Indemnitee or (iii) has no right to assume the
defense of a claim because of a conflict of interest, the Indemnitor shall
advance or reimburse the Indemnitee, at the
-14-
<PAGE>
election of the Indemnitee, reasonable fees and disbursements of any counsel
retained by Indemnitee, including reasonable investigation costs.
13. Adviser Personnel. The Adviser agrees that only its employees who are
registered representatives for the Distributor ("dual employees") or registered
representatives of another NASD member firm shall offer or sell Shares of the
Portfolios. The Adviser further agrees that the activities of any such employees
as registered representatives of the Distributor shall be limited to offering
and selling Shares. If there are dual employees, one employee of the Adviser
shall register as a principal of the Distributor and assist the Distributor in
monitoring the marketing and sales activities of the dual employees. The Adviser
shall maintain errors and omissions and fidelity bond insurance policies
providing reasonable coverage for its employees' activities and shall provide
copies of such policies to the Distributor. The Advise shall indemnify and hold
harmless the Distributor against any and all liabilities, losses, damages,
claims and expenses (including reasonable attorneys' fees and disbursements and
investigation costs incident thereto) arising from or related to the Adviser's
employees' activities as registered representatives, including, without
limitation, any and all such liabilities, losses, damages, claims and expenses
arising from or related to the breach by such employees of any rules or
regulations of the NASD or SEC.
14. Force Majeure. The Distributor shall not be liable for any delays or
errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited to, acts of civil or military
authority, national emergencies, work stoppages, fire, flood, catastrophe, acts
of God, insurrection, war, riot or failure of communication or power supply. In
the event of equipment breakdowns, which are beyond
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the reasonable control of the Distributor and not primarily attributable to the
failure of the Distributor to reasonably maintain or provide for the maintenance
of such equipment, the Distributor shall, at no additional expense to the Fund,
take reasonable steps in good faith to minimize service interruptions, but shall
have no liability with respect thereto.
15. Scope of Duties. The Distributor and the Fund shall regularly consult
with each other regarding the Distributor's performance of its obligations and
its compensation under the foregoing provisions. In connection therewith, the
Fund shall submit to the Distributor at a reasonable time in advance of filing
with the SEC copies of any amended or supplemented Registration Statement of the
Fund (including exhibits) under the 1940 Act and the 1933 Act, and at a
reasonable time in advance of their proposed use, copies of any amended or
supplemented forms relating to any plan, program or service offered by the Fund.
Any change in such materials that would require any change in the Distributor's
obligations under the foregoing provisions shall be subject to the Distributor's
approval. In the event that a change in such documents or in the procedures
contained therein increases the cost or burden of the Distributor of performing
its obligations hereunder, the Distributor shall be entitled to receive
reasonable compensation therefor.
16. Duration. This Agreement shall become effective as of the date first
above written, and shall continue in force until February 13, 1998 and
thereafter from year to year, provided continuance is approved at least annually
be either (i) the vote of a majority of the Trustees of the Fund, or by the vote
of a majority of the outstanding voting securities of the Fund, and (ii) the
vote of a majority of those Trustees of the Fund who are not interested persons
of the Fund, and who are not parties to this Agreement or interested
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persons of any such party, cast in person at a meeting called for the purpose of
voting on the approval.
17. Termination. This Agreement shall terminate as follows:
a. This Agreement shall terminate automatically in the event of
its assignment.
b. This Agreement shall terminate upon the failure to approve the
continuance of the Agreement after the initial two year term as set forth in
Section 16 above.
c. This Agreement shall terminate, with respect to any Portfolio,
at any time and without the payment of a penalty, upon a vote of the majority of
the Trustees, by a vote of a majority of Trustees who are not interested persons
of the Fund or by a vote of the majority of the outstanding voting securities of
such Portfolio, upon 60 days prior written notice to the Distributor.
d. The Distributor may terminate this Agreement with respect to any
Portfolio, at any time and without the payment of a penalty, upon 60 days prior
written notice to the Fund.
e. Termination of this Agreement with respect to any given
Portfolio shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Portfolio.
Upon the termination of this Agreement, the Fund shall pay to the
Distributor such compensation and out-of-pocket expenses as may be payable for
the period prior to the effective date of such termination. In the event that
the Fund designates a successor to any of the Distributor's obligations
hereunder, the Distributor shall, at the expense and direction
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of the Fund, transfer to such successor all relevant books, records and other
data established or maintained by the Distributor pursuant to the foregoing
provisions.
Sections 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 17, 20, 21, 22, 23, 24, 25, 26
and 27 shall survive any termination of this Agreement.
18. Amendment. The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by a written
instrument signed by the Distributor, the Adviser and the Fund and shall not
become effective unless its terms have been approved by the majority of the
Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund and by a majority of those Trustees who are not
interested persons of the Fund or any party to this Agreement.
19. Non-Exclusive Services. The service of the Distributor rendered to the
Fund are not exclusive. The Distributor may render such services to any other
investment company.
20. Definitions. As used in this Agreement, the terms "vote of a majority
of the outstanding voting securities," "assignment," "interested person" and
"affiliated person" shall have the respective meanings specified in the 1940 Act
and the rules enacted thereunder as now in effect or hereafter amended.
21. Confidentiality. The Distributor shall treat confidentially and as
proprietary information of the Fund all records and other information relating
to the Fund and prior, present or potential shareholders and shall not use such
records and information for any
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purpose other than performance of its responsibilities and duties hereunder,
except as may be required by administrative or judicial tribunals or as required
by the Fund.
22. Notice. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one of the other means specified in
this Section 22 as promptly as practicable thereafter). Notices shall be
addressed as follows:
(a) if to the Fund:
Pauze` Funds
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
Attn: Philip C. Pauze`, President and Trustee
(b) if to the Adviser: Pauze` Swanson Capital Management Co.
14340 Torrey Chase Blvd., Suite 170 Houston, Texas 77014
Attn: Philip C. Pauze`, President
(c) if to the Distributor:
Declaration Distributors, Inc.
Suite 6160
555 North Lane
Conshohocken, PA 19428
Attn: Terence P. Smith, President
or to such other respective addresses as the parties shall designate by like
notices, provided that notice of a change of address shall be effective only
upon receipt thereof.
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23. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
24. Governing Law. This Agreement shall be administered, construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania to the
extent that such laws are not preempted by the provisions of any law of the
United States heretofore or hereafter enacted, as the same may be amended from
time to time.
25. Entire Agreement. This Agreement (including the Exhibits attached
hereto) contains the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersedes all prior written or oral
agreements and understandings with respect thereto.
26. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction. This Agreement may be executed in three counterparts,
each of which taken together shall constitute one and the same instrument.
27. Limitation of Liability. The terms "Pauze` Funds" and "Fund" means and
refers to the Trustees from time to time serving under the Master Trust
Agreement of the Fund dated October 15, 1993, as the same may subsequently
thereto have been, or subsequently hereto be, amended. It is expressly agreed
that obligations of the Fund hereunder shall not be binding upon any Trustee,
Shareholder, nominees, officers, agents or
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employees of the Fund, personally, but bind only the assets and property of the
Fund, as provided in the Master Trust Agreement. The execution and delivery of
this Agreement have been authorized by the Trustees and signed by an authorized
officer of the Fund, acting as such, and neither such authorization nor such
execution and delivery shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the assets and property of the Fund as provided in the Master Trust
Agreement. The Master Trust Agreement is on file with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
PAUZE` FUNDS
By: /s/ Philip C. Pauze`
------------------------------------------
Philip C. Pauze`, President and Trustee
PAUZE` SWANSON CAPITAL MANAGEMENT CO.
By: /s/ Philip C. Pauze`
------------------------------------------
Philip C. Pauze`, President
DECLARATION DISTRIBUTORS, INC.
By: /s/ Terence P. Smith
------------------------------------------
Terence P. Smith, President
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SCHEDULE A
PAUZE` FUNDS
Portfolio and Fee Schedule
Portfolios covered by Distribution Agreement:
Pauze` U.S. Government Total Return Bond Fund
Pauze` U.S. Government Short Term Bond Fund
Pauze` U.S. Government Intermediate Term Bond Fund
Pauze` Tombstone Fund
Fees for distribution and distribution support services on behalf of the Fund:
Annual Fee $20,000
<PAGE>
SCHEDULE B
PAUZE` FUNDS
Distribution Support Services
1. Review and submit for approval all advertising and promotional materials.
2. Maintain all books and records required by the NASD.
3. Monitor Distribution Plan(s) and report to Board of Trustees.
4. Prepare quarterly reports to Board of Trustees relating to distribution
activities.
5. Subject to approval of Distributor, license personnel as registered
representatives of the Distributor.
6. Telemarketing services (additional fees to be negotiated).
7. Fund fulfillment services, including sampling prospective shareholders
inquiries and related mailings (additional fees to be negotiated).
EXHIBIT EX-99.B8
APPENDIX A
Sub-trusts/Series of Pauze` Funds - April, 1997
Pauze` U.S. Government Total Return Bond Fund
Pauze` U.S. Government Intermediate Return Bond Fund
Pauze` U.S. Government Short Term Bond Fund
Pauze` Tombstone Fund
