REGISTRATION NO. 33-71562
REGISTRATION NO. 811-8148
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. 11 X
(Check appropriate box or boxes)
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Post-Effective Amendment No. 11
PAUZE FUNDS
(Exact Name of Registrant as Specified in Charter)
14340 Torrey Chase Blvd., Ste. 170
Houston, Texas 77014
(Address of Principal Executive Office)
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)
Exhibit Index for exhibits filed herewith is at page of .
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Approximate date of proposed public offering:
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 purusant 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.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant hereby declares, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, that an indefinite number of shares of
beneficial interest, no par value, is being registered by this Registration
Statement, with respect to three sub-trusts of Registrant -- Pauze U.S.
Government Total Return Bond Fund, Pauze U.S. Government Short Term Bond Fund
and Pauze U.S. Government Intermediate Term Bond Fund, each with four classes
of shares (no-load, Class A, Class B and Class C). The Rule 24f-2 Notice for
the most recent fiscal year, April 30, 1997, was filed on or about June 25,
1997.
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PAUZE FUNDS
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 Financial Highlights
(also covered under Item
23 in Part B)
4 Cover Page; The Trust;
Investment Objectives
and Considerations;
Special Considerations
5 Management of the Fund
6 Cover Page; The Trust;
Dividends and Taxes
7 How to Purchase Shares;
How Shares Are Valued;
Special Considerations -
Servicing Fee
8 How to Redeem Shares
9 Not Applicable
<PAGE>
FORM N-1A CAPTION OR LOCATION IN
PART B STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 General Information
13 Investment Objectives
and Policies
14 Management of
the Trust
15 Principal Holders of
Securities
16 Investment Advisory
Services
17 Portfolio Transactions
18 General Information
19 Not Covered in Statement of
Additional Information
(Covered under Item 7 in Part A)
20 Tax Status
21 Distribution Plan (also
covered under Item 5 in Part A)
22 Calculation of
Performance Data
23 Financial Statements
(also covered under Item 3 in Part A)
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PART A -- THE PROSPECTUS
Included herein is the Prospectus for the
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
(No-Load Class of Shares)
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PAUZE FUNDS
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT
INTERMEDIATE TERM BOND FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
P.O. Box 844
Conshohocken, PA 19428-0844
1-800-327-7170
(Information, Shareholder Services and Requests)
PROSPECTUS
August 29, 1997
This prospectus presents information that a prospective investor should
know about the Pauze U.S. Government Total Return Bond Fund, the Pauze U.S.
Government Intermediate Term Bond Fund and the Pauze U.S. Government Short
Term Bond Fund, three series, mutual funds (the "Funds"), of Pauze Funds (the
"Trust") which seek to provide investors with a high total return consistent
with preservation of capital and liquidity within stated maturity ranges.
Each Fund is designed to satisfy different needs, with its own separate and
distinct portfolio of U.S. Government and/or government agency securities.
Read and retain this prospectus for future reference.
A Statement of Additional Information dated August 29, 1997, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Statement is available free from Pauze Funds upon
written request at the address set forth above or by calling 1-800-327-7170.
This prospectus covers shares of the Funds offered on a no-load basis.
Information on other classes of shares of the Funds offered on a different
basis is available from Pauze Funds upon written request at the address set
forth above or by calling 1-800-327-7170.
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..................... 3
FINANCIAL HIGHLIGHTS............................. 6
INVESTMENT OBJECTIVES AND CONSIDERATIONS.........10
SPECIAL CONSIDERATIONS...........................15
12b-1 Fee........................................17
MANAGEMENT OF THE FUNDS..........................18
HOW TO PURCHASE SHARES...........................21
HOW TO EXCHANGE SHARES...........................25
HOW TO REDEEM SHARES.............................26
HOW SHARES ARE VALUED............................32
DIVIDENDS AND TAXES..............................33
THE TRUST........................................35
PERFORMANCE INFORMATION..........................36
2
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SUMMARY OF FEES AND EXPENSES
The following summary is provided to assist you in understanding the
various costs and expenses a shareholder in a Fund could bear directly and
indirectly. Pauze U.S. Government Total Return Bond Fund's ("Total Return
Fund") annual operating expenses are shown as a percentage of average daily net
assets for the fiscal period ended April 30, 1997. Because Pauze U.S.
Government Intermediate Term Bond Fund ("Intermediate Term Fund") and Pauze U.S.
Government Short Term Bond Fund ("Short Term Fund") shares were not offered
prior to August 1, 1996, annual operating expenses of said Funds are based on
expenses for the period from August 1, 1996 to April 30, 1997. Shareholder
transaction expenses for all Funds are expressed as a percentage of the public
offering price, cost per transaction or as otherwise noted.
Total Intermediate Short
Return Term Term
Fund Fund Fund
Shareholder Transaction Expenses
Maximum Sales Load......................... None None None
Redemption Fee............................. None None None
Account Closing Fee (does not apply
to exchanges)........................... $10 $10 $10
Exchange Fee............................... None None None
Annual Fund Operating Expenses
Management and Administrative Services
Fees ................................... .60% .50% .50%
12b-1 Fees ................................ .25% .25% .25%
Other Expenses, including Transfer Agency
and Accounting Services Fees............ .55% (1) 1.72%(1) 2.28%(1)
Total Fund Operating Expenses ............. 1.40% 2.47% 3.03%
3
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Except for active automatic investment, UGMA/UTMA and retirement
accounts, if an account falls, for any reason other than market fluctuations,
below $1,000 at any time during a month, that account will be subject to a
small account charge of $5 for that month. See "Small Accounts" on page 28.
A shareholder who requests delivery of redemption proceeds by wire will
be subject to a $10 charge. International wires will be higher.
Hypothetical Example of Effect on Fund Expenses
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return and redemption at the end of each period:
Total Intermediate Short
Return Term Term
Fund Fund Fund
1 year...$24 35 41
3 years...54 87 104
5 years...86 142 169
10 years..178 291 344
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 will be substantially lower in percentage terms than this
illustration. The examples should not be considered a representation of past
or future expenses. Actual expenses may be more or less than those shown.
- -------------------------------------------------------------------------------
(1) Management fees are paid to Pauze, Swanson & Associates Investment
Advisors, Inc. d/b/a Pauze Swanson Capital Management Co. (the "Advisor") for
managing the Fund's investments. Administrative services fees are paid to
Declaration Service Company ("DSC" or "Administrator") for administering
4
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the affairs of the Trust. The Fund incurs other expenses for maintaining
shareholder records, furnishing shareholder statements and reports, and for
other services. Transfer agency and accounting services fees are also paid to
DSC, and are not charged directly to individual shareholder accounts. The
Transfer Agent charges the Fund $18.00 per shareholder account per year with a
minimum monthly fee of $1,500 which increases to $2,000 over a two year
period. The account closing fee and small account charge will be paid by the
shareholder directly to the Transfer Agent which will, in turn, reduce its
charges to the Fund by a like amount. Please refer to the section entitled
"Management of the Fund" at page 16 for further information.
5
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FINANCIAL HIGHLIGHTS
Pauze U.S. Government Total Return Bond Fund
The following per share data and ratios for a share of beneficial
interest outstanding throughout the period from January 10, 1994 (initial
public offering) through June 30, 1994, the period from July 1, 1994 through
April 30, 1995 and the years ended April 30, 1997 have been audited by Price
Waterhouse LLP, the Fund's Independent Accountants whose unqualified report on
the financial statements including this information is included in the Fund's
1997 Annual Report to Shareholders, which is incorporated by reference into
the Statement of Additional Information ("SAI"). The Financial Highlights
should be read in conjunction with the financial statements and notes thereto
included in the Annual Report. In addition to the data set forth below,
further information about the performance of the Fund is contained in the SAI
and Annual Report which may be obtained without charge.
Selected data for a capital share outstanding throughout the periods
indicated is as follows:
PERIOD ENDED
(a) (b) (c) (d)
-------- ------- -------- -------
Net Asset Value,
beginning of period......... $ 9.54 $ 9.37 $ 9.25 $ 10.00
------ ------- ------- -------
Operating Performance:
Net investment income ..... .45 .44 .35(d) .14(d)
Net realized and unrealized
gain (loss) on
investments (f).......... (0.37) .31 .12 (.75)
------ ------- ------- -------
Total from investment
operations................. 0.08 .75 .47 (.61)
------ ------- ------- -------
Distributions:
Dividends from net
investment income ...... (0.45) (.44) (.35) (.14)
Distributions from
capital gains........... -- (.14)
------ ------- ------- -------
Net asset value, end of
period ..................... $ 9.17 $ 9.54 $ 9.37 $ 9.25
====== ======= ======= =======
Total Investment Return (g).. .80% 8.08% 5.21% (6.11%)
6
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Ratio/Supplemental Data:
Net assets, end of period (in
thousands) ................. $67,936 $71,294 $31,994 $13,661
Ratio of expenses to average
net assets ................. 1.40% 1.23% 1.50%(g)(h) 1.50%(g)(h)
Ratio of net investment income
to average net assets ...... 4.75% 4.74% 4.87%(g)(h) 4.06%(g)(h)
Portfolio turnover rate ...... 202.01% 228.03% 168.90% 0.00%
(a) For the year ended April 30, 1997
(b) For the year ended April 30, 1996
(c) For the ten month period ended April 30, 1995.
(d) For the period from January 10, 1994
(date of commencement of operations) to June 30, 1994.
(e) Net of expense reimbursements and fee waivers of
$.02(1995) and $.05(1994) per share respectively.
(f) Includes the effect of capital share transactions
throughout the period.
(g) Total return is not annualized and does not reflect
the effect of account fees.
(h) Annualized.
(i) Expense ratio is net of fee waivers. Had such
reimbursements not been made, the annualized expense
ratio would have been 1.66% (1995) and 3.14% (1994) and
the net annualized investment income ratio would
have been 4.71% (1995) and 2.42% (1994).
7
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FINANCIAL HIGHLIGHTS
Pauze U.S. Government Intermediate Term Fund
The following per share data and ratios for a share of beneficial
interest outstanding throughout the period from October 10, 1996
(commencement of operations) through April 30, 1997, have been audited by
Price Waterhouse, LLP, the Fund's Independent Accountants whose unqualified
report on Financial Statements including this information is included in the
Fund's 1997 Annual Report to Shareholders which is incorporated by reference
into the SAI. The Financial Highlights should be read in conjunction with the
Financial Statements and Notes thereto included in the Annual Report. In
addition to the data set forth below, further information about performance of
the Fund is contained in the SAI and Annual Report which may be obtained
without charge. The related financial statements are available upon request
and have been included in the Statement of Additional Information ("SAI").
Selected data for a capital share outstanding throughout the period (from
commencement of operations through April 30, 1997), is as follows:
- ---------------------------------------------------------
For a capital share outstanding throughout each period:
No load class
-----------------
October 10, 1996*
to
April 30, 1997
-----------------
Net asset value, beginning of period ... $ 10.00
---------
Income from investment operations:
Net investment income ................ 0.18
Net realized and unrealized
gain (loss) on investments ......... (0.19)
---------
Total from investment operations ....... (0.01)
---------
Less distributions to shareholders:
Net investment income ................ (0.18)
Net realized gain on investments sold. (0.09)
---------
Total distributions .................... (0.27)
---------
Net asset value, end of period ......... $ 9.72
=========
Total investment return ................ (0.12)%
Ratio/Supplemental Data:
Net assets, end of period (000's)..... $ 1,247
Ratio of expenses to average
net assets*** ...................... 2.47%**
Ratio of net income to average
net assets .......................... 3.23%**
Portfolio turnover rate .............. 298.88%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursements of $.001 per
share. Had such reimbursements not been made, the annualized expense ratio
would have been 2.48%, and the net annualized investment income would have
been 3.22% per share.
***Ratios for periods of less than one year are annualized.
8
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FINANCIAL HIGHLIGHTS
Pauze U.S. Government Short Term Fund
The following per share data and ratios for a share of beneficial
interest outstanding throughout the period from September 30, 1996
(commencement of operations) through April 30, 1997, have been audited by
Price Waterhouse, LLP, the Fund's Independent Accountants whose unqualified
report on Financial Statements including this information is included in the
Fund's 1997 Annual Report to Shareholders which is incorporated by reference
into the SAI. The Financial Highlights should be read in conjunction with the
Financial Statements and Notes thereto included in the Annual Report. In
addition to the data set forth below, further information about performance of
the Fund is contained in the SAI and Annual Report which may be obtained
without charge. The related financial statements are available upon request
and have been included in the Statement of Additional Information ("SAI").
Selected data for a capital share outstanding throughout the period (from
commencement of operations through April 30, 1997), is as follows:
- -----------------------------------------------------------
For a capital share outstanding throughout each period:
No load class
-------------------
September 30, 1996*
to
April 30, 1997
-------------------
Net asset value, beginning of period ... $ 10.00
---------
Income from investment operations:
Net investment income ................ 0.14
Net realized and unrealized gain
(loss) on investments .............. (0.01)
---------
Total from investment operations ....... 0.13
---------
Less distributions to shareholders:
Net investment income ................ (0.14)
Net realized gain on investments sold. (0.01)
---------
Total distributions .................... (0.15)
---------
Net asset value, end of period ......... $ 9.98
=========
Total investment return ................ 1.25%
Ratios/Supplemental Data:
Net assets, end of period (000's) .... $ 236
Ratio of expenses to average net
assets*** .......................... 3.03%**
Ratio of net income to average
net assets ......................... 2.58%**
Portfolio turnover rate .............. 351.63%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursements of $.12 per
share. Had such reimbursement not been made, the annualized expense ratio
would have been 5.18%, and the net annualized investment income would have
been .43% per share.
***Ratios for periods of less than one year are annualized. The
expense ratio is net of expense reimbursements.
9
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INVESTMENT OBJECTIVES AND CONSIDERATIONS
Pauze Funds (the "Trust") offers investors three fixed income funds which
seek to provide investors with a high total return (interest income plus or
minus realized and unrealized capital appreciation and depreciation)
consistent with preservation of capital and liquidity: the Pauze U.S.
Government Total Return Bond Fund (the "Total Return Fund"); the Pauze U.S.
Government Short Term Bond Fund (the "Short Term Fund"); and the Pauze U.S.
Government Intermediate Term Bond Fund (the "Intermediate Term Fund"). Each
Fund is designed to satisfy different needs, with its own separate and
distinct portfolio of U.S. Government and/or government agency securities
within prescribed maturity ranges. There is no assurance that the Funds will
be able to achieve their investment objectives.
Pauze U.S. Government Total Return Bond Fund
The Total Return Fund's investment objective is to achieve a rate of
total return (interest income plus or minus realized and unrealized capital
appreciation and depreciation) above the rate of other funds by investing
exclusively in securities backed by the full faith and credit of the United
States Government.
It is the investment policy of the Fund to invest exclusively in debt
securities that are backed by the full faith and credit of the United States
Government. Eligible securities may be issued by the United States Government
or by an agency of the United States Government provided they are backed by
the full faith and credit of the United States Government. The Fund may also
invest in repurchase agreements collateralized by such securities. Eligible
securities may be of varying maturities, based upon the investment adviser's
perception of market conditions, with no stipulated average maturity or
duration.
The United States Government's guarantee of ultimate payment of principal
and timely payment of interest of the United States Government securities
owned
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by the Fund does not imply that the Fund's shares are guaranteed or that
the price of the Fund's shares will not fluctuate.
Portfolio Securities
United States Treasury securities are backed by the full faith and credit
of the United States Government. These securities differ only in their
interest rates, maturities, timing of interest payments, and times of
issuance. Treasury bills have initial maturities of one year or less, do not
make semi-annual interest payments, and are purchased or sold at a discount
from their face value; Treasury notes have initial maturities of one to ten
years and pay interest semiannually; and Treasury bonds generally have initial
maturities of greater than ten years and pay interest semi-annually.
Among the bonds that may be purchased are GNMA Certificates (popularly
called "Ginnie Maes"). Ginnie Maes are backed by the full faith and credit of
the United States Government. Ginnie Maes are mortgage-backed securities
representing part ownership of a pool of mortgage loans which are insured by
the
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Federal Housing Administration or Farmers' Home Administration or
guaranteed by the Veterans' Administration. The Fund may invest in Ginnie
Maes of the "fully modified pass-through" type which are guaranteed as to the
timely payment of principal and interest by the Government National Mortgage
Association, a United States Government corporation. Interest and principal
payments (including prepayments) on the mortgages underlying mortgage-backed
securities are passed through to the holders of the mortgage-backed security.
Prepayments occur when a holder of the mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayments of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying securities vary, it is not possible to
predict accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect
on the yield and price of the securities. During periods of declining
interest rates, such prepayments can be expected to accelerate and the Fund
would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid and may result in a loss. As a result of these principal
payment features, mortgage-backed securities are generally more volatile
investments than other United States Government securities.
The Funds may also invest up to 5% of its assets in bonds that are "zero
coupon" United States Government securities (which have been stripped of their
unmatured interest coupons and receipts) or in certificates representing
undivided interests in stripped United States Government securities and
coupons. The Funds will only invest in "zeros" which are issued by the United
States Treasury and not those issued by broker-dealers or banks. The Funds
will not invest in Interest Only or Principal Only ("IOs" or "POs")
mortgage-backed securities or derivative products. Zero coupon securities
tend to be more sensitive to changes in interest rates than other types of
United States
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Government securities. As a result, a rise or fall in interest rates
will have a more significant impact on the market value of these securities.
Although zero coupon securities pay no interest to holders prior to maturity,
interest on these securities is accrued as income to the Funds and distributed
to their shareholders. These distributions must be made from the Funds' cash
assets, or, if necessary, from the proceeds of sales of portfolio securities.
Portfolio Management
The investment adviser will seek above average total return by
restructuring the average duration of the Fund's portfolio securities to take
advantage of anticipated changes in interest rates. When the investment
adviser believes that interest rates will fall, it will lengthen the average
duration of the Fund's portfolio securities to earn greater capital
appreciation. When the investment adviser believes that interest rates will
rise, it will shorten the average duration of the Fund's portfolio securities
to reduce capital depreciation and preserve capital.
Duration is the weighted average life of a Fund's debt instruments
measured on a present-value basis. It is generally superior to average
weighted maturity as a measure of a Fund's potential volatility due to
interest rate changes.
Unlike a Fund's average weighted maturity, which takes into account only
the stated maturity date of the Fund's debt instruments, duration represents a
weighted average of both interest and principal payments, discounted by the
current yield-to-maturity of the securities held. For example, a four year,
zero-coupon bond, which pays interest only upon maturity (along with
principal), has both a maturity and duration of 4 years. However, a four-year
bond priced at par with an 8% coupon has a maturity of 4 years but a duration
of 3.6 years (at an 8% yield), reflecting the bond's earlier payment of
interest.
In general, a bond with a longer duration will fluctuate more in price
than a bond with a shorter duration. Also, for small changes in interest
rates, duration serves to approximate the resulting change in a bond's price.
For example, a 1% change in interest rates will cause roughly a 4% move in the
price of a zero-coupon bond with a 4 year duration, while an 8% coupon bond
(with a 3.6 year duration) will change by approximately 3.6%.
The Fund's success at achieving its investment objective is dependent
upon the investment adviser correctly forecasting future changes in interest
rates. The investment adviser uses extensive fundamental and technical
analysis to formulate interest rate forecasts. However, there is no assurance
that the investment adviser will successfully forecast interest rates and, if
its forecasts are wrong, the Fund may suffer a loss of principal or fail to
fully participate in capital appreciation and the Fund may not have a yield as
high as it might have otherwise.
Pauze U.S. Government Intermediate Term Bond Fund
The Intermediate Term Fund has the same objectives and policies as set
forth above except (i) that, in addition to restructuring the average duration
of the Fund's portfolio, it will maintain an average weighted portfolio
maturity between three and ten years; (ii) that it may invest in securities
issued by U.S. Government agencies that are not backed by the full faith and
credit of the U.S. Treasury; and (iii) that it may invest in financial
futures and related options to hedge the portfolio assets in the Fund.
Pauze U.S. Government Short Term Bond Fund
The Short Term Fund has the same objectives and policies as set forth
above except (i) that, in addition to restructuring the average duration of
the Fund's portfolio, it will maintain an average weighted portfolio maturity
between one and three years; (ii) that it may invest in securities issued by
U.S. Government agencies that are not backed by the full faith and credit of
the U.S. Treasury; and (iii) that it may invest in financial futures and
related options to hedge the portfolio assets in the Fund.
Futures Contracts and Options
The Short Term Fund and the Intermediate Term Fund may invest in futures
contracts and option contracts provided that not more than 2.5% of their
assets are required as initial margin and premiums required to establish such
positions. A Fund may also enter into futures contracts and options
transactions only to the extent that obligations under such contracts or
transactions represent not more than 100% of a Fund's assets.
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Futures contracts and options may be used for several reasons: to hedge
securities held to effectively reduce the average weighted maturity; to
maintain cash reserves while remaining fully invested; to facilitate trading;
to reduce transaction costs; or to seek higher investment returns when a
futures contract is priced more attractively than the underlying security or
index. No Fund may use futures contracts or options transactions to leverage
assets.
Futures Contracts and Options Pose Certain Risks
The primary risks associated with the use of futures contracts and
options are: (i) imperfect correlation between the change in market value of
the U.S. Government securities held by a Fund and the prices of futures
contracts and options; and (ii) possible lack of a liquid secondary market for
a futures contract and the resulting inability to close a futures position
prior to its maturity date. The risk of imperfect correlation will be
minimized by investing only in those contracts whose price fluctuations are
expected to resemble those of a Fund's underlying securities. The risk that a
Fund will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and
liquid secondary market.
Objective and Policy Not Fundamental
Neither the investment objective nor the investment policy are
fundamental policies of the Funds and may be changed by the Board of Trustees
without shareholder approval. However, shareholders will be notified in
writing at least 30 days prior to any material change to either the Fund's
investment objective or its investment policy.
Repurchase Agreements
The Funds may invest a portion of their assets in repurchase agreements
with domestic broker-dealers, banks and other financial institutions, provided
the Funds' custodian always has possession of securities serving as collateral
or has evidence of book entry receipt of such securities. In a repurchase
agreement, a fund purchases securities subject to the seller's agreement to
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repurchase such securities at a specified time (normally one day) and
price. The repurchase price reflects an agreed-upon interest rate during the
time of investment. All repurchase agreements must be collateralized by
United States Government or government agency securities, the market values of
which equal or exceed 102% of the principal amount of the repurchase
obligation. If an institution enters insolvency proceedings, the resulting
delay in liquidation of securities serving as collateral could cause the fund
some loss if the value of the securities declined prior to liquidation. To
minimize the risk of loss, the Fund will enter into repurchase agreements only
with institutions and dealers which are considered creditworthy.
Lending of Portfolio Securities
The Funds may lend securities to broker-dealers or institutional
investors for their use in connection with short sales, arbitrages and other
securities transactions. The Funds will not lend portfolio securities unless
the loan is secured by collateral (consisting of any combination of cash and
United States Government securities) in an amount at least equal (on a daily
mark-to-market basis) to the current market value of the securities loaned.
In the event of a bankruptcy or breach of agreement by the borrower of the
securities, the Fund could experience delays and costs in recovering the
securities loaned. A Fund will not enter into securities lending agreements
unless its custodian bank/lending agent will fully indemnify a Fund against
loss due to borrower default. A Fund may not lend securities with an
aggregate market value of more than one-third of the Fund's total net assets.
SPECIAL CONSIDERATIONS
Interest Rate Sensitivity
The investment income of the Funds is based on the income earned on the
securities it holds, less expenses incurred; thus, a Fund's investment income
may be expected to fluctuate in response to changes in such expenses or
income. For example, the investment income of the Fund may be affected if it
experiences
15
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a net inflow of new money that is then invested in securities whose yield
is higher or lower than that earned on the then current investments.
Generally, the value of the securities held by the Fund, and thus the net
asset value ("NAV") of the Fund, will rise when interest rates decline.
Conversely, when interest rates rise, the value of fixed income securities,
and thus the NAV per share of the Fund, may be expected to decline. If the
Fund incorrectly forecasts interest rates, both the rate of return and the NAV
of the Fund may be adversely affected. As an example, if the Advisor
forecasts that interest rates are generally to go up, and accordingly shortens
the maturities of the instruments within the Fund and interest rates in fact
go down, then the interest income gained by the Fund will be less than if the
Fund had not shortened its maturities. Additionally, any capital gain that
might have been achieved because of the longer maturities would be less with
the shorter maturities. Additionally, should the Advisor incorrectly forecast
that interest rates are generally going down, lengthen its maturities of the
instruments within the Fund and interest rates in fact go up, then the value
of the longer maturities would decline more than those of the shorter
maturities. Thus, the NAV would also decline more. There is no assurance
that the Fund will be correct in its forecast of changes in interest rates nor
that the strategies employed by the Fund to take advantage of changes in the
interest rate environment will be successful in achieving its investment
objectives.
Borrowing
The Funds may borrow from a bank up to a limit of 5% of its total assets
for temporary or emergency purposes; and, it may borrow up to 33 1/3% of its
total assets (reduced by the amount of all liabilities and indebtedness other
than such borrowings) when deemed desirable or appropriate to meet redemption
requests. To the extent that a Fund borrows money prior to selling
securities, the Fund may be leveraged; at such times, the Fund may appreciate
or depreciate in value more rapidly than its benchmark index. The Funds will
repay any money borrowed in excess of 5% of the value of its total assets
prior to purchasing additional portfolio securities.
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When-Issued and Delayed Delivery Securities
The Funds may purchase debt obligations on a "when-issued" basis or may
purchase or sell securities for delayed delivery. In when-issued or delayed
delivery transactions, delivery of the securities occurs beyond normal
settlement period, but the Fund would not pay for such securities or start
earning interest on them until they are delivered. However, when a Fund
purchases securities on a when-issued or delayed delivery basis, it
immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure to deliver a security purchased on a when-issued basis
or delayed delivery basis may result in a loss or missed opportunity to make
an alternative investment. Depending on market conditions, a Fund's
when-issued and delayed delivery purchase commitments could cause its net
asset value per share to be more volatile, because such securities may
increase the amount by which the Fund's total assets, including the value of
when-issued and delayed delivery securities held by the Fund, exceed its net
assets.
12b-1 Fee
A separate plan of distribution has been adopted under Rule 12b-1 of the
Investment Company Act of 1940, for each Fund, with separate provisions for
each class of shares. With respect to the shares offered by this prospectus,
each plan provides that a Fund may pay a servicing or Rule 12b-1 fee of up to
0.25% of the Fund's average net assets (1/12 of 0.25% monthly) to persons or
institutions for performing certain servicing functions for Fund shareholders.
These fees will be paid periodically and will generally be based on a
percentage of the value of Fund shares held by the institution's clients. The
distribution plans allow the Funds to pay for or reimburse 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. See "Distribution Plan" in the Statement of Additional
Information.
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MANAGEMENT OF THE FUNDS
Trustees
The business and affairs of the Funds are managed by the Trust's Board of
Trustees. The Trustees establish policies, as well as review and approve
contracts and their continuance. The 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. (the "Advisor"), 14340 Torrey Chase Blvd., Suite 170,
Houston, Texas 77014, under an investment advisory agreement with the Trust
dated November 1, 1993, furnishes investment advisory and management services
to the Funds. The Advisor is a Texas corporation which was registered with
the Securities and Exchange Commission as an investment adviser in December
1993. Mr. Philip C. Pauze, the Funds' portfolio manager, is President and
controlling shareholder of the Advisor. He has managed the Total Return Fund
since commencement of operations in January 1994 and the Pauze Tombstone Fund
since May 1, 1997. Mr. Pauze has specialized in managing portfolios of United
States Government securities for 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
been its financial consultant 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. He is also a principal of GS2 Securities,
Inc., a broker-dealer.
Mr. David D. Jones, portfolio manager for the Pauze U.S. Government Short
Term Bond Fund and the Pauze U.S. Government Intermediate Term Bond Fund, and
assistant portfolio manager for the Pauze U.S. Government Total Return Bond
Fund and the Pauze Tombstone Fund, is an Executive Vice President and Director
of the Advisor. He 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 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 who was engaged in the private
practice of law from May 1994 to May 1996, when he became associated with the
Advisor. He is also a registered representative of GS2 Securities, Inc., a
registered broker-dealer.
The Advisor furnishes an investment program for the Funds, 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
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behalf of the Trust in the investments of the Funds.
The Advisory Agreement with the Trust provides for the Funds to pay the
Advisor an annual management fee equal to a percentage of the Fund's average
net assets (1/12 of the applicable percentage monthly) as follows: Total
Return Fund 0.60% on the the first $100 million, 0.50% on the next $150
million, 0.45% on the next $250 million and 0.40% on the net assets in excess
of $500 million; Intermediate Term Fund, 0.50%; and Short Term Fund, 0.50%.
Prior to June 1, 1996 the management fee payable to the advisor for the Total
Return Fund was as follows; 0.40% on the first $50 million and 0.24% on net
assets in excess of $50 million.
The Administrator
Declaration Service Company, ("DSC" or "Administrator") P.O. Box 844,
Conshohocken, PA 19428-0844 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.
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.
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These fees cover the usual transfer agency functions. In addition, the
Funds bear 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 the transfer
agent is paid.
DSC performs bookkeeping and accounting services, and determines the
daily net asset value for the Funds. 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.
On February 13, 1996, pursuant to the Fund's Distribution Plan, the Trust
entered into a Distribution Agreement with Declaration Distributors, Inc.
("DDI"), an affiliate of DSC, pursuant to which DDI has agreed to act as the
Trust's agent in connection with the distribution of Fund shares - - including
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, DDI
will
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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. As
the Trust adds other series in the future, then the Fund will pay 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.
HOW TO PURCHASE SHARES
This prospectus covers shares of the Funds offered on a no-load basis.
The minimum initial investment is $25,000. The minimum subsequent
investment is $50. The minimum initial investment for persons enrolled in an
automatic investment plan is $25,000 and the minimum subsequent investment
pursuant to such a plan is $30 per month per account. Accounts opened prior
to that date are subject to the prior minimum initial investment limitations.
Information on shares of the Funds offered on a different basis is
available from the Trust upon written request at the address set forth below
or by calling 1-800-327-7170.
You may invest in the following ways:
BY MAIL
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Send your application and check or money order, made payable to the Fund,
to Declaration Service Company, P.O. Box 844, Conshohocken, Pennsylvania
19428-0844.
When making subsequent investments, 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, and the Trust reserves the right to refuse to accept second party
checks.
BY TELEPHONE
Once your account is open, you may make investments by telephone by
calling 1-800-327-7170. The maximum telephone purchase is 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 seven
business days after the date of the transaction. 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 Funds by wire
transfer. To do so, call the Investor Information Department at
1-800-327-7170 for a confirmation number and wiring instructions.
To assure proper receipt, please be sure your bank included 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.
Funds must be credited to the Fund's account by 11:00 a.m. (Eastern
time) in order to be applied to purchase shares on that day. There are no
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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 also may charge wire fees for this service.
BY AUTOMATIC INVESTMENT PLAN
Once your account is open, you may make investments automatically by
completing the automatic investment plan form authorizing Pauze Funds 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 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 at least five business days before the change is to become
effective.
Additional Information About Purchases
All purchases of shares are subject to acceptance by the Trust and are
not binding until accepted. Pauze Funds reserves the right to reject any
application or investment. Orders become effective as of 4:00 p.m., Eastern
time, Monday through Friday, exclusive of business holidays.
Fees and charges associated with purchasing shares of the Funds are set
forth in the Trust's prospectuses. However, investors may purchase and sell
shares through registered broker-dealers who may charge additional fees for
their services.
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.
If checks are returned unpaid due to nonsufficient funds, stop payment or
other reasons, the Trust will charge $20 and you will be responsible for any
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loss incurred by the Trust with respect to cancelling the purchase. To
recover any such loss or charge, the Trust reserves the right, without further
notice, to redeem shares already owned by any purchaser whose order is
cancelled and such a purchaser may be prohibited from placing further orders
unless investments are accompanied by full payment by wire or cashier's check.
Investments paid for by checks drawn on foreign banks may be deferred
until such checks have cleared the normal collection process. In such
instances, any amounts charged to the Trust for collection procedures will be
deducted from the amount invested.
If the Trust incurs a charge for locating a shareholder without a current
address, such charge will be passed through to the shareholder.
Tax Identification Number
The Trust is required by Federal law to withhold and remit to the United
States Treasury a portion of the dividends, capital gains distributions and
proceeds of redemptions paid to any shareholder who fails to furnish the Trust
with a correct taxpayer identification number, who underreports dividend or
interest income or who fails to provide certification of tax identification
number. In order to avoid this withholding requirement, you must certify on
your application, or on a separate W-9 Form supplied by the Transfer Agent,
that your taxpayer identification number is correct and that you are not
currently subject to backup withholding or you are exempt from backup
withholding. For individuals, your taxpayer identification number is your
social security number.
Instructions to exchange or transfer shares held in established accounts
will be refused until the certification has been provided. In addition, the
Fund assesses a $50 administrative fee if the taxpayer identification number
is not provided by year end.
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Certificates
When you open your account, Pauze Funds will send you a confirmation
statement, which will be your evidence that you have opened an account with
Pauze Funds. The confirmation statement is non-negotiable, so if it is lost
or destroyed, you will not be required to buy a lost instrument bond or be
subject to other expense or trouble, as you would with a negotiable stock
certificate. Pauze Funds has determined that it will not issue negotiable
stock certificates.
HOW TO EXCHANGE SHARES
You have the privilege of exchanging into any of the Pauze Funds 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 their respective closing net asset values 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 in writing to exchange your shares. The
request must be signed exactly as the name appears on the registration.
(Before writing,
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read "Additional Information About Exchanges.")
Additional Information about Exchanges
(1) There 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.
(2) 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.
(3) Shares may not be exchanged unless you have furnished Pauze Funds
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.
(4) 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.
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<PAGE>
BY MAIL
You may mail a 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 order", your request 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 28); 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
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<PAGE>
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.
Special Redemption Arrangements
Special arrangements may be made by institutional investors, or on behalf
of accounts established by brokers, advisers, 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 Fund 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
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address in the last 30 days. Please notify the Fund 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
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.
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.
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.
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
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<PAGE>
refuse investments from shareholders who engage in short-term trading.
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 the Funds.
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.
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
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plan, UGMA/UTMA and retirement plan accounts, if, for a period of more
than three months, the account has a net asset value of $500 or less and the
reduction in value is not due to market fluctuation. 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.
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
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total redemption, it will be deducted from the shareholder's account.
Application forms and brochures describing these plans and services can
be obtained from the Transfer Agent by calling 1-800-327-7170.
Shareholder Services
DSC 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.
HOW SHARES ARE VALUED
Shares of a Fund are purchased or redeemed on a continuing basis at their
next determined net asset value per share. The net asset value per share of
each class of a Fund is calculated separately by DSC. Net asset value per
share for a class is determined and orders become effective as of 4:00 p.m.,
Eastern time, Monday through Friday, exclusive of business holidays on which
the NYSE is closed, by dividing the net assets of the Fund attributable to
that class of Shares by the total number of shares outstanding for that class.
In the event that the NYSE and other financial markets close earlier, as on
the eve of a holiday, the net asset value per share will be determined earlier
in the day at the close of trading on the NYSE.
The value of the Fund's assets is determined in accordance with certain
procedures and policies established by the Board of Trustees. All securities
(except securities with less than 60 days to maturity and repurchase
agreements) held by the Fund are valued at market value based on an
independent pricing service; and, in the event such service is not available,
at the mean between the most recent bid and ask prices as obtained from one or
more dealers that make markets in the securities. Short-term investments with
maturities of 60 days or less at the
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time of purchase ordinarily are valued on the basis of the amortized
cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. If the Advisor determines that amortized cost does
not reflect fair value of a security, the Board may select an alternative
method of valuing the security.
DIVIDENDS AND TAXES
The Trust/each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). By complying with the applicable provisions of the Code, the
Fund will not be subject to Federal income tax on its net investment income
and capital gain net income that are distributed to shareholders.
Dividends and capital gains will be calculated and distributed in the
same manner for all classes of shares of the Funds. The per share amount of
any income dividends will generally differ only to the extent that each class
is subject to different Rule 12b-1 fees.
All income dividends and capital gains distributions are normally
reinvested, without charge, in additional full and fractional no-load shares
of the Fund. Alternatively, investors may choose: (1) automatic reinvestment
of capital gains distributions in Fund shares and payment of income dividends
in cash; (2) payment of capital gains distributions in Fund shares and
automatic reinvestment of dividends in Fund shares; or (3) all income dividend
and capital gains distributions paid in cash. The share price of the
reinvestment will be the net asset value of the Fund shares computed at the
close of business on the date the dividend or distribution is paid. Dividend
checks returned to the Fund as being undeliverable and dividend checks not
cashed after 180 days will automatically be reinvested at the price of the
Fund on the day returned or on the 181st day, and the distribution option will
be changed to "reinvest."
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At the time of purchase, the share price of the Fund may reflect
undistributed net investment income, capital gains or unrealized appreciation
of securities. Any dividend or capital gains distribution paid to a
shareholder shortly after a purchase of shares will reduce the per share net
asset value by the amount of the distribution. Although in effect a return of
capital to the shareholder, these capital gains distributions are fully
taxable.
The Fund is subject to a non-deductible 4% excise tax calculated as a
percentage of certain undistributed amounts of taxable ordinary income and
capital gains net of capital losses. The Fund intends to make such
distributions as may be necessary to avoid this excise tax.
Dividends consisting of substantially all of the net income are declared
and paid monthly. Investors may request automatic redemption of dividend
income at each month or quarter end.
Dividends from taxable net investment income and distributions of net
short-term capital gains paid by the Fund are taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional shares
of the Fund. None of the dividends paid by the Fund are expected to qualify
for the 70% dividends received deduction available to corporations.
Distributions of net capital gains will be taxable to shareholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, regardless of the length of time the investor has held his shares.
Under Federal law, the income derived from obligations issued by the
United States Government and certain of its agencies and instrumentalities is
exempt from state income taxes. All states that tax personal income permit
mutual funds to pass through this tax exemption to shareholders provided
applicable diversification/threshold limits and reporting requirements are
satisfied.
Each January, the Fund will report to its shareholders as to the Federal
tax status of dividends and distributions paid or declared by the Fund during
the preceding calendar year.
34
<PAGE>
The foregoing discussion relates only to generally applicable Federal
income tax provisions in effect as of the date of this Prospectus.
Shareholders should consult their tax advisers about the status of
distributions from the Fund in their own states and localities. To assist in
this regard, each January the Fund will provide shareholders with a breakdown
of Fund assets and income for the year.
THE TRUST
The Pauze Funds (the "Trust") is an open-end management investment
company, which may consist of numerous separate, diversified, portfolios each
of which has its own investment objectives and policies.
The Trust was formed October 15, 1993, as a "business trust" under the
laws of the Commonwealth of Massachusetts. It is a "series" company which is
authorized to issue series of shares without par value, each series
representing interests in a separate portfolio, or to divide the shares of any
series into classes. Shares of three series have been authorized; and, each
series is authorized to issue four classes of shares. The Board of Trustees
of the Trust has the power to create additional series, or divide existing
series into two or more classes, at any time, without a vote of shareholders
of the Trust.
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.
Shareholders elect the Trustees of the Trust. Subject to Section 16(a)
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.
35
<PAGE>
Whether appointed or elected, a Trustee serves as Trustee of the Trust
for a period of six years. Notwithstanding the foregoing, the Trustees' terms
are staggered so that the terms of at least 25% of the Board of Trustees will
expire every three years. A Trustee whose term is expiring may be re-elected.
On any matter submitted to shareholders, shares of the portfolio entitle
their holder to one vote per share, irrespective of the relative net asset
values of each portfolio's shares. On matters affecting an individual
portfolio, a separate vote of shareholders of the portfolio is required. On
matters affecting an individual class of shares, a separate vote of
shareholders of the class is required. The SAI lists persons owning or
controlling more than 5% of the shares of any series or class. The CMT, by
virtue of its holdings, has had voting control over the Trust.
The portfolio's shares are fully paid and non-assessable by the Trust,
have no preemptive or subscription rights, and are fully transferable, with no
conversion rights.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders or
prospective shareholders, the Fund may compare its performance, either in
terms of its yield, total return or its yield and 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, to Moody's Bond Survey Bond Index, 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
36
<PAGE>
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 Fund's "yield" refers to the income generated by an investment in the
Fund over a 30-day (or one month) period (which period will be stated in the
advertisement). Yield is computed by dividing the net investment income per
share earned during the most recent calendar month by the maximum offering
price per share on the last day of such month. This income is then
"annualized." That is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each month over a
12-month period and is shown as a percentage of the investment.
For purposes of the yield calculation, interest income is computed based
on the yield to maturity of each debt obligation and dividend income is
computed based upon the stated dividend rate of each security in the Fund's
portfolio and all recurring charges are recognized.
The standard total return and yield 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.
These fees have the effect of reducing the actual return realized by
shareholders.
37
<PAGE>
PAUZE FUNDS
SHARES OFFERED BY THIS PROSPECTUS ARE SOLD
AT NET ASSET VALUE WITHOUT SALES COMMISSIONS
OR REDEMPTION FEES
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
Pauze U.S. Government Short Term Bond Fund
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co.
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428-0844
DISTRIBUTOR
Declaration Distributors, Inc.
P.O. Box 844
Conshohocken, PA 19428
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Be Sure to Retain This Prospectus.
It Contains Valuable Information.
38
<PAGE>
PART A -- THE PROSPECTUS
Included herein is the Prospectus for the
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
(Class B and C Shares)
<PAGE>
PAUZE FUNDS
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT
INTERMEDIATE TERM BOND FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
P.O. Box 844
Conshohocken, PA 19428-0844
1-800-327-7170
(Information, Shareholder Services and Requests)
PROSPECTUS
August 29, 1997
This prospectus presents information that a prospective investor should
know about the Pauze U.S. Government Total Return Bond Fund, the Pauze U.S.
Government Intermediate Term Bond Fund and the Pauze U.S. Government Short
Term Bond Fund, three series, mutual funds (the "Funds"), of Pauze Funds (the
"Trust") which seek to provide investors with a high total return consistent
with preservation of capital and liquidity within stated maturity ranges.
Each Fund is designed to satisfy different needs, with its own separate and
distinct portfolio of U.S. Government and/or government agency securities.
Read and retain this prospectus for future reference.
A Statement of Additional Information dated August 29, 1997, has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. The Statement is available free from Pauze Funds upon written
request at the address set forth above or by calling 1-800-327-7170.
This prospectus covers the offering of Class B (sold subject to a
contingent deferred sales charge) and Class C (sold subject to an on-going
trail commission) shares of the Funds. Information on other classes of shares
of the Funds offered on a different basis is available from Pauze Funds upon
written request at the address set forth above or by calling 1-800-327-7170.
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........................ 3
FINANCIAL HIGHLIGHTS................................ 8
INVESTMENT OBJECTIVES AND CONSIDERATIONS............11
SPECIAL CONSIDERATIONS..............................16
12b-1 Fee...........................................18
MANAGEMENT OF THE FUNDS.............................19
HOW TO PURCHASE SHARES..............................22
ALTERNATIVE PURCHASE PLANS..........................26
HOW TO EXCHANGE SHARES..............................30
HOW TO REDEEM SHARES................................32
HOW SHARES ARE VALUED...............................37
DIVIDENDS AND TAXES.................................38
THE TRUST...........................................40
PERFORMANCE INFORMATION.............................41
<PAGE>
SUMMARY OF FEES AND EXPENSES
The following summary is provided to assist you in understanding the
various costs and expenses a shareholder in a Fund could bear directly and
indirectly. Because Class B and Class C shares of Pauze U.S. Government
Total Return Bond Fund ("Total Return Fund"), Pauze U.S. Government
Intermediate Term Bond Fund ("Intermediate Term Fund") and Pauze U.S.
Government Short Term Bond Fund ("Short-Term Fund") shares were not offered
prior to August 1, 1996, annual operating expenses of said Funds are based on
expenses for the period from August 1, 1996 through December 31, 1996.
Shareholder transaction expenses for all Funds are expressed as a percentage
of the public offering price, cost per transaction or as otherwise noted.
Total Return Fund
Class Class
B C
Shareholder Transaction Expenses
Maximum Sales Load....................... None None
Maximum Contingent deferred
sales charge (as a percentage
of original purchase price
or redemption proceeds,
as applicable)(1)..................... 3.75% None
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)(2)
Management and Administrative Services .60% .60%
12b-1 Fees(3).. ....................... 1.00% 1.00%
Other Expenses, including
Transfer Agency and
Accounting Services Fees ............. .73% .73%
Total Fund Operating Expenses .......... 2.33% 2.33%
3
<PAGE>
Intermediate Term Fund
Class Class
B C
Shareholder Transaction Expenses
Maximum Sales Load(1).................... None None
Maximum Contingent deferred
sales charge (as a percentage
of original purchase price
or redemption proceeds,
as applicable)(2) .................... 3.75% None
Account Closing Fee
(does not apply to
exchanges)............................ $ 10 $ 10
Exchange fee............................. None None
Annual Fund Operating Expenses
Management and Administratives Services.. .50% .50%
12b-1 Fees (3)........................... 1.00% 1.00%
Other Expenses, including
Transfer Agency and
Accounting Services Fees ............... 1.68% 1.68%
Total Fund Operating Expenses ........... 3.18% 3.18%
4
<PAGE>
Short-Term Fund
Class Class
B C
Shareholder Transaction Expenses
Maximum Sales Load(1)................... None None
Maximum Contingent deferred
sales charge (as a percentage
of original purchase price
or redemption proceeds,
as applicable)(2)..................... 3.75% None
Account Closing Fee (does not apply to
exchanges)............................ $ 10 $ 10
Exchange fee............................. None None
Annual Fund Operating Expenses
(Net of Reimbursements)
Management and Administrative Services.. .50% .50%
12b-1 Fees (3).......................... 1.00% 1.00%
Other Expenses, including
Transfer Agency and Accounting
Services Fees ....................... 2.35% 2.03%
Total Fund Operating Expenses(4) ....... 3.85% 3.53%
A shareholder who requests delivery of redemption proceeds by wire will
be subject to a $10 charge. International wires will be higher.
Hypothetical Example of Effect on Fund Expenses
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return and redemption at the end of each period:
5
<PAGE>
CLASS B
Total Intermediate Short
Return Term Term
Fund Fund Fund
1 year.............. $ 72 $ 80 $ 87
3 years............. 118 142 161
5 years............. 160 201 232
10 years............ 233 318 380
CLASS C
Total Intermediate Short
Return Term Term
Fund Fund Fund
1 year.............. $ 34 $ 42 $ 46
3 years............. 83 108 119
5 years............. 135 177 194
10 years............ 277 359 391
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 will be substantially lower in percentage terms than this
illustration. The examples should not be considered a representation of past
or future expenses. Actual expenses may be more or less than those shown.
_______________________________________________________________________________
(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 treated as
no-load class shares. See "Alternative Purchase Plans."
(2) Annual fund operating expenses are based on the Total Return Fund's
historical expenses. Management fees are paid to Pauze, Swanson & Associates
Investment Advisors, Inc. d/b/a Pauze Swanson Capital Management Co. (the
"Advisor") for managing the Fund's investments. Administrative services fees
are paid to Declaration Service Company ("DSC" or "Administrator") for
administering the affairs of the Trust. The Fund incurs other expenses for
maintaining shareholder records, furnishing shareholder statements and
reports, and for
6
<PAGE>
other services. Transfer agency and accounting services fees are also
paid to DSC, and are not charged directly to individual shareholder accounts.
The Transfer Agent charges the Fund $18.00 per shareholder account per year
with a minimum monthly fee of $1,500 which increases to $2,000 over a two year
period. The account closing fee and small account charge will be paid by the
shareholder directly to the Transfer Agent which will, in turn, reduce its
charges to the Fund by a like amount. Please refer to the section entitled
"Management of the Fund" at page for further information.
(3) Annual Rule 12b-1 fees for the respective classes of shares may not
exceed the percentage set forth in the table under guidelines adopted by the
National Association of Securities Dealers, Inc. Further, Rule 12b-1 fees
applicable to Class B Share financing (0.75%), which are in addition to a
0.25% base, dropped to zero in relation to the applicability of the CDSC. See
"Alternative Purchase Plans."
(4) Net investment income is net of expense reimbursement of $0.14
and $0.11 for Class B and Class C for 1997, respectively. Had such
reimbursements not been made, the annualized expense ratio would have
been 6.01% and 5.55% for Class B and Class C for 1997, respectively, and
the net annualized investment income would have been (.20)% and (.28)%
for Class B and Class C for 1997, respectively.
***Ratios for periods less than one year are annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following per share data and ratios for a share of beneficial
interest outstanding throughout the period from September 3, 1996
(commencement of operations) through April 30, 1997, have been audited by
Price Waterhouse, LLP, the Fund's Independent Accountants whose unqualified
report on Financial Statements including this information is included in the
Fund's 1997 Annual Report to Shareholders which is incorporated by reference
into the SAI. The Financial Highlights should be read in conjunction with the
Financial Statements and Notes thereto included in the Annual Report. In
addition to the data set forth below, further information about performance of
the Fund is contained in the SAI and Annual Report which may be obtained
without charge. The related financial statements are available upon request
and have been included in the Statement of Additional Information ("SAI").
Selected data for a capital share outstanding throughout the period (from
commencement of operations through April 30, 1997), is as follows:
U.S. GOVERNMENT TOTAL RETURN BOND FUND
- -------------------------------------------------------
Class B
------------
September 3,
1996*
to
April 30,
1997
------------
Net asset value, beginning of period .. $ 10.00
--------
Income from investment operations:
Net investment income ............... 0.27
Net realized and unrealized gain
(loss) on investments ............. (0.16)
--------
Total from investment operations ...... 0.11
--------
Less distributions to shareholders:
Net investment income ............... (0.27)
Net realized gain on investments sold --
--------
Total distributions ................... (0.27)
-------
Net asset value, end of period ........ $ 9.84
========
Total investment return ............... 1.09%
Ratios/Supplemental Data:
Net assets, end of period (000's).... $ 387
Ratio of expenses to average
net assets*** ..................... 2.33%
Ratio of net income to average
net assets*** ..................... 3.82%
Portfolio turnover rate ............. 76.45%
- ------------
*Date of commencement of operations.
***Ratios for periods of less than one year are annualized.
8
<PAGE>
U.S. GOVERNMENT INTERMEDIATE TERM FUND
- -------------------------------------------------------------
Class B
------------------
September 3, 1996*
to
April 30, 1997
------------------
Net asset value, beginning of period ... $ 10.00
---------
Income from investment operations:
Net investment income ................ 0.18**
Net realized and unrealized
gain (loss) on investments ......... (0.15)
---------
Total from investment operations ....... 0.03
---------
Less distributions to shareholders:
Net investment income ................ (0.17)
Net realized gain on investments sold. (0.12)
---------
Total distributions .................... (0.29)
---------
Net asset value, end of period ......... $ 9.74
=========
Total investment return ................ 0.32%
Ratio/Supplemental Data:
Net assets, end of period (000's)..... $ 1,418
Ratio of expenses to average
net assets*** ...................... 3.18%**
Ratio of net income to average
net assets*** ....................... 2.64%**
Portfolio turnover rate .............. 447.36%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursement of $.001 per share.
Had such reimbursements not been made, the annualized expense ratio would
have been 3.20%, and the net annualized investment income would have been
2.62% for 1997.
***Ratios for periods of less than one year are annualized.
9
<PAGE>
U.S. GOVERNMENT SHORT TERM FUND
- ------------------------------------------------------------------------------
Class B Class C
------------------ -----------------
September 3, 1996* November 7, 1996*
to to
April 30, 1997 April 30, 1997
------------------ -----------------
Net asset value, beginning of period ... $ 10.00 $ 10.00
-------- --------
Income from investment operations:
Net investment income ................ 0.13 0.09
Net realized and unrealized gain
(loss) on investments .............. (0.03) (0.10)
---------- ---------
Total from investment operations ....... 0.10 (0.01)
---------- ---------
Less distributions to shareholders:
Net investment income ................ (0.13) (0.08)
Net realized gain on investments sold. (0.01) --
---------- ---------
Total distributions .................... (0.14) (0.08)
---------- ---------
Net asset value, end of period ......... $ 9.96 $ 9.91
======== ========
Total investment return ................ 1.05% (0.07)%
Ratios/Supplemental Data:
Net assets, end of period (000's) .... $ 177 $ 302
Ratio of expenses to average net
assets*** .......................... 3.85%** 3.53%**
Ratio of net income to average
net assets*** ...................... 1.96%** 1.74%**
Portfolio turnover rate .............. 395.58% 255.61%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursement of $0.14 and
$0.11 for Class B and Class C for 1997, respectively. Had such
reimbursements not been made, the annualized expense ratio would have
been 6.01% and 5.55% for Class B and Class C for 1997, respectively, and
the net annualized investment income would have been (.20%) and (.28%) for
Class B and Class C for 1997, respectively.
***Ratios for periods of less than one year are annualized.
10
<PAGE>
INVESTMENT OBJECTIVES AND CONSIDERATIONS
Pauze Funds (the"Trust") offers investors three fixed income funds which
seek to provide investors with a high total return (interest income plus or
minus realized and unrealized capital appreciation and depreciation)
consistent with preservation of capital and liquidity: the Pauze U.S.
Government Total Return Bond Fund (the "Total Return Fund"); the Pauze U.S.
Government Short Term Bond Fund (the "Short-Term Fund"); and the Pauze U.S.
Government Intermediate Term Bond Fund (the "Intermediate Term Fund"). Each
Fund is designed to satisfy different needs, with its own separate and
distinct portfolio of U.S. Government and/or government agency securities
within prescribed maturity ranges. There is no assurance that the Funds will
be able to achieve their investment objectives.
Pauze U.S. Government Total Return Bond Fund
The Total Return Fund's investment objective is to achieve a rate of
total return (interest income plus or minus realized and unrealized capital
appreciation and depreciation) above the rate of other funds by investing
exclusively in securities backed by the full faith and credit of the United
States Government.
It is the investment policy of the Fund to invest exclusively in debt
securities that are backed by the full faith and credit of the United States
Government. Eligible securities may be issued by the United States Government
or by an agency of the United States Government provided they are backed by
the full faith and credit of the United States Government. The Fund may also
invest in repurchase agreements collateralized by such securities. Eligible
securities may be of varying maturities, based upon the investment adviser's
perception of market conditions, with no stipulated average maturity or
duration.
The United States Government's guarantee of ultimate payment of principal
and timely payment of interest of the United States Government securities
owned by the Fund does not imply that the Fund's shares are guaranteed or that
the price of the Fund's shares will not fluctuate.
11
<PAGE>
Portfolio Securities
United States Treasury securities are backed by the full faith and credit
of the United States Government. These securities differ only in their
interest rates, maturities, timing of interest payments, and times of
issuance. Treasury bills have initial maturities of one year or less, do not
make semi-annual interest payments, and are purchased or sold at a discount
from their face value; Treasury notes have initial maturities of one to ten
years and pay interest semiannually; and Treasury bonds generally have initial
maturities of greater than ten years and pay interest semi-annually.
Among the bonds that may be purchased are GNMA Certificates (popularly
called "Ginnie Maes"). Ginnie Maes are backed by the full faith and credit of
the United States Government. Ginnie Maes are mortgage-backed securities
12
<PAGE>
representing part ownership of a pool of mortgage loans which are insured
by the Federal Housing Administration or Farmers' Home Administration or
guaranteed by the Veterans' Administration. The Fund may invest in Ginnie
Maes of the "fully modified pass-through" type which are guaranteed as to the
timely payment of principal and interest by the Government National Mortgage
Association, a United States Government corporation. Interest and principal
payments (including prepayments) on the mortgages underlying mortgage-backed
securities are passed through to the holders of the mortgage-backed security.
Prepayments occur when a holder of the mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayments of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying securities vary, it is not possible to
predict accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect
on the yield and price of the securities. During periods of declining
interest rates, such prepayments can be expected to accelerate and the Fund
would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid and may result in a loss. As a result of these principal
payment features, mortgage-backed securities are generally more volatile
investments than other United States Government securities.
The Funds may also invest up to 5% of its assets in bonds that are "zero
coupon" United States Government securities (which have been stripped of their
unmatured interest coupons and receipts) or in certificates representing
undivided interests in stripped United States Government securities and
coupons. The Funds will only invest in "zeros" which are issued by the United
States Treasury and not those issued by broker-dealers or banks. The Funds
will not invest in Interest Only or Principal Only ("IOs" or "POs")
mortgage-backed securities or derivative products. Zero coupon securities
tend to be more
13
<PAGE>
sensitive to changes in interest rates than other types of United States
Government securities. As a result, a rise or fall in interest rates will
have a more significant impact on the market value of these securities.
Although zero coupon securities pay no interest to holders prior to maturity,
interest on these securities is accrued as income to the Funds and distributed
to their shareholders. These distributions must be made from the Funds' cash
assets, or, if necessary, from the proceeds of sales of portfolio securities.
Portfolio Management
The investment adviser will seek above average total return by
restructuring the average duration of the Fund's portfolio securities to take
advantage of anticipated changes in interest rates. When the investment
adviser believes that interest rates will fall, it will lengthen the average
duration of the Fund's portfolio securities to earn greater capital
appreciation. When the investment adviser believes that interest rates will
rise, it will shorten the average duration of the Fund's portfolio securities
to reduce capital depreciation and preserve capital.
Duration is the weighted average life of a Fund's debt instruments
measured on a present-value basis. It is generally superior to average
weighted maturity as a measure of a Fund's potential volatility due to
interest rate changes.
Unlike a Fund's average weighted maturity, which takes into account only
the stated maturity date of the Fund's debt instruments, duration represents a
weighted average of both interest and principal payments, discounted by the
current yield-to-maturity of the securities held. For example, a four year,
zero-coupon bond, which pays interest only upon maturity (along with
principal), has both a maturity and duration of 4 years. However, a four-year
bond priced at par with an 8% coupon has a maturity of 4 years but a duration
of 3.6 years (at an 8% yield), reflecting the bond's earlier payment of
interest.
In general, a bond with a longer duration will fluctuate more in price
than a bond with a shorter duration. Also, for small changes in interest
rates, duration serves to approximate the resulting change in a bond's price.
For example, a 1% change in interest rates will cause roughly a 4% move in the
price of a zero-coupon bond with a 4 year duration, while an 8% coupon bond
(with a 3.6 year duration) will change by approximately 3.6%.
The Fund's success at achieving its investment objective is dependent
upon the investment adviser correctly forecasting future changes in interest
rates. The investment adviser uses extensive fundamental and technical
analysis to formulate interest rate forecasts. However, there is no assurance
that the investment adviser will successfully forecast interest rates and, if
its forecasts are wrong, the Fund may suffer a loss of principal or fail to
fully participate in capital appreciation and the Fund may not have a yield as
high as it might have otherwise.
Pauze U.S. Government Intermediate Term Bond Fund
The Intermediate Term Fund has the same objectives and policies as set
forth above except (i) that, in addition to restructuring the average duration
of the Fund's portfolio, it will maintain an average weighted portfolio
maturity between three and ten years; (ii) that it may invest in securities
issued by U.S. Government agencies that are not backed by the full faith and
credit of the U.S. Treasury; and (iii) that it may invest in financial
futures and related options to hedge the portfolio assets in the Fund.
Pauze U.S. Government Short Term Bond Fund
The Short-Term Fund has the same objectives and policies as set forth
above except (i) that, in addition tp restructuring the average duration of
the Fund's portfolio, it will maintain an average weighted portfolio maturity
between one and three years; (ii) that it may invest in securities issued by
U.S. Government agencies that are not backed by the full faith and credit of
the U.S. Treasury; and (iii) that it may invest in financial futures and
related options to hedge the portfolio assets in the Fund.
Futures Contracts and Options
For purposes of investment the Short-Term Fund and the Intermediate Term
Fund may invest in futures contracts and option contracts; provided, that not
more than 2.5% of their assets are required as initial margin and premiums
required to establish such positions. A Fund may also enter into futures
contracts and options transactions only to the extent that obligations under
such contracts or transactions represent not more than 100% of a Fund's
assets.
14
<PAGE>
Futures contracts and options may be used for several reasons to hedge
securities held to effectively reduce the average weighted maturity to
maintain cash reserves while remaining fully invested; to facilitate trading;
to reduce transaction costs; or to seek higher investment returns when a
futures contract is priced more attractively than the underlying security or
index. No Fund may use futures contracts or options transactions to leverage
assets.
Futures Contracts and Options Pose Certain Risks
The primary risks associated with the use of futures contracts and
options are: (i) imperfect correlation between the change in market value of
the U.S. Government securities held by a Fund and the prices of futures
contracts and options; and (ii) possible lack of a liquid secondary market for
a futures contract and the resulting inability to close a futures position
prior to its maturity date. The risk of imperfect correlation will be
minimized by investing only in those contracts whose price fluctuations are
expected to resemble those of a Fund's underlying securities. The risk that a
Fund will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and
liquid secondary market.
Objective and Policy Not Fundamental
Neither the investment objective nor the investment policy are
fundamental policies of the Funds and may be changed by the Board of Trustees
without shareholder approval. However, shareholders will be notified in
writing at least 30 days prior to any material change to either the Fund's
investment objective or its investment policy.
Repurchase Agreements
The Funds may invest a portion of its assets in repurchase agreements
with domestic broker-dealers, banks and other financial institutions, provided
the Funds' custodian always has possession of securities serving as collateral
or has evidence of book entry receipt of such securities. In a repurchase
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agreement, a fund purchases securities subject to the seller's agreement
to repurchase such securities at a specified time (normally one day) and
price. The repurchase price reflects an agreed-upon interest rate during the
time of investment. All repurchase agreements must be collateralized by
United States Government or government agency securities, the market values of
which equal or exceed 102% of the principal amount of the repurchase
obligation. If an institution enters insolvency proceedings, the resulting
delay in liquidation of securities serving as collateral could cause the fund
some loss if the value of the securities declined prior to liquidation. To
minimize the risk of loss, the Fund will enter into repurchase agreements only
with institutions and dealers which are considered creditworthy.
Lending of Portfolio Securities
The Funds may lend securities to broker-dealers or institutional
investors for their use in connection with short sales, arbitrages and other
securities transactions. The Funds will not lend portfolio securities unless
the loan is secured by collateral (consisting of any combination of cash and
United States Government securities) in an amount at least equal (on a daily
mark-to-market basis) to the current market value of the securities loaned.
In the event of a bankruptcy or breach of agreement by the borrower of the
securities, the Fund could experience delays and costs in recovering the
securities loaned. A Fund will not enter into securities lending agreements
unless its custodian bank/lending agent will fully indemnify a Fund against
loss due to borrower default. A Fund may not lend securities with an
aggregate market value of more than one-third of the Fund's total net assets.
SPECIAL CONSIDERATIONS
Interest Rate Sensitivity
The investment income of the Funds is based on the income earned on the
securities it holds, less expenses incurred; thus, a Fund's investment income
may be expected to fluctuate in response to changes in such expenses or
income.
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For example, the investment income of the Fund may be affected if it
experiences a net inflow of new money that is then invested in securities
whose yield is higher or lower than that earned on the then current
investments.
Generally, the value of the securities held by the Fund, and thus the net
asset value ("NAV") of the Fund, will rise when interest rates decline.
Conversely, when interest rates rise, the value of fixed income securities,
and thus the NAV per share of the Fund, may be expected to decline. If the
Advisor incorrectly forecasts interest rates, both the rate of return and the
NAV of the Fund may be adversely affected. As an example, if the Advisor
forecasts that interest rates are generally to go up, and accordingly shortens
the maturities of the instruments within the Fund and interest rates in fact
go down, then the interest income gained by the Fund will be less than if the
Fund had not shortened its maturities. Additionally, any capital gain that
might have been achieved because of the longer maturities would be less with
the shorter maturities. Additionally, should the Advisor incorrectly forecast
that interest rates are generally going down, lengthen its maturities of the
instruments within the Fund and interest rates in fact go up, then the value
of the longer maturities would decline more than those of the shorter
maturities. Thus, the NAV would also decline more. There is no assurance
that the Fund will be correct in its forecast of changes in interest rates nor
that the strategies employed by the Fund to take advantage of changes in the
interest rate environment will be successful in achieving its investment
objectives.
Borrowing
The Funds may borrow from a bank up to a limit of 5% of its total assets
for temporary or emergency purposes; and, it may borrow up to 33 1/3% of its
total assets (reduced by the amount of all liabilities and indebtedness other
than such borrowings) when deemed desirable or appropriate to meet redemption
requests. To the extent that a Fund borrows money prior to selling
securities, the Fund may be leveraged; at such times, the Fund may appreciate
or depreciate in value more rapidly than its benchmark index. The Funds will
repay any money borrowed in excess of 5% of the value of its total assets
prior to purchasing additional portfolio securities.
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When-Issued and Delayed Delivery Securities
The Funds may purchase debt obligations on a "when-issued" basis or may
purchase or sell securities for delayed delivery. In when-issued or delayed
delivery transactions, delivery of the securities occurs beyond normal
settlement period, but the Fund would not pay for such securities or start
earning interest on them until they are delivered. However, when a Fund
purchases securities on a when-issued or delayed delivery basis, it
immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure to deliver a security purchased on a when-issued basis
or delayed delivery basis may result in a loss or missed opportunity to make
an alternative investment. Depending on market conditions, a Fund's
when-issued and delayed delivery purchase commitments could cause its net
asset value per share to be more volatile, because such securities may
increase the amount by which the Fund's total assets, including the value of
when-issued and delayed delivery securities held by the Fund, exceed its net
assets.
12b-1 Fee
A separate plan of distribution has been adopted under Rule 12b-1 of the
Investment Company Act of 1940 for each Fund, with separate provisions for
each class of shares. With respect to the shares offered by this prospectus,
each plan provides that a Fund may pay a servicing or Rule 12b-1 fee of up to
0.25% of the Fund's average net assets (1/12 of 0.25% monthly) to persons or
institutions for performing certain servicing functions for Fund shareholders.
These fees will be paid periodically and will generally be based on a
percentage of the value of Fund shares held by the institution's clients. The
distribution plans allow the Funds to pay for or reimburse 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. With respect to Class B shares and Class C shares the
distribution plans allow the use of Fund assets allocable to those shares to
be used to pay additional Rule 12b-1 fees of up to 0.75% of said assets (1/12
of 0.75% monthly) to cover fees paid to broker-dealers for sales and
promotional services. See
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"Alternative Purchase Plans" at page and "12b-1 Plan of Distribution" in
the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
Trustees
The business and affairs of the Funds are managed by the Trust's Board of
Trustees. The Trustees establish policies, as well as review and approve
contracts and their continuance. The 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. (the "Advisor"), 14340 Torrey Chase
Blvd., Suite 170, Houston, Texas 77014, under an investment advisory
agreement with the Trust dated November 1, 1993, furnishes investment
advisory and management services to the Funds. The Advisor is a Texas
corporation which was registered with the Securities and Exchange
Commission as an investment adviser in December 1993. Mr. Philip C.
Pauze, the Funds' portfolio manager, is President and controlling
shareholder of the Advisor. He has managed the Total Return Fund since
commencement of operations in January 1994 and the Pauze Tombstone Fund
since May 1, 1997. Mr. Pauze has specialized in managing portfolios of
United States Government securities for 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 been its financial consultant 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. He is also a principal of GS2 Securities, Inc., a broker-dealer.
Mr. David D. Jones, portfolio manager for the Pauze U.S. Government Short
Term Bond Fund and the Pauze U.S. Government Intermediate Term Bond Fund, and
assistant portfolio manager for the Pauze U.S. Government Total Return Bond
Fund and the Pauze Tombstone Fund, is an Executive Vice President and Director
of the Advisor. He 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 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 who was engaged in the private
practice of law from May 1994 to May 1996, when he became associated with the
Advisor. He is also a registered representative of GS2 Securities, Inc.,
a registered broker-dealer.
The Advisor furnishes an investment program for the Funds, determines,
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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 Funds.
The Advisory Agreement with the Trust provides for the Funds to pay the
Advisor an annual management fee equal to a percentage of the Fund's average
net assets (1/12 of the applicable percentage monthly) as follows: Total
Return Fund 0.60% on the first $100 million, 0.50% on the next $150 million,
0.45% on the next $250 million and 0.40% on net assets in excess of $500
million; Intermediate Term Fund, 0.50%; and Short-Term Fund, 0.50%. Prior to
June 1,1996 the management fee payable to the Advisor for the Total Return
Fund was as follows: 0.40% on the first $50 million and 0.24% on net assets in
excess of $50 million.
The Administrator
Declaration Service Company, ("DSC" or "Administrator") P.O. Box 844,
Conshohocken, PA 19428-0844 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.
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
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minimum annual fee of $18,000 for the first year, $21,000 for the second
year and $24,000 thereafter. Prior to February 13, 1996, the Transfer Agency
Agreement between USSI and the Trust provided for the Trust to pay USSI an
annual fee of $25.00 per account with a minimum annual fee of $30,000; and, in
connection with obtaining/providing administrative services to the beneficial
owners of Trust shares through broker-dealers which provide such services and
maintain an omnibus account with USSI, the Trust paid to USSI a monthly fee
equal to one-twelfth (1/12) of 12.5 basis points (.00125) of the value of the
shares of the Trust held in accounts at the broker-dealer, which payment would
not exceed $2.08 multiplied by the average daily number of accounts holding
Trust shares at the broker-dealer.
These fees cover the usual transfer agency functions. In addition, the
Funds bear 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 the transfer
agent is paid.
DSC performs bookkeeping and accounting services, and determines the
daily net asset value for the funds. 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.
On February 13, 1996, pursuant to the Fund's Distribution Plan, the Trust
entered into a Distribution Agreement with Declaration Distributors, Inc.
("DDI"), an affiliate of DSC, pursuant to which DDI has agreed to act as the
Trust's agent in connection with the distribution of Fund shares - - including
acting as agent in states where designated agents are required, reviewing and
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filing all advertising and promotional materials and monitoring and
reporting to the Board of Trustees on Trust distribution plans. For such
services, DDI 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. As
the Trust adds other series in the future, then the Fund will pay 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.
HOW TO PURCHASE SHARES
This prospectus covers shares of the Funds offered subject to a
contingent deferred sales charge (Class B) and subject to an ongoing trail
commission (Class C).
The minimum initial investment is $1,000. The minimum subsequent
investment is $50. The minimum initial investment for persons enrolled in an
automatic investment plan is $100 and the minimum subsequent investment
pursuant to such a plan is $30 per month per account.
Shares of the Funds are offered continuously through the Trust's
principal underwriter, Declaration Distributors, Inc. (the "Distributor") and
through other participating broker-dealers or banks that have dealer
agreements with the Distributor. The participating broker-dealers receive
commissions consisting of that portion of the sales load remaining after the
dealer concession is paid to the representative. Such broker-dealers may be
deemed to be underwriters pursuant to the Securities Act of 1933.
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Shares of the Trust may be purchased through a registered representative
of a participating dealer or a participating bank ("Representative") by
placing an order for Fund shares with your Representative, completing and
signing the Account Application found in the back of this prospectus, and
mailing it, along with your payment.
Shares of the Funds may be purchased at a price equal to their net asset
value per share next determined after receipt of an order. When you place an
order for a Fund's shares, you must specify which class of shares you wish to
purchase. See "Alternative Purchase Plans."
All purchase orders received by the Distributor prior to the close of
regular trading on the Exchange -- generally 4:00 p.m., Eastern time -- will
be executed at that day's offering price. All purchase orders accepted after
the offering price is determined will be executed at the offering price
determined as of the close of regular trading on the Exchange on the next
trading day.
You may also invest in the following ways:
By Mail: Send your application and check or money order, made payable to
the Fund, to Declaration Service Company, P.O. Box 844, Conshohocken,
Pennsylvania 19428-0844.
When making subsequent investments, 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; and the Trust reserves the right to refuse to accept second party
checks.
By telephone: Once your account is open, you may make investments by
telephone by calling 1-800-327-7170. The maximum telephone purchase is ten
times the value of the shares owned, calculated at the last available net
asset value.
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Payment for shares purchased by telephone is due within three business
days after the date of the transaction. 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 Funds by
wiring funds. To do so, call the Investor Information Department at
1-800-327-7170 for a confirmation number and wiring instructions.
To assure proper receipt, please be sure your bank included 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.
Funds must be credited to the Fund's account by 4:00 p.m. (Eastern
time) in order to be applied to purchase shares on that day. 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.
By Automatic Investment Plan: Once your account is open, you may make
investments automatically by completing the automatic investment plan form
authorizing Pauze Funds 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 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 at least five business days before the
change is to become effective.
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Additional Information About Purchases
All purchases of shares are subject to acceptance by the Trust and are
not binding until accepted. Pauze Funds reserves the right to reject any
application or investment. Orders become effective as of 4:00 p.m., Eastern
time, Monday through Friday, exclusive of business holidays.
Information on shares of the Funds offered on a different basis is
available from the Trust upon written request at the address set forth below
or by calling 1-800-327-7170.
Fees and charges associated with purchasing shares of the Funds are set
forth in the Trust's prospectuses. However, investors may purchase and sell
shares through registered broker-dealers who may charge additional fees for
their services.
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.
If checks are returned unpaid due to nonsufficient funds, stop payment or
other reasons, the Trust will charge $20 and you will be responsible for any
loss incurred by the Trust with respect to cancelling the purchase. To
recover any such loss or charge, the Trust reserves the right, without further
notice, to redeem shares already owned by any purchaser whose order is
cancelled and such a purchaser may be prohibited from placing further orders
unless investments are accompanied by full payment by wire or cashier's check.
Investments paid for by checks drawn on foreign banks may be deferred
until such checks have cleared the normal collection process. In such
instances, any amounts charged to the Trust for collection procedures will be
deducted from the amount invested.
If the Trust incurs a charge for locating a shareholder without a current
address, such charge will be passed through to the shareholder.
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Tax Identification Number
The Trust is required by Federal law to withhold and remit to the United
States Treasury a portion of the dividends, capital gains distributions and
proceeds of redemptions paid to any shareholder who fails to furnish the Trust
with a correct taxpayer identification number, who underreports dividend or
interest income or who fails to provide certification of tax identification
number. In order to avoid this withholding requirement, you must certify on
your application, or on a separate W-9 Form supplied by the Transfer Agent,
that your taxpayer identification number is correct and that you are not
currently subject to backup withholding or you are exempt from backup
withholding. For individuals, your taxpayer identification number is your
social security number.
Instructions to exchange or transfer shares held in established accounts
will be refused until the certification has been provided. In addition, the
Fund assesses a $50 administrative fee if the taxpayer identification number
is not provided by year end.
Certificates
When you open your account, Pauze Funds will send you a confirmation
statement, which will be your evidence that you have opened an account with
Pauze Funds. The confirmation statement is non-negotiable, so if it is lost
or destroyed, you will not be required to buy a lost instrument bond or be
subject to other expense or trouble, as you would with a negotiable stock
certificate. Pauze Funds has determined that it will not issue negotiable
stock certificates.
ALTERNATIVE PURCHASE PLANS
The Trust offers two purchase plans by this prospectus.
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The first plan offers Class B shares with a contingent deferred sales
charge ("CDSC"). Under this plan 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 participating broker-dealer's fee or commission of 3.25%.
In order to assure that the Advisor is reimbursed for funding the
broker-dealer's fee, redemption of Class B shares are subject to a declining
CDSC as follows:
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-
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NOTES: B Shares convert to No Load Shares when CDSC expires; and any B
Shares purchased with reinvested dividends will also convert at the time of
the CDSC expiration. Each investment would be considered a new investment.
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. When the
CDSC fees become zero, the Class B shares are treated as no-load shares and
are not subject to additional Rule 12b-1 fees other than the base fee of
0.25%.
The second plan offers Class C shares where all of the purchase payment
for Class C shares is immediately invested in the Fund. To compensate the
broker-dealer for its sales and promotional efforts, plus its continuing
service
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to the Fund's shareholder the Fund pays the broker-dealer a continuing
annual fee of 0.75% (a distribution fee) of Fund assets attributable to Class
C shares; and, if the Broker/ Dealer provides additional Shareholder services,
it may receive a servicing fee of up to 0.25% of fund assets attributed to
Class C Shares. These Fees are paid pursuant to the Fund's Rule 12b-1 Plan.
The alternative purchase plans offered by the Trust enable you to choose
the class of shares that you believe will be most beneficial given the amount
of your intended purchase, the length of time you expect to hold the shares
and other circumstances. You should consider whether, during the anticipated
length of your intended investment in the Trust, the accumulated continuing
distribution and services fees on Class C shares would exceed the accumulated
Rule 12b-1 fees plus the CDSC on B shares purchased at the same time.
Representatives may receive different compensation for sales of Class A and B
shares than sales of Class C shares.
Class B shares are subject to lower Rule 12b-1 fees after they convert to
No Load Shares and, accordingly, are expected to receive correspondingly
higher dividends on a per share basis. You may wish to purchase Class B
shares if you expect to hold your shares for an extended period of time
because, depending on the number of years you hold the investment, the
continuing distribution and services fees on Class C shares eventually would
exceed the initial sales load plus the continuing services fee on Class B
shares during the life of your investment.
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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 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 in writing to exchange your shares.
The
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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 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.
(4) Shares may not be exchanged unless you have furnished Pauze Funds
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.
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(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 order" 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 33); 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,
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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.
Special Redemption Arrangements
Special arrangements may be made by institutional investors, or on behalf
of accounts established by brokers, advisers, 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.
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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 Fund 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 Fund
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 Funds may be subject to a CDSC
if the shares are redeemed within the holding period prescribed in the
applicable Distribution Plan. See "Alternative Purchase Plans" at page ____
for the applicable holding period.
(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
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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.
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 the Funds.
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,
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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.
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.
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:
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(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.
Application forms and brochures describing these plans and services can
be obtained from the Transfer Agent by calling 1-800-327-7170.
Shareholder Services
DSC 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.
HOW SHARES ARE VALUED
Shares of a Fund are purchased or redeemed on a continuing basis at
their next determined net asset value per share. The net asset value
per share of each class of a Fund is calculated separately by DSC. Net
asset value per share is determined and orders become effective as of
4:00 p.m., Eastern time, Monday through Friday, exclusive of business
holidays on which the NYSE are closed, by dividing the aggregate fair
value of the class of share's proportionate share of a Fund's assets,
less the class of share's proportional share of common expenses of the
Fund and the separate Rule 12b-1 fees and other expenses specifically
allocable to the class of shares , by the total number of
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shares outstanding. In the event that the NYSE and other financial
markets close earlier, as on the eve of a holiday, the net asset value
per share will be determined earlier in the day at the close of trading
on the NYSE.
The value of the Fund's assets is determined in accordance with
certain procedures and policies established by the Board of Trustees.
All securities (except securities with less than 60 days to maturity and
repurchase agreements) held by the Fund are valued based on an
independent pricing service; and, in the event such service is not
available, at the mean between the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities.
Short-term investments with maturities of 60 days or less at the time of
purchase ordinarily are valued on the basis of the amortized cost. This
involves valuing an instrument at its cost initially and, thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market
value of the instrument. If the Advisor determines that amortized cost
does not reflect fair value of a security, the Board may select an
alternative method of valuing the security.
DIVIDENDS AND TAXES
The Trust/each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By complying with the applicable provisions of
the Code, the Fund will not be subject to Federal income tax on its net
investment income and capital gain net income that are distributed to
shareholders.
Dividends and capital gains will be calculated and distributed in
the same manner for all classes of shares of the Funds. The per share
amount of any income dividends will generally differ only to the extent
that each class is subject to different Rule 12b-1 fees.
All income dividends and capital gains distributions are normally
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reinvested, without charge, in additional full and fractional
no-load shares of the Fund. Alternatively, investors may choose: (1)
automatic reinvestment of capital gains distributions in Fund shares and
payment of income dividends in cash; (2) payment of capital gains
distributions in Fund shares and automatic reinvestment of dividends in
Fund shares; or (3) all income dividend and capital gains distributions
paid in cash. The share price of the reinvestment will be the net asset
value of the Fund shares computed at the close of business on the date
the dividend or distribution is paid. Dividend checks returned to the
Fund as being undeliverable and dividend checks not cashed after 180
days will automatically be reinvested at the price of the Fund on the
day returned or on the 181st day, and the distribution option will be
changed to "reinvest."
At the time of purchase, the share price of the Fund may reflect
undistributed net investment income, capital gains or unrealized
appreciation of securities. Any dividend or capital gains distribution
paid to a shareholder shortly after a purchase of shares will reduce the
per share net asset value by the amount of the distribution. Although
in effect a return of capital to the shareholder, these capital gains
distributions are fully taxable.
The Fund is subject to a non-deductible 4% excise tax calculated as
a percentage of certain undistributed amounts of taxable ordinary income
and capital gains net of capital losses. The Fund intends to make such
distributions as may be necessary to avoid this excise tax.
Dividends consisting of substantially all of the net income are
declared and paid monthly. Investors may request automatic redemption
of dividend income at each month or quarter end.
Dividends from taxable net investment income and distributions of
net short-term capital gains paid by the Fund are taxable to
shareholders as ordinary income, whether received in cash or reinvested
in additional shares of the Fund. None of the dividends paid by the
Fund are expected to qualify for the 70% dividends received deduction
available to corporations. Distributions of net capital gains will be
taxable to shareholders as long-term capital gains,
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<PAGE>
whether paid in cash or reinvested in additional shares, regardless
of the length of time the investor has held his shares.
Under Federal law, the income derived from obligations issued by the
United States Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that
tax personal income permit mutual funds to pass through this tax
exemption to shareholders provided applicable diversification/threshold
limits and reporting requirements are satisfied.
Each January, the Fund will report to its shareholders as to the
Federal tax status of dividends and distributions paid or declared by
the Fund during the preceding calendar year.
In connection with the conversion of B Shares to No Load Shares when
the CDSC expires, the Fund believes the conversion is tax-exempt.
Shareholders may wish to consult with their own tax advisors. If in the
future the Fund believes the conversion may be taxable, it will advise
the Shareholders accordingly.
The foregoing discussion relates only to generally applicable
Federal income tax provisions in effect as of the date of this
Prospectus. Shareholders should consult their tax advisers about the
status of distributions from the Fund in their own states and
localities. To assist in this regard, each January the Fund will
provide shareholders with a breakdown of Fund assets and income for the
year.
THE TRUST
The Pauze Funds (the "Trust") is an open-end management investment
company, which may consist of numerous separate, diversified portfolios
each of which has its own investment objectives and policies.
The Trust was formed October 15, 1993, as a "business trust" under
the laws of the Commonwealth of Massachusetts. It is a "series" company
which is authorized to issue series of shares without par value, each
series representing interests in a separate portfolio, or to divide the
shares of any series into classes. Shares of three series have been
authorized; and, each series is authorized to issue four classes of
shares. The Board of Trustees of the Trust has the power to create
additional series, or divide existing series into two or more classes,
at any time, without a vote of shareholders of the Trust.
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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.
Shareholders elect the Trustees of the Trust. Subject to Section
16(a) 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.
Whether appointed or elected, a Trustee serves as Trustee of the
Trust for a period of six years. Notwithstanding the foregoing, the
Trustees' terms are staggered so that the terms of at least 25% of the
Board of Trustees will expire every three years. A Trustee whose term
is expiring may be re-elected.
On any matter submitted to shareholders, shares of the portfolio
entitle their holder to one vote per share, irrespective of the relative
net asset values of each portfolio's shares. On matters affecting an
individual portfolio, a separate vote of shareholders of the portfolio
is required. On matters affecting an individual class of shares, a
separate vote of shareholders of the class is required. The SAI lists
persons owning or controlling more than 5% of the shares of any series
or class. The CMT, by virtue of its holdings, has had voting control
over the Trust.
The portfolio's shares are fully paid and non-assessable by the
Trust, have no preemptive or subscription rights, and are fully
transferable, with no conversion rights.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders
or prospective shareholders, the Fund may compare its performance,
either in terms of its yield, total return or its yield and 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
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<PAGE>
Values, to Moody's Bond Survey Bond Index, 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 Fund's "yield" refers to the income generated by an investment
in the Fund over a 30-day (or one month) period (which period will be
stated in the advertisement). Yield is computed by dividing the net
investment income per share earned during the most recent calendar month
by the maximum offering price per share on the last day of such month.
This income is then "annualized." That is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each month over a 12-month period and is shown as a percentage
of the investment.
For purposes of the yield calculation, interest income is computed
based on the yield to maturity of each debt obligation and dividend
income is computed based upon the stated dividend rate of each security
in the Fund's portfolio and all recurring charges are recognized.
The standard total return and yield results may not take into
account the additional Rule 12b-1 fees for Class B and Class C shares.
The performance of said shares will be lower than that of other classes
of shares. Similarly, the results do not take into account recurring
and nonrecurring charges for optional
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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.
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PAUZE FUNDS
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND
FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co.
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428-0844
DISTRIBUTOR
Declaration Distributors, Inc.
P.O. Box 844
Conshohocken, PA 19428
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Be Sure to Retain This Prospectus.
It Contains Valuable Information.
<PAGE>
PART B -- STATEMENT OF ADDITIONAL INFORMATION
Included herein is the Statement of Additional Information for the
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
Pauze U.S. Government Short Term Bond Fund
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PAUZE FUNDS
PAUZE U. S. GOVERNMENT TOTAL RETURN BOND FUND
("TOTAL RETURN FUND")
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
("INTERMEDIATE TERM FUND")
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
("SHORT TERM FUND")
(COLLECTIVELY THE "FUNDS")
This Statement of Additional Information is not a prospectus but
should be read in conjunction with the Funds' prospectus dated August
29, 1997 (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 August 29, 1997.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION........................................ 4
INVESTMENT OBJECTIVES AND POLICIES......................... 5
Investment Restrictions........................... 5
PORTFOLIO TURNOVER......................................... 9
PORTFOLIO TRANSACTIONS..................................... 9
MANAGEMENT OF THE FUND.....................................10
PRINCIPAL HOLDERS OF SECURITIES............................11
INVESTMENT ADVISORY SERVICES...............................12
ADMINISTRATOR SERVICES.....................................12
TRANSFER AGENCY AND OTHER SERVICES.........................13
12b-1 PLAN OF DISTRIBUTION.................................13
ADDITIONAL INFORMATION ON REDEMPTIONS......................15
Suspension of Redemption Privileges...............15
CALCULATION OF PERFORMANCE DATA............................15
TAX STATUS.................................................16
CUSTODIAN..................................................18
INDEPENDENT ACCOUNTANTS....................................18
FINANCIAL STATEMENTS.......................................18
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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 three series within the Trust, each of which represents a
separate diversified portfolio of securities (collectively referred to
herein as the "Portfolios" or "Funds" and individually as a "Portfolio"
or "Fund").
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.
As more fully described under "The Trust" in the prospectus 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 who are not "interested persons" will stand for election in
1996. 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.
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.
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INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds'
investment objectives and policies in the Funds' Prospectus.
Investment Restrictions
A Fund will not change any of the following investment restrictions,
without, in either case, the affirmative vote of a majority of the
outstanding voting securities of the Fund, which, as used herein, means
the lesser of (1) 67% of the Fund's outstanding shares present at a
meeting at which more than 50% of the outstanding shares of the Fund are
represented either in person or by proxy, or (2) more than 50% of the
Fund's outstanding shares.
The Funds may not:
( 1) Issue senior securities.
( 2) Borrow money, except that the Fund may borrow not in excess of
33 1/3% of the total assets of the Fund from banks as a
temporary measure for extraordinary purposes.
( 3) Underwrite the securities of other issuers.
( 4) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities or
companies which invest in real estate).
( 5) Engage in the purchase or sale of commodities or commodity
contracts; except that each of the Intermediate Term Fund and
the Short Term Fund may invest in bond futures contracts and
options on bond futures contracts for bona fide hedging
purposes.
( 6) Lend its assets,except that purchases of debt securities in
furtherance of the Fund's investment objectives will not
constitute lending of assets and except that the Fund may lend
portfolio securities with an aggregate market value of not more
than one-third of the Fund's total net assets.(Accounts
receivable for shares purchased by telephone shall not be
deemed loans.)
( 7) Purchase any security on margin , except that it may obtain
such short-term credits as are necessary for clearance of
securities transactions. This restriction does not apply to
bona fide hedging activity in the Intermediate Term Fund and
Short Term Fund utilizing financial futures and related
options.
( 8) Make short sales.
( 9) Invest more than 25% of its total assets in securities of
companies principally engaged in any one industry, except that
this restriction does not apply to debt obligations of the
United States Government which are protected by the full faith
and credit of the United States Government.
(10) (a) Invest more than 5% of the value of its total assets in
securities of any one issuer, except such limitation shall not
apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities, or (b) acquire
more than 10% of the voting securities of any one issuer.
The following investment restrictions may be changed by the Board of
Trustees without a shareholder vote.
The Fund may not:
(11) Invest in warrants to purchase common stock.
(12) Invest in companies for the purpose of exercising control or
management
(13) Hypothecate, pledge, or mortgage any of its assets, except to
secure loans as a temporary measure for extraordinary purposes
and except as may be required to collateralize letters of
credit to secure state surety bonds.
(14) Participate on a joint or joint and several basis in any
trading account.
(15) Invest in any foreign securities.
(16) Invest more than 15% of its total net assets in illiquid
securities.
(17) Invest in oil, gas or other mineral leases.
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(18) In connection with bona fide hedging activities, invest more
than 2.5% of their assets as initial margin deposits or premiums for
futures contracts and provided that said Funds may enter into futures
contracts and option transactions only to the extent that obligations
under such contracts or transactions represent not more than 100% of a
Fund's assets.
If a percentage restriction is adhered to at the time of investment,
a later increase or decrease in percentage, resulting from a change in
values of portfolio securities or amount of net assets, will not be
considered a violation of any of the foregoing restrictions.
The following discussion of the investment objectives, policies and
risks associated with the Fund supplements the discussion in the
prospectus.
INTERMEDIATE TERM FUND AND SHORT TERM FUND USE OF
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts and options may be used for several reasons: to
hedge securities held to effectively reduce the average weighted
maturity; to maintain cash reserves while remaining fully invested; to
facilitate trading; to reduce transaction costs; or to seek higher
investment returns when a futures contract is priced more attractively
than the underlying security or index. No Fund may use futures
contracts or options transactions to leverage assets.
The Intermediate Term and Short Term Funds may purchase or sell
options on individual securities, and may enter into trading in options
on futures contracts, may purchase put or call options on futures
contracts, and may sell such options in closing transactions.
An option will not be purchased for a Fund if, as a result, the
aggregate initial margins and the premiums paid for all options and
futures contracts that a Fund owns would exceed 2.5% of its net assets
at the time of such purchase.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security
at a specified future time and at a specified price. Futures contracts
which are standardized as to maturity date and underlying financial
instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"), a U.S. Government
Agency.
Although futures contracts by their terms call for actual delivery
or acceptance of the underlying securities, in most cases the contracts
are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold"
or "selling" a contract previously "purchased") in an identical contract
to terminate the position. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of
the underlying security) if it is not terminated prior to the specified
delivery date. Minimal initial margin requirements are established by
the futures exchange and may be changed. Brokers may establish deposit
requirements which are higher than the exchange minimums. Futures
contracts are customarily purchased and sold on margin deposits which
may range upward from less than 5% of the value of the contract being
traded.
After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract price
changes, then to the extent that the margin on deposit does not satisfy
margin requirements, payment of additional "variation" margin will be
required. Conversely, change in the contract value may reduce the
required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to
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<PAGE>
and from the futures broker for as long as the contract remains
open. The Funds expect to earn interest income on their margin
deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators". Hedgers use the futures markets primarily
to offset unfavorable changes in the value of securities otherwise held
for investment purposes or expected to be acquired by them. Speculators
are less inclined to own the securities underlying the futures contracts
which they trade, and use futures contracts with the expectation of
realizing profits from fluctuations in the prices of underlying
securities. The Funds intend to use futures contracts only for bona
fide hedging purposes.
Regulations of the CFTC, as applicable to a Fund, require that all
of its futures transactions constitute bona fide hedging transactions.
A Fund will only sell futures contracts to protect securities it owns
against price declines or purchase contracts to protect against an
increase in the price of securities it intends to purchase. As evidence
of this hedging interest, it is expected that approximately 75% of its
futures contract purchases will be "completed", that is, equivalent
amounts of related securities will have been purchased or are being
purchased by the Fund upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control a Fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means
of hedging this exposure. While a Fund will incur commission expenses
in both opening and closing out futures positions, these costs usually
are lower than transaction costs incurred in the purchase and sale of
the underlying securities.
Restrictions on the Use of Futures Contracts
A Fund will not enter into futures contract transaction to the
extent that, immediately thereafter, the sum of its initial margin
deposits on open contracts and premiums paid for all options and futures
contracts exceed 2.5% of its net assets at the time of the transaction.
In addition, a Fund will not enter into futures contracts to the extent
that its outstanding obligations to purchase securities under these
contracts would exceed 100% of the Fund's total assets.
Risk Factors in Futures Transactions
Positions in futures contracts may be closed out only on an Exchange
which provides a secondary market for such futures. However, there can
be no assurance that a liquid secondary market will exist for any
particular futures contract at any specific time. Thus, it may not be
possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the
Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous
to do so. In addition, the Fund may be required to make delivery of the
instruments underlying futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on
the ability to effectively hedge it.
A Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid
secondary market.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. As a
result, a relatively small price movement in a futures contract may
result in immediate and substantial loss (as well as gain) to the
investor. For example, if at the time of purchase, 10% of the value of
the futures contract is deposited as margin, a subsequent 10% decrease
in the value of the futures contract would result in a total loss of the
margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss
equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However,
because the futures strategies of the Fund are engaged in only for
hedging purposes, Pauze Swanson Capital Management Co., the Funds'
Investment Advisor, does not believe that the Funds are subject to the
risks of loss frequently associated with leveraged
7
<PAGE>
futures transactions. The Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk
of imperfect or no correlation where the securities underlying futures
contracts have different maturities than the portfolio securities being
hedged. It is also possible that a Fund could both lose money on
futures contracts and also experience a decline in value of its
portfolio securities. There is also the risk of loss by a Fund of
margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the
end of a trading session. Once the daily limit has been reached in a
particular type of contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential
losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting
some futures traders to substantial losses.
Federal Tax Treatment of Futures Contracts
Except for transactions a Fund has identified as hedging
transactions, the Fund is required for Federal income tax purposes to
recognize as income for each taxable year its net unrealized gains and
losses on certain futures contracts held as of the end of the year as
well as those actually realized during the year. In most cases, any
gain or loss recognized with respect to a futures contract is considered
to be 60% long-term capital gain or loss and 40% short-term capital gain
or loss, without regard to the holding period of the contract.
Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by the Fund may affect
the holding period of such securities and, consequently, the nature of
the gain or loss on such securities upon disposition.
In order for a Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income; i.e.,
dividends, interest, income derived from loans of securities, gains from
the sale of securities or other income derived with respect to the
Fund's business of investment in securities or currencies. In addition,
with respect to tax years commencing before August 5, 1997, gains
realized on the sale or other disposition of securities held for less
than three months must be limited to less than 30% of the Fund's annual
gross income, provided, however, that for purposes of the 30% test, the
Internal Revenue Code of 1986, as amended, provides that losses on
securities underlying an option or a futures contract may be offset
against any gains realized on the disposition of the option or futures
contract. It is anticipated that any net gain realized from the closing
out of futures contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the 90%
requirement. It is anticipated that unrealized gains on futures
contracts which have been open for less than three months as of the end
of a Fund's fiscal year and which are recognized for tax purposes will
not be considered gains on sales of securities held less than three
months for the purpose of the 30% test.
The Fund will distribute to shareholders annually any net capital
gains which have been recognized for Federal income tax purposes
(including unrealized gains at the end of the Fund's fiscal year) on
futures transactions. Such distributions will be combined with
distributions of capital gains realized on the Fund's other investments
and shareholders will be advised on the nature of the transactions.
Segregated Assets and Covered Positions
When purchasing futures contracts, selling an uncovered call option,
or purchasing securities on a when-issued or delayed delivery basis, the
Funds will restrict cash, which may be invested in repurchase
obligations or liquid securities. When purchasing a stock index futures
contract, the amount of restricted cash or liquid securities, when added
to the amount deposited with the broker as margin, will be at least
equal to the market value of the futures
8
<PAGE>
contract and not less than the market price at which the futures
contract was established. When selling an uncovered call option, the
amount of restricted cash or liquid securities, when added to the amount
deposited with the broker as margin, will be at least equal to the value
of securities underlying the call option and not less than the strike
price of the call option. When purchasing securities on a when-issued
or delayed delivery basis, the amount of restricted cash or liquid
securities will be at least equal to the Fund's when-issued or delayed
delivery commitments.
The restricted cash or liquid securities will either be identified
as being restricted in the Fund's accounting records or physically
segregated in a separate account at the Trust's custodian. For the
purpose of determining the adequacy of the liquid securities which have
been restricted, the securities will be valued at market or fair value.
If the market or fair value of such securities declines, additional cash
or liquid securities will be restricted on a daily basis so that the
value of the restricted cash or liquid securities, when added to the
amount deposited with the broker as margin, equals the amount of such
commitments by a Fund.
Fund assets need not be segregated if the Fund "covers" the futures
contract or call option sold. For example, the Fund could cover a
futures or forward contract which it has sold short by owning the
securities or currency underlying the contract. The Fund may also cover
this position by holding a call option permitting the Fund to purchase
the same futures or forward contract at a price no higher than the price
at which the sell position was established.
A Fund could cover a call option which it has sold by holding the
same security underlying the call option. A Fund may also cover by
holding a separate call option of the same security or stock index with
a strike price no higher than the strike price of the call option sold
by the Fund. The Fund could cover a call option which it has sold on a
futures contract by entering into a long position in the same futures
contract at a price no higher than the strike price of the call option
or by owning the securities or currency underlying the futures contract.
The Fund could also cover a call option which it has sold by holding a
separate call option permitting it to purchase the same futures contract
at a price no higher than the strike price of the call option sold by
the Fund.
PORTFOLIO TURNOVER
Pauze Funds' Investment Advisor buys and sells securities for the
Fund to accomplish its investment objectives. The Funds' investment
policies may lead to frequent changes in investments, particularly in
periods of rapidly fluctuating interest rates. The Funds' investments
may also be traded to take advantage of perceived short-term disparities
in market values or yields among securities of comparable quality and
maturity.
A change in the securities held by a Fund is known as "portfolio
turnover." Portfolio turnover rates are set forth in the "Financial
Highlights" portion of the prospectus. High portfolio turnover in any
given year indicates a substantial amount of short-term trading, which
will result in payment by the Fund from capital of above-average amounts
of markups to dealers and could result in the payment by shareholders of
above-average amounts of taxes on realized investment gain. Any
short-term gain realized on securities will be taxed to shareholders as
ordinary income. See "Tax Status."
PORTFOLIO TRANSACTIONS
Applicable law requires that the Advisor, in executing portfolio
transactions and selecting brokers or dealers, seek the best overall
terms available. In assessing the terms of a transaction, consideration
may be given to various factors, including the breadth of the market in
the security, the price of the security and the financial condition and
execution capability of the broker or dealer (for a specified
transaction and on a continuing basis). When transactions are executed
in the over-the-counter market, it is intended generally to seek first
to deal with the primary market makers. However, the services of
brokers will be utilized if it is anticipated that the best overall
terms can thereby be obtained. Purchases of newly issued securities for
the Fund usually are placed with those dealers from
9
<PAGE>
which it appears that the best price or execution will be obtained.
Those dealers may be acting as either agents or principals.
As all portfolio securities transactions were executed with
principals, the Fund paid no brokerage fees for the period from May 1,
1995 through April 30, 1997.
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, 14340 Torrey Chase Blvd., Houston, Texas 77014.
Name and Address Trust position Principal Occupation
- ---------------- -------------- --------------------
Philip C. Pauze ** President and President of Pauze, Swanson &
14340 Torrey Chase Blvd Trustee Associates Investment
Suite 170 Advisors, Inc., d/b/a Pauze
Houston, Texas 77014 Swanson Capital Management
Co., an asset management firm
specializing in management of
fixed income portfolios since
April 1993. Owner of Philip C.
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 American Funeral Trust
(Series) since 1993.
Terence P. Smith** Secretary and President and Chief Operating
Suite 6160, 555 North Lane Trustee Officer of the companies of
Conshohocken, PA 19428 the Declaration Group
(including Declaration Service
Company, which provides the
Trust's transfer agency,
accounting and administrative
services and Declaration
Distributors, Inc., a
registered broker-dealer,
which 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.
** This Trustee may be deemed an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
10
<PAGE>
Paul Hilbert Trustee Attorney with the firm of Paul
2301 FM 1960 West J. Hilbert & Associates.
Houston, TX 77068 Legislator, Texas House of
Representatives since 1982:
House Ways and Means
Committee, House
Appropriations Committee,
House Committee on Business
and Commerce. Affiliate of
First American Title, Title
USA and Stewart Title.
Economic development
consultant to Houston Lighting
and Power. Associate of the
business consulting firm of
Louie Welch & Associates.
Board of Directors of the
Houston Northwest Chamber of
Commerce.
Gordon Anderson Trustee Business Consultant.
1806 Elk River Rd. Superintendent of Schools,
Houston, Texas 77090 Spring Independent School
District, Houston, Texas from
May 1, 1981 to June 30, 1977.
Board of Directors, Houston
Northwest Chamber of Commerce.
Wayne F. Collins Trustee Retired. From September 1991
32 Autumn Crescent to February 1994 was Vice
The Woodlands, TX 77381 President of Worldwide
Business Planning of the
Compaq Computer Corporation.
Served Compaq Computer
Corporation as 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.
Robert J. Pierce Trustee Chief Operating Officer and
1660 Silverado Trail Vice President of Northern
Napa, CA 94559 California for the Western
Division of Stewart
Enterprises since June 10,
1997; prior thereto President,
Richard Pierce Funeral
Service. President, Funeral
Directors Service Corp.
Paul L. Giorgio Chief Accounting Chief Financial Officer of the
Suite 6160, 555 North Lane Officer, Treasurer companies of the Declaration
Conshohocken, PA 19428 Group (including DSC) since
1994. CPA, served on staff of
Sanville & Company, Abington,
PA from 1986 to 1993.
PRINCIPAL HOLDERS OF SECURITIES
Other than indicated below, as of August 7, 1997, the Officers and
Trustees of the Trust, as a group, owned less than 1% of the outstanding
shares of the Pauze Funds. The Trust is aware of the following persons
who owned of record, or beneficially, more than 5% of the outstanding
shares of the Pauze Funds at August 1, 1997:
Name & Address Type of
Class of Owner % Owned Ownership
- ----- -------------- ------- ---------
Pauze U.S. Government Total Return Fund
---------------------------------------
No Load Donaldson Lufkin Jenrette 6% Record
SEC Corp.
Pershing Division
Jersey City, NJ 07303
No Load Mechanics Bank of Richmond, TTEE 81% Record
FBO California Master Trust
Richmond, CA 94806
Class B WestAmerica Bank 19% Record
Hadley Funeral Chapels
Fairfield, CA 94585
Class B WestAmerica Bank 49% Record
Kapin/San Fernando Mortuary
Fairfield, CA 94585
Class B WestAmerica Bank 15% Record
Whitehurst Stephens & Bears
Fairfield, CA 94585
Class B WestAmerica Bank 8% Record
Whitehurst/Sullivan
Fairfield, CA 94585
Class B WestAmerica Bank 9% Record
Whitehurst/Loyd
Fairfield, CA 94585
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
No Load Donaldson Lufkin Jenrette 9% Record
SEC Corp.
Pershing Division
Jersey City, NJ 07303
No Load Saxon & Co. 27% Record
FBO PA Funeral
Philadelphia, PA 19182
No Load Liberty Bank & Trust Co. 63% Record
Agent for Cooper Funeral Homes
Tulsa, OK 74102
Class B WestAmerica Bank 13% Record
Hadley Funeral Chapels
Fairfield, CA 94585
Class B WestAmerica Bank 34% Record
Kapin/San Fernando Mortuary
Fairfield, CA 94585
Class B Unit & Co., US Nat'l Bank of Oregon 27% Record
FBO Perl Siskiyou Funeral Homes
Portland, OR 97208
Class B WestAmerica Bank 10% Record
Whitehurst Stephen
Fairfield, CA 94585
Class B WestAmerica Bank 6% Record
Whitehurst Loyd
Fairfield, CA 94585
Class B WestAmerica Bank 5% Record
Whitehurst Sullivan
Fairfield, CA 94585
Pauze U.S. Government Short Term Bond Fund
------------------------------------------
No Load Donaldson Lufkin Jenrette 9% Record
SEC Corp.
Pershing Division
Jersey City, NJ 07303
No Load Mercantile Bank, TTEE FBO 36% Record
American Funeral Trust/Iowa
St. Louis, MO 63166
No Load Tulsa & Co., FBO Pinnacle Mgt. 25% Record
American Funeral Plan/TX
Tulsa, OK 74101
No Load Liberty Bank & Trust Co. 26% Record
Agent for Cooper Funeral Homes
Tulsa, OK 74102
Class B Unit & Co., US Nat'l Bk. of Oregon 100% Record
FBO Perl Siskiyou Funeral Homes
Portland, OR 97208
Class C WestAmerica Bank 8% Record
Whitehurst Sullivan
Fairfield, CA 94585
Class C WestAmerica Bank 9% Record
Whitehurst Loyd
Fairfield, CA 94585
Class C WestAmerica Bank 19% Record
Hadley Funeral Chapels
Fairfield, CA 94585
Class C WestAmerica Bank 49% Record
Whitehurst Sullivan
Fairfield, CA 94585
Class C WestAmerica Bank 7% Record
Whitehurst Stephens & Bean
Fairfield, CA 94585
11
<PAGE>
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 in May 1996. The terms of the votes approving the Advisory
Agreement provide that it will continue until October 31, 1997, 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 Intermediate Term Fund and
the Short Term Fund during March 1996.
For the period from July 1, 1994 through April 30, 1995, and the
fiscal years ended April 30, 1996 and 1997 the Trust paid the Advisor
fees (net of expenses paid by the Advisor or fee waivers) of $37,029,
$238,478 and $422,461, respectively.
For a more complete description, see "Management of the Funds" 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
12
<PAGE>
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 the period from February 13
to April 30, 1996 and the fiscal year ended April 30, 1997 the Trust paid DSC
administrative fees of $5,103 and $107,064, respectively.
Prior to February 13, 1996, administrative services were provided by
United Services Advisors Inc. ("USAI").
For a more complete description, see "Management" in the prospectus.
The Trust shall pay 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 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. For the period from
February 13 to April 30, 1996 and the fiscal year ended April 30, 1997
the Trust paid DSC Transfer agent fees of $3,828 and $17,105, respectively
and accounting fees of $4,678 and $89,545, respectively.
Prior to February 13, 1996, the transfer agency and accounting
services were provided by United Shareholder Services Inc. ("USSI"), as
subsidiary of USAI.
12b-1 PLAN OF DISTRIBUTION
As described under "12b-1 Fee" in the Funds' prospectuses, in March
1996 the Trustees approved adoption and/or continuation of Distribution
Plans pursuant to Rule 12b-1 under the 1940 Act (the "Distribution
Plans"). The Distribution Plan allows the Fund to pay for or reimburse
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: printing and distribution of prospectuses 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.
13
<PAGE>
Each Fund's Distribution Plan(s) provides for a "Base Amount for all
Classes of Shares" reciting that Fund assets may be utilized to pay for
or reimburse expenditures in connection with personal and administrative
services provided to prospective and exiting Fund shareholders, provided
the total amount expended pursuant to this Plan does not exceed 0.25% of
net assets on an annual basis. Subject to the 0.25% limit the Rule
12b-1 Plans also provide expenditures may be made for sales and
promotional services on No Load Shares.
Each Fund's Distribution Plan(s) 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
cover fees paid to broker-dealers for sales and promotional services
related to distribution of said shares as follows:
The following Table applies to the Short Term Fund, the Intermediate
Term Fund, and the Total Return Fund.
Gross Commission 3.75%
Annual Rule 12b-1 Fee 0.75%
(paid for 7 years)
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 No Load Shares when CDSC expires. Each
Investment would be considered a new investment.
Each Fund's Distribution Plan(s) also provides for an "Additional
Amount for Class C Shares" reciting that Fund assets attributable to
Class C Shares in specific shareholder accounts will be utilized to pay
ongoing annual fees to broker-dealers for sales and promotional services
related to distribution of said shares in the amount of 0.75% of average
Fund assets.
14
<PAGE>
Expenses which the Fund incurs pursuant to the Distribution Plans
are reviewed quarterly by the Board of Trustees. On an annual basis the
Distribution Plans are 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 Plans, 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 a Distribution Plan will benefit the Fund and its
shareholders. A 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 voting securities 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 may be terminated on 60 days'
written notice by either party and will terminate automatically if it is
assigned. For the period from February 13 to April 30, 1996 and the
fiscal year ended April 30, 1997 the Trust paid DDI $4,253 and $20,000,
respectively, pursuant to the Distribution Agreement.
Except for Mr. Smith, the Trust is unaware of any Trustee or any
interested person of a Fund who has a direct or indirect financial
interest in the operations of the Distribution Plans.
The Trust expects that the Distribution Plans 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 Funds 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 closings, 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.
15
<PAGE>
CALCULATION OF PERFORMANCE DATA
Total Return
A 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 the prospectus on the reinvestment
dates during the period, and includes all recurring fees that are
charged to all shareholder accounts.
The total return for the Total Return Fund No-load shares and class
B shares for the Fiscal year ended April 30, 1997 was .80% and 1.09%,
respectively.
The total return for the Intermediate Term Fund No-load shares and
class B shares for the Fiscal year ended April 30, 1997 was (.12)% and
.32%, respectively.
The total return for the Short Term Fund No-load shares, class B
shares, and class C shares for the Fiscal year ended April 30, 1997 was
1.25%, 1.05%, and (.07)%, respectively.
Yield
A Fund may also advertise performance in terms of a 30 day yield
quotation. The 30 day yield quotation is computed by dividing the net
investment income per share earned during the period by the maximum
offering price per share on the last day of the period according to the
following formula:
YIELD = 2 [ (A - B + 1)6 - 1]
-----
CD
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of reimbursement)
C = the average daily number of shares outstanding during
the period that were entitled to receive dividends
D = the maximum offering price per share on the last day
of the period
The Total Return Fund's 30-day yield for No-load shares and class B
shares for the 30 days ending April 30, 1997 was 4.70% and 3.92%,
respectively.
The Intermediate Term Fund's 30-day yield for No-load shares and
class B shares for the 30 days ending April 30, 1997 was 2.95% and
2.21%, respectively.
The Short Term Fund's 30-day yield for No-load shares, class B
shares, and class C shares for the 30 days ending April 30, 1997 was
2.66%, 1.92%, and 1.91%, respectively.
Nonstandardized Total Return
A 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.
16
<PAGE>
TAX STATUS
Taxation of the Funds -- In General
As stated in its prospectus, each Fund intends to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, each 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, each 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) for tax years commencing before August 5, 1997 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.
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 Funds intend to make such distributions as
are necessary to avoid imposition of this excise tax.
Taxation of the Funds' Investments
For federal income tax purposes, debt securities purchased by the
Funds may be treated as having original issue discount. Original issue
discount represents interest for federal income tax purposes and can
generally be defined as the excess of the stated redemption price at
maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as earned by the
Fund, whether or not any income is actually received, and therefore, is
subject to the distribution requirements of the Code. Generally, the
amount of original issue discount is determined on the basis of a
constant yield to maturity which takes into account the compounding of
accrued interest. Under Section 1286 of the Code, an investment in a
stripped bond or stripped coupon will result in original issue discount.
Debt securities may be purchased by a Fund at a discount which
exceeds the original issue price plus previously accrued original issue
discount remaining on the securities, if any, at the time the Fund
purchases the securities. This additional discount represents market
discount for income tax purposes. In the case of any debt security
issued after July 18, 1984, having a fixed maturity date of more than
one year from the date of issue and having market discount, the gain
realized on disposition will be treated as interest income for purposes
of the 90% test to the extent it does not exceed the accrued market
discount on the security (unless the Fund elects to include such accrued
market discount in income in the tax year to which it is attributable).
Generally, market discount is accrued on a daily basis.
A Fund may be required to capitalize, rather than deduct currently,
part or all of any direct interest expense incurred to purchase or carry
any debt security having market discount unless the Fund makes the
election to include market discount currently. Because a Fund must take
into account the original issue discount for purposes of satisfying
various requirements for qualifying as a regulated investment company
under Subchapter M of the Code, it will be more difficult for the Fund
to make the distributions to maintain such status and to avoid the 4%
excise tax described above. To the extent that a Fund holds zero-coupon
or deferred interest bonds in its portfolio or bonds paying interest in
the form of additional debt obligations, the Fund would recognize income
currently even though the Fund received no cash payment of interest, and
would need to raise cash to satisfy the obligations to distribute such
income to shareholders from sales of portfolio securities.
17
<PAGE>
A Fund may purchase debt securities at a premium (i.e., at a
purchase price in excess of face amount). The premium may be amortized
if the Fund so elects. The amortized premium on taxable securities is
allowed as a deduction, and, for securities issued after September 27,
1985, must be amortized under an economic accrual method.
All Shareholders will be notified annually regarding the tax status
of distributions received from a Fund.
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 a Fund pays the dividends during the
following January. Since none of the net investment income of the Fund
is expected to arise from dividends on domestic common or preferred
stock, none of the Funds' distributions will qualify for the 70%
corporate dividends-received deduction.
Distributions by a 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 a
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.
A shareholder of a 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 a 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 a Fund.
CUSTODIAN
Star Bank NA, Cincinnati, Ohio has agreed to act as custodian for the
trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 30 South Seventeenth Street, Philadelphia, PA
19103 have been the independent accountants for the Trust.
FINANCIAL STATEMENTS
The Trust was established on October 15, 1993 and commenced offering
shares of the Total Return Fund in January 1994. In addition, the Trust
commenced offering Class B and C shares of the Total Return Fund and
No-load, Class B and Class C shares of the Intermediate Term Fund and
Short Term Fund in August 1996. The financial statements for the Total
Return Fund
18
<PAGE>
fiscal year ended April 30, 1997 and for the new series and classes
of shares for the period from August 1, 1996 through April 30, 1997 are
hereby incorporated by reference from the Annual Report to Shareholders
of that date which has been delivered with this Statement of Additional
Information [unless previously provided, in which event the Trust will
promptly provide another copy, free of charge, upon request to:
Declaration Service Company, P.O. Box 844, Conshohocken, Pennsylvania
19428-0844, 1-800-327-7170].
19
<PAGE>
PART C -- OTHER INFORMATION
Included herein is Part C for
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
<PAGE>
PAUZE FUNDS
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
( 1) (a) The audited financial highlights with
respect to the No-Load Class of the Total
Return Fund for the twelve months ended
April 30, 1996 and 1997, the ten months
ended April 30, 1995, and the period January
10, 1994 through June 30, 1994, are found in
Part A.
(b) The audited financial highlights with
respect to the Class B and Class C shares of
the Total Return Fund, and the No-Load and
Class B shares of the Intermediate Term
Fund, and the No-Load, Class B and Class C
shares of the Short Term Fund for the period
from August 1, 1996 (initial public offering)
through April 30, 1997, are found in Part A.
( 2) The audited financial statements as of and
for the twelve months ended April 30, 1997,
are incorporated by reference to the Trust's
Annual Report to Shareholders in Part B.
(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).
(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) (a) Distribution Agreement among Registrant,
Declaration Distributors, Inc. and Pauze
Swanson Capital Management Co., dated
February 13, 1996,(incorporated by reference
to Post-Effective Amendment#5 filed February
15, 1996).
(b) Letter Agreement adding Pauze Tombstone
Fund to Distribution Agreement is filed
herewith.
( 7) Not Applicable
( 8) Custodian Agreement between Registrant and
Star Bank N.A. dated August 1, 1996
(incorporated by reference to Post-Effective
Amendment #7 filed July 1996).
( 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).
2
<PAGE>
(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) (a)* Consent of Independent Accountants,
filed herewith.
(11) (b)* Power of Attorney filed herewith.
(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).
(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, 1997).
(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, filed herewith.
(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).
* Filed Herewith
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."
3
<PAGE>
ITEM 26. Number of Holders of Securities
The number of record holders, as of August 7, 1997, of each class of
securities of the Registrant.
Title of Class &
Number of Record
Holders
Pauze U.S. Government Total Return Bond Fund No-Load 30
Class A 0
Class B 5
Class C 0
Pauze U.S. Government Short Term Bond Fund No-Load 7
Class A 0
Class B 1
Class C 5
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 69
Class B 60
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 wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
such Covered Person'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 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, Texas 77014
President and Member of the Board of Directors:
Period 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 Ave., 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, Texas 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 Ave., Suite 800
Milwaukee, WI 53202
Licensed Registered Representative: June 1, 1996 to Present.
Previous Affiliation:
COX & SMITH INCORPORATED
112 East Pecan St.
San Antonio, Texas 78205
Associate Attorney: March 1, 1994 to June 1, 1996.
Patricia S. Dobson
Current Affiliations:
PAUZE, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(tm)
14340 Torrey Chase, Suite 170
Houston, Texas 77014
Vice President: December 1996 to Present.
Corp. 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 Ave., Suite 800
Milwaukee, WI 53202
Licensed Registered Representative: 1993 to Present.
4
<PAGE>
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. 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.
5
<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 Houston, state of Texas, on the 29th day of
August, 1997.
PAUZE FUNDS
By: /S/ PHILIP C. PAUZE
-------------------------------
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
- --------- ----- ----
*/S/ GORDON ANDERSON Trustee August 29, 1997
- ---------------------
Gordon Anderson
*/S/ WAYNE F. COLLINS Trustee August 29, 1997
- ---------------------
Wayne F. Collins
*/S/ PAUL HILBERT Trustee August 29, 1997
- ---------------------
Paul Hilbert
/S/ PHILIP C. PAUZE Trustee, President August 29, 1997
- ---------------------
Philip C. Pauze
*/S/ ROBERT J. PIERCE Trustee August 29, 1997
- ---------------------
Robert J. Pierce
*/S/ TERENCE P. SMITH Trustee, Secretary August 29, 1997
- ---------------------
Terence P. Smith
/S/ PAUL L. GIORGIO Vice President, Principal August 29, 1997
- --------------------- Accounting Officer and
Paul L. Giorgio Treasurer
*by /S/ CHARLES W. LUTTER, JR. Attorney-In-Fact
--------------------------
Charles W. Lutter, Jr.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
11 (a) Consent of Independent Accountants
11 (b) Power of Attorney
17 Financial Data Schedule
6
<PAGE>
EXHIBIT 11 (a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
and Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A
(the "Registration Statement") of our report dated June 13, 1997,
relating to the financial statements and financial highlights of
Pauze U.S. Government Total Return Bond Fund, Pauze U.S. Government
Intermediate Term Bond Fund and Pauze U.S. Government Short Term Bond
Fund (constituting Pauze Funds, hereafter referred to as the "Trust")
appearing in the April 30, 1997 Annual Report to Shareholders of the Trust,
which is also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Highlights" in the Prospectuses and under the heading "Independent
Accountants" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Philadelphia, PA
August 26, 1997
<PAGE>
EXHIBIT 11 (b)
POWER OF ATTORNEY
We the undersigned officers and Trustees of Pauze Funds (the "Trust"),
do hereby severally constitute and appoint Philip C. Pauze, Terence P.
Smith, and Charles W. Lutter, Jr., and each of them acting singularly, as
our true and lawful attorneys, with full powers to them and each of them to
sign for us, in our names in the capacities indicated below, any amendment
to the Registration Statement of the Trust on Form N-1A to be filed with
the Securities and Exchange Commission and to take further action in
respect thereto as they, in their sole discretion, deem necessary to enable
the Trust to comply with the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940 and all requirements and regulations of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys to any and all
documents related to said amendment to the Registration Statement.
Signature Title Date
- --------- ----- ----
/S/ GORDON ANDERSON Trustee June 13, 1997
- ---------------------
Gordon Anderson
/S/ WAYNE F. COLLINS Trustee June 13, 1997
- ---------------------
Wayne F. Collins
/S/ PAUL HILBERT Trustee June 13, 1997
- ---------------------
Paul Hilbert
/S/ PHILIP C. PAUZE Trustee, President June 13, 1997
- ---------------------
Philip C. Pauze
/S/ ROBERT J. PIERCE Trustee June 13, 1997
- ---------------------
Robert J. Pierce
/S/ TERENCE P. SMITH Trustee, Secretary June 13, 1997
- ---------------------
Terence P. Smith
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the No Load Class of shares for
the Total Return Series of Pauze Funds. The Portfolio and Income data refer to
each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> NO LOAD CLASS OF SHARES - TOTAL RETURN SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 68988
<INVESTMENTS-AT-VALUE> 67512
<RECEIVABLES> 1133
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68654
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 331
<TOTAL-LIABILITIES> 331
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71038
<SHARES-COMMON-STOCK> 7406
<SHARES-COMMON-PRIOR> 7476
<ACCUMULATED-NII-CURRENT> 11
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1654)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1475)
<NET-ASSETS> 67936
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4336
<OTHER-INCOME> 0
<EXPENSES-NET> 994
<NET-INVESTMENT-INCOME> 3342
<REALIZED-GAINS-CURRENT> (1699)
<APPREC-INCREASE-CURRENT> (1004)
<NET-CHANGE-FROM-OPS> 639
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3354
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 275
<NUMBER-OF-SHARES-REDEEMED> 593
<SHARES-REINVESTED> 249
<NET-CHANGE-IN-ASSETS> (2971)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 44
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 409
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 994
<AVERAGE-NET-ASSETS> 69883
<PER-SHARE-NAV-BEGIN> 9.54
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> (.37)
<PER-SHARE-DIVIDEND> .45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.17
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the Class B Class of shares for
the Total Return Series of Pauze Funds. The Portfolio and Income data refer to
each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> CLASS B CLASS OF SHARES - TOTAL RETURN SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 68988
<INVESTMENTS-AT-VALUE> 67512
<RECEIVABLES> 1133
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68654
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 331
<TOTAL-LIABILITIES> 331
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 403
<SHARES-COMMON-STOCK> 39
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1654)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1475)
<NET-ASSETS> 387
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4336
<OTHER-INCOME> 0
<EXPENSES-NET> 994
<NET-INVESTMENT-INCOME> 3342
<REALIZED-GAINS-CURRENT> (1699)
<APPREC-INCREASE-CURRENT> (1004)
<NET-CHANGE-FROM-OPS> 639
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3354
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 132
<NUMBER-OF-SHARES-REDEEMED> 93
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (2971)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 44
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 409
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 994
<AVERAGE-NET-ASSETS> 718
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> (.16)
<PER-SHARE-DIVIDEND> .27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> 2.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the No Load Class of shares for
the Intermediate Term Series of Pauze Funds. The Portfolio and Income data
refer to each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 004
<NAME> NO LOAD CLASS OF SHARES - INTERMEDIATE TERM SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 2654
<INVESTMENTS-AT-VALUE> 2621
<RECEIVABLES> 4
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31
<TOTAL-LIABILITIES> 31
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1267
<SHARES-COMMON-STOCK> 128
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (64)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (32)
<NET-ASSETS> 1247
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 125
<OTHER-INCOME> 0
<EXPENSES-NET> 66
<NET-INVESTMENT-INCOME> 59
<REALIZED-GAINS-CURRENT> (36)
<APPREC-INCREASE-CURRENT> (32)
<NET-CHANGE-FROM-OPS> (9)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14
<DISTRIBUTIONS-OF-GAINS> 1
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 130
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 2665
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66
<AVERAGE-NET-ASSETS> 655
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> (.19)
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> 2.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the Class B Class of shares for
the Intermediate Term Series of Pauze Funds. The Portfolio and Income data
refer to each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> CLASS B CLASS OF SHARES - INTERMEDIATE TERM SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 2654
<INVESTMENTS-AT-VALUE> 2621
<RECEIVABLES> 4
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31
<TOTAL-LIABILITIES> 31
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1495
<SHARES-COMMON-STOCK> 146
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (64)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (32)
<NET-ASSETS> 1418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 125
<OTHER-INCOME> 0
<EXPENSES-NET> 66
<NET-INVESTMENT-INCOME> 59
<REALIZED-GAINS-CURRENT> (36)
<APPREC-INCREASE-CURRENT> (32)
<NET-CHANGE-FROM-OPS> (9)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45
<DISTRIBUTIONS-OF-GAINS> 28
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 442
<NUMBER-OF-SHARES-REDEEMED> 298
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 2665
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66
<AVERAGE-NET-ASSETS> 2276
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> (.15)
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> .12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.74
<EXPENSE-RATIO> 3.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the No Load Class of shares for
the Short Term Series of Pauze Funds. The Portfolio and Income data refer to
each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 006
<NAME> NO LOAD CLASS OF SHARES - SHORT TERM SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 654
<INVESTMENTS-AT-VALUE> 655
<RECEIVABLES> 6
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237
<SHARES-COMMON-STOCK> 24
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 236
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35
<OTHER-INCOME> 0
<EXPENSES-NET> 22
<NET-INVESTMENT-INCOME> 12
<REALIZED-GAINS-CURRENT> (6)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 714
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35
<AVERAGE-NET-ASSETS> 148
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> .14
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 3.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the Class B Class of shares for
the Short Term Series of Pauze Funds. The Portfolio and Income data refer to
each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 007
<NAME> CLASS B CLASS OF SHARES - SHORT TERM SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 654
<INVESTMENTS-AT-VALUE> 655
<RECEIVABLES> 6
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178
<SHARES-COMMON-STOCK> 18
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 177
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35
<OTHER-INCOME> 0
<EXPENSES-NET> 22
<NET-INVESTMENT-INCOME> 12
<REALIZED-GAINS-CURRENT> (6)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7
<DISTRIBUTIONS-OF-GAINS> 1
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68
<NUMBER-OF-SHARES-REDEEMED> 40
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 714
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35
<AVERAGE-NET-ASSETS> 450
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (.03)
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 3.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This FDS contains summary financial information extracted from financial
statements and is qualified in its entirety by reference to said financial
statements. The information presented is for the Class C Class of shares for
the Short Term Series of Pauze Funds. The Portfolio and Income data refer to
each Series as a whole, while the per share data is Class specific.
</LEGEND>
<SERIES>
<NUMBER> 008
<NAME> CLASS C CLASS OF SHARES - SHORT TERM SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Apr-30-1997
<PERIOD-END> Apr-30-1997
<INVESTMENTS-AT-COST> 654
<INVESTMENTS-AT-VALUE> 655
<RECEIVABLES> 6
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 305
<SHARES-COMMON-STOCK> 30
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 302
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35
<OTHER-INCOME> 0
<EXPENSES-NET> 22
<NET-INVESTMENT-INCOME> 12
<REALIZED-GAINS-CURRENT> (6)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48
<NUMBER-OF-SHARES-REDEEMED> 18
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 714
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35
<AVERAGE-NET-ASSETS> 310
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> 3.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
