PAUZE FUNDS(TM)
PAUZE U.S. GOVERNMENT
TOTAL RETURN BOND FUND(TM)
PAUZE U.S. GOVERNMENT
INTERMEDIATE TERM BOND FUND(TM)
PAUZE U.S. GOVERNMENT
SHORT TERM BOND FUND(TM)
--------------------
PRESIDENT'S LETTER
APRIL 30, 1997
This reporting period has experienced another interesting year for the
interest sensitive markets. From May 1, 1996 through April 30, 1997, the
figures do not appear to be dramatic.
----------------------------------------------------------------------
| Security | 3 MO | 1 YR | 2 YR | 5 YR | 10 YR | 30 YR |
| | Bill | Bill | TSY | TSY | TSY | TSY |
|------------------|--------|-------|-------|-------|-------|--------|
| Total Return* | 5.24 | 6.01 | 6.10 | 5.43 | 6.18 | 4.19 |
----------------------------------------------------------------------
*Includes capital gain (loss) and paid/accrued interest.
During the mid-portion of the year, the prices of interest sensitive
securities actually rose 1- 3% depending on maturity and duration, only to
see gains lost in the first quarter of calendar year 1997.
The fluctuation in rates was caused by factors which normally influence
bond markets: economic activity and anticipated inflation. In 1996,
economic activity appeared to be progressing slowly, at a 2-3% growth rate.
This did little to spark inflation fears and concerns that investors might
have for a tightening of short term interest rates by the Federal Reserve.
As a result, the long treasury issues progressed modestly, gaining 3-4% in
the April-October 1996 time frame. All Pauze funds were well positioned to
take advantage of the drop in rates in 1996. The portfolio durations were
extended.
That all changed however with economic data that was released at the
beginning of 1997. Slower growth appeared to be a thing of the past, with
economic reports issued in the first quarter of '97 forecasting GDP growth
in the 4-5% range. Agreeing with the thesis of a more robust economy, the
Federal Reserve raised rates for the first time in over 2 years resulting
in a commensurate sell-off of the bond market. Long term issues shed as
much as 8%, with shorter term instruments losing less.
As the Second Quarter commenced, it began to unfold that some of the
robust predictions made earlier were not going to be realized and the
markets appeared to see the worst as behind them. April 1997 saw the
markets bottom at about 7.17% on the benchmark 30 year treasury.
1
<PAGE>
Since we saw the decline in the bond market as temporary, a conscious
decision was made to maintain long durations (and the higher yields on the
investment portfolios which were the result) as the Fed tightened. This
caused all Funds to decline in Net Asset Value (NAV) during the first
Quarter of 1997. Again, anticipating lower rates in mid-'97, we continued
lengthening durations in April. We anticipate that the Federal Reserve
will not raise short term rates again in 1997. Our longer term technical
indicators for the bond market are only now starting to turn up indicating
that many months of higher prices lie ahead. Since the end of the fiscal
year (April 30, 1997), the bond market has appreciated substantially.
From April 30 through June 16, 1997, the benchmark 30 year U.S. Treasury
bond has gone up 2.5% in principal value.
As you review the data and charts in this report, it is important to
remember that: (1) The Total Return Fund will, on occasion, experience a
lower rate of total return than some indexes in order to maintain an
adequate dividend. To achieve a higher dividend, it is often necessary to
hold longer term bonds in the portfolio. Should interest rates rise (as
they did during this year), the value of those bonds will decline thereby
negatively impacting their value and the total return of the fund. (2) The
Intermediate and Short Term Funds are new funds. As in all new funds,
start-up costs cause generally higher expenses which negatively impacts the
total return of those funds. Additionally, these funds are currently small
and therefore the impact of fixed costs are greater than on funds of larger
size. As these funds grow, the impact of fixed costs will be less.
[ID: GRAPHIC -- LINE CHART]
------------------------------------------------------------------------------
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
------------------------------------------------------------------------------
Pauze Pauze
U.S. Government U.S. Government Lipper
Total Return Total Return General Lehman
Bond Fund-- Bond Fund-- U.S. Treasury Government
No Load Class(1) Class "B" (2) Fund Index Bond Index
---------------- --------------- ------------- ----------
1/94 10090 10113 10092
4/94 9429 9388 9578
7/94 9511 9505 9719
10/94 9316 9216 9580
1/95 9606 9515 9797
4/95 9878 9923 10200
7/95 10099 10450 10657
10/95 10549 10963 11052
1/96 10819 11386 11456
4/96 10676 10769 11052
7/96 10631 10919 11203
10/96 10837 10216 11349 11613
1/97 10824 10184 11381 11708
4/97 10762 10109 11347 11767
Legend
- ------
Solid Line Pauze U.S. Government Total Return Bond Fund -- No Load Class (1)
Dashes Pauze U.S. Government Total Return Bond Fund -- Class "B" (2)
Dotted Line Lipper General U.S. Treasury Fund Index
Long Dashes Lehman Government Bond Index
- -------------------------------------------------------------------------------
Average Annual Returns
- -------------------------------------------------------------------------------
Annualized
1 Year Since Inception
Pauze U.S. Government Total Return Bond Fund -- No Load 0.80% 2.30%
Pauze U.S. Government Total Return Bond Fund --
Class "B" (3) 1.09%(3) 1.65%
Lipper General U.S. Treasury Fund Index (4) 5.36% 4.07%
Lehman Government Bond Index (4) 6.47% 5.34%
- -------------------------------------------------------------------------------
(1) Inception 1/10/94
(2) Inception 9/3/96
(3) Since 9/3/96
(4) Since 1/10/94
2
<PAGE>
[ID: GRAPHIC -- LINE CHART]
------------------------------------------------------------------------------
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
------------------------------------------------------------------------------
Pauze Pauze
U.S. Government U.S. Government Lipper Lehman
Intermediate Term Intermediate Term General U.S. Intermediate
Bond Fund-- Bond Fund-- Intermediate Government
No Load Class(1) Class "B" (2) Fund Index Bond Index
----------------- --------------- ------------- ----------
10/96 10070 10155 10139 10197
1/97 10080 10144 10228 10304
4/97 9988 10031 10280 10378
------------------------------------------------------------------------------
Legend
- ------
Solid Line Pauze U.S. Government Intermediate Term
Bond Fund -- No Load Class (1)
Dashes Pauze U.S. Government Intermediate Term
Bond Fund -- Class "B" (2)
Dotted Line Lipper General U.S. Intermediate Fund Index
Long Dashes Lehman Intermediate Government Index
- -------------------------------------------------------------------------------
Average Annual Returns
- -------------------------------------------------------------------------------
Annualized
1 Year Since Inception
Pauze U.S. Government Intermediate Term Bond Fund --
No Load (3) (0.12%) (0.21%)
Pauze U.S. Government Intermediate Term Bond Fund --
Class "B" (4) 0.32% 0.47%
Lipper General U.S. Intermediate Fund Index (4) 2.80% 4.24%
Lehman Intermediate Government Index (4) 3.78% 5.72%
- -------------------------------------------------------------------------------
(1) Inception 10/10/96
(2) Inception 9/3/96
(3) Since 10/10/96
(4) Since 9/3/96
[ID: GRAPHIC -- LINE CHART]
------------------------------------------------------------------------------
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
------------------------------------------------------------------------------
Pauze U.S. Pauze U.S. Pauze U.S.
Government Government Government Lipper Lehman
Short Term Short Term Short Term Short Term 1-3 Year
Bond Fund-- Bond Fund-- Bond Fund-- U.S. Government Government
No Load Class(1) Class "B" (2) Class "C" (3) Fund Index Index
---------------- ------------- ------------- --------------- ----------
10/96 10095 10104 10144 10155
1/97 10120 10118 10000 10255 10281
4/97 10125 10106 9993 10343 10382
Legend
- ------
Solid Line Pauze U.S. Government Short Term
Bond Fund -- No Load Class (1)
Dashes Pauze U.S. Government Short Term
Bond Fund -- Class "B" (2)
Long Dashes Pauze U.S. Government Short Term
Bond Fund -- Class "C" (3)
Dotted Line Lipper General U.S. Government Fund Index
Longer Dashes Lehman 1-3 Year Government Index
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average Annual Returns
- -------------------------------------------------------------------------------
Annualized
1 Year Since Inception
Pauze U.S. Government Short Term Bond Fund --
No Load (4) 1.25% 2.14%
Pauze U.S. Government Short Term Bond Fund --
Class "B" (5) 1.05% 1.60%
Pauze U.S. Government Short Term Bond Fund --
Class "C" (6) (0.07%) (0.15%)
Lipper Short Term U.S. Government Fund Index (5) 3.43% 5.18%
Lehman 1-3 Year Government Index (5) 3.82% 5.77%
- -------------------------------------------------------------------------------
(1) Inception 9/30/96
(2) Inception 9/3/96
(3) Inception 11/7/96
(4) Since 9/30/96
(5) Since 9/3/96
(6) Since 11/7/96
We thank all of our investors for their confidence in our abilities to manage
cash prudently and wisely.
Philip C. Pauze, President
*Source: Salomon Brothers Indices
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<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
--------------------
FINANCIAL STATEMENTS
APRIL 30, 1997
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees
Pauze Funds
In our opinion, the accompanying statement of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position 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 "Funds") at April 30, 1997, and the
results of each of their operations, the changes in each of their net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at April 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/S/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Philadelphia, PA
June 13, 1997
6
<PAGE>
PAUZE FUNDS
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
- ------------------------------------------------------------------------------
Face
Amount Value
------ -----
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
- --------------------------------------------
United States Government Obligations (96.77%):
United States Treasury Bond:
due 2/15/16, 9.25% .......................... $29,000,000 $35,606,577
due 11/15/26, 6.50% .......................... 5,000,000 4,692,190
-----------
40,298,767
United States Treasury Notes, 2/15/06, 9.375% .. 22,000,000 25,815,636
-----------
Total United States Government Obligations
(cost $67,589,565) ....................... 66,114,403
-----------
Repurchase Agreement (2.04%):
PaineWebber repurchase agreement,
repurchase date 5/1/97, 5.00%, dated
April 30, 1997, collateralized by
$1,950,000 GNMA I Pool No. 400379,
due 3/15/10, 9.50%, repurchase
value $1,398,194 ............................. 1,398,000 1,398,000
-----------
Total investments (98.81%) (cost $68,987,566) $67,512,403
===========
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
- -------------------------------------------------
United States Government Obligations (53.64%):
United States Treasury Note, 10/15/06, 6.50%.... 1,000,000 $ 983,126
United States Government Agencies:
FNMA Medium Term Notes, 4/30/98, 5.20% ....... 350,000 347,236
Federal Home Loan Bank, 2/22/01, 6.47% ....... 100,000 99,023
-----------
446,259
-----------
Total United States Government Obligations
(Cost $1,461,615) ........................ 1,429,385
-----------
Repurchase Agreement (44.73%):
PaineWebber repurchase agreement,
repurchase date 5/1/97,
5.00%, dated April 30, 1997, collateralized by
$1,658,000 GNMA I Pool No. 400379, due 3/15/10,
9.50%, repurchase value $1,192,166 ........... 1,192,000 1,192,000
-----------
Total investments (98.37%) (cost $2,653,616) $ 2,621,385
===========
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
- ------------------------------------------
United States Government Agencies (91.67%):
FNMA Medium Term Notes, 4/30/98, 5.20% ....... 650,000 $ 644,866
Federal Home Loan Bank, 2/22/01, 6.47% ....... 10,000 9,902
-----------
Total investments (91.67%) (cost $654,384).. $ 654,768
===========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PAUZE FUNDS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
- ------------------------------------------------------------------------------
U.S.
U.S. Government U.S.
Government Intermediate Government
Total Return Term Short Term
Bond Fund Bond Fund Bond Fund
------------ ------------ ----------
Assets:
Investment in securities, at current
market value (cost $67,589,566,
$1,461,616 and $654,384,
respectively) ....................... $66,114,403 $1,429,385 $654,768
Repurchase agreement (cost $1,398,000,
$1,192,000 and $0,
respectively) ....................... 1,398,000 1,192,000 --
----------- ---------- --------
Total investments ................. 67,512,403 2,621,385 654,768
Cash ................................. 5,131 63,940 66,034
Receivables:
Interest ............................ 1,133,205 4,291 128
Due from advisor .................... -- -- 5,493
Unamortized organization costs ....... 3,735 6,439 6,439
----------- ---------- --------
Total assets ...................... 68,654,474 2,696,055 732,862
Liabilities:
Accounts payable and accrued expenses 83,989 28,419 18,158
Dividends payable ................... 247,383 2,671 402
----------- ---------- --------
Total liabilities ................. 331,372 31,090 18,560
----------- ---------- --------
Net assets ........................ $68,323,102 $2,664,965 $714,302
=========== ========== ========
Net assets:
Paid-in-capital ...................... 71,441,151 2,761,372 720,340
Undistributed net investment income .. 11,479 81 188
Accumulated net realized loss
from investments ................... (1,654,365) (64,257) (6,610)
Net unrealized appreciation
(depreciation) on investments ...... (1,475,163) (32,231) 384
----------- ---------- --------
Net assets applicable to outstanding
capital shares ...................... $68,323,102 $2,664,965 $714,302
=========== ========== ========
No load class:
Net assets ........................... $67,935,832 $1,246,515 $235,910
----------- ---------- --------
Shares outstanding, no par value,
unlimited shares authorized ......... 7,406,209 128,183 23,638
----------- ---------- --------
Net asset value, offering and
redemption price per share .......... $9.17 $9.72 $9.98
===== ===== =====
Class B:
Net assets ........................... $ 387,270 $1,418,450 $176,730
----------- ---------- --------
Shares outstanding, no par value,
unlimited shares authorized ......... 39,356 145,570 17,736
----------- ---------- --------
Net asset value and offering
price per share ..................... $9.84 $9.74 $9.96
===== ===== =====
Minimum redemption price per share
(net asset value x 96.25%) .......... $9.47 $9.37 $9.59
===== ===== =====
Class C:
Net assets ........................... $301,662
--------
Shares outstanding, no par value,
unlimited shares authorized ......... 30,454
--------
Net asset value, offering and
redemption price per share .......... $9.91
=====
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
PAUZE FUNDS
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
U.S.
U.S. Government U.S.
Government Intermediate Government
Total Return Term Short Term
Bond Fund Bond Fund Bond Fund
------------ ------------ ----------
Sept. 3, Sept. 3,
Year ended 1996 to 1996 to
April 30, Apr. 30, Apr. 30,
1997 1997 1997
------------ ------------ ----------
Net investment income:
Interest income ...................... $ 4,336,178 $124,871 $ 34,684
----------- -------- --------
Expenses:
Investment advisory fees ............. 408,656 10,690 3,115
Administrative fees .................. 120,028 5,486 1,550
Distribution fees--No load class ..... 174,650 1,036 251
Distribution fees--Class B ........... 5,552 17,239 3,486
Distribution fees--Class C ........... -- -- 1,739
Accounting service fees .............. 84,447 3,975 1,123
Transfer agent fees .................. 15,154 905 1,046
Registration fees .................... 24,676 10,607 10,607
Custodian fees ....................... 17,941 1,323 510
Legal fees ........................... 43,749 1,178 333
Audit fees ........................... 17,273 10,056 9,978
Trustees' fees and expenses .......... 51,564 1,692 479
Amortization of organization expense.. 2,534 978 978
Insurance expense .................... 9,453 296 84
Miscellaneous ........................ 18,010 608 174
----------- -------- --------
Total expenses ..................... 993,687 66,069 35,453
Expense reimbursement by advisor ... -- (309) (13,078)
----------- -------- --------
Net expenses ....................... 993,687 65,760 22,375
----------- -------- --------
Net investment income .............. 3,342,491 59,111 12,309
----------- -------- --------
Net realized and unrealized loss
from investments:
Net realized loss on investments ..... (1,699,050) (35,850) (5,636)
Net change in unrealized appreciation
(depreciation) of investments ....... (1,004,308) (32,231) 384
----------- -------- --------
Net realized and unrealized loss
on investments ...................... (2,703,358) (68,081) (5,252)
----------- -------- --------
Net increase (decrease) in
net assets resulting
from operations ....................... $ 639,133 $ (8,970) $ 7,057
=========== ======== ========
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
U.S.
U.S. U.S. Government U.S.
Government Government Intermediate Government
Total Return Total Return Term Short Term
Bond Fund Bond Fund Bond Fund Bond Fund
------------ -------------- ------------ ----------
Sept. 3, Sept. 3,
Year ended Year ended 1996 to 1996 to
April 30, April 30, Apr. 30, Apr. 30,
1997 1996 1997 1997
------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
From operations:
Net investment income ................. $ 3,342,491 $ 3,069,006 $ 59,111 $ 12,309
Net realized loss from investments..... (1,699,050) 919,282 (35,850) (5,636)
Net change in unrealized
appreciation (depreciation)
of investments ....................... (1,004,308) (138,497) (32,231) 384
----------- ------------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations ........... 639,133 3,849,791 (8,970) 7,057
----------- ------------- ----------- ----------
Distributions to shareholders:
Distributions from net
investment income:
No load class ........................ (3,353,991) (3,024,980) (14,004) (2,512)
Class B .............................. (20,582) -- (45,026) (6,573)
Class C .............................. -- -- -- (3,036)
Distributions from net realized
gain on investments:
No load class ........................ -- (1,055,847) (491) (60)
Class B .............................. -- -- (27,916) (914)
----------- ------------- ----------- ----------
Total distributions to shareholders .. (3,374,573) (4,080,827) (87,437) (13,095)
----------- ------------- ----------- ----------
From capital share transactions:
Net proceeds from sale of shares ...... 3,909,296 393,939,313 5,723,656 1,505,169
Net asset value of shares
issued to shareholders
in reinvestment of distributions ..... 2,341,964 3,669,620 24,871 4,817
----------- ------------- ----------- ----------
6,251,260 397,608,933 5,748,527 1,509,986
Cost of shares redeemed................ (6,486,621) (358,078,410) (2,987,155) (789,646)
----------- ------------- ----------- ----------
Increase (decrease) in
net assets derived
from capital share transactions...... (235,361) 39,530,523 2,761,372 720,340
----------- ------------- ----------- ----------
Net increase (decrease) in net assets... (2,970,801) 39,299,487 2,664,965 714,302
Net assets at beginning of period....... 71,293,903 31,994,416 -- --
----------- ------------- ----------- ----------
Net assets at end of period
(including undistributed net
investment income of $11,477, $43,561,
$80 and $187, respectively)............ $68,323,102 $ 71,293,903 $ 2,664,965 $ 714,302
=========== ============= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10 - 11
<PAGE>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS TABLE
- ------------------------------------------------------------------------------
For a capital share outstanding throughout each period:
No load class
---------------------------------
Year ended Year ended
April 30, 1997 April 30, 1996
-------------- --------------
Net asset value, beginning of period ....... $ 9.54 $ 9.37
------- -------
Income from investment operations:
Net investment income .................... 0.45 0.44
Net realized and unrealized gain (loss)
on investments .......................... (0.37) 0.31
------- -------
Total from investment operations ........... 0.08 0.75
------- -------
Less distributions to shareholders:
Net investment income .................... (0.45) (0.44)
Net realized gain on investments sold -- (0.14)
------- -------
Total distributions ........................ (0.45) (0.58)
------- -------
Net asset value, end of period ............. $ 9.17 $ 9.54
======= =======
Total investment return .................... 0.80% 8.08%
Ratios/Supplemental Data:
Net assets, end of period (000's) ........ $67,936 $71,294
Ratio of expenses to average net assets*** 1.40% 1.23%
Ratio of net investment income to
average net assets*** 4.75% 4.74%
Portfolio turnover rate .................. 202.01% 228.03%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursements and fee waivers of
$.02 and $.05 per share for 1995 and 1994, respectively. Had such
reimbursements not been made, the annualized expense ratio would have been
1.66% and 3.14% for 1995 and 1994, respectively, and the annualized net
investment income ratio would have been 4.71% and 2.42% for 1995 and 1994,
respectively.
***Ratios for periods of less than one year are annualized.
****Year end changed to April 30th.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
U.S. GOVERNMENT TOTAL RETURN BOND FUND
- ------------------------------------------------------------------------------
No load class Class B
------------------------------------- ------------------
July 1, 1994 January 10, 1994* September 3, 1996*
to to to
April 30, 1995**** June 30, 1994 April 30, 1997
------------------ ----------------- ------------------
$ 9.25 $ 10.00 $ 10.00
------- ------- -------
0.35** 0.14** 0.27
0.12 (0.75) (0.16)
------- ------- -------
0.47 (0.61) 0.11
------- ------- -------
(0.35) (0.14) (0.27)
-- -- --
------- ------- -------
(0.35) (0.14) (0.27)
------- ------- -------
$ 9.37 $ 9.25 $ 9.84
======= ======= =======
5.21% (6.11)% 1.09%
$31,994 $13,661 $ 387
1.50%** 1.50%** 2.33%
4.87%** 4.06%** 3.82%
168.90% 0.00% 76.45%
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS TABLE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
- -------------------------------------------------------------------------------
For a capital share outstanding throughout each period:
No load class Class B
----------------- ------------------
October 10, 1996* September 3, 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 ................. 0.18** 0.18**
Net realized and unrealized gain (loss)
on investments ....................... (0.19) (0.15)
------ ------
Total from investment operations ........ (0.01) 0.03
------ ------
Less distributions to shareholders:
Net investment income ................. (0.18) (0.17)
Net realized gain on investments sold.. (0.09) (0.12)
------ ------
Total distributions ..................... (0.27) (0.29)
------ ------
Net asset value, end of period .......... $ 9.72 $ 9.74
====== ======
Total investment return ................. (0.12%) 0.32%
Ratio/Supplemental Data:
Net assets, end of period (000's) ..... $1,247 $1,418
Ratio of expenses to average
net assets*** ........................ 2.47%** 3.18%**
Ratio of net investment income to
average net assets*** ................ 3.23%** 2.64%**
Portfolio turnover rate ............... 298.88% 447.36%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursements of $.001 and $.001
per share for No load class and Class B for 1997, respectively. Had such
reimbursements not been made, the annualized expense ratio would have been
2.48% and 3.20% for the No load class and Class B for 1997, respectively,
and the net annualized investment income would have been 3.22% and 2.62% for
the No load class and Class B for 1997, respectively.
***Ratios for periods of less than one year are annualized.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS TABLE U.S. GOVERNMENT SHORT TERM BOND FUND
- ------------------------------------------------------------------------------
For a capital share outstanding throughout each period:
No load class Class B Class C
-------------- -------------- --------------
September 30, September 3, November 7,
1996* 1996* 1996*
to to to
April 30, 1997 April 30, 1997 April 30, 1997
-------------- -------------- --------------
Net asset value, beginning
of period .................. $ 10.00 $ 10.00 $ 10.00
------- -------- --------
Income from investment
operations:
Net investment income .... 0.14 0.13 .09
Net realized and
unrealized gain (loss)
on investments ........... (0.01) (0.03) (.10)
------- -------- --------
Total from investment
operations ................. 0.13 0.10 (.01)
------- -------- --------
Less distributions to shareholders:
Net investment
income ................... (0.14) (0.13) (.08)
Net realized gain
on investments
sold ..................... (0.01) (0.01) --
------- -------- --------
Total distributions ......... (0.15) (0.14) (.08)
------- -------- --------
Net asset value, end
of period .................. $ 9.98 $ 9.96 $ 9.91
======= ======== ========
Total investment return ..... 1.25% 1.05% (0.07%)
Ratios/Supplemental Data:
Net assets, end of
period (000's) ........... $ 236 $ 177 $ 302
Ratio of expenses to
average net assets***..... 3.03%** 3.85%** 3.53%**
Ratio of net investment
income to average
net assets*** ............ 2.58%** 1.96%** 1.74%**
Portfolio turnover rate ... 351.63% 395.58% 255.61%
- ------------
*Date of commencement of operations.
**Net investment income is net of expense reimbursements of $0.12 and $0.14
and $0.11 per share for No load class and Class B and Class C for 1997,
respectively. Had such reimbursements not been made, the annualized expense
ratio would have been 5.18%, 6.01% and 5.55% for the No load class, Class B
and Class C for 1996, respectively, and the net annualized investment income
would have been .43%, (.20)% and (.28%) for the No load class, Class B and
Class C for 1997, respectively.
***Ratios for periods of less than one year are annualized.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
PAUZE FUNDS
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
- ------------------------------------------------------------------------------
1. Organization
Pauze Funds (The "Trust") is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended.
The Trust was organized as a Massachusetts business trust on October 15,
1993. There are presently three series within the Trust: the Pauze U.S.
Government Total Return Bond Fund (the "Total Return Fund"), which
commenced operations on January 10, 1994; the Pauze U.S. Government
Intermediate Term Bond Fund (the "Intermediate Term Fund"), which commenced
operations on September 3, 1996; and the Pauze U.S. Government Short Term
Bond Fund (the "Short Term Fund"), which commenced operations on September
3, 1996. The three series are collectively referred to herein as the
"Funds" and individually as a "Fund."
Effective September 3, 1996, shares of each Fund are issued in classes.
No load shares are sold at net asset value without sales commission or
redemption fees. Class B shares are sold at net asset value and are
subject to a contingent deferred sales charge. Class C shares are sold at
net asset value and are subject to an on-going trail commission of .75%
paid by the Fund.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Security Valuation. Investment securities which are listed on a securities
exchange for which market quotations are readily available are valued at
the mean of the last quoted bid-and-asked prices for such securities.
Unlisted securities for which market quotations are readily available are
valued at the most recent quoted bid price. Debt obligations with sixty
days or less remaining until maturity are valued at amortized cost which
approximates market value.
Income and Expenses. Expenses directly attributable to a Fund are charged
to that Fund; other expenses of the Trust are allocated proportionately
among each of the Funds within the Trust in relation to the net assets of
each Fund or on another reasonable basis. Expenses directly attributable
to a particular class are charged directly to such class. In calculating
net asset value per share of each class, investment income, realized and
unrealized gains and losses and expenses other than class specific expenses
are allocated daily to each class of shares based upon the proportion of
net assets of each class at the beginning of each day.
Securities Transactions and Related Investment Income. Investment
transactions are accounted for on the trade date (the date the order to buy
or sell is executed). Securities gains and losses are calculated on the
identified cost basis. Interest income is determined on the basis of
coupon interest accrued, adjusted for amortization of premiums, and
accretion of discount. Dividend income is recorded on the ex-dividend
date.
Repurchase Agreements. The Trust's policy is for the custodian to receive
delivery of the underlying securities used to collateralize the repurchase
agreements in an amount at least equal to 102% of the resale price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Provisions of each agreement require that the market value of
the collateral is sufficient to pay principal and interest; however, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
16
<PAGE>
PAUZE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997
- ------------------------------------------------------------------------------
Federal Income Taxes. It is the intention of each Fund to continue to
qualify as regulated investment companies under Subchapter M of the
Internal Revenue Code and to distribute all of their taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
Deferred Organizational Costs. Costs incurred by the Trust in connection
with the organization of each of its funds have been deferred and are being
amortized using the straight-line method over a five-year period beginning
with the commencement of operations of the Funds. In the event that any of
the initial shares of the Trust are redeemed during the amortization period
by any holder thereof, the redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption.
Dividends and Distribution to Shareholders. Dividends and distributions to
shareholders are recorded by each Fund on ex-dividend date. The Funds
generally pay dividends monthly and capital gains distributions, if any, at
least annually. The Funds distribute tax basis earnings in accordance with
the minimum distribution requirements of the Internal Revenue Code, which
may result in dividends or distributions in excess of financial statement
(book) earnings. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
3. Investment Transactions
Pauze U.S. Government Total Return Bond Fund
For the year ended April 30, 1997, the costs of purchases and proceeds from
sales/maturities of investments, excluding short-term investments, were
$224,803,528 and $188,802,964, respectively. All purchases and sales were
U.S. Government securities. At April 30, 1997, the unrealized
depreciation of investments was $1,475,163. Gross unrealized appreciation
of investments aggregated $-0- and gross unrealized depreciation of
investments aggregated $1,475,163. Accumulated net realized losses on
investment transactions at April 30, 1997 amounted to $1,654,365; the loss
carryforwards will expire in 2005. The cost of investments for federal
income tax purposes at April 30, 1997 was $68,987,566. To the extent
future capital gains are offset by capital loss carryforwards, such gains
will generally not be distributed to shareholders.
Pauze U.S. Government Intermediate Term Bond Fund
During the period ended April 30, 1997, the costs of purchases and proceeds
from sales/maturities of investments, excluding short-term investments,
were $13,941,848 and $12,425,848, respectively. All purchases and sales
were U.S. Government securities. At April 30, 1997, the unrealized
depreciation of investments was $32,231. Gross unrealized appreciation of
investments aggregated $260 and gross unrealized depreciation of
investments aggregated $32,491. Accumulated net realized losses on
investment transactions at April 30, 1997 amounted to $64,257; the loss
carryforwards will expire in 2005. The cost of investments for Federal
income tax purposes at April 30, 1997 was $2,653,616. To the extent future
capital gains are offset by capital loss carryforwards, such gains will
generally not be distributed to shareholders.
Pauze U.S. Government Short-Term Bond Fund
During the period ended April 30, 1997, the costs of purchases and proceeds
from sales/maturities of investments, excluding short-term investments,
were $6,467,387 and $5,805,517, respectively. All purchases and sales were
U.S. Government securities. At April 30, 1997, the unrealized
appreciation of investments was $384. Gross unrealized appreciation of
investments aggregated $482 and gross unrealized depreciation of
investments aggregated $98. Accumulated net realized losses on investment
transactions at April 30, 1997 amounted to $6,610; the loss carryforwards
will expire in 2005.
17
<PAGE>
PAUZE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997
- ------------------------------------------------------------------------------
The cost of investments for Federal income tax purposes at April 30, 1997
was $654,384. To the extent future capital gains are offset by capital
loss carryforwards, such gains will generally not be distributed to
shareholders.
4. Capital Shares Transactions
U.S. Government
Total Return
Bond Fund
---------------
Year ended Year ended
April 30, 1997 April 30, 1996
--------------------- --------------------------
No load class Shares Amount Shares Amount
- ------------- ------- ----------- ---------- --------------
Shares sold ........ 274,554 $ 2,581,218 40,064,946 $ 393,939,313
Reinvestment of
dividends ......... 249,153 2,335,712 379,187 3,669,620
Shares redeemed .... (593,038) (5,555,591) (36,381,963) (358,078,410)
------- ----------- ---------- --------------
Net increase
(decrease) ....... ( 69,331) $( 638,661) 4,062,170 $ 39,530,523
======= =========== ========== ==============
Class B Shares Amount
- ------- ------- -----------
Shares sold ........ 132,139 $ 1,328,078
Reinvestment of
dividends ......... 627 6,252
Shares redeemed..... ( 93,410) ( 931,030)
------- -----------
Net increase....... 39,356 $ 403,300
======= ===========
U.S. Government
Intermediate
Term Bond Fund
-----------------
September 3, 1996
to April 30, 1997
-----------------
No load class Shares Amount
- ------------- ------ ------
Shares sold ....................... 130,180 $ 1,286,469
Reinvestment of dividends ......... 866 8,467
Shares redeemed ................... ( 2,863) ( 28,158)
------- -----------
Net increase ..................... 128,183 $ 1,266,778
======= ===========
Class B Shares Amount
- ------- ------ ------
Shares sold ....................... 442,251 $ 4,437,187
Reinvestment of dividends ......... 1,647 16,404
Shares redeemed ................... (298,328) (2,958,997)
------- -----------
Net increase ..................... 145,570 $ 1,494,594
======= ===========
18
<PAGE>
PAUZE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997
- ------------------------------------------------------------------------------
4. Capital Shares Transactions (Continued)
U.S. Government
Short Term
Term Bond Fund
-----------------
September 3, 1996
to April 30, 1997
-----------------
No load class Shares Amount
- ------------- ------ ------
Shares sold ......................... 34,121 $ 342,615
Reinvestment of dividends ........... 178 1,781
Shares redeemed .....................( 10,661) ( 107,340)
-------- -----------
Net increase ....................... 23,638 $ 237,056
======== ===========
Class B Shares Amount
- ------- ------ ------
Shares sold ......................... 68,186 $ 681,860
Reinvestment of dividends ........... -- --
Shares redeemed .....................( 40,450) ( 504,000)
-------- -----------
Net increase ....................... 27,736 $ 177,860
======== ===========
Class C Shares Amount
- ------- ------ ------
Shares sold ......................... 48,069 $ 480,694
Reinvestment of dividends ........... 305 3,036
Shares redeemed ..................... (17,920) ( 178,306)
-------- -----------
Net increase ....................... 30,454 $ 305,424
======== ===========
5. Transactions with the Manager and Affiliates
Pauze, Swanson & Associates Investment Advisors, Inc. d/b/a Pauze Swanson
Capital Management Co. (the "Advisor" or the "Manager"), under an
Investment Advisory Agreement with the Trust in effect through April 30,
1997 and renewed through April 30, 1998, furnishes management and
investment advisory services and, subject to the supervision of the Trust's
Board of Trustees, directs the investments of the Trust in accordance with
the individual Fund's investment objectives, policies and limitations.
This agreement provides for a monthly management fee at the annual rate of
0.60% of the average daily net assets (1/12 of 0.60% monthly) 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 for the Total
Return Fund. For the Intermediate Term and Short Term Funds, the agreement
provides for a monthly management fee at the annual rate of 0.50% of the
average daily net assets (1/12 of 0.50% monthly).
Declaration Service Company serves as the Administrator to the Trust
pursuant to an Administrative Services Agreement with the Trust. As
Administrator, Declaration Service Company is responsible for services such
as financial reporting, compliance monitoring and corporate management.
For the
19
<PAGE>
PAUZE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997
- ------------------------------------------------------------------------------
Services provided, the Administrator receives a monthly fee from the Trust
at an annual rate of $156,000, plus standard out-of-pocket expenses.
Declaration Service Company serves as transfer agent and dividend paying
agent of the Trust pursuant to a separate transfer agency and shareholder
services agreement with the Trust. For its services, the Trust pays
Declaration Service Company an annual fee of $18 per account and a minimum
annual fee of $21,000, plus standard out-of-pocket expenses.
Declaration Service Company determines the net asset value per share of
each Fund and provides accounting services to the Fund pursuant to an
Accounting Services Agreement with the Trust. For its services,
Declaration Service Company receives an annual fee of $141,000, plus
standard out-of-pocket expenses.
Declaration Distributors, Inc., an affiliate of Declaration Service
Company, serves as the Trust agent in connection with the distribution of
Fund shares. For the services provided, Declaration Distributors, Inc.
receives an annual fee of $20,000.
For the year ended April 30, 1997, Declaration Service Company and
Declaration Distributors, Inc. earned $213,714 and $20,000, respectively.
On April 30, 1997, the liability to Declaration Service Company and
Declaration Distributors, Inc. was $28,000 and $1,667, respectively.
Effective June 1, 1996, independent trustees are each paid an annual fee of
$10,000 from the Trust plus $500 per meeting and out-of-pocket expenses.
An officer of Declaration Service Company and Declaration Distributors Inc.
(the underwriter of the Trust) is a Trustee of the Trust. The officer
receives no compensation for these services.
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. 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.
Expenses were limited by the Advisor to 3.5% of total average net assets
for each Fund for the year ended April 30, 1997. For the year ended April
30, 1997, the Advisor reimbursed $309 to the Intermediate Term Fund and
$13,078 to the Short Term Fund. The expense limitation is voluntary and
can be discontinued at any time by the Advisor.
20
