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. 13 X
(Check appropriate box or boxes)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Post-Effective Amendment No. 13
PAUZE FUNDS - File Nos. 33-71562 and 811-8148
---------------------------------------------
(Exact Name of Registrant as Specified in Charter)
14340 Torrey Chase Blvd., Ste. 170, Houston, Texas 77014
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (281) 444-6012
Philip C. Pauze, President, Pauze Funds
14340 Torrey Chase Blvd. Ste. 170, Houston, Texas 77014
-------------------------------------------------------
(Name and Address of Agent for Service)
With Copy To:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: September 1, 1998
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares
Omit from the facing sheet reference to the other Act if the Registration
Statement or amendment is filed under only one of the Acts. Include the
"Approximate Date of Proposed Public Offering" and "Title of Securities Being
Registered" only where securities are being registered under the Securities Act
of 1933.
<PAGE>
PAUZE FUNDS
PAUZE U. S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
FORM N-1A
CROSS REFERENCE SHEET
FORM N-1A
PART A
ITEM NO. CAPTION OR LOCATION IN NO-LOAD PROSPECTUS
- ---------- -----------------------------------------------------------------
1 Cover Page
2 Summary of Fees and Expenses
3 Financial Highlights
4 Cover Page; The Trust; Investment Objectives and Considerations;
Special Considerations
5 Management of the Funds
5A NONE
6 Cover Page; The Trust; Dividends and Taxes; Shareholder Services;
Additional Information About Purchases
7 How to Purchase Shares; How Shares Are Valued; Special
Considerations; 12b-1 Fee; Additional Information About Purchases
8 How to Redeem Shares
9 NONE
19 How Shares Are Valued
<PAGE>
FORM N-1A
PART A
ITEM NO. CAPTION OR LOCATION IN LOAD PROSPECTUS
- ---------- -----------------------------------------------------------------
1 Cover Page
2 Summary of Fees and Expenses
3 Financial Highlights
4 Cover Page; The Trust; Investment Objectives and Considerations;
Special Considerations
5 Management of the Funds
5A NONE
6 Cover Page; The Trust; Dividends and Taxes; Shareholder Services;
Additional Information About Purchases
7 How to Purchase Shares; How Shares Are Valued; Special
Considerations; 12b-1 Fee; Additional Information About
Purchases; Alternative Purchase Plans
8 How to Redeem Shares
9 NONE
19 How Shares Are Valued
<PAGE>
FORM N-1A
PART B CAPTION OR LOCATION IN
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
- ---------- -----------------------------------------------------------------
10 Cover Page
11 Table of Contents
12 NONE
13 Investment Objectives and Policies
14 Management of the Trust
15 Principal Holders of Securities
16 Investment Advisory Services; Administrator Services; Transfer
Agency and Other Services
17 Portfolio Transactions
18 General Information
19 Additional Information on Redemptions (also covered under Item 7
in Part A)
20 Tax Status
21 12b-1 Plan of Distribution
22 Calculation of Performance Data
23 Financial Statements
<PAGE>
PAUZE FUNDS
PAUZE TOMBSTONE FUND
FORM N-1A
CROSS REFERENCE SHEET
FORM N-1A
PART A
ITEM NO. CAPTION OR LOCATION IN PROSPECTUS
- ---------- -----------------------------------------------------------------
1 Cover Page
2 Summary of Fees and Expenses
3 Financial Highlights
4 The Fund; Investment Objective and Risk Considerations;
Investment Policies and Risks; Management of the Fund; General
Information;
5 Management of the Fund
5a NONE
6 General Information; How to Redeem Shares; Shareholder Services;
Distributions and Taxes; Additional Information About Purchases
7 How to Purchase Shares; Additional Information About Purchases;
Reductions and Waivers of the Sales Charge; Other Policies that
Affect your Sales Charge; How to Redeem Shares; Rule 12b-1
Distribution Plan; Valuing Fund Shares
8 How to Redeem Shares
9 NONE
19 Valuing Fund Shares
<PAGE>
FORM N-1A
PART B CAPTION OR LOCATION IN
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
- ---------- -----------------------------------------------------------------
10 Cover Page
11 Table of Contents
12 NONE
13 Investment Objective and Policies; Investment Limitation
14 Management of the Trust
15 General Information
16 Investment Advisory Services; Administrative Services; Rule 12b-1
Distribution Plan; Custodian; Independent Accountants; Transfer
Agency and Other Services
17 Portfolio Transactions
18 General Information
19 Additional Information on Redemptions
20 Tax Status
21 Rule 12b-1 Distribution Plan
22 Calculation of Performance Data
23 Financial Statements
<PAGE>
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)
P.O. Box 844
Conshohocken, PA 19428-0844
1-800-327-7170
(Information, Shareholder Services and Requests)
1-888-647-5436
(To Purchase Shares)
PROSPECTUS
September 1, 1998
This prospectus presents information that a prospective investor should
know about the Pauze U.S. Government Total Return Bond Fund(TM), the Pauze U.S.
Government Intermediate Term Bond Fund(TM) and the Pauze U.S. Government Short
Term Bond Fund(TM), three series, mutual funds (the "Funds"), of Pauze Funds(TM)
(the "Trust") before investing. Each Fund seeks 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 September 1, 1998, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. The Statement is available free from Pauze Funds(TM) 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(TM) 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 .................................. 8
SPECIAL CONSIDERATIONS .................................................... 12
HOW TO PURCHASE SHARES .................................................... 13
ALTERNATIVE PURCHASE PLANS ................................................ 16
HOW TO EXCHANGE SHARES .................................................... 18
HOW TO REDEEM SHARES ...................................................... 19
12b-1 FEE ................................................................. 22
MANAGEMENT OF THE FUNDS ................................................... 22
SHAREHOLDER SERVICES ...................................................... 24
HOW SHARES ARE VALUE ...................................................... 24
DIVIDENDS AND TAXES ....................................................... 25
THE TRUST ................................................................. 27
PERFORMANCE INFORMATION ................................................... 28
<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. The expense information for Class B shares of Pauze U.S. Government
Total Return Bond Fund(TM) ("Total Return Fund"), Pauze U.S. Government
Intermediate Term Bond Fund(TM) ("Intermediate Term Fund") and Pauze U.S.
Government Short Term Bond Fund(TM) ("Short Term Fund") and Class C shares of
the Short Term Fund is based on operating expenses incurred during the most
recent fiscal year. The expense information for Class C shares of the Total
Return Fund and the Intermediate Term Fund is based on estimates for the current
fiscal year. 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 B Class 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)
Management Fees .60% .60%
12b-1 Fees(2) 1.00%(3) 1.00%
Other Expenses 1.06% 1.06%
Total Fund Operating Expenses 2.66% 2.66%
Intermediate Term Fund
----------------------
Class B Class 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) 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)
Management Fees .50% .50%
12b-1 Fees(2) 1.00%(3) 1.00%
Other Expenses 1.46% 1.46%
Total Fund Operating Expenses 2.96% 2.96%
<PAGE>
Short Term Fund
---------------
Class B Class 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) 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)
Management Fees .50% .50%
12b-1 Fees (2) 1.00%(3) 1.00%
Other Expenses (after reimbursement) (4) 2.06% 1.76%
Total Fund Operating Expenses
(after reimbursement) (4) 3.56% 3.26%
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 if for each
year for the next ten years Fund expenses are as described above, annual return
is 5% and shares are redeemed at the end of each period:
<TABLE>
<CAPTION>
CLASS B
-----------------
Total Return Fund Intermediate Term Fund Short Term Fund
<S> <C> <C> <C>
1 year.............. $ 74 $ 77 $ 83
3 years............. 125 134 152
5 years............. 174 188 217
10 years............ 273 310 355
<CAPTION>
CLASS C
-----------------
Total Return Fund Intermediate Term Fund Short Term Fund
<S> <C> <C> <C>
1 year.............. $ 37 $ 40 $ 43
3 years............. 93 102 110
5 years............. 151 166 180
10 years............ 309 338 366
</TABLE>
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
<PAGE>
larger than $1,000, your total expenses will be lower in percentage terms than
this illustration. The examples should not be considered a representation of
past or future expenses or performance. Actual expenses and performance 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 two years of purchase. The CDSC
decreases after seven years, to zero, and the Class B shares convert to no-load
shares. See "Alternative Purchase Plans."
(2) Long term shareholders may pay more than the economic equivalent of the
maximum front-end sales load permitted by the National Association of Securities
Dealers.
(3) Class B shares convert to no-load shares which pay 12b-1 fees of 0.25%, not
1.0%. See "Alternative Purchase Plans."
(4) Absent reimbursement by the Adviser, other expenses and total expenses of
the Short Term Fund for the fiscal year ended April 30, 1998 would have been
1.99% and 3.49%, respectively, for Class C shares.
FINANCIAL HIGHLIGHTS
The following condensed financial information for the year ended April 30,
1998 has been audited by Tait, Weller & Baker, the Funds' independent
accountants. Other independent accountants audited the financial information for
the period from each Fund's commencement of operations through April 30, 1997.
The information should be read in conjunction with the audit report and
financial statements included in the 1998 Annual Report to Shareholders. In
addition to the data set forth below, further information about performance of
the Funds is contained in the Annual Report which may be obtained without charge
from the Funds' distributor. The presentation is for a share outstanding
throughout each period ended April 30.
U.S. Government Total Return Bond Fund CLASS B
1998 1997(1)
-------- --------
Net asset value, beginning of Period $ 9.84 $ 10.00
Net Investment Income 0.36 0.27
Realized and Unrealized Gains (Losses)
on Investments 1.40 (0.16)
Dividends from Net Investment Income (0.36) (0.27)
Distributions from Capital Gains (0.83) --
Liquidations from Capital -- --
Net Asset Value End of Period $ 10.41 $ 9.84
Total Return 18.16% 1.09%
Net Assets End of Period (000) $ 280 $ 387
Ratio of Expenses to Average Net Assets 2.66% 2.33%
Ratio of Net Investment Income to Average
Net Assets 3.41% 3.82%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 2.66% 2.33%
Ratio of Net Investment income
to Average Net Assets (Excluding Waivers) 3.41% 3.82%
Portfolio Turnover Rate 251.66% 76.45%
U.S. Governemnt Intermediate Term Bond Fund CLASS B
1998 1997(1)
-------- --------
Net Asset Value Beginning of Period $ 9.74 $ 10.00
Net Investment Income 0.26 0.18
Realized and Unrealized Gains (Losses)
on Investments 0.43 (0.15)
Dividends from Net Investment Income (0.26) (0.17)
Distributions from Capital Gains (0.05) (0.12)
Liquidations from Capital -- --
Net Asset Value End of Period $ 10.12 $ 9.74
Total Return 7.13% 0.32%
Net Assets End of Period (000) $ 442 $ 1,418
Ratio of Expenses to Average Net Assets 2.96% 3.18%
Ratio of Net Investment Income to Average
Net Assets 2.55% 2.64%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 2.96% 3.20%
Ratio of Net Investment income
to Average Net Assets (Excluding Waivers) 2.55% 2.62%
Portfolio Turnover Rate 259.92% 447.36%
U.S. Government Short Term Bond Fund CLASS B
1998(2) 1997(1)
-------- --------
Net Asset Value Beginning of Period $ 9.96 $ 10.00
Net Investment Income 0.13 0.13
Realized and Unrealized Gains (Losses)
on Investments 0.07 (0.03)
Dividends from Net Investment Income (0.13) (0.13)
Distributions from Capital Gains -- (0.01)
Liquidations from Capital (10.03)** --
Net Asset Value End of Period -- $ 9.96
Total Return 1.99% 1.05%
Net Assets End of Period (000) -- $ 177
Ratio of Expenses to Average Net Assets 3.56% 3.85%
Ratio of Net Investment Income to Average
Net Assets 2.01% 1.96%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 3.56% 6.01%
Ratio of Net Investment income (Loss)
to Average Net Assets (Excluding Waivers) 2.01% (0.20)%
Portfolio Turnover Rate 47.19% 395.58%
U.S. Government Short Term Bond Fund CLASS C
1998 1997(3)
-------- --------
Net Asset Value Beginning of Period $ 9.91 $ 10.00
Net Investment Income 0.22 0.09
Realized and Unrealized Gains (Losses)
on Investments 0.07 (0.10)
Dividends from Net Investment Income (0.22) (0.08)
Distributions from Capital Gains -- --
Liquidations from Capital -- --
Net Asset Value End of Period $ 9.98 $ 9.91
Total Return 2.93% (0.07)%
Net Assets End of Period (000) $ 158 $ 302
Ratio of Expenses to Average Net Assets 3.26% 3.53%
Ratio of Net Investment Income to Average
Net Assets 2.22% 1.74%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 3.49% 5.55%
Ratio of Net Investment income (Loss)
to Average Net Assets (Excluding Waivers) 2.00% (0.28)%
Portfolio Turnover Rate 47.19% 255.61%
** Effective December 19, 1997, the sole shareholder liquidated all Class B
Shares.
(1) Commenced operations on September 3, 1996. All ratios, except total return,
for the period have been annualized.
(2) For the period May 1, 1997 to December 19, 1997. All ratios, except total
return, for the period have been annualized.
(3) Commenced operations on November 7, 1996. All ratios, except total return,
for the period have been annualized.
INVESTMENT OBJECTIVES AND CONSIDERATIONS
Pauze Funds(TM) (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(TM) (the "Total Return Fund"); the Pauze U.S. Government
Short Term Bond Fund(TM) (the "Short Term Fund"); and the Pauze U.S. Government
Intermediate Term Bond Fund(TM) (the "Intermediate Term Fund"). The investment
advisor to the Funds is Pauze, Swanson & Associates Investment Advisors, Inc.
d/b/a Pauze Swanson Capital Management Co.(TM) (the "Advisor"). 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 a Fund will be able to
achieve its investment objective.
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND(TM)
<PAGE>
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 Advisor'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.
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
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,
<PAGE>
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 Fund 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 Fund will only invest in "zeros" which are issued by the United States
Treasury and not those issued by broker-dealers or banks. The Fund 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
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 Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets, or,
if necessary, from the proceeds of sales of portfolio securities.
PORTFOLIO MANAGEMENT
The Advisor 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 Advisor 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 Advisor 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%.
<PAGE>
The Fund's success at achieving its investment objective is dependent upon
the Advisor correctly forecasting future changes in interest rates. The Advisor
uses extensive fundamental and technical analysis to formulate interest rate
forecasts. However, there is no assurance that the Advisor 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(TM)
The Intermediate Term Fund has the same objective and policies as set forth
above except that (i) 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) 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) 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(TM)
The Short Term Fund has the same objective and policies as set forth above
except that (i) 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) 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) 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 each may invest in
futures contracts and option contracts; provided, 1) not more than 2.5% of the
Fund's assets are required as initial margin and premiums required to establish
such positions, and 2) the obligations under such contracts or transactions
represent not more than 100% of the Fund's assets.
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. Neither 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
<PAGE>
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 policies of the Funds
as set forth above are fundamental, and they may be changed by the Board of
Trustees without shareholder approval. Any such change may result in a Fund
having an investment objective or investment policies different from what the
shareholder considered appropriate at the time of investment in the Fund.
Shareholders will be notified in writing at least 30 days prior to any material
change either to a Fund's investment objective or its investment policies. The
investment limitations of a Fund set forth in the Statement of Additional
Information as fundamental policies may not be changed without the affirmative
vote of a majority of the outstanding shares of the Fund.
REPURCHASE AGREEMENTS
Each Fund may invest a portion of its assets in repurchase agreements with
domestic broker-dealers, banks and other financial institutions, provided the
Fund's 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
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, (with respect to the Total Return
Fund, backed by the full faith and credit of the U.S. government) 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 declines prior to liquidation. To minimize
the risk of loss, each Fund will enter into repurchase agreements only with
institutions and dealers which are considered creditworthy.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend securities to broker-dealers or institutional investors
for their use in connection with short sales, arbitrages and other securities
transactions. A Fund 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 the 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.
<PAGE>
SPECIAL CONSIDERATIONS
INTEREST RATE SENSITIVITY
The investment income of each Fund 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 a 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 a 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 the 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 Advisor will be
correct in its forecast of changes in interest rates nor that the strategies
employed by the Advisor to take advantage of changes in the interest rate
environment will be successful, and thus there is no assurance that a Fund will
achieve its investment objective.
BORROWING
Each Fund may borrow from a bank up to 33 1/3% of its total assets (reduced
by the amount of all liabilities and indebtedness other than such borrowings) as
a temporary measure for extraordinary purposes. 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. Each Fund will repay any money borrowed in excess of 33 1/3% of
the value of its total assets prior to purchasing additional portfolio
securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund 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
<PAGE>
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.
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.
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, and arranging for your payment.
If you are investing in a Fund for the first time, you will need to set up an
account. Your Representative will help you fill out and submit an application (a
copy of which accompanies this Prospectus).
Shares of a Fund 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.
<PAGE>
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 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
address indicated in "By Mail" 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.
The wired 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.
ADDITIONAL INFORMATION ABOUT PURCHASES
All purchases of shares are subject to acceptance by the Trust and are not
binding until accepted. Pauze Funds(TM) 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.
<PAGE>
If your telephone order to purchase shares is canceled 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 canceling 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 canceled 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.
CERTIFICATES
When you open your account, Pauze Funds(TM) will send you a confirmation
statement, which will be your evidence that you have opened an account with
Pauze Funds(TM). 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(TM) has determined that it will not issue negotiable
stock certificates.
ALTERNATIVE PURCHASE PLANS
The Trust offers two purchase plans by this prospectus.
<PAGE>
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%, which may be
increased or decreased in certain circumstances. 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-
NOTE: Class B shares convert to no-load shares when CDSC expires. Each
investment would be considered a new investment for calculating the amount of
any CDSC.
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 convert to 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
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 a Fund, the accumulated continuing distribution
and services fees on Class C shares would exceed the accumulated Rule
<PAGE>
12b-1 fees plus the CDSC on B shares purchased at the same time. Representatives
may receive different compensation for sales of Class 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.
Each Fund offers a third class of shares by a separate prospectus. Each
class has different sales charges and expenses, which will affect performance.
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.
HOW TO EXCHANGE SHARES
You have the privilege of exchanging some or all of your shares for shares
of the same class of any other of the Pauze Funds(TM) which are properly
registered for sale in your state. An exchange involves the simultaneous
redemption (sale) of shares of one Fund and purchase of shares of another Fund
at the respective closing net asset value and is a taxable transaction.
BY TELEPHONE: You may direct Pauze Funds(TM) to exchange your shares by
calling toll free 1- 800-327-7170. In connection with such exchanges, neither
the Fund nor the Transfer Agent will be responsible for acting upon any
instructions reasonably believed by them to be genuine. The shareholder, as a
result of this policy, will bear the risk of loss. The Fund and/or its Transfer
Agent will, however, employ reasonable procedures to confirm that instructions
communicated by telephone are genuine (including requiring some form of personal
identification, providing written confirmation, and tape recording
conversations); and if the Fund and/or its Transfer Agent do not employ
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent transactions.
BY MAIL: You may direct Pauze Funds(TM) in writing to exchange your shares.
The request must be signed exactly as the name appears on the registration.
(Before writing, read "Additional Information About Exchanges.")
ADDITIONAL INFORMATION ABOUT EXCHANGES
(1) All exchanges are subject to the minimum investment requirements and
any other applicable terms set forth in the prospectus for the Fund whose shares
are being acquired.
(2) There 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.
<PAGE>
(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(TM)
with your tax identification number, certified as prescribed by the Internal
Revenue Code and Regulations, and the exchange is to an account with like
registration and tax identification number.
(5) The exchange privilege may be modified or terminated at any time. The
exchange fee and other terms of the privilege are subject to change.
HOW TO REDEEM SHARES
You may redeem any or all of your shares at will. The Trust redeems shares
at the net asset value next determined after it has received and accepted a
redemption request in proper order. Redemption requests must be received prior
to the time the next determined net asset value per share is computed --
generally 4:00 p.m. Eastern time, Monday through Friday, to be effective that
day.
BY MAIL: Send 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 20);
and
(3) such additional documents as are customarily required to evidence the
authority of persons effecting redemptions on behalf of corporations, executors,
trustees and other fiduciaries. Redemptions will not become effective until all
documents in the form required have been received by the Transfer Agent. (Before
writing, read "Additional Information About Redemptions.")
BY TELEPHONE: Redemptions may be made by telephone, provided you have
completed the Telephone Redemption Authorization section of the purchase
application. Upon proper authority and instruction, redemptions will be wired
(for a separate bank wire charge) to the bank account identified on the account
registration or, for amounts of $15,000 or less, redemptions will be mailed to
the address on the account registration. In connection with telephone
redemptions, neither the Fund nor the Transfer Agent will be responsible for
acting upon any instructions reasonably believed by them to be genuine. The Fund
and/or its Transfer Agent will, however, employ reasonable procedures to confirm
that instructions communicated by telephone are genuine (including requiring
some form of personal identification, providing written confirmations, and tape
recording conversations); and if the Fund or its Transfer Agent
<PAGE>
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
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" for the applicable holding
period.
<PAGE>
(2) The redemption price may be more or less than your cost, depending on
the net asset value of the Fund's portfolio next determined after your request
is received.
(3) A request to redeem shares in an IRA or similar retirement account must
be accompanied by an IRS Form W4-P and must state a reason for withdrawal as
specified by the IRS. Proceeds from the redemption of shares from a retirement
account may be subject to withholding tax.
(4) The Trust has the authority to redeem existing accounts and to refuse a
potential account the privilege of having an account in the Trust if the Trust
reasonably determines that the failure to so redeem, or to so prohibit, would
have a material adverse consequence to the Trust and its shareholders.
(5) Excessive short term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Trust has reserved the
right to refuse investments from shareholders who engage in short term trading.
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
plan, UGMA/UTMA and
<PAGE>
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.
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
"Alternative Purchase Plans" at page 16 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 of the
Trust.
THE INVESTMENT ADVISOR
Pauze, Swanson & Associates Investment Advisors Inc. d/b/a Pauze Swanson
Capital Management Co.(TM) (the "Advisor"), 14340 Torrey Chase Blvd., Suite 170,
Houston, Texas 77014, under an investment advisory agreement with the Trust
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 Advisor in December 1993. Mr. Philip C.
Pauze, President and controlling shareholder of the Advisor, is primarily
responsible for the day-to-day management of each Fund's portfolio. He has
managed the Total Return Fund since commencement of operations in January 1994,
the Pauze Tombstone Fund(TM) since May 1997 and the Short Term and Intermediate
Term Funds since January 1998. 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")
<PAGE>
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.
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
behalf of the Trust in the investments of the Funds. The Advisory Agreement with
the Trust provides for each Fund 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%.
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 $196,000, which is allocated among all of the
funds of the Trust. DSC also provides transfer agency, dividend disbursing and
accounting services to the Funds for which it receives separate compensation.
THE DISTRIBUTOR
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
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
<PAGE>
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.
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.
CONFIRMATION STATEMENTS
Shareholders normally will receive a yearly confirmation statement and
after each transaction showing the activity in the account. However, when
account activity is produced solely from dividend reinvestment, confirmation
statements will be mailed only on a monthly basis.
OTHER SERVICES
The Trust has available a number of plans and services to meet the special
needs of certain investors. Plans available include, but are not limited to:
(1) payroll deduction plans, including military allotments;
(2) custodial accounts for minors;
(3) a flexible, systematic withdrawal plan; and
(4) various retirement plans such as IRA, 403(b)(7), 401(k) and
employer-adopted defined benefit and defined contribution plans.
There is an annual charge for each retirement plan fund account with
respect to which a service provider acts as custodian. If this charge is not
paid separately prior to the last business day of a calendar year or prior to a
total redemption, it will be deducted from the shareholder's account.
Application forms and brochures describing these plans and services can be
obtained from the Transfer Agent by calling 1-800-327-7170.
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 is 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 liabilities, by the total number of
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.
<PAGE>
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, or which subsequently are within 60 days of maturity,
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. Dividends consisting of substantially all
of the net income are declared and paid monthly.
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."
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.
<PAGE>
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.
In connection with the conversion of Class 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 income for the year.
THE TRUST
The Pauze Funds(TM) (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. In addition to the three series offered by this Prospectus, one other
series (the Pauze Tombstone Fund) is authorized. Each series offered by this
Prospectus 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.
<PAGE>
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. As of August 1, 1998, the CMT may be deemed
to control each of the Funds and the Trust as a result of its beneficial
ownership of Fund shares.
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
A Fund may periodically advertise "average annual total return." The
"average annual total return" of a Fund refers to the average annual compounded
rate of return over the stated period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment. The calculation of "average annual total return" assumes the
reinvestment of all dividends and distributions and the deduction of the maximum
contingent sales charge (for Class B shares). The results do not take into
account charges for optional services which involve nominal fees (such as wire
redemption fees).
A 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 for another class may not take
into account the additional Rule 12b-1 fees for Class B and Class C shares. The
performance of Class B and Class C shares will be lower than that of the other
class of shares. Further, the results for other classes 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.
<PAGE>
A Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of a Fund's shares) as of the end of a specified period. These non-standardized
quotations do not include the effect of the applicable sales charge, or charges
for optional services which involve nominal fees, which would reduce the quoted
performance if included. A non-standardized quotation will always be accompanied
by the Fund's "average annual total return" as described above.
A Fund may also include in advertisements data comparing performance with
bond or other indices, or with other mutual funds (as reported in non-related
investment media, published editorial comments and performance rankings compiled
by independent organizations and publications that monitor the performance of
mutual funds). For example, a 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 a Fund.
THE ADVERTISED PERFORMANCE DATA OF THE FUND IS BASED ON HISTORICAL
PERFORMANCE AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. RATES OF TOTAL
RETURN AND YIELDS QUOTED BY THE FUND MAY BE HIGHER OR LOWER THAN PAST
QUOTATIONS, AND THERE CAN BE NO ASSURANCE THAT ANY RATE OF TOTAL RETURN OR
YIELDS WILL BE MAINTAINED. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT A SHAREHOLDER'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THE SHAREHOLDER'S ORIGINAL INVESTMENT.
<PAGE>
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)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co.(TM)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428-0844
DISTRIBUTOR
Declaration Distributors, Inc.
P.O. Box 844
Conshohocken, PA 19428
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
ACCOUNTANTS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
LEGAL COUNSEL
Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, 441 Vine Street
Cincinnati, OH 45202
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or the Fund's Statement of
Additonal Information incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offering by the Fund in any jurisdiction
in which such offering may not lawfully be made.
Be Sure to Retain This Prospectus. It Contains Valuable Information.
<PAGE>
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)
P.O. Box 844
Conshohocken, PA 19428-0844
1-800-327-7170
(Information, Shareholder Services and Requests)
1-888-647-5436
(To Purchase Shares)
PROSPECTUS
September 1, 1998
This prospectus presents information that a prospective investor should
know about the Pauze U.S. Government Total Return Bond Fund(TM), the Pauze U.S.
Government Intermediate Term Bond Fund(TM) and the Pauze U.S. Government Short
Term Bond Fund(TM), three series, mutual funds (the "Funds"), of Pauze Funds(TM)
(the "Trust") before investing. Each Fund seeks 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 September 1, 1998, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. The Statement is available free from Pauze Funds(TM) 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(TM) 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........................................................ 5
INVESTMENT OBJECTIVES AND CONSIDERATIONS.................................... 7
SPECIAL CONSIDERATIONS...................................................... 12
HOW TO PURCHASE SHARES...................................................... 13
HOW TO EXCHANGE SHARES...................................................... 16
HOW TO REDEEM SHARES........................................................ 17
12b-1 FEE................................................................... 20
MANAGEMENT OF THE FUNDS..................................................... 20
SHAREHOLDER SERVICES........................................................ 22
HOW SHARES ARE VALUED....................................................... 23
DIVIDENDS AND TAXES......................................................... 23
THE TRUST................................................................... 25
PERFORMANCE INFORMATION..................................................... 26
<PAGE>
SUMMARY OF FEES AND EXPENSES
The following summary is provided to assist you in understanding the
various costs and expenses a shareholder in a Fund could bear directly and
indirectly. The expense information for no-load shares of Pauze U.S. Government
Total Return Bond Fund(TM) ("Total Return Fund"), Pauze U.S. Government
Intermediate Term Bond Fund(TM) ("Intermediate Term Fund") and Pauze U.S.
Government Short Term Bond Fund(TM) ("Short Term Fund") is based on operating
expenses incurred during the most recent fiscal year. Shareholder transaction
expenses for all Funds are expressed as a percentage of the public offering
price, cost per transaction or as otherwise noted.
Total Int. 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
(as a percentage of net assets)
Management Fees .60% .50% .50%
12b-1 Fees .25% .25% .25%
Other Expenses (AFTER REIMBURSEMENT) .80% 1.42% 1.67%1
Total Fund Operating
Expenses (AFTER REIMBURSEMENT) 1.65% 2.17% 2.42%1
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.
1 Absent reimbursement by the Adviser, other expenses and total expenses of the
Short Term Fund for the fiscal year ended April 30, 1998 would have been 1.90%
and 2.65%, respectively.
<PAGE>
HYPOTHETICAL EXAMPLE OF EFFECT ON FUND EXPENSES
You would pay the following expenses on a $1,000 investment if for each
year for the next ten years Fund expenses are as described above, annual return
is 5% and shares are redeemed at the end of each period:
Total Intermediate Short
Return Term Term
Fund Fund Fund
1 year $ 27 $ 32 $ 35
3 years 62 78 85
5 years 100 126 139
10 years 205 260 286
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 lower in percentage terms than this illustration. The examples should
not be considered a representation of past or future expenses or performance.
Actual expenses and performance may be more or less than those shown.
FINANCIAL HIGHLIGHTS
The following condensed financial information for the year ended April 30,
1998 has been audited by Tait, Weller & Baker, the Funds' independent
accountants. Other independent accountants audited the financial information for
the period from the commencement of each Fund's operations through April 30,
1997. The information should be read in conjunction with the audit report and
financial statements included in the 1998 Annual Report to Shareholders. In
addition to the data set forth below, further information about the performance
of the Funds is contained in the Annual Report which may be obtained without
charge from the Funds' distributor. The presentation is for a share outstanding
throughout each period ended April 30.
U.S. Government Total Return Bond Fund
<TABLE>
<CAPTION>
1998 1997 1996 1995(2)* 1994(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.17 $ 9.54 $ 9.37 $ 9.25 $ 10.00
Net Investment Income 0.43 0.45 0.44 0.35 0.14
Realized and Unrealized Gains (Losses)
on Investments 1.27 (0.37) 0.31 0.12 (0.75)
Dividends from Net Investment Income (0.44) (0.45) (0.44) (0.35) (0.14)
Distributions from Capital Gains (0.83) -- (0.14) -- --
Net Asset Value End of Period $ 9.60 $ 9.17 $ 9.54 $ 9.37 $ 9.25
Total Return 18.91% 0.80% 8.08% 5.21% (6.11)%
Net Assets End of Period (000) $ 78,350 $ 67,936 $ 71,294 $ 31,994 $ 13,661
Ratio of Expenses to Average Net Assets 1.65% 1.40% 1.23% 1.50% 1.50%
Ratio of Net Investment Income to Average
Net Assets 4.41% 4.75% 4.74% 4.87% 4.06%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 1.65% 1.40% 1.23% 1.66% 3.14%
Ratio of Net Investment Income
to Average Net Assets (Excluding Waivers) 4.41% 4.75% 4.74% 4.71% 2.42%
Portfolio Turnover Rate 251.66% 202.01% 228.03% 168.90% 0.00%
</TABLE>
U.S. Government Intermediate Term Bond Fund
1998 1997(3)
-------- --------
Net Asset Value Beginning of Period $ 9.72 $ 10.00
Net Investment Income 0.34 0.18
Realized and Unrealized Gains (Losses)
on Investments 0.43 (0.19)
Dividends from Net Investment Income (0.34) (0.18)
Distributions from Capital Gains (0.05) (0.09)
Net Asset Value End of Period $ 10.10 $ 9.72
Total Return 8.01% (0.12)%
Net Assets End of Period (000) $ 2,722 $ 1,247
Ratio of Expenses to Average Net Assets 2.17% 2.47%
Ratio of Net Investment Income to Average
Net Assets 3.51% 3.23%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 2.17% 2.48%
Ratio of Net Investment Income
to Average Net Assets (Excluding Waivers) 3.51% 3.22%
Portfolio Turnover Rate 259.92% 298.88%
U.S. Government Short Term Bond Fund
1998 1997(4)
-------- --------
Net Asset Value, Beginning of Period $ 9.98 $ 10.00
Net Investment Income 0.29 0.14
Realized and Unrealized Gains (Losses)
on Investments 0.08 (0.01)
Dividends from Net Investment Income (0.29) (0.14)
Distributions from Capital Gains -- (0.01)
Net Asset Value End of Period $ 10.06 $ 9.98
Total Return 3.76% 1.25%
Net Assets End of Period (000) $ 1,868 $ 236
Ratio of Expenses to Average Net Assets 2.42% 3.03%
Ratio of Net Investment Income to Average
Net Assets 3.18% 2.58%
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 2.65% 5.18%
Ratio of Net Investment Income
to Average Net Assets (Excluding Waivers) 2.95% 0.43%
Portfolio Turnover Rate 47.19% 351.63%
* Year end changed to April 30th
(1) For the period January 10, 1994 (commencement of operations) to June 30,
1994. All ratios, except total return, for the period have been annualized.
(2) For the period July 1, 1994 to April 30, 1995. All ratios, except total
return, for the period have been annualized.
(3) Commenced operations on October 10, 1996. All ratios, except total return,
for the period have been annualized.
(4) Commenced operations on September 30, 1996. All ratios, except total
return, for the period have been annualized.
INVESTMENT OBJECTIVES AND CONSIDERATIONS
Pauze Funds(TM) (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(TM) (the "Total Return Fund"); the Pauze U.S. Government
Short Term Bond Fund(TM) (the "Short Term Fund"); and the Pauze U.S. Government
Intermediate Term Bond Fund(TM) (the "Intermediate Term Fund"). The investment
<PAGE>
advisor to the Funds is Pauze, Swanson & Associates Investment Advisors, Inc.
d/b/a Pauze Swanson Capital Management Co.(TM) (the "Advisor"). 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 a Fund will be able to
achieve its investment objective.
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND(TM)
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 Advisor'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.
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
Federal Housing Administration or Farmers' Home Administration
<PAGE>
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 Fund 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 Fund will only invest in "zeros" which are issued by the United States
Treasury and not those issued by broker-dealers or banks. The Fund 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
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 Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets, or,
if necessary, from the proceeds of sales of portfolio securities.
PORTFOLIO MANAGEMENT
The Advisor 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 Advisor believes that interest
<PAGE>
rates will fall, it will lengthen the average duration of the Fund's portfolio
securities to earn greater capital appreciation. When the Advisor 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 Advisor correctly forecasting future changes in interest rates. The Advisor
uses extensive fundamental and technical analysis to formulate interest rate
forecasts. However, there is no assurance that the Advisor 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(TM)
The Intermediate Term Fund has the same objective and policies as set forth
above except that (i) 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) 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) 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(TM)
<PAGE>
The Short Term Fund has the same objective and policies as set forth above
except that (i) 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) 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) 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 each may invest in
futures contracts and option contracts; provided, 1) not more than 2.5% of the
Fund's assets are required as initial margin and premiums required to establish
such positions, and 2) the obligations under such contracts or transactions
represent not more than 100% of the Fund's assets.
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. Neither 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 policies of the Funds
as set forth above are fundamental, and they may be changed by the Board of
Trustees without shareholder approval. Any such change may result in a Fund
having an investment objective or investment policies different from what the
shareholder considered appropriate at the time of investment in the Fund.
Shareholders will be notified in writing at least 30 days prior to any material
<PAGE>
change either to a Fund's investment objective or its investment policies. The
investment limitations of a Fund set forth in the Statement of Additional
Information as fundamental policies may not be changed without the affirmative
vote of a majority of the outstanding shares of the Fund.
REPURCHASE AGREEMENTS
Each Fund may invest a portion of their assets in repurchase agreements
with domestic broker-dealers, banks and other financial institutions, provided
the Fund's 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
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, (with respect to the Total Return
Fund, backed by the full faith and credit of the U.S. government), 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 declines prior to liquidation. To minimize
the risk of loss, each Fund will enter into repurchase agreements only with
institutions and dealers which are considered creditworthy.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend securities to broker-dealers or institutional investors
for their use in connection with short sales, arbitrages and other securities
transactions. A Fund 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 the 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
<PAGE>
The investment income of each Fund 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 a 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 a 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 the 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 Advisor will be
correct in its forecast of changes in interest rates nor that the strategies
employed by the Advisor to take advantage of changes in the interest rate
environment will be successful, and thus there is no assurance that a Fund will
achieve its investment objective.
BORROWING
Each Fund may borrow from a bank up to a limit of 33 1/3% of its total
assets (reduced by the amount of all liabilities and indebtedness other than
such borrowings) as a temporary measure for extaordinary purposes. 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. Each Fund will repay any money borrowed in
excess of 33 1/3% of the value of its total assets prior to purchasing
additional portfolio securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund 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
<PAGE>
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.
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,
$30 per month per account for persons enrolled in an automatic investment plan.
You may 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.
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.
<PAGE>
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
address indicated in "By Mail" 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.
The wired 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 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(TM) to draw on your bank account regularly by check for
as little as $30 a month, beginning within thirty (30) days after the account is
opened. You should inquire at your bank whether it will honor debits through the
Automated Clearing House ("ACH") or, if necessary, preauthorized checks. You may
change the date or amount of your investment any time by written instruction
received by Pauze Funds(TM) at least five business days before the change is to
become effective.
ADDITIONAL INFORMATION ABOUT PURCHASES
All purchases of shares are subject to acceptance by the Trust and are not
binding until accepted. Pauze Funds(TM) 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 canceled 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 canceling 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 canceled and
<PAGE>
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.
Each Fund offers Class B shares (sold subject to a contingent deferred
sales charge) and Class C shares (sold subject to an on-going trail commission)
by a separate prospectus. Each class has different sales charges and expenses,
which will affect performance. 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.
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(TM) will send you a confirmation
statement, which will be your evidence that you have opened an account with
Pauze Funds(TM). 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
<PAGE>
to other expense or trouble, as you would with a negotiable stock certificate.
Pauze Funds(TM) 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(TM) which
are properly registered for sale in your state. An exchange involves the
simultaneous redemption (sale) of shares of one Fund and purchase of shares of
another Fund at their respective closing net asset values and is a taxable
transaction.
By Telephone: You may direct Pauze Funds(TM) to exchange your shares by
calling toll free 1-800-327-7170. In connection with such exchanges, neither the
Fund nor the Transfer Agent will be responsible for acting upon any instructions
reasonably believed by them to be genuine. The shareholder, as a result of this
policy, will bear the risk of loss. The Fund and/or its Transfer Agent will,
however, employ reasonable procedures to confirm that instructions communicated
by telephone are genuine (including requiring some form of personal
identification, providing written confirmation, and tape recording
conversations); and if the Fund and/or its Transfer Agent do not employ
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent transactions.
By Mail: You may direct Pauze Funds(TM) in writing to exchange your shares.
The request must be signed exactly as the name appears on the registration.
(Before writing, read "Additional Information About Exchanges.")
ADDITIONAL INFORMATION ABOUT EXCHANGES
(1) 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(TM)
with your tax identification number, certified as prescribed by the Internal
Revenue Code and Regulations, and the exchange is to an account with like
registration and tax identification number.
<PAGE>
(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.
By Mail: Send 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 18);
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
<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 buy 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
<PAGE>
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
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
<PAGE>
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 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.
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 "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
<PAGE>
contracts and their continuance. The Trustees also elect the officers of the
Trust.
The Investment Advisor
Pauze, Swanson & Associates Investment Advisors, Inc. d/b/a Pauze Swanson
Capital Management Co.(TM) (the "Advisor"), 14340 Torrey Chase Blvd., Suite 170,
Houston, Texas 77014, under an investment advisory agreement with the Trust
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, President and controlling shareholder of the Advisor, is
primarily responsible for the day-to-day management of each Fund's portfolio. He
has managed the Total Return Fund since commencement of operations in January
1994, the Pauze Tombstone Fund(TM) since May 1, 1997 and the Short Term and
Intermediate Term Funds since January 1998. 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.
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
behalf of the Trust in the investments of the Funds. The Advisory Agreement with
the Trust provides for each Fund 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 the net assets in excess of $500 million; Intermediate Term Fund,
0.50%; and Short Term Fund, 0.50%.
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.
<PAGE>
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 $196,000, which is allocated among all of the
funds of the Trust. DSC also provides transfer agency, dividend disbursing and
accounting services to the Funds for which it receives separate compensation.
The Distributor
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
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.
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.
Confirmation Statements
<PAGE>
Shareholders normally will receive a yearly confirmation statement and
after each transaction showing the activity in the account. However, when
account activity is produced solely from dividend reinvestment, confirmation
statements will be mailed only on a monthly basis.
Other Services
The Trust has available a number of plans and services to meet the special
needs of certain investors. Plans available include, but are not limited to:
(1) payroll deduction plans, including military allotments;
(2) custodial accounts for minors;
(3) a flexible, systematic withdrawal plan; and
(4) various retirement plans such as IRA, 403(b)(7), 401(k) and
employer-adopted defined benefit and defined contribution plans.
There is an annual charge for each retirement plan fund account with
respect to which a service provider acts as custodian. If this charge is not
paid separately prior to the last business day of a calendar year or prior to a
total redemption, it will be deducted from the shareholder's account.
Application forms and brochures describing these plans and services can be
obtained from the Transfer Agent by calling 1-800-327-7170.
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
<PAGE>
more dealers that make markets in the securities. Short-term investments with
maturities of 60 days or less at the time of purchase, or which subsequently are
within 60 days of maturity, 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. Dividends consisting of substantially all
of the net income are declared and paid monthly.
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."
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.
<PAGE>
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 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.
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 income for the year.
THE TRUST
The Pauze Funds(TM) (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. In addition to the three series offered by this Prospectus, one other
series (the Pauze Tombstone Fund) is authorized. Each series offered by this
Prospectus 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
<PAGE>
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.
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. As of August 1, 1998, the CMT may be deemed
to control each of the Funds and the Trust as a result of its beneficial
ownership of Fund shares.
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
A Fund may periodically advertise "average annual total return." The
"average annual total return" of a Fund refers to the average annual compounded
rate of return over the stated period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment. The calculation of "average annual total return" assumes the
reinvestment of all dividends and distributions. The results do not take into
account charges for optional services which involve nominal fees (such as wire
redemption fees). These fees have the effect of reducing the actual return
realized by shareholders.
<PAGE>
A 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.
A Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of a Fund's shares) as of the end of a specified period. These non-standardized
quotations do not include the effect of charges for optional services which
involve nominal fees, which would reduce the quoted performance if included. A
non-standardized quotation will always be accompanied by the Fund's "average
annual total return" as described above.
A Fund may also include in advertisements data comparing performance with
bond or other indices, or with other mutual funds (as reported in non-related
investment media, published editorial comments and performance rankings compiled
by independent organizations and publications that monitor the performance of
mutual funds). For example, a 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 a Fund.
<PAGE>
THE ADVERTISED PERFORMANCE DATA OF THE FUND IS BASED ON HISTORICAL
PERFORMANCE AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. RATES OF TOTAL
RETURN AND YIELDS QUOTED BY THE FUND MAY BE HIGHER OR LOWER THAN PAST
QUOTATIONS, AND THERE CAN BE NO ASSURANCE THAT ANY RATE OF TOTAL RETURN OR
YIELDS WILL BE MAINTAINED. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT A SHAREHOLDER'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THE SHAREHOLDER'S ORIGINAL INVESTMENT.
PAUZE FUNDS(TM)
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(TM)
Pauze U.S. Government Intermediate Term Bond Fund(TM)
Pauze U.S. Government Short Term Bond Fund(TM)
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co.(TM)
14340 Torrey Chase Boulevard, Suite 170 / Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844 / Conshohocken, PA 19428-0844
DISTRIBUTOR
Declaration Distributors, Inc.
P.O. Box 844 / Conshohocken, PA 19428
CUSTODIAN
Star Bank, N.A. / 425 Walnut Street / Cincinnati, OH 45202
ACCOUNTANTS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800 / Philadelphia, PA 19103
LEGAL COUNSEL
Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, 441 Vine Street / Cincinnati, OH 45202
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or the Fund's Statement of
Additional Information incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offering by the Fund in any jurisdiction
in which such offering may not lawfully be made.
Be Sure to Retain This Prospectus. It Contains Valuable Information.
<PAGE>
PAUZE FUNDS(TM)
PAUZE TOMBSTONE FUND(TM)
(Information, Shareholder Services and Requests)
1-800-327-7170
P.O. Box 844
Conshohocken, PA 19428-0844
(To Purchase Shares)
1-888-647-5436
PROSPECTUS
September 1, 1998
The investment objective of the Pauze Tombstone Fund(TM) is to provide
shareholders with long term capital appreciation. The Fund seeks to achieve its
objective by investing primarily in all or a representative group of equity
securities comprising the Pauze Tombstone Common Stock Index(TM). The Index is
an unmanaged index developed by Pauze Swanson Capital Management Co.,(TM) the
Fund's Advisor, to track the performance of the publicly traded common stock of
companies which derive at least 15% of their revenues from the provision of
goods and/or services to the death care sector of the economy. The Fund's
performance therefore will be largely dependent on the performance of that
sector. The Fund is a non-diversified fund, and this Prospectus provides
information relating to the additional risks associated with non-
diversification.
This Prospectus provides information a prospective investor should know
before investing and should be retained for future reference. A Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") dated September 1, 1998, which is incorporated herein by
reference and can be obtained without charge by calling the Fund at the phone
number listed above. The SEC maintains a Web Site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC.
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 ...................................................... 5
THE FUND .................................................................. 6
INVESTMENT OBJECTIVE AND RISK CONSIDERATIONS .............................. 6
INDEX PERFORMANCE ......................................................... 7
INVESTMENT POLICIES AND RISKS ............................................. 8
HOW TO PURCHASE SHARES .................................................... 10
ADDITIONAL INFORMATION ABOUT PURCHASES .................................... 11
REDUCTIONS AND WAIVERS OF THE SALES CHARGE ................................ 12
OTHER POLICIES THAT AFFECT YOUR SALES CHARGE .............................. 13
HOW TO EXCHANGE SHARES .................................................... 14
HOW TO REDEEM SHARES ...................................................... 15
SHAREHOLDER SERVICES ...................................................... 18
RULE 12b-1 DISTRIBUTION PLAN .............................................. 18
VALUING FUND SHARES ....................................................... 18
DISTRIBUTIONS AND TAXES ................................................... 19
MANAGEMENT OF THE FUND .................................................... 20
GENERAL INFORMATION ....................................................... 22
PERFORMANCE INFORMATION ................................................... 23
<PAGE>
SUMMARY OF FEES AND EXPENSES
The following summary is provided to assist you in understanding the
various costs and expenses a shareholder in the Fund could bear directly and
indirectly. Annual operating expenses are shown as a percentage of average daily
net assets. The expense information is based on operating expenses incurred
during the most recent fiscal year. Shareholder transaction expenses for the
Fund are expressed as a percentage of the public offering price, cost per
transaction or as otherwise noted. The Example should not be considered a
representation of future Fund performance or expenses, both of which may vary.
Class Class A B Shareholder Transaction Expenses
Maximum sales charge on purchases
(as a percentage of offering price) ........................ 3.75% None
Maximum contingent deferred sales charge imposed on
redemption (as a percentage of original
purchase price)(1) ......................................... None 3.75%
Account Closing Fee
(does not apply to exchanges) .............................. $ 10 $ 10
Exchange fee ............................................... None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ............................................ 0.38% 0.38%
12b-1 Fees(2) .............................................. 0.25% 1.00%
Other Expenses (after reimbursement)(3) .................... 2.73% 2.72%
Total Fund Operating Expenses (after reimbursement)(3) ..... 3.36% 4.10%
A shareholder who requests delivery of redemption proceeds by wire will be
subject to a $10 charge. International wires will be higher.
(1) The maximum contingent deferred sales charge (CDSC) as set forth in the
table applies to redemptions of shares within one year of purchase. The
CDSC decreases over time, to zero, and the Class B shares are converted to
Class A shares on a no-load basis.
(2) Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales load permitted by the National Association of
Securities Dealers.
(3) Absent reimbursement by the Adviser, other expenses and total expenses
for the fiscal year ended April 30, 1998 would have been 2.88% and 3.51%,
respectively, for Class A shares and 2.87% and 4.25%, respectively, for
Class B shares.
<PAGE>
HYPOTHETICAL EXAMPLE OF EFFECT ON FUND EXPENSES
You would pay the following expenses on a $1,000 investment if, for each
year for the next three years, Fund expenses are as described above and annual
return is 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A(1)
Assuming a complete redemption at end of $ 80 $147 $216 $399
period (2)
Assuming no redemption at end of period 70 137 206 389
Class B
Assuming a complete redemption at end of 89 167 242 439
period (2)(3)
Assuming no redemption 41 125 210 430
</TABLE>
(1) Assumes deduction at the time of purchase of maximum 3.75% mutual sales
charge.
(2) Included in these estimates is the account closing fee of $10 for each
period. This is a flat charge which does not vary with the size of your
investment. Accordingly, for investments larger than $1,000, your total
expenses could be lower in percentage terms than this illustration.
(3) Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
FINANCIAL HIGHLIGHTS
The following condensed financial information for the year ended April 30,
1998 has been audited by Tait, Weller & Baker, the Fund's independent
accountants. The information should be read in conjunction with the audit report
and financial statements included in the 1998 Annual Report to Shareholders. In
addition to the data set forth below, further information about performance of
the Fund is contained in the Annual Report which may be obtained without charge
from the Fund's distributor. The presentation is for a share outstanding
throughout each period.
For a capital share outstanding throughout the year:
Class A Class B
--------- ---------
Net asset value, beginning of year $ 10.00 $ 10.00
--------- ---------
Income from investment operations:
Net investment loss (0.16) (0.22)
Net realized and unrealized gain
on investments 0.87 0.86
--------- ---------
Total from investment operations 0.71 0.64
--------- ---------
Net asset value, end of year $ 10.71 $ 10.64
========= =========
Total investment return (1) 7.20% 6.49%
Ratios/Supplemental Data:
Net assets, end of period (000) $ 1,419 $ 3,475
Ratio of expenses to average net assets (2) 3.36% 4.10%
Ratio of net investment loss to average net assets (2) (2.08)% (2.86)%
Portfolio turnover rate 124.20% 124.20%
Commission rate per share $ 0.0616 $ 0.0616
(1) Annualized from commencement of activity, May 6, 1997.
(2) Net investment income is net of expense reimbursements and fee waivers of
$.002 and $.002 per share for Class A and Class B, respectively. Had such
reimbursements not been made, the annualized expense ratio would have been
3.51% and 4.25% for Class A and Class B, respectively, and the annualized
net investment income ratio would have been (2.22)% and (3.01)% for Class A
and Class B respectively.
THE FUND
Pauze Tombstone Fund(TM) (the "Fund") was organized as a series of Pauze
Funds(TM) (the "Trust") on January 29, 1997, and commenced operations on May 1,
1997. This Prospectus offers shares of the Fund and each share represents an
undivided, proportionate interest in the Fund. The investment adviser to the
Fund is Pauze Swanson Capital Management Co.(TM) (the "Advisor").
INVESTMENT OBJECTIVE AND RISK CONSIDERATIONS
The investment objective of the Fund is to provide shareholders with long
term capital appreciation. The Fund seeks to achieve its objective by investing
primarily in all or a representative group of equity securities comprising the
Pauze Tombstone Common Stock Index(TM) (the "Index"), an unmanaged index
developed by the Advisor to track the performance of the publicly traded
<PAGE>
common stock of companies which derive at least 15% of their revenues (based
solely on information provided by each company, which may or may not be
accurate) from the provision of goods and/or services to the death care sector
of the economy. The Fund's performance therefore will be largely dependent on
the performance of that market sector (see "Index Performance" on page 7).
The Fund is an index fund, which means that it attempts to replicate the
performance of the Index by investing in the stocks of the Index in proportion
to their weightings in the Index. Each stock in the Index is weighted by its
market capitalization (total market value attributable to death care) relative
to the aggregate market capitalization of all securities in the Index. Only the
percentage of market capitalization attributable to death care will be included
in the Index. For example, if 15% of a company's revenue is derived from death
care, then 15% of the company's market capitalization will be included in the
Index, and a change in the company's share price will result in a smaller change
to the Index than would otherwise be the case. As the market capitalizations of
the stocks in the Index rise and fall due to changes in share price, the Index
will rise and fall to reflect the aggregate change, and the weightings of each
stock in the Index will change. The Index includes only U.S. companies (or
foreign companies whose stock is traded on a U.S. stock exchange) which have a
market capitalization attributable to death care of at least $15 million. As of
April 30, 1998, ten companies were included in the Index. They had market
capitalizations ranging from $59 million to $10.3 billion, and the aggregate
market capitalization of the Index approximated $18.3 billion.
Because the Fund invests primarily in the stocks of the death care
companies comprising the Index, a shareholder's investment will be subject to
the risks affecting that sector of the economy. The death care sector consists
of companies whose primary business is concentrated in one or more of three
broad categories: (1) funeral services, (2) cemetery services, (3) funeral and
cemetery support goods and services. Any regulatory, demographic or other
economic factor particularly affecting the death care industry could have a
material adverse impact on the Fund. For example, some states and regulatory
agencies may adopt regulations affecting solicitation and/or cancellation of
preneed sales of products and services, or prohibiting common ownership of
funeral homes and cemeteries in the same market. Also, changes in demographic
patterns (such as increases in cremation rates) may result in decreased revenues
for the companies in the Index. For the most part, the death care sector has
highly fragmented ownership, and despite considerable consolidation in recent
years (primarily through acquisitions), public companies still represent less
than one quarter of death care revenues. While this leaves considerable room for
growth of the companies included in the Index, there is no guarantee that
current consolidation and acquisition trends will continue.
In this regard, shareholders should be aware that as of April 30, 1998
there were only ten companies included in the Index, and that one company
comprised approximately 55%, two companies comprised approximately 69%, and four
companies comprised approximately 91% of the aggregate market capitalization of
the Index. Until the number and weightings of the companies in the Index are
substantially changed, the Fund's performance will be dominated by the
performance of those four companies, and any development affecting the sector as
a whole or those companies in particular will have a substantial impact on the
Fund. The Fund is a non-diversified fund, and, as such, presents substantially
more investment risk and potential for volatility than a mutual fund which is
diversified. The Fund is not a complete investment program, and an investment in
the Fund should be considered only a portion of your overall investment
portfolio.
<PAGE>
INDEX PERFORMANCE
Although the Index was first published in January 1997, the Advisor has
reconstructed its performance for earlier years. As of December 31, 1985, the
Index would have been comprised of two companies. The third Index company would
have been added on May 1, 1990, the fourth on October 1, 1991, the fifth on
December 1, 1992, the sixth on July 1, 1994, the seventh on October 1, 1994, the
eighth on April 1, 1996, the ninth on August 1, 1996 and the tenth on October
21, 1997.
For the purpose of creating a performance history, the performance of the
Index has been calculated on a monthly basis from January 1, 1986 through
December 31, 1996. Beginning on January 1, 1997, the Index has been calculated
on a daily basis.
The past performance of the Index should not be considered indicative of
the future performance of the Fund. Moreover, future performance of the Fund
will in all likelihood vary (possibly substantially) from the performance of the
Index. For the period from inception of the Fund (May 6, 1997) through April 30,
1998, the average annual return of the Fund was 3.08% (with sales charge) and
7.20% (without sales charge) for Class A shares, and 6.40% for Class B shares.
The average annual return of the Index for the same period was 15.69%. See
"Investment Policies and Risks."
PAUZE TOMBSTONE COMMON STOCK INDEX(TM)
HISTORICAL ANNUAL PERFORMANCE
December 31, 1985 - 100.00
December 31, 1986 - 130.13
December 31, 1987 - 118.98
December 31, 1988 - 109.48
December 31, 1989 - 117.08
December 31, 1990 - 138.02
December 31, 1991 - 191.71
December 31, 1992 - 208.33
December 31, 1993 - 284.84
December 31, 1994 - 267.09
December 31, 1995 - 368.30
December 31, 1996 - 483.50
December 31, 1997 - 574.18
COMPARATIVE RATES OF RETURN FOR VARIOUS INDICES AS OF DECEMBER 31, 1997
THE INDEX DJIA S&P 500 RUSSELL 3000
One Year 18.75% 24.94% 33.35% 31.70%
Five Year 22.46% 22.02% 20.23% 16.79%
Ten Year 17.03% 18.59% 18.01% 14.61%
Twelve Year 15.67% 14.73% 16.94% 13.07%
<PAGE>
(1) These figures represent simple annualized price appreciation of each index
for the given time period.
(2) Dividend re-investment, if any, is not included in the calculations.
(3) Twelve year figure represents inception date of the Index as reconstructed.
(4) The Index base date is 1/1/86 at Base index valuation of 100.
(5) Data Source for DJIA, S&P 500 and Russell 300 Index - Bloomberg Financial
Services.
(6) Data Source for the Index-Pauze Swanson Capital Management Co.(TM)
INVESTMENT POLICIES AND RISKS
Under normal market conditions, the Fund will invest primarily in the
common stocks of the companies that comprise the Index, in approximately the
same proportions as those common stocks have in the Index. However, the Fund may
invest in common stocks that are not included in the Index and, for temporary
defensive purposes under adverse market conditions, may hold a substantial
portion of its assets in cash equivalents, short term fixed income securities or
U.S. government repurchase agreements. The Fund may also invest in such
investments at any time to maintain liquidity, to meet regulatory requirements
or pending selection of investments in accordance with its policies. Thus, there
will not necessarily be a high correlation between the Fund's portfolio and the
Index at all times.
Although the Fund attempts to replicate the performance of the Index, the
Fund's ability to do so will also be affected by factors such as the size of the
Fund's portfolio, transaction costs, management fees and expenses, brokerage
commissions, timing of cash flows into and out of the Fund, the Fund's policy of
minimizing transaction costs and tax liability from capital gains distributions,
and changes in securities markets and the Index itself. Further, because the
Index is dominated by only a few companies, changes in the status of any of
these companies will have a pronounced effect on the performance of the Index
and the Fund. Tax laws and other regulatory requirements may prohibit the Fund
from investing in these companies to the extent necessary to mirror their
representation in the Index, which may cause the Fund's performance to differ
from that of the Index. See "Distributions and Taxes -- Dividend and Capital
Gain Distributions" for a discussion of the consequences of failure to meet
requirements under the Internal Revenue Code. In such a situation, the Advisor
will choose other investments to attempt to otherwise approximate the Index's
performance. The Advisor will try to minimize the impact of the above described
factors on the variation between the Fund's performance and that of the Index,
but there is no assurance that the Advisor will be successful in doing so.
The Index is a market capitalization weighted index, with each stock
affecting the Index in proportion to its total market value attributable to
death care. The Advisor, as developer and owner of the Index, is responsible for
selecting and maintaining the list of stocks to be included in the Index. The
Index is published by the American Stock Exchange under the symbol "RIP"
pursuant to a licensing agreement between the Advisor and the American Stock
Exchange. Only stocks of companies which derive at least 15% of their revenues
from the provision of goods and/or services to the death care sector of the
economy and have market capitalization attributable to death care of at least
$15 million are eligible for inclusion. In addition, the company must either be
a U.S. company, or if not, its stock must be traded on a U.S. stock exchange.
Inclusion of a stock in the Index in no way implies an opinion by the Advisor as
to the stock's attractiveness as an investment. The Index is unmanaged, and the
Advisor is therefore obligated to include in the Index any stock which meets the
above described criteria for inclusion.
<PAGE>
The Index is composed primarily of smaller capitalization companies.
Smaller capitalization companies may experience higher growth rates and higher
failure rates than do larger capitalization companies. Companies in which the
Fund is likely to invest may have limited product lines, markets or financial
resources and may lack management depth. The trading volume of securities of
smaller capitalization companies is normally less than that of larger
capitalization companies and, therefore, may disproportionately affect their
market price, tending to make them rise more in response to buying demand and
fall more in response to selling pressure than is the case with larger
capitalization companies.
The Fund is subject to market risk because it invests primarily in common
stocks. Market risk is the possibility that common stock prices will decline
over short or even extended periods. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when stock prices
generally decline. Because of the risks associated with investing in the
companies that comprise the Index, the Fund is intended to be a long term
investment vehicle and is not designed to provide investors with a means of
speculating on short term market movements.
The Fund may enter into repurchase agreements. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a U.S. Government obligation (which may be of any maturity) and the seller
agrees to repurchase the obligation at a future time at a set price, thereby
determining the yield during the purchaser's holding period (usually not more
than seven days from the date of purchase). Any repurchase transaction in which
the Fund engages will require 102% collateralization of the seller's obligation
during the entire term of the repurchase agreement. In the event of a bankruptcy
or other default of the seller, the Fund could experience both delays in
liquidating the underlying security and losses in value. However, the Fund
intends to enter into repurchase agreements only with banks with assets of $1
billion or more and registered securities dealers determined by the Advisor
(subject to review by the Board of Trustees) to be creditworthy.
The Fund may engage in option transactions involving individual securities
and market indexes. An option involves either (a) the right or the obligation to
buy or sell a specific instrument at a specific price until the expiration date
of the option, or (b) the right to receive payments or the obligation to make
payments representing the difference between the closing price of a market index
and the exercise price of the option expressed in dollars times a specified
multiple until the expiration date of the option. Options are sold (written) on
securities and market indexes. The purchaser of an option on a security pays the
seller (the writer) a premium for the right granted but is not obligated to buy
or sell the underlying security. The purchaser of an option on a market index
pays the seller a premium for the right granted, and in return the seller of
such an option is obligated to make the payment. A writer of an option may
terminate the obligation prior to expiration of the option by making an
offsetting purchase of an identical option. Options are traded on organized
exchanges and in the over-the-counter markets. Options on the Pauze Tombstone
Common Stock IndexTM are not currently traded on an exchange or in the
over-the-counter markets. To cover the potential obligations involved in writing
options, the Fund will own the underlying security, or the Fund will segregate
with the Custodian (a) high grade liquid debt assets sufficient to purchase the
underlying security, or (b) high grade liquid debt assets equal to the market
value of the stock index.
The purchase and writing of options requires additional skills and
techniques beyond normal portfolio management, and involves certain risks. The
purchase of options limits the Fund's potential loss to the amount of the
premium paid and can afford the Fund the opportunity to profit from favorable
movements in the price of an underlying security to a greater extent than if
transactions were
<PAGE>
effected in the security directly. However, the purchase of an option could
result in the Fund losing a greater percentage of its investment than if the
transaction were effected directly. When the Fund writes a call option, it will
receive a premium, but it will give up the opportunity to profit from a price
increase in the underlying security above the exercise price as long as its
obligation as a writer continues, and it will retain the risk of loss should the
price of the security decline. When the Fund writes a put option, it will assume
the risk that the price of the underlying security or instrument will fall below
the exercise price, in which case the Fund may be required to purchase the
security or instrument at a higher price than the market price of the security
or instrument. In addition, there can be no assurance that the Fund can effect a
closing transaction on a particular option it has written. Further, the total
premium paid for any option may be lost if the Fund does not exercise the option
or, in the case of over-the-counter options, the writer does not perform its
obligations.
The Fund may make short and long term loans of its portfolio securities.
Under the lending policy authorized by the Board of Trustees and implemented by
the Advisor in response to requests of broker-dealers or institutional investors
which the Advisor deems qualified, the borrower must agree to maintain
collateral, in the form of cash or U.S. government obligations, with the Fund on
a daily mark-to-market basis in an amount at least equal to 100% of the value of
the loaned securities. The Fund will continue to receive dividends or interest
on the loaned securities and may terminate such loans at any time or reacquire
such securities in time to vote on any matter which the Board of Trustees
determines to be serious. With respect to loans of securities, there is the risk
that the borrower may fail to return the loaned securities or that the borrower
may not be able to provide additional collateral.
The Fund may purchase securities on a when-issued or delayed delivery
basis, provided, at the time of purchase, no more than 5% of the Fund's total
assets are committed to such purchases. The Fund may borrow money for temporary
or emergency purposes in an amount not exceeding 5% of the Fund's total assets
at the time the borrowing is made. Reverse repurchase agreements are considered
borrowings for this purpose.
HOW TO PURCHASE SHARES
The Fund offers its shares in two classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within seven years of purchase.
Shares of the Fund are sold on a continuous basis, and you may invest any amount
you choose (up to $5,000,000), as often as you wish, subject to a minimum
initial investment of $2,500 ($2,000 for IRA accounts) and subsequent
investments of $500. Shares of the Fund are purchased at the net asset value per
share next determined after the order is received and accepted by the
Distributor, plus any applicable sales charge for Class A shares. When opening
an account, it is important that you provide the Distributor with your correct
taxpayer identification number (social security or employer identification
number).
If you are investing in this Fund for the first time, you will need to set
up an account. Your financial advisor will help you fill out and submit an
application. You may also make a direct initial investment by completing and
signing the investment application which accompanies this Prospectus and mailing
it, together with a check or money order made payable to: Pauze Tombstone
Fund(TM), Declaration Service Company, P.O. Box 844, Conshohocken, Pennsylvania
19428-0844.
<PAGE>
When you place an order for the Fund's shares, you must specify which class
of shares you wish to purchase. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These differences are
summarized in the table below.
<TABLE>
<CAPTION>
SALES CHARGE DISTRIBUTION & OTHER INFORMATION
SERVICE FEES
<S> <C> <C> <C>
CLASS A Maximum initial sales No distribution fee; Initial sales charge
charge of 3.75% service fee of 0.25% waived or reduced
of average daily net for certain purchases
assets
CLASS B No initial sales charge; distribution fee of Shares convert to
CDSC of 3.75% declines to 0.75%; service fee of Class A after
0% after seven years 0.25% of average seventh year
daily net assets
</TABLE>
CONVERSION OF CLASS B SHARES TO CLASS A SHARES -- Seven years after Class B
shares are originally purchased, Class B shares will convert to Class A shares
and will no longer be subject to a distribution fee. The conversion will be on
the basis of relative net asset values of the two classes, without the
imposition of any sales charge. Class B shares purchased through reinvested
dividends and other distributions will convert to Class A shares on a pro rata
basis with Class B shares not purchased through reinvestment.
CONSIDERATIONS IN DETERMINING WHETHER TO PURCHASE CLASS A OR CLASS B SHARES
- -- you should consider the information below in determining whether to purchase
Class A or Class B shares.
SALES CHARGES ON PURCHASE OR REDEMPTION
IF YOU PURCHASE CLASS A SHARES IF YOU PURCHASE CLASS B SHARES
You will not have all of your money All of your money is invested in
invested. Part of your purchase price will shares of stock. However, you will
go to pay the sales charge. You will not pay a declining sales charge if you
pay a sales charge when you redeem your redeem your shares within seven
shares. years of purchase.
ONGOING EXPENSES
IF YOU PURCHASE CLASS A SHARES IF YOU PURCHASE CLASS B SHARES
Your shares will have a lower ongoing The distribution and service fees
expense ratio than Class B shares. for Class B shares will cause your
shares to have a higher ongoing
expense ratio and to pay lower
dividends than Class A shares.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses
<PAGE>
on Class A shares. To help you in this analysis, the example in the "Sales
charge and Fund expenses" section of the Prospectus illustrates the charges
applicable to each class of shares.
BY MAIL: When making subsequent investments by mail, enclose your check
with the return remittance portion of the confirmation of your previous
investment or indicate on your check or a separate piece of paper your name,
address and account number and mail to the address set forth above. Third party
checks will not be accepted.
BY TELEPHONE: Once your account is open, you may make investments by
telephone by calling 1-800-327-7170. The maximum telephone purchase is the
lesser of $5,000,000 or ten times the value of the shares owned, calculated at
the last available net asset value. Payment for shares purchased by telephone is
due within three business days after the date of the transaction. If your
telephone order to purchase shares is cancelled due to nonpayment (whether or
not your check has been processed by the Fund), you will be responsible for any
loss incurred by the Trust by reason of such cancellation. Investments by
telephone are not available in any Fund retirement account administered by the
Administrator or its agents.
BY WIRE: You may make your initial or subsequent investments in the Pauze
Funds(TM) by wiring funds. To do so, call the Investor Information Department at
1-800-327-7170 for a confirmation number and wiring instructions.
BY AUTOMATIC INVESTMENT PLAN: Once your account is open, you may make
investments automatically by completing the automatic investment plan form
authorizing Pauze Funds(TM) to draw on your bank account regularly by check for
as little as $30 a month beginning within thirty (30) days after the account is
opened. You should inquire at your bank whether it will honor debits through the
Automated Clearing House ("ACH") or, if necessary, preauthorized checks. You may
change the date or amount of your investment any time by written instruction
received by Pauze Funds(TM) at least five business days before the change is to
become effective.
To assure proper receipt, please be sure your bank includes the Fund name
and the account number that has been assigned to you. If you are opening a new
account, please complete the Account Registration Form and mail it to the
address above after completing your wire arrangement. Note: Federal Funds wire
purchase orders will be accepted only when the Fund and Custodian Bank are open
for business.
There are no wire fees charged by the Trust for purchases of $1,000 or
more. A $10 wire fee will be charged by the Trust on wire purchases of less than
$1,000. Your bank may charge wire fees for this service.
ADDITIONAL INFORMATION ABOUT PURCHASES
PURCHASE POLICIES:
o Investments must be received and accepted in the Distributor's offices on a
business day before 4:00 p.m. Eastern time to be included in your account
that day and to receive that day's share price. Otherwise, your purchase
will be processed the next business day and you will pay the next day's
share price.
<PAGE>
o The maximum single purchase allowed is $5 million. Any individual order for
$5 million or more must be pre-approved by the Distributor prior to placing
the order or it will be rejected. This maximum individual amount allowed
for investment may change from time to time.
o Wire orders can be accepted only on days when your bank, the Fund and the
Fund's Distributor and Custodian are open for business.
o Wire purchases are completed when wired payment is received and the Fund
accepts the purchase.
o The Distributor and the Fund are not responsible for any delays that occur
in wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application or investment for any
reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
REDUCTIONS AND WAIVERS OF THE SALES CHARGE
CLASS A -- INITIAL SALES CHARGE ALTERNATIVE
On purchases of Class A shares, you pay a 3.75% sales charge on the first
$250,000 of your total investment and less on subsequent investments.
<TABLE>
<CAPTION>
Total Investment Sales Charge as a % of:*
Public Net Invested Dealer Reallowance as Percentage
Offering Price Amount of Public Offering Price**
<S> <C> <C> <C>
Up to $250,000 3.75% 3.90% 3.25%
Next $250,000 3.25% 3.36% 2.85%
Next $250,000 3.00% 3.09% 2.70%
Next $250,000 2.00% 2.04% 1.80%
$1,000,000 or more 1.00% 1.00% .90%
</TABLE>
* To calculate the actual sales charge on an investment greater than $250,000
and less than $1,000,000, amounts for each applicable increment must be
totaled. See the Statement of Additional Information ("SAI").
** Under certain circumstances, the Distributor may increase or decrease the
reallowance amounts paid to participating broker-dealers.
REDUCTIONS OF THE SALES CHARGE ON CLASS A SHARES
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in the Fund now
<PAGE>
o the amount of your existing investment in the Fund, if any, and
o the amount you and your primary household group are investing or have
invested in other funds in the Pauze Funds(TM) that carry a sales
charge. (The primary household group consists of accounts in any
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a
shared primary residence and have joint property or other insurable
interests.)
OTHER POLICIES THAT AFFECT YOUR SALES CHARGE
IRA purchases or other employee benefit plan purchases made through a
payroll deduction plan or through a plan sponsored by an employer, association
of employers, employee organization or other similar entity, may be added
together to reduce the sales charge for all shares purchased through that plan.
WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund,
Declaration Service Company ("DSC" or the "Administrator"), Declaration
Distributors, Inc. ("DDI" or the "Distributor") or their subsidiaries,
spouses and unmarried children under 21.
o Current or retired Pauze Swanson(TM) employees, their spouses and unmarried
children under 21.
o Qualified employee benefit plans using a daily transfer record keeping
system offering participants daily access to Pauze Funds(TM).
o Shareholders who have at least $5 million invested in funds of the Pauze
Funds(TM). If the investment is redeemed in the first year after purchase,
a CDSC of 1% will be charged on the redemption.
o Purchases made with dividend or capital gain distributions from the load
shares of another fund in the Pauze Funds(TM).
o Broker-dealers with dealer agreements with the Distributor, and registered
representatives of such entities.
CLASS B -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE
Class B shares are sold subject to a contingent deferred sales charge
("CDSC"). Under this purchase alternative, all of the purchase payment for Class
B shares is immediately invested in the Fund. The Advisor pays the Distributor a
fee or commission of 3.75% and is reimbursed by the Fund over time by charging
an additional Rule 12b-1 fee of .75% to the Class B shares. The Distributor pays
the pariticpating broker/dealer's fee or commission of 3.25%. Under certain
circumstances, the Distributor may increase or decrease the fee. The CDSC
assures that the Advisor is reimbursed for funding the broker-dealer's fee.
<PAGE>
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of years, including the year of purchase, between
purchase and redemption. The following table shows the declining scale of
percentages that apply to redemptions during each year after purchase:
IF A REDEMPTION IS MADE DURING THE: THE PERCENTAGE RATE FOR THE CDSC IS:
First year 3.75%
Second year 3.75%
Third year 3.25%
Fourth year 2.75%
Fifth year 2.25%
Sixth year 1.75%
Seventh year 1.25%
Thereafter -0-
A CDSC is imposed on Class B shares if, within the time frames set forth,
you redeem an amount that causes the current value of your account to fall below
the total dollar amount of Class B shares purchased subject to the CDSC. The
CDSC will not be imposed on the redemption of Class B shares acquired as
dividends or other distributions, or on any increase in the net asset value of
the redeemed Class B shares above the original purchase price. Thus, the CDSC
will be imposed on the lower of net asset value or purchase price. Redemptions
will be processed in a manner intended to minimize the amount of redemption that
will be subject to the CDSC. When calculating the CDSC, it will be assumed that
the redemption is made first of Class B shares acquired as dividends, second of
shares that have been held for over the prescribed time and finally of shares
held for less than the prescribed time.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 3.75% because a redemption after 15
months would take place during the second year after purchase.
<PAGE>
SERVICES
To help you track and evaluate the performance of your investments, DSC
provides these services:
o QUARTERLY STATEMENTS listing all of your holdings and transactions
during the previous three months.
o YEARLY TAX STATEMENTS featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares, along with
distribution information which simplifies tax calculations.
HOW TO EXCHANGE SHARES
You have the privilege of exchanging some or all of your shares for shares
of the same class of any other of the Pauze Funds(TM) which are properly
registered for sale in your state. An exchange involves the simultaneous
redemption (sale) of shares of one fund and purchase of shares of another fund
at the respective closing net asset value and is a taxable transaction.
By telephone: You will automatically have the privilege to direct Pauze
Funds to exchange your shares by calling toll free 1-800-327-7170. In connection
with such exchanges, neither the Fund nor the Transfer Agent will be responsible
for acting upon any instructions reasonably believed by them to be genuine. The
shareholder, as a result of this policy, will bear the risk of loss. The Fund
and/or its Transfer Agent will, however, employ reasonable procedures to confirm
that instructions communicated by telephone are genuine (including requiring
some form of personal identification, providing written confirmation, and tape
recording conversations); and if the Fund and/or its Transfer Agent do not
employ reasonable procedures, they may be liable for losses due to unauthorized
or fraudulent transactions.
By mail: You may direct Pauze Funds(TM) in writing to exchange your shares.
The request must be signed exactly as the name appears on the registration.
(Before writing, read "Additional Information About Exchanges.")
ADDITIONAL INFORMATION ABOUT EXCHANGES
(1) All exchanges are subject to the minimum investment requirements and
any other applicable terms set forth in the prospectus for the Fund whose
shares are being acquired.
(2) There currently is no charge for exchanges. However, the Trust reserves
the right to impose a $5 charge, which would be paid to the Transfer Agent,
for each exchange transaction out of any fund account, to cover
administrative costs associated with handling these exchanges.
(3) As with any other redemption, the Fund reserves the right to hold
redemption proceeds for up to seven days. In such event, the purchase side
of the exchange transaction will also be delayed. You will be notified
immediately if a Fund is exercising said right.
<PAGE>
(4) Shares may not be exchanged unless you have furnished Pauze Funds(TM)
with your tax identification number, certified as prescribed by the
Internal Revenue Code and Regulations, and the exchange is to an account
with like registration and tax identification number.
(5) The exchange privilege may be modified or terminated at any time. The
exchange fee and other terms of the privilege are subject to change.
HOW TO REDEEM SHARES
You may redeem any or all of your shares at will. The Trust redeems shares
at the net asset value next determined after it has received and accepted a
redemption request in proper order. Redemption requests must be received prior
to the time the next determined net asset value per share is computed (generally
4:00 p.m. Eastern time, Monday through Friday) to be effective that day.
By mail: Your written request for redemption in proper form to Declaration
Service Company, P.O. Box 844, Conshohocken, Pennsylvania 19428-0844. For
express or registered mail, send your request to Declaration Service Company,
Suite 6160, 555 North Lane, Conshohocken, Pennsylvania 19428. To be in "proper
form" requires delivery to the Transfer Agent of:
(1) a written request for redemption signed by each registered owner
exactly as the shares are registered, the account number and the number of
shares or the dollar amount to be redeemed;
(2) signature guarantees when required (see "Signature Guarantee" page
16); and
(3) such additional documents as are customarily required to evidence the
authority of persons effecting redemptions on behalf of corporations,
executors, trustees and other fiduciaries. Redemptions will not become
effective until all documents in the form required have been received by
the Transfer Agent. (Before writing, read "Additional Information About
Redemptions.")
By telephone: Redemptions may be made by telephone, provided you have
completed the Telephone Redemption Authorization section of the purchase
application. Upon proper authority and instruction, redemptions will be wired
(for a separate bank wire charge) to the bank account identified on the account
registration or, for amounts of $15,000 or less, redemptions will be mailed to
the address on the account registration. In connection with telephone
redemptions, neither the Fund nor the Transfer Agent will be responsible for
acting upon any instructions reasonably believed by them to be genuine. The Fund
and/or its Transfer Agent will, however, employ reasonable procedures to confirm
that instructions communicated by telephone are genuine (including requiring
some form of personal identification, providing written confirmations, and tape
recording conversations); and if the Fund or its Transfer Agent do not employ
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent transactions.
SPECIAL REDEMPTION ARRANGEMENTS
Special arrangements may be made by institutional investors, or on behalf
of accounts established by brokers, advisors, banks or similar institutions, to
have redemption proceeds transferred by wire to pre-established accounts upon
telephone instructions. For further information call the Trust at
1-800-327-7170.
<PAGE>
SIGNATURE GUARANTEE
Redemptions in excess of $15,000 currently require a signature guarantee. A
signature guarantee is required for all redemptions, regardless of the amount
involved, when proceeds are to be paid to someone other than the registered
owner of the shares to be redeemed, or if proceeds are to be mailed to an
address other than the registered address of record. A signature guarantee
verifies the authenticity of your signature and the guarantor must be an
eligible guarantor. In order to be eligible, the guarantor must be a participant
in a STAMP program (a Securities Transfer Agents Medallion Program). You may
call the Transfer Agent at 1-800-327-7170 to determine whether the entity that
will guarantee the signature is an eligible guarantor.
REDEMPTION PROCEEDS MAY BE SENT TO YOU:
BY MAIL: If your redemption check is mailed, it is usually mailed within 48
hours of receipt of the redemption request; however, the Trust reserves the
right to hold redemption proceeds for up to seven days. If the shares to be
redeemed were purchased by check, the redemption proceeds will not be mailed
until the purchase check has cleared. You may avoid this requirement by
investing by bank wire (Federal funds). Redemption checks may be delayed if you
have changed your address in the last 30 days. Please notify the Trust promptly
in writing of any change of address.
BY WIRE: You may authorize the Trust to transmit redemption proceeds by
wire provided you send written instructions with a signature guarantee at the
time of redemption or have completed the banking information portion of the
Telephone Redemption Authorization on the purchase application. Proceeds from
your redemption will usually be transmitted on the first business day following
the redemption. However, the Trust reserves the right to hold redemptions for up
to seven days. If the shares to be redeemed were purchased by check, the
redemption proceeds will not be wired until the purchase check has cleared,
which may take up to seven days. There is a $10 charge to cover the wire, which
is deducted from redemption proceeds.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
(1) Redemptions of Class B shares of the Fund may be subject to a CDSC if
the shares are redeemed within the holding period prescribed in the
applicable Distribution Plan. See Class B - Contingent Deferred Sales
Charge Alternative on page 13 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
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
<PAGE>
failure to so redeem, or to so prohibit, would have a material adverse
consequence to the Trust and its shareholders.
(5) Excessive short-term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Trust has reserved
the right to refuse investments from shareholders who engage in short-term
trading.
(6) The Fund has filed an election with the Securities and Exchange
Commission which permits the Fund to make redemption payments in whole or
in part in securities or other property. However, the Fund has committed to
pay in cash all redemptions for any shareholder, limited in amount with
respect to each shareholder during any ninety day period to the lesser of
(a) $250,000 or (b) one percent of the net asset value of the Fund at the
beginning of such period.
ACCOUNT CLOSING FEE
In order to reduce Fund expenses, an account closing fee of $10 will be
assessed to shareholders who redeem all shares in their Fund account and direct
that redemption proceeds be directed to them by mail or wire. The charge is
payable directly to the Fund's Transfer Agent which, in turn, will reduce its
charges to the Fund by an equal amount. The account closing fee does not apply
to exchanges between other funds of the Trust.
The purpose of the charge is to allocate to redeeming shareholders a more
equitable portion of the Transfer Agent's fee, including the cost of tax
reporting, which is based upon the number of shareholder accounts. When a
shareholder closes an account, the Fund must continue to carry the account on
its books, maintain the account records and complete year-end tax reporting.
With no assets, the account cannot pay its own expenses and imposes an unfair
burden on remaining shareholders.
SMALL ACCOUNTS
Fund accounts which fall, for any reason other than market fluctuations,
below $1,000 at any time during a month will be subject to a small account
charge of $5 for that month which is deducted the next business day. The charge
is payable directly to the Fund's Transfer Agent which, in turn, will reduce its
charges to the Fund by an equal amount. The purpose of the charge is to allocate
the cost of maintaining shareholder accounts more equitably among shareholders.
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.
<PAGE>
SHAREHOLDER SERVICES
DSC, P.O. Box 844, Conshohocken, PA 19428-0844, acts as transfer and
dividend paying agent for all Fund accounts. Simply write or call the Investor
Information Department at 1-800-327-7170 for prompt service on any questions
about your account.
CONFIRMATION STATEMENTS
Shareholders normally will receive a yearly confirmation statement and
after each transaction showing the activity in the account. However, when
account activity is produced solely from dividend reinvestment, confirmation
statements will be mailed only on a quarterly basis.
OTHER SERVICES
The Trust has available a number of plans and services to meet the special
needs of certain investors. Plans available include, but are not limited to:
(1) payroll deduction plans, including military allotments;
(2) custodial accounts for minors;
(3) a flexible, systematic withdrawal plan; and
(4) various retirement plans such as IRA, 403(b)(7), 401(k) and
employer-adopted defined benefit and defined contribution plans.
There is an annual charge for each retirement plan fund account with
respect to which a service provider acts as custodian. If this charge is not
paid separately prior to the last business day of a calendar year or prior to a
total redemption, it will be deducted from the shareholder's account.
Application forms and brochures describing these plans and services can be
obtained from the Transfer Agent by calling 1-800-327-7170.
RULE 12B-1 DISTRIBUTION PLAN
A plan of distribution has been adopted under Rule 12b-1 of the Investment
Company Act of 1940 for the Fund, with separate provisions for each class of
shares. The plan provides that the Fund will pay a servicing or Rule 12b-1 fee
of 0.25% of the Fund's average net assets (1/12 of 0.25% monthly) to the Advisor
for its ongoing services to prospective and existing Fund shareholders,
including payments to persons or institutions for performing certain servicing
functions for Fund shareholders. These payments will generally be based on a
percentage of the value of Fund shares held by the institution's clients. With
respect to Class B shares, the distribution plan provides that the Fund will use
Fund assets allocable to those shares to pay the Advisor additional Rule 12b-1
fees of 0.75% of said assets (1/12 of 0.75% monthly) for its services and
expenditures related to the distribution of Class B shares, including fees paid
to broker-dealers for sales and promotional services. The fees received by the
Advisor for either class of shares during any year may be more or less than its
costs of providing distribution and shareholder services to the class of shares.
See "Summary of Fees and Expenses" at page 13 and "Rule 12b-1 Distribution Plan"
in the Statement of Additional Information.
<PAGE>
VALUING FUND SHARES
The value of an individual share in any class of the Fund (the net asset
value) is calculated by dividing the net assets attributable to the class, by
the number of shares outstanding of the class, rounded to the nearest cent. Net
asset value per share is determined as of the close of the New York Stock
Exchange (4:00 p.m., Eastern time) on each day that the exchange is open for
business, and on any other day on which there is sufficient trading in the
Fund's securities to materially affect the net asset value. The net asset value
per share of the Fund will fluctuate.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Advisor's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Advisor determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith by the Advisor, subject to review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Advisor believes such prices accurately reflect the fair market value of such
securities. A pricing service utilizes electronic data processing techniques
based on yield spreads relating to securities with similar characteristics to
determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. When prices are not readily available from
a pricing service, or when restricted or illiquid securities are being valued,
securities are valued at fair value as determined in good faith by the Advisor,
subject to review of the Board of Trustees. Short term investments in fixed
income securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued by using the amortized
cost method of valuation, which the Board has determined will represent fair
value.
DISTRIBUTIONS AND TAXES
As a shareholder you are entitled to your share of the Fund's distributed
net income and any net gains realized on its investments. The Fund intends to
distribute dividends and capital gains distributions to qualify as a regulated
investment company and to avoid paying corporate income and excise taxes.
Dividend and capital gains distributions will have tax consequences you should
know about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment
income as DIVIDENDS to its shareholders at the end of each calendar quarter.
Short-term capital gains are distributed at the end of the calendar year and are
included in net investment income. Dividends for each share class will be
calculated at the same time, in the same manner and will be the same amount
prior to deduction of expenses. Expenses attributable solely to a class of
shares will be paid exclusively by that class. Class B shareholders will receive
lower per share dividends than Class A shareholders because ongoing expenses for
Class B are higher than for Class A.
<PAGE>
The Fund realizes long-term capital gains whenever it sells securities held
for more than one year for a higher price than it paid for them. The Fund
intends to distribute substantially all of its net realized long-term capital
gains, if any, at the end of the calendar year as CAPITAL GAIN DISTRIBUTIONS.
Before they are distributed, net long-term capital gains are included in the
value of each share. After they are distributed, the value of each share drops
by the per-share amount of the distribution. (If your distributions are
reinvested, the total value of your holdings will not change.)
The Advisor anticipates that the Fund's portfolio will be highly
concentrated, and diversification requirements under the Internal Revenue Code
will in all likelihood necessitate the sale of securities at the end of each
quarter for the Fund to qualify as a regulated investment company. These sales
may result in the realization of additional capital gains, and there is no
guarantee that the Fund will be able to qualify as a regulated investment
company and thereby avoid paying corporate taxes.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay distributions to
you in cash, or
o you direct the Fund to invest your distributions in any publicly
available Pauze Fund(TM) for which you have previously opened an
account. You pay no sales charge on shares purchased through
reinvestment of distributions from the Fund into another Pauze Fund.
The reinvestment price is the net asset value at the close of business on
the day the distribution is paid. (Your quarterly statement will confirm the
amount invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared
after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the then-current
net asset value and make future distributions in the form of additional shares.
TAXES
Distributions are subject to federal income tax and also may be subject to
state and local taxes. Distributions are taxable in the year the Fund pays them
regardless of whether you take them in cash or reinvest them.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
Buying a dividend creates a liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
<PAGE>
Redemptions and exchanges subject you to a tax on any capital gain. If you
sell shares for more than their cost, the difference is a capital gain. Your
gain may be either short term (for shares held for one year or less) or long
term (for shares held for more than one year).
IMPORTANT: The foregoing tax information is a brief and selective summary
of certain federal tax rules that apply to the Fund. Tax matters are highly
individual and complex, and you should consult a qualified tax advisor about
your personal situation.
MANAGEMENT OF THE FUND
TRUSTEES
The Fund is a series of the Pauze Funds (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust on
October 15, 1993. The Trust's headquarters are at 14340 Torrey Chase Blvd.,
Suite 170, Houston, Texas 77014. The business and affairs of the Fund are
managed by the Trust's Board of Trustees. The Trustees establish policies, as
well as review and approve contracts and their continuance. The Trustees also
elect the officers of the Trust.
THE INVESTMENT ADVISOR
Pauze, Swanson & Associates Investment Advisors Inc. d/b/a Pauze Swanson
Capital Management Co.(TM) (the "Advisor"), 14340 Torrey Chase Blvd., Suite 170,
Houston, Texas 77014, under an investment advisory agreement with the Trust,
furnishes investment advisory and management services to the Fund. The Advisor
is a Texas corporation which was registered with the Securities and Exchange
Commission as an investment advisor in December, 1993. Philip C. Pauze, the
Fund's portfolio manager and owner of the Advisor, has been responsible for the
day-to-day management of the Fund since inception.
Mr. Pauze has specialized in providing investment management for the assets
of pre-need funeral accounts, trusts, small institutions, and retirement plans
since 1985. Mr. Pauze assisted the California Funeral Directors Association in
establishing the California Master Trust (the "CMT") and has managed the
investment portfolio since inception. CMT's investment performance has been
highly rated by independent evaluators. In addition to the CMT, Mr. Pauze serves
as the financial consultant to the government bond portfolio of the Pennsylvania
Funeral Trust, to the American Funeral Trust, a nationwide funeral trust, and to
the California and Pennsylvania Funeral Directors Association's Retirement
Plans. Mr. Pauze has over eleven years experience managing assets for companies
involved in the death care industry. Mr. Pauze has been President of the Trust
since January 10, 1994.
The Advisor furnishes an investment program for the Fund, determines,
subject to the overall supervision and review of the Board of Trustees of the
Trust, what investments should be purchased, sold and held, and makes changes on
behalf of the Trust in the investments of the Fund. The Advisory Agreement with
the Trust provides for the Fund to pay the Advisor a monthly management fee
equal to an annual rate of .38% of the Fund's average daily net assets.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Advisor may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions. It is anticipated that the Fund will pay brokerage
commissions to a registered broker-dealer with which Mr. Pauze is affiliated.
<PAGE>
THE ADMINISTRATOR
DSC, under an Administration Agreement with the Trust dated February 13,
1996, generally administers the affairs of the Trust. Terence P. Smith,
President of DSC, has been a Trustee of the Trust since February 13, 1996.
Under the Administration Agreement, the Administrator, subject to the
overall supervision and review of the Board of Trustees of the Trust, supervises
parties (other than the Advisor) providing services to the Trust, provides the
Trust with office space, facilities and business equipment, and provides the
services of executive and clerical personnel for administering the affairs of
the Trust.
The Administration Agreement provides for the Trust to pay the
Administrator an annual fee of $196,000, which is allocated among all of the
funds of the Trust pro rata based on their respective net assets. DSC also
provides transfer agency, dividend disbursing and accounting services to the
Funds for which it receives separate compensation.
THE DISTRIBUTOR
On February 13, 1996, pursuant to the Fund's Distribution Plan, the Trust
entered into a Distribution Agreement with DDI, P.O. Box 844, Conshohocken, PA
19428, an affiliate of DSC, pursuant to which the Distributor has agreed to act
as the Trust's agent in connection with the distribution of Fund shares. The
Distributor's responsibilities include acting as agent in states where
designated agents are required, reviewing and filing all advertising and
promotional materials, and monitoring and reporting to the Board of Trustees on
Trust distribution plans. For such services, it will be paid a fixed annual fee
of $20,000 and will be reimbursed for expenses incurred on behalf of the Trust.
The Advisor is committed to pay all sums, if any, that exceed the amount allowed
under the Fund's 12b-1 Plan.
The Trust pays all other expenses for its operations and activities, and
each Fund pays its allocable portion of these expenses. The expenses borne by
the Trust include the charges and expenses of any shareholder servicing agents,
custodian fees, legal and auditors' expenses, brokerage commissions for
portfolio transactions, the advisory fee, extraordinary expenses, expenses of
shareholder and trustee meetings, expenses for preparing, printing and mailing
proxy statements, reports and other communications to shareholders, and expenses
of registering and qualifying shares for sale, among others.
GENERAL INFORMATION
FUNDAMENTAL POLICIES
The investment limitations set forth in the Statement of Additional
Information as fundamental policies may not be changed without the affirmative
vote of the majority of the outstanding shares of the fund. The investment
objective of the Fund may be changed without the affirmative vote of a majority
of the outstanding shares of the Fund. Any such change may result in the Fund
having an investment objective different from the objective which the
shareholders considered appropriate at the time of investment in the Fund.
Shareholders will be given thirty days' prior notice of any change in the Fund's
investment objective.
<PAGE>
PORTFOLIO TURNOVER
The Fund does not intend to purchase or sell securities for short term
trading purposes. The Fund will, however, sell portfolio securities as
weightings in the Index change and for regulatory compliance reasons. It is
anticipated that the Fund will have a portfolio turnover rate of less than 200%.
The brokerage commissions incurred by the Fund will generally be higher than
those incurred by a fund with a lower portfolio turnover rate. The higher
portfolio turnover rate may result in the realization of more net capital gains,
and any distributions derived from such gains may be ordinary income for federal
tax purposes.
SHAREHOLDER RIGHTS
The shares of each share class making up the Fund represent an interest in
that Fund's assets only (and profits or losses), and in the event of
liquidation, each share of the Fund would have the same rights to dividends and
assets as every other share of the Fund (except that expenses attributable
solely to a class of shares will be borne by that share class).
No annual or regular meeting of shareholders is required; however, the
Trustees may call meetings to take action on matters which require shareholder
vote and other matters as to which Trustees determine shareholder vote is
necessary or desirable. 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.
As a shareholder, you have voting rights over the Fund's fundamental
policies. You are entitled to one vote for each whole share, and fractional
votes for fractional shares, you own. Shares of the Fund do not have cumulative
voting rights. On matters affecting an individual series, a separate vote of
shareholders of the series is required. On matters affecting an individual class
of shares, a separate vote of shareholders of the class is required. The series'
shares are fully paid and non-assessable by the Trust, have no pre-emptive or
subscription rights, and are fully transferable, with no conversion rights.
As of August 1, 1998, CMT may be deemed to control the Trust as a result of
its beneficial ownership of shares of various series of the Trust.
<PAGE>
PERFORMANCE INFORMATION
The Fund may periodically advertise "average annual total return." The
"average annual total return" of the Fund refers to the average annual
compounded rate of return over the stated period that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation of "average annual total return"
assumes the reinvestment of all dividends and distributions and the deduction of
the maximum sales charge from the initial investment (for Class A shares) or the
deduction of the maximum contingent sales charge (for Class B shares). The
results do not take into account charges for optional services which involve
nominal fees (such as wire redemption fees).
The Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of the Fund's shares) as of the end of a specified period. These
non-standardized quotations do not include the effect of the applicable sales
charge, or charges for optional services which involve nominal fees, which would
reduce the quoted performance if included. A non-standardized quotation will
always be accompanied by the Fund's "average annual total return" as described
above.
The Fund may also include in advertisements data comparing performance with
other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to the Pauze Tombstone Common Stock Index(TM), and the performance of
the Index as well as the Fund may be compared to other well-known indices of
market performance including the Standard & Poor's (S&P) 500 Index or the Dow
Jones Industrial Average. The performance of the Pauze Tombstone Common Stock
Index(TM) should not be considered indicative of future performance of the Fund.
THE ADVERTISED PERFORMANCE DATA OF THE FUND IS BASED ON HISTORICAL
PERFORMANCE AND IS NOT INTENDED TO INDICATE FUTURE PERFORMANCE. RATES OF TOTAL
RETURN QUOTED BY THE FUND MAY BE HIGHER OR LOWER THAN PAST QUOTATIONS, AND THERE
CAN BE NO ASSURANCE THAT ANY RATE OF TOTAL RETURN WILL BE MAINTAINED. THE
PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT A
SHAREHOLDER'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE
SHAREHOLDER'S ORIGINAL INVESTMENT.
<PAGE>
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co.(TM)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428
PAUZE FUNDS(TM)
Pauze Tombstone Fund(TM)
Pauze U.S. Government Total Return
Bond Fund (TM)
Pauze U.S. Government Intermediate
Term Bond Fund (TM)
Pauze U.S. Government Short Term Bond
Fund (TM)
Be sure to retain this Prospectus. It
contains valuable information.
DISTRIBUTOR
Declaration Distributors, Inc.
P.O. Box 844
Conshohocken, PA 19428
LEGAL COUNSEL
Brown, Cummins & Brown Co., LPA
3500 Carew Tower
441 Vine Street
Cincinnati, OH 45202
CUSTODIAN
Star Bank, NA
425 Walnut Street
Cincinnati, OH 45202
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker
8 Penn Center Plaza
Philadelphia, PA 19103
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
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 September 1, 1998 (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 September 1, 1998.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION ....................................................... 1
INVESTMENT OBJECTIVES AND POLICIES ........................................ 2
PORTFOLIO TURNOVER ........................................................ 8
PORTFOLIO TRANSACTIONS .................................................... 8
MANAGEMENT OF THE TRUST ................................................... 8
PRINCIPAL HOLDERS OF SECURITIES ........................................... 10
INVESTMENT ADVISORY SERVICES .............................................. 13
ADMINISTRATOR SERVICES .................................................... 14
TRANSFER AGENCY AND OTHER SERVICES ........................................ 15
12b-1 PLAN OF DISTRIBUTION ................................................ 15
ADDITIONAL INFORMATION ON REDEMPTIONS ..................................... 17
CALCULATION OF PERFORMANCE DATA ........................................... 17
TAX STATUS ................................................................ 19
CUSTODIAN ................................................................. 21
INDEPENDENT ACCOUNTANTS ................................................... 21
FINANCIAL STATEMENTS ...................................................... 21
<PAGE>
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. In addition to the three
series referred to in this Statement of Additional Information, one other series
(the Pauze Tombstone Fund) is authorized. Each series referred to in this
Statement of Additional Information 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 availa
ble 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 Truste es 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.
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.
<PAGE>
(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.
(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.
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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
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.
<PAGE>
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. A 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 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,
none of the Funds paid brokerage fees for the fiscal years ended April 30, 1996
through April 30, 1998.
MANAGEMENT OF THE TRUST
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.
<TABLE>
<CAPTION>
NAME, ADDRESS & AGE TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- --------------------
<S> <C> <C>
Philip C. Pauze ** President and President of Pauze, Swanson & Associates
14340 Torrey Chase Blvd. Trustee Investment Advisors, Inc., d/b/a Pauze
Suite 170 Swanson Capital Management Co., an asset
Houston, Texas 77014 management firm specializing in management of
Age: 57 fixed income portfolios since April 1993. Owner of
Philip C. Pauze & Associates, a management
consulting firm since April 1993. Vice President
and 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.
<PAGE>
Terence P. Smith** Secretary, President and Chief Executive Officer of The
Suite 6160, 555 N. Lane Treasurer, Declaration Group of companies (including
Conshohocken, PA 19428 Chief Declaration Service Company, which provides the
Age: 51 Financial Trust's transfer agency, accounting and admini-
Officer and strative services, and Declaration Distributors, Inc.,
Trustee a registered broker-dealer which provides
distribution service to the Trust) since 1997.
President and Chief Operating Officer of The
Declaration Group of companies from 1988 to 1997.
President and Trustee of Declaration Fund, a
registered investment company, since 1997.
Certified Public Accountant. Formerly served on
tax and audit staff of KPMG Peat Marwick, LLP, an
international public accounting firm.
Paul J. Hilbert Trustee Attorney with the firm of Paul J. Hilbert &
2301 FM 1960 West Associates, Houston, Texas, practicing civil law
Houston, TX 77068 since 1975. Legislator, Texas House of
Age: 49 Representatives since 1982.
Gordon Anderson Trustee Consultant with the Texas Education Agency,
1806 Elk River Rd. Region 4 Education Service Center, School Board
Houston, TX 77090 and Superintendent Development Program since
Age: 62 March 1998. President, RAJ Development
Corporation: investor, developer and home builder
from 1997 to 1998. Retired (July 1997)
Superintendent of Spring Independent School
District, Houston, Texas.
Wayne F. Collins** Trustee Retired. From September 1991 to February 1994
32 Autumn Crescent was Vice President of Worldwide Business Planning
The Woodlands, TX 77381 of the Compaq Computer Corporation. Served
Age: 57 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 Richard Pierce Funeral Service since 1967, serving
1791 #2 Silverado Trail in such capacities as President and General
Napa, CA 94558 Manager. In addition, in June 1997, became Vice
Age: 53 President (Western Division) and Chief Operating
Officer (Northern California Region) of Stewart
Enterprises, Inc.
</TABLE>
** This Trustee may be deemed an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
<PAGE>
Trustee fees are Trust expenses and each portfolio pays a portion of the
Trustee fees. The compensation paid to the Trustees of the Trust for the fiscal
year ended April 30, 1998 is set forth below.
AGGREGATE COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX) TOTAL COMPENSATION
- ---- ---------------------- ------------------
Philip C. Pauze $0 $0
Terence P. Smith $0 $0
Paul J. Hilbert $12,000 $12,000
Wayne F. Collins $12,000 $12,000
Gordon Anderson $12,000 $12,000
Robert J. Pierce $12,000 $12,000
PRINCIPAL HOLDERS OF SECURITIES
Other than indicated below, as of July 15, 1998, 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 July
15, 1998:
Type of
Class Name & Address of Owner % Owned Ownership
- ----- ----------------------- ------- ---------
Pauze U.S. Government Total Return Fund
---------------------------------------
No Load Donaldson Lufkin Jenrette 5.28% Record
Sec. Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
No Load Mechanics Bank of Richmond, TTEE 79.58% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806
No Load Pinnacle Management & Trust Co. 5.90% Record
American Funeral Plan / TX
5599 San Felipe, Suite 300
Houston, TX 77056
Class B SEI Trust Company 10.72% Record
FBO Whitehurst Sullivan
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company 12.51% Record
FBO Whitehurst Loyd
One Freedom Valley Drive
Oaks, PA 19456
<PAGE>
Class B SEI Trust Company 18.35% Record
FBO Hadley Funeral Chapel
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company 20.93% Record
FBO Whitehurst Stephens & Bean
One Freedom Valley Drive
Oaks, PA 19456
Class B Donaldson Lufkin Jenrette 37.49% Record
FBO Robert & Sandra Earthman
P.O. Box 2052
Jersey City, NJ 07303
Class C Star Bank NA, Custodian FBO 50.06% Record
Theodore F. Mallory, III IRA
P.O. Box 778
Fayetteville, GA 30214
Class C Star Bank NA, Custodian FBO 49.94% Record
Alice Mallory IRA
P.O. Box 778
Fayetteville, GA 30214
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
No Load Donaldson Lufkin Jenrette 7.41% Record
Sec. Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
No Load Saxon & Co. 12.28% Record
FBO PA Funeral
P.O. Box 7780
Philadelphia, PA 19182
No Load Mechanics Bank of Richmond TTEE 22.56% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806-1921
No Load Pinnacle Management & Trust Co. 11.21% Record
American Funeral Plan / TX
5599 San Felipe, Suite 300
Houston, TX 77056
<PAGE>
No Load Strafe & Company 24.46% Record
F/A/O Cooper Agency
P.O. Box 160
Westerville, OH 43086
No Load Norwest Bank TTEE 17.57% Record
Coker Funeral Home
P.O. Box 1533
Minneapolis, MN 55480
No Load Angelus Rosedale Endownment 5.53% Beneficial
1831 W. Washington
Los Angeles, CA 90007
Class B SEI Trust Company 13.58% Record
FBO Whitehurst Sullivan
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company 14.29% Record
FBO Whitehurst Loyd
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company 18.35% Record
FBO Hadley Funeral Chapel
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company 20.93% Record
FBO Whitehurst Stephens & Bean
One Freedom Valley Drive
Oaks, PA 19456
Class B Jim L. Cooper 5.04% Beneficial
210 W. Walnut
Tecumseh, OK 74873
Class B Donaldson Lufkin Jenrette 12.22% Record
Sec. Corp.
P.O. Box 2052
Jersey City, NJ 07303
Pauze U.S. Government Short Term Bond Fund
------------------------------------------
No Load Mechanics Bank of Richmond TTEE 35.34% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806
<PAGE>
No Load Pinnacle Management & Trust Co. 36.16% Record
American Funeral Plan / TX
5599 San Felipe, Suite 300
Houston, TX 77056
No Load Strafe & Company 7.27% Record
F/A/O Cooper Agency
P.O. Box 160
Westerville, OH 43086
No Load Norwest Bank TTEE 10.71% Record
Coker Funeral Home
P.O. Box 1533
Minneapolis, MN 55480
Class C SEI Trust Company 15.15% Record
FBO Whitehurst Sullivan
One Freedom Valley Drive
Oaks, PA 19456
Class C SEI Trust Company 17.68% Record
FBO Whitehurst Loyd
One Freedom Valley Drive
Oaks, PA 19456
Class C SEI Trust Company 18.35% Record
FBO Hadley Funeral Chapel
One Freedom Valley Drive
Oaks, PA 19456
Class C SEI Trust Company 20.93% Record
FBO Whitehurst Stephens & Bean
One Freedom Valley Drive
Oaks, PA 19456
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
<PAGE>
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 fiscal years ended April 30, 1996, 1997 and 1998 the Trust, on
behalf of the Total Return Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $37,025, $408,656 and $442,281, respectively.
For the fiscal years ended April 30, 1996, 1997 and 1998 the Trust, on
behalf of the Intermediate Term Fund, paid the Advisor fees (net of expenses
paid by the Advisor or fee waivers) of $0, $10,690 and $13,686, respectively.
For the fiscal years ended April 30, 1996, 1997 and 1998 the Trust, on
behalf of the Short Term Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $0, $3,115 and $7,608, 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. DSC is responsible for services such as
financial reporting, compliance monitoring and corporate management. DSC
provides the Trust with office space, facilities and simple business equipment,
and generally administers the Trust's business affairs and provides the services
of executive and clerical personnel for administering the affairs of the Trust.
It compensates all personnel, officers and Trustees of the Trust if such persons
are employees of the Administrator or its affiliates.
For the administrative services provided, DSC receives an annual fee of
$196,000, payable in equal monthly installments which are allocated to each
Portfolio based upon the relative net assets of each Portfolio. The Portfolios
also pay standard out-of-pocket costs to DSC. The Total Return Fund's share of
these expenses for the period from February 13 to April 30, 1996 and the fiscal
years ended April 30, 1997 and 1998 was $5,103, $120,028 and $211,584,
respectively. The Intermediate Term Fund's share of these expenses for the
period from February 13 to April 30, 1996 and the fiscal years ended April 30,
1997 and 1998 was $0, $5,486 and $8,104, respectively. The Short Term Fund's
share of these expenses for the period from February 13 to April 30, 1996 and
the fiscal years ended April 30, 1997 and 1998 was $0, $1,550 and $4,480,
respectively.
Prior to February 13, 1996, administrative services were provided by United
Services Advisors Inc. ("USAI").
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
<PAGE>
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, DSC provides transfer agent and dividend disbursement
agent services pursuant to the Transfer Agency and Shareholder Services
Agreement. For these services, the Trust pays DSC an annual fee of $18 per
account (subject to a minimum annual fee of $24,000 for the Trust) plus standard
out-of-pocket expenses.
DSC also performs bookkeeping and accounting services, and determines the
daily net asset value for the Portfolios, pursuant to an Accounting Services
Agreement with the Trust. For these services, DSC receives an annual fee of
$178,000, payable in equal monthly installments which are allocated to each
Portfolio based upon the relative net assets of each Portfolio. The Portfolios
also pay standard out-of-pocket expenses. The Total Return Fund's share of these
expenses for the period from February 13 to April 30, 1996 and the fiscal years
April 30, 1997 and 1998 was $8,506, $99,601 and $165,701, respectively. The
Intermediate Term Fund's share of these expenses for the period from February 13
to April 30, 1996 and the fiscal years April 30, 1997 and 1998 was $0, $4,880
and $7,665, respectively. The Short Term Fund's share of these expenses for the
period from February 13 to April 30, 1996 and the fiscal years April 30, 1997
and 1998 was $0, $2,169 and $5,021, 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.
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
<PAGE>
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.
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.
The following table provides information regarding the amount and manner in
which amounts paid by the Funds under the Distribution Plan were spent during
the fiscal year ended April 30, 1998.
<PAGE>
TOTAL RETURN INT. TERM SHORT TERM
BOND FUND BOND FUND BOND FUND TOTAL
--------- --------- --------- -----
Advertising, Printing Promotion $ 32,377 $6,843 $2,331 $ 41,551
Administrative Service Fees 151,890 -- 1,487 153,377
Class B Shares Financing 2,868 7,171 845 10,884
Compensation to Dealers -- -- 2,222 2,222
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 years April 30, 1997 and 1998, the
Trust paid DDI $4,253, $18,892 and $18,877, respectively, on behalf of the Total
Return Fund, $0, $863 and $726, respectively, on behalf of the Intermediate Term
Fund and $0, $245 and $397, respectively, on behalf of the Short Term Fund.
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.
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:
<PAGE>
n
P(1 + T) = 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, 1998 was 18.91% and 18.16%,
respectively.
The total return for the Intermediate Term Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 1998 was 8.01% and 7.13%,
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, 1998 was 3.76%, 1.99%,
and 2.92%, 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:
6
YIELD = 2 [ ((A - B)/CD + 1) - 1]
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of 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, 1998 was 3.77% and 2.82%, respectively.
The Intermediate Term Fund's 30-day yield for No-load shares and Class B
shares for the 30 days ending April 30, 1998 was 2.06% and 1.64%, respectively.
The Short Term Fund's 30-day yield for No-load shares and Class C shares
for the 30 days ending April 30, 1998 was 2.04% and 1.30%, 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.
<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"); and (b) 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
<PAGE>
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.
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
<PAGE>
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, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian of
the Funds' investments. The Custodian acts as the Funds' depository, safe keeps
their portfolio securities, collects all income and other payments with respect
thereto, disburse funds at the Funds' request and maintains records in
connection with its duties.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103 has been
selected as independent accountants for the Trust for the fiscal year ending
April 30, 1999. Tait, Weller & Baker performs an annual audit of each Fund's
financial statements and provides financial, tax and accounting consulting
services as requested.
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 audited financial statements required to be included with the Statement of
Additional Information for the fiscal year ended April 30, 1998 are hereby
incorporated by reference to the Annual Report to Shareholders for the period
ended April 30, 1998.
<PAGE>
PAUZE FUNDS(TM)
PAUZE TOMBSTONE FUND(TM)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus but should be
read in conjunction with the Fund's Prospectus dated September 1, 1998 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
SEPTEMBER 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION ....................................................... 2
INVESTMENT OBJECTIVES AND POLICIES ........................................ 3
INVESTMENT LIMITATIONS .................................................... 4
PORTFOLIO TRANSACTIONS .................................................... 7
MANAGEMENT OF THE FUND .................................................... 9
INVESTMENT ADVISORY SERVICES .............................................. 11
ADMINISTRATOR SERVICES .................................................... 12
TRANSFER AGENCY AND OTHER SERVICES ........................................ 13
RULE 12b-1 DISTRIBUTION PLAN .............................................. 13
ADDITIONAL INFORMATION ON REDEMPTIONS ..................................... 15
CALCULATION OF PERFORMANCE DATA ........................................... 15
TAX STATUS ................................................................ 17
CUSTODIAN ................................................................. 18
INDEPENDENT ACCOUNTANTS ................................................... 19
FINANCIAL STATEMENTS ...................................................... 19
<PAGE>
GENERAL INFORMATION
Pauze Funds (the "Trust") is an open-end management investment company and
is a voluntary association of the type known as a "business trust" organized
under the laws of the Commonwealth of Massachusetts. There are several series
within the Trust, each of which represents a separate diversified portfolio of
securities (collectively referred to herein as the "Portfolios" and individually
as a "Portfolio").
The assets received by the Trust from the issue or sale of shares of each
Portfolio, and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are allocated to the Portfolio. They constitute the
underlying assets of the Portfolio, are required to be segregated on the books
of accounts, and are to be charged with the expenses with respect to the
Portfolio. In the event additional portfolios are created, any general expenses
of the Trust, not readily identifiable as belonging to the Portfolio, shall be
allocated by or under the direction of the Board of Trustees (the "Trustees") in
such manner as the Trustees determine to be fair and equitable.
Shares represent a proportionate interest in the Portfolio. Shares of each
Portfolio have been divided into classes with respect to which the Trustees have
adopted allocation plans regarding expenses specifically attributable to a
particular class of shares. Subject to such an allocation, all shares are
entitled to such dividends and distributions, out of the income belonging to the
Portfolio, as are declared by the Trustees. Upon liquidation of the Trust,
shareholders of the Portfolio are entitled to share pro rata, adjusted for
expenses attributable to a particular class of shares, in the net assets
belonging to the Portfolio available for distribution.
Under the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required; however, the Trustees may call meetings to take action
on matters which require shareholder vote and other matters which Trustees
determine shareholder vote is necessary or desirable. Whether appointed by prior
Trustees or elected by shareholders, an "Independent" Trustee serves as Trustee
of the Trust for a period of six years. However, the Trustees' terms are
staggered so that the terms of at least 25% of the Board of Trustees will expire
every three years. Trustees will stand for election in 1999. A Trustee whose
term is expiring may be re-elected. Thus, shareholder meetings will ordinarily
be held only once every three years unless otherwise required by the Investment
Company Act of 1940 (the "1940 Act").
On any matter submitted to shareholders, the holder of each share is
entitled to one vote per share (with proportionate voting for fractional
shares). Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of the
shares voting for the election of Trustees can elect 100% of the Trust's
Trustees, and the holders of less than 50% of the shares voting for the election
of Trustees will not be able to elect any person as a Trustee.
<PAGE>
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.
As of July 15, 1998, Donaldson Lufkin Jenrette, P.O. Box 2052, Jersey City,
NJ 07303, owned, of record, 29.67% of the Class A shares and 72.03% of the Class
B shares of the Fund. As of July 1, 1998, the following persons may be deemed to
beneficially own five percent (5%) or more of the Class B shares of the Fund:
Angelus Funeral Home, 3875 S. Crenshaw Blvd., Los Angeles, CA 90008 37.78%;
Angelus Funeral Home PreNeed Trust, 3875 S. Crenshaw Blvd., Los Angeles, CA
90008 -- 6.38%; Angelus Rosedale Endowment Care Fund, 1831 W. Washington Blvd.,
Los Angeles, CA 90007 -- 22.05%; ABN AMRO Incorporated, P.O. Box 6108, Chicago,
IL 60680 -- 8.36%. As of July 1, 1998, the following persons may be deemed to
benefically own five percent (5%) or more of the Class A shares of the Fund:
Wayne Collins, 32 Autumn Crescent, The Woodlands, TX 77381 -- 7.66%; Steven
Schilling, 3718 Strawberry Creek Way, Ontario, CA 91761 -- 14.57%.
As of July 1, 1998, Angelus Funeral Home may be deemed to control the Fund
as a result of its beneficial ownership of the shares of the Fund. As of July 1,
1998, the officers and trustees as a group owned own less than 1% of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the investment
objectives and policies of the Pauze Tombstone Fund (the "Fund") in the Fund's
Prospectus.
FORWARD COMMITMENTS AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase securities on a when-issued or delayed delivery
basis, with payment and delivery taking place at a future date. The price and
interest rate that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The Fund may enter into such forward
commitments if it holds, and maintains until the settlement date in a separate
account at the Fund's Custodian, cash or U.S. government securities in an amount
sufficient to meet the purchase price. Forward commitments involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Any change in value could increase fluctuations in the Fund's
share price and yield. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its
<PAGE>
portfolio, a Fund may dispose of a commitment prior the settlement if the
Advisor deems it appropriate to do so.
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve sales of portfolio securities by the Fund to member banks of
the Federal Reserve System or recognized securities dealers, concurrently with
an agreement by the Fund to repurchase the same securities at a later date at a
fixed price, which is generally equal to the original sales price plus interest.
The Fund retains record ownership and the right to receive interest and
principal payments on the portfolio security involved. The Fund's objective in
such a transaction would be to obtain funds to pursue additional investment
opportunities whose yield would exceed the cost of the reverse repurchase
transaction. Generally, the use of reverse repurchase agreements should reduce
portfolio turnover and increase yield. In connection with each reverse
repurchase agreement, the Fund will direct its Custodian to place cash or U.S.
government obligations in a separate account in an amount equal to the
repurchase price. In the event of bankruptcy or other default by the purchaser,
the Fund could experience both delays in repurchasing the portfolio securities
and losses. Assets of the Fund may be pledged in connection with borrowings.
When a separate account is maintained in connection with forward commitment
transactions to purchase securities or reverse repurchase agreements, the
securities deposited in the separate account will be valued daily at market for
the purpose of determining the adequacy of the securities in the account. If the
market value of such securities declines, additional cash, U.S. government
obligations or liquid high grade debt obligations will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase or repurchase securities. To the extent
funds are in a separate account, they will not be available for new investment
or to meet redemptions. Reverse repurchase agreements constitute a borrowing by
the Fund and, together with all other borrowings, will not represent more than
5% of the net assets of the Fund.
Securities purchased on a forward commitment basis, securities subject to
reverse repurchase agreements and the securities held in the Fund's portfolio
are subject to changes in market value based upon the public's perception of the
creditworthiness of the issuer and changes in the level of interest rates (which
will generally result in all of those securities changing in value in the same
way, i.e., all those securities experiencing appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, if in order to
achieve a higher level of income, the Fund remains substantially fully invested
at the same time that it has purchased securities on a forward commitment basis
or entered into reverse repurchase transactions, there will be a possibility
that the market value of the Fund's assets will have greater fluctuation.
With respect to 75% of the total assets of the Fund, the value of the
Fund's commitments to purchase or repurchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the commitment
to purchase or repurchase such securities is
<PAGE>
made; provided, however, that this restriction does not apply to U.S. government
obligations or repurchase agreements with respect thereto. In addition, the Fund
will maintain an asset coverage of 300% for all of its borrowings and reverse
repurchase agreements.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), i.e.,
they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices which may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is an asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is (a) consistent with or permitted by the
Investment Company Act of 1940, as amended, the rules and regulations
promulgated thereunder or interpretations of the Securities and Exchange
Commission or its staff and (b) as described in the Prospectus and the Statement
of Additional Information.
3. Underwriting. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
<PAGE>
5. Commodities. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total assets
in a particular industry other than the death care industry. This limitation is
not applicable to investments in obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities or repurchase agreements with
respect thereto.
With respect to the percentages adopted by the Trust as maximum limitations
on its investment policies and limitations, an excess above the fixed percentage
will not be a violation of the policy or limitation unless the excess results
immediately and directly from the acquisition of any security or the action
taken. This paragraph does not apply to the borrowing policy set forth in
paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment company,
whether organized as a trust, association or corporation, or a personal holding
company, may be merged or consolidated with or acquired by the Trust, provided
that if such merger, consolidation or acquisition results in an investment in
the securities of any issuer prohibited by said paragraphs, the Trust shall,
within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such
portion thereof as shall bring the total investment therein within the
limitations imposed by said paragraphs above as of the date of consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.
<PAGE>
3. Margin Purchases. The Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Short Sales. The Fund will not effect short sales of securities unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short.
5. Options. The Fund will not purchase or sell puts, calls, options,
straddles or futures contracts except as described in the Prospectus or the
Statement of Additional Information.
6. Illiquid Investments. The Fund will not invest in securities for which
there are legal or contractual restrictions on resale or other illiquid
securities.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Trust, the
Advisor is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the Advisor
seeks the best qualitative execution for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Advisor generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
The Advisor is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Advisor exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Advisor determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Advisor's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities transactions may
also be used by the Advisor in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Advisor in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
Advisor, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the Advisor
that the review and study of the research and other information will not reduce
the overall cost to the Advisor of performing its duties to the Fund under the
Agreement.
<PAGE>
While the Fund does not deem it practicable and in its best interests to
solicit competitive bids for commission rates on each transaction, consideration
is regularly given to posted commission rates as well as other information
concerning the level of commissions charged on comparable transactions by
qualified brokers.
The Fund has no obligation to deal with any broker or dealer in the
execution of its transactions. However, it is contemplated that GS2 Securities,
Inc., ("GS2") in its capacity as a registered broker-dealer, will effect
substantially all securities transactions which are executed on a national
securities exchange and over-the-counter transactions conducted on an agency
basis. Such transactions will be executed at competitive commission rates
through Pershing, Inc.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers, if the same or a better price, including
commissions and executions, is available. Fixed income securities are normally
purchased directly from the issuer, an underwriter or a market maker. Purchases
include a concession paid by the issuer to the underwriter and the purchase
price paid to a market maker may include the spread between the bid and asked
prices.
Under the Investment Company Act of 1940, persons who may be affiliated
with an affiliate of the Advisor (such as GS2) may be prohibited from dealing
with the Fund as a principal in the purchase and sale of securities. Therefore,
GS2 will not serve as the Fund's dealer in connection with over-the-counter
transactions. However, GS2 may serve as the Fund's broker in over-the-counter
transactions conducted on an agency basis and will receive brokerage commissions
in connection with such transactions. Such agency transactions will be executed
through Pershing, Inc.
The Fund will not effect any brokerage transactions in its portfolio
securities with GS2 if such transactions would be unfair or unreasonable to Fund
shareholders, and the commissions will be paid solely for the execution of
trades and not for any other services. The Agreement provides that affiliates of
affiliates of the Advisor may receive brokerage commissions in connection with
effecting such transactions for the Fund. In determining the commissions to be
paid to GS2, it is the policy of the Fund that such commissions will, in the
judgment of the Trust's Board of Trustees, be (a) at least as favorable to the
Fund as those which would be charged by other qualified brokers having
comparable execution capability and (b) at least as favorable to the Fund as
commissions contemporaneously charged by GS2 on comparable transactions for its
most favored unaffiliated customers, except for customers of GS2 considered by a
majority of the Trust's disinterested Trustees not to be comparable to the Fund.
The disinterested Trustees from time to time review, among other things,
information relating to the commissions charged by GS2 to the Fund and its other
customers, and rates and other information concerning the commissions charged by
other qualified brokers.
The Agreement does not provide for a reduction of the Advisor's fee by the
amount of any profits earned by GS2 or Philip Pauze from brokerage commissions
generated from portfolio transactions of the Fund.
<PAGE>
While the Fund contemplates no ongoing arrangements with any other
brokerage firms, brokerage business may be given from time to time to other
firms. GS2 will not receive reciprocal brokerage business as a result of the
brokerage business placed by the Fund with others.
To the extent that the Trust and another of the Advisor's clients seek to
acquire the same security at about the same time, the Trust may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, the Trust may not be able to obtain
as large an execution of an order to sell or as high a price for any particular
portfolio security if the other client desires to sell the same portfolio
security at the same time. On the other hand, if the same securities are bought
or sold at the same time by more than one client, the resulting participation in
volume transactions could produce better executions for the Trust. In the event
that more than one client wants to purchase or sell the same security on a given
date, the purchases and sales will normally be made by random client selection.
For the fiscal year ended April 30, 1998, the Fund paid total brokerage
commissions of $22,411. For the fiscal year ended April 30, 1998, the Fund paid
$16,972 (76% of the total brokerage commissions paid) to GS2, which may be
affiliated with an affiliate of the Advisor, for effecting 44% of all brokerage
transactions.
MANAGEMENT OF THE TRUST
The Trustees and Officers of the Trust, and their principal occupations
during the past five years are set forth below, along with their business
address.
<TABLE>
<CAPTION>
NAME, ADDRESS & AGE TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- --------------------
<S> <C> <C>
Philip C. Pauze ** President and President of Pauze, Swanson & Associates
14340 Torrey Chase Blvd. Trustee Investment Advisors, Inc., d/b/a Pauze
Suite 170 Swanson Capital Management Co., an asset
Houston, Texas 77014 management firm specializing in management of
Age: 57 fixed income portfolios since April 1993. Owner of
Philip C. Pauze & Associates, a management
consulting firm since April 1993. Vice President
and 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.
<PAGE>
Terence P. Smith** Secretary, President and Chief Executive Officer of The
Suite 6160, 555 N. Lane Treasurer, Declaration Group of companies (including
Conshohocken, PA 19428 Chief Declaration Service Company, which provides the
Age: 51 Financial Trust's transfer agency, accounting and admini-
Officer and strative services, and Declaration Distributors, Inc.,
Trustee a registered broker-dealer which provides
distribution service to the Trust) since 1997.
President and Chief Operating Officer of The
Declaration Group of companies from 1988 to 1997.
President and Trustee of Declaration Fund, a
registered investment company, since 1997.
Certified Public Accountant. Formerly served on
tax and audit staff of KPMG Peat Marwick, LLP, an
international public accounting firm.
Paul J. Hilbert Trustee Attorney with the firm of Paul J. Hilbert &
2301 FM 1960 West Associates, Houston, Texas, practicing civil law
Houston, TX 77068 since 1975. Legislator, Texas House of
Age: 49 Representatives since 1982.
Gordon Anderson Trustee Consultant with the Texas Education Agency,
1806 Elk River Rd. Region 4 Education Service Center, School Board
Houston, TX 77090 and Superintendent Development Program since
Age: 62 March 1998. President, RAJ Development
Corporation: investor, developer and home builder
from 1997 to 1998. Retired (July 1997)
Superintendent of Spring Independent School
District, Houston, Texas.
Wayne F. Collins** Trustee Retired. From September 1991 to February 1994
32 Autumn Crescent was Vice President of Worldwide Business Planning
The Woodlands, TX 77381 of the Compaq Computer Corporation. Served
Age: 57 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 Richard Pierce Funeral Service since 1967, serving
1791 #2 Silverado Trail in such capacities as President and General
Napa, CA 94558 Manager. In addition, in June 1997, became Vice
Age: 53 President (Western Division) and Chief Operating
Officer (Northern California Region) of Stewart
Enterprises, Inc.
</TABLE>
<PAGE>
** This Trustee may be deemed an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
Trustee fees are Trust expenses and each portfolio pays a portion of the
Trustee fees. The compensation paid to the Trustees of the Trust for the fiscal
year ended April 30, 1998 is set forth below.
AGGREGATE COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX) TOTAL COMPENSATION
---- ---------------------- ------------------
Philip C. Pauze $0 $0
Terence P. Smith $0 $0
Paul J. Hilbert $12,000 $12,000
Wayne F. Collins $12,000 $12,000
Gordon Anderson $12,000 $12,000
Robert J. Pierce $12,000 $12,000
INVESTMENT ADVISORY SERVICES
Pauze, Swanson & Associates Investment Advisors, Inc., dba Pauze Swanson
Capital Management Co., an investment management firm (the "Advisor"), pursuant
to an Advisory Agreement, provides investment advisory and management services
to the Trust. It will compensate all personnel, officers and trustees of the
Trust if such persons are employees of the Advisor or its affiliates. The Trust
pays the expense of printing and mailing prospectuses and sales materials used
for promotional purposes.
The Advisory Agreement was approved by the Board of Trustees of the Trust
(including a majority of the "disinterested Trustees") and by vote of a majority
of the outstanding voting securities of the Total Return Fund (another Portfolio
of the Trust) in December 1995. The terms of the votes approving the Advisory
Agreement provide that it will continue until October 17, 1996, and from year to
year thereafter as long as it is approved at least annually both (i) by a vote
of a majority of the outstanding voting securities of the Fund (as defined in
the Investment Company Act of 1940 [the "Act"]) or by the Board of Trustees of
the Trust, and (ii) by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically if it is assigned. The Advisory Agreement was
approved with respect to the Fund on February 28, 1997.
<PAGE>
The names "Pauze(TM)", "Swanson(TM)", "Pauze Swanson(TM)", "Pauze U.S.
Government Short Term Bond Fund(TM)", "Pauze U.S. Government Intermediate Term
Bond Fund(TM)", "Pauze U.S. Government Total Return Bond Fund(TM)", "Pauze
Tombstone Fund(TM)", and "Pauze Tombstone Common Stock Index(TM)" are trademarks
of the Pauze Swanson Capital Management Co., all rights reserved. The Pauze
Tombstone Common Stock Index is a copyrighted proprietary product of the Pauze
Swanson Capital Management Co., all rights reserved. The Trust is licensed to
use the above-listed names under a separate agreement attached to and made a
part of the Advisory Agreement. The Trust's right to use the names "Pauze",
"Swanson", "Pauze Swanson", "Pauze U.S. Government Short Term Bond Fund", "Pauze
U.S. Government Intermediate Term Bond Fund", "Pauze U.S. Government Total
Return Bond Fund, "Pauze Tombstone Fund", and "Pauze Tombstone Common Stock
Index(TM)" automatically terminates upon termination of the Advisory Agreement.
The Trust is licensed to publish the Index under a separate agreement attached
to and made a part of the Advisory Agreement. The Trust's right to publish the
Index automatically terminates upon termination of the Advisory Agreement.
For the fiscal year ended April 30, 1998, the Trust paid the Advisor
fees (net of expenses paid by the Advisor or fee waivers) of $8,370 on behalf of
the Fund.
For more information, see "Management of the Fund" in the Prospectus.
ADMINISTRATOR SERVICES
Declaration Service Company ("DSC" or "Administrator") provides day-to-day
administrative services to the Trust. DSC is responsible for services such as
financial reporting, compliance monitoring and corporate management. DSC
provides the Trust with office space, facilities and simple business equipment,
and generally administers the Trust's business affairs and provides the services
of executive and clerical personnel for administering the affairs of the Trust.
It compensates all personnel, officers and Trustees of the Trust if such persons
are employees of the Administrator or its affiliates. For the administrative
services provided, DSC receives an annual fee of $196,000, payable in equal
monthly installments which are allocated to each Portfolio based upon the
relative net assets of each Portfolio. The Portfolios also pay standard
out-of-pocket costs to DSC. The Fund's share of these fees and expenses for the
year ended April 30, 1998 was $10,616.
The Trust pays all other expenses for its operations and activities. As
additional Portfolios are added in the future, each Portfolio of the Trust will
pay its allocable portion of the expenses. The expenses borne by the Trust
include the charges and expenses of any transfer agents and dividend disbursing
agents, custodian fees, legal and auditors' expenses, bookkeeping and accounting
expenses, brokerage commissions for portfolio transactions, taxes, if any, the
administrative fee, extraordinary expenses, expenses of issuing and redeeming
shares, expenses of shareholder and trustee meetings, expenses for preparing,
printing and mailing proxy statements, reports and other communications to
shareholders, expenses of registering and qualifying shares for sale, fees of
Trustees who are not "interested persons" of
<PAGE>
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, DSC provides transfer agent and dividend disbursement
agent services pursuant to the Transfer Agency and Shareholder Services
Agreement. For these services, the Trust pays DSC an annual fee of $18 per
account (subject to a minimum annual fee of $24,000 for the Trust) plus standard
out-of-pocket expenses.
DSC also performs bookkeeping and accounting services, and determines the
daily net asset value for the Fund, pursuant to an Accounting Services Agreement
with the Trust. For these services, DSC receives an annual fee of $178,000,
payable in equal monthly installments which are allocated to each Portfolio
based upon the relative net assets of each Portfolio. The Portfolios also pay
standard out-of-pocket expenses. The Fund's share of these fees and expenses for
the year ended April 30, 1998 was $8,276.
RULE 12B-1 DISTRIBUTION PLAN
As described under "Rule 12b-1 Distribution Plan" in the Fund's Prospectus,
in February 1997 the Trustees approved adoption of a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act (the "Distribution Plan"). The Distribution
Plan allows the Fund to pay the Advisor for expenditures in connection with
sales and promotional services related to the distribution of Fund shares,
including personal services provided to prospective and existing Fund
shareholders, which includes the cost of: preparation and distribution of
prospectus and promotional materials; making slides and charts for
presentations; assisting shareholders and prospective investors in understanding
and dealing with the Fund; and travel and out-of-pocket expenses (e.g., copy and
long distance telephone charges) related thereto.
The Fund's Distribution Plan provides for a "Base Amount for all Classes of
Shares" reciting that Fund assets will be utilized to pay the Advisor a fee of
0.25% of the Fund's average annual net assets for its ongoing services and
expenditures in connection with sales, promotional and administrative services
related to the distribution of Fund shares, including personal services provided
by persons or institutions to prospective and existing Fund shareholders.
The Fund's Distribution Plan also provides for an "Additional Amount for
Class B shares" reciting that Fund assets attributable to Class B Shares in
specific shareholder accounts will be utilized, to the extent not covered by the
Contingent Deferred Sales Charge ("CDSC"), to pay the Advisor a fee of 0.75% of
the Fund's average annual net assets for its services and
<PAGE>
expenditures related to the distribution of Fund shares, including fees paid by
the Advisor to broker-dealers for sales and promotional services as follows:
Gross Commission 3.75%
Annual Rule 12b-1 Fee 0.75%
(paid for 7 years)
Contingent Deferred Sale Charge by Year:
year 1 3.75%
year 2 3.75%
year 3 3.25%
year 4 2.75%
year 5 2.25%
year 6 1.75%
year 7 1.25%
Thereafter -0-
NOTES:
B Shares convert to A Shares when CDSC expires. Each investment would be
considered a new investment.
Expenses which the Fund incurs pursuant to the Distribution Plan are
reviewed quarterly by the Board of Trustees. On an annual basis the Distribution
Plan is reviewed by the Board of Trustees as a whole, and the Trustees who are
not "interested persons" as that term is defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of the Distribution
Plans ("Qualified Trustees"). In their review of the Distribution Plan, the
Board of Trustees, as a whole, and the Qualified Trustees determine whether, in
their reasonable business judgment and in light of their fiduciary duties under
state law and under Section 36(a) and (b) of the 1940 Act, there is a reasonable
likelihood that the Distribution Plan will benefit the Fund and its
shareholders. The Distribution Plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
shares of the Fund.
For the fiscal year ended April 30, 1998, the Fund spent $8,890 on
advertising, printing and promotion, and $18,914 on Class B financing, pursuant
to the Distribution Plan.
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
<PAGE>
of the Trustees who are not parties to the Distribution Agreement or "interested
persons" of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement was made
applicable to the Fund as of February 28, 1997. The Distribution Agreement may
be terminated on 60 days' written notice by either party and will terminate
automatically if it is assigned. For the fiscal year ended April 30, 1998, the
Fund paid DDI $1,000 pursuant to the Distribution Agreement. In addition, the
aggregate commissions paid to DDI for the fiscal year April 30, 1998 was
$74,062, of which DDI retained $8,795.
Except for Mr. Smith, the Trust is unaware of any Trustee or any interested
person of the Fund who has a direct or indirect financial interest in the
operation of the Distribution Plan.
The Trust expects that the Distribution Plan will be used to pay a "service
fee" to persons who provide personal services to prospective and existing Fund
shareholders and to compensate broker-dealers for sales and promotional
services. Shareholders of the Fund will benefit from these services and the
Trust expects to benefit from economies of scale as more shareholders are
attracted to the Fund.
ADDITIONAL INFORMATION ON REDEMPTIONS
SUSPENSION OF REDEMPTION PRIVILEGES
The Trust may suspend redemption privileges or postpone the date of payment
for up to seven days, but cannot do so for more than seven days after the
redemption order is received except during any period (1) when the bond markets
are closed, other than customary weekend and holiday closing, or trading on the
Exchange is restricted as determined by the Securities and Exchange Commission
("SEC"), (2) when an emergency exists, as defined by the SEC, which makes it not
reasonably practicable for the Trust to dispose of securities owned by it or not
reasonably practicable to fairly determine the value of its assets, or (3) as
the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN
The Fund may advertise performance in terms of average annual total return
for 1, 5 and 10 year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n
P(1 + T) = 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;
<PAGE>
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 Fund's average annual return for the fiscal year ended April 30,
1998 was 3.08% for Class A Shares and 6.40% for Class B Shares.
NONSTANDARDIZED TOTAL RETURN
The Fund may provide the above described standard total return results for
a period which ends as of not earlier than the most recent calendar quarter end
and which begins either twelve months before or at the time of commencement of
the Fund's operations. In addition, the Fund may provide nonstandardized total
return results for differing periods, such as for the most recent six months.
Such nonstandardized total return is computed as otherwise described under
"Total Return" except that no annualization is made.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average.
In addition, the performance of the Fund may be compared to other groups of
mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
<PAGE>
TAX STATUS
TAXATION OF THE FUND
As stated in its Prospectus, the Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Fund will not be liable for federal
income taxes on its taxable net investment income and capital gain net income
that are distributed to shareholders, provided that the Fund distributes at
least 90% of its net investment income and net short-term capital gain for the
taxable year.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); and (b) satisfy certain
diversification requirements at the close of each quarter of the Fund's taxable
year. It is anticipated that the Advisor may be required to adjust the
composition of the Fund's portfolio at the end of each quarter in order to
qualify as a regulated investment company.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its net capital gains for the twelve-month period ending on October
31 of the calendar year and (3) any portion (not taxable to the Fund) of the
respective balance from the preceding calendar year. The Fund intends to make
such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if
the Fund pays the dividends during the following January. To the extent net
investment income of the Fund arises from dividends on domestic common or
preferred stock, some of the Fund's distributions will qualify for the 70%
corporate dividends-received deduction. All Shareholders will be notified
annually regarding the tax status of distributions received from the Fund.
Distributions by the Fund will result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares of the Fund just prior to a distribution. The
price of such shares
<PAGE>
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 the Fund should be aware that a redemption of shares
(including any exchange into another Portfolio) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of the long term capital gain recognized.
OTHER TAX CONSIDERATIONS
Distributions to shareholders may be subject to additional state, local and
non-U.S. taxes, depending on each shareholder's particular tax situation.
Shareholders subject to tax in certain states may be exempt from state income
tax on distributions made by the Fund to the extent such distributions are
derived from interest on direct obligations of the United States Government.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in shares of the Fund.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian of
the Fund's investments. The Custodian acts as the Fund's depository, safekeeps
its portfolio securities, collects all income and other payments with respect
thereto, disburses funds at the Fund's request and maintains records in
connection with its duties.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103 has been
selected as independent accountants for the Trust for the fiscal year ending
April 30, 1999. Tait, Weller & Baker performs an annual audit of the Fund's
financial statements and provides financial, tax and accounting consulting
services as requested.
FINANCIAL STATEMENTS
The audited financial statements required to be included with the Statement
of Additional Information for the fiscal year ended April 30, 1998 is
incorporated herein by reference to the Fund's Annual Report to Shareholders for
the period ended April 30, 1998.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Included in Part A: Financial Highlights of 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 for the periods
ended April 30, 1998 are included in both their combined no-load
Prospectus and combined load Prospectus. Financial Highlights for the
Pauze Tombstone Fund for the periods ended April 30, 1998 are included
in its Prospectus.
Included in Part B: Financial Statements, comprised of the following
items, of 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 and the Pauze Tombstone Fund are incorporated in their
respective Statements of Additional Information by reference to their
respective Annual Reports to Shareholders.
(1) Schedule of Investments - April 30, 1998.
(2) Statement of Assets and Liabilities - April 30, 1998.
(3) Statement of Operations for the year ended April 30, 1998.
(4) Statement of Changes in Net Assets for the year ended April 30,
1998.
(5) Financial Highlights for the periods ended April 30, 1998.
(6) Notes to Financial Statements.
(b) Exhibits
Exhibit No. Description of Exhibit
(1) (a) Declaration of Trust, Amended and Restated Master Trust
Agreement, dated February 9, 1996, (incorporated by
reference to Post-Effective Amendment #5 filed February 15,
1996).
(b) Amendment No. 1 to Amended and Restated Master Trust
Agreement, dated April 9, 1996, (incorporated by reference
to Post-Effective Amendment #6 filed May 2, 1996).
(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).
<PAGE>
(2) By-laws of Registrant are filed herewith.
(3) Voting Trust Agreements-None.
(4) Specimen of Share Certificates-None.
(5) (a) Advisory Agreement between Registrant and Pauze, Swanson &
Associates Investment Advisors, Inc., dated November 1,
1993, is filed herewith.
(b) Amendment to Advisory Agreement between Registrant and
Pauze, Swanson & Associates Investment Advisors, Inc. dated
June 1, 1996, reflecting change in fees and addition of two
new funds (incorporated by reference to Post-Effective
Amendment #7 filed July 1996).
(c) Advisory Agreement between Registrant and Pauze, Swanson &
Associates Investment Advisors, Inc., dated February 28,
1997, covering Pauze Tombstone Fund (incorporated by
reference to Post-Effective Amendment #10 filed May 6,
1997).
(6) Amended and Restated Distribution Agreement among Registrant,
Declaration Distributors, Inc. and Pauze Swanson Capital
Management Co., dated September 12, 1997, (incorporated by
reference to Post-Effective Amendment #12 filed November 26,
1997).
(7) Bonus, Profit Sharing, Pension or Similar Contracts for the
benefit of Directors or Officers-None.
(8) (a) Custodian Agreement between Registrant and Star Bank, N.A.
dated August 1, 1996 (incorporated by reference to
Post-Effective Amendment #7 filed July 1996).
(b) Revised Appendix A to Custodian Agreement between Registrant
and Star Bank N.A. (incorporated by reference to
Post-Effective Amendment # 12 filed November 26, 1997).
(9) (a) Transfer Agency and Shareholder Services Agreement between
Registrant and Declaration Service Company, dated February
13, 1996, (incorporated by reference to Post-Effective
Amendment #5 filed February 15, 1996).
(b) Accounting Services Agreement between Registrant and
Declaration Service Company, dated February 13, 1996,
(incorporated by reference to Post-Effective Amendment #5
filed February 15, 1996).
(c) Amended Schedule to Accounting Services Agreement between
Registrant and Declaration Service Company is filed
herewith.
<PAGE>
(d) Administration Agreement between Registrant and Declaration
Service Company dated February 13, 1996, (incorporated by
reference to Post-Effective Amendment #5 filed February 15,
1996).
(e) Amended Schedule to Administration Agreement between
Registrant and Declaration Service Company is filed
herewith.
(10) (a) Opinion and Consent of Counsel with respect to Total Return
Fund, Intermediate Term Fund, and Short Term Fund
(incorporated by reference to Post-Effective Amendment #6
filed May 2, 1996).
(b) Opinion and Consent of Counsel with respect to Pauze
Tombstone Fund (incorporated by reference to Post-Effective
Amendment #9 filed February 5, 1997).
(11) Consent of Independent Accountants is filed herewith.
(12) Financial Statements omitted from Item 23 - None.
(13) Letter of Initial Stockholder is filed herewith.
(14) Model Plan Used in Establishment of any Retirement Plan - None.
(15) (a) 12b-1 Plan for Pauze U.S. Government Total Return Bond Fund
is filed herewith.
(b) 12b-1 Plan for Class A, B and C Shares of 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) 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) 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) 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 is filed
herewith.
(17) Financial Data Schedule - None.
(18) Amended and restated plan entered into by Registrant pursuant to
Rule 18f-3 (incorporated by reference to Post-Effective Amendment
#10 filed May 6, 1997).
(19) Powers of Attorney for the Trust, the Trustees and Officers
(incorporated by reference to Post-Effective Amendment #11 filed
August 29, 1997).
ITEM 25. Persons Controlled by or under Common Control with Registrant
<PAGE>
Information pertaining to persons controlled by or under common
control with Registrant is incorporated by reference to the Statement
of Additional Information of the Pauze U.S. Government Total Return
Bond Fund, Pauze U.S. Government Short Term Bond Fund and the Pauze
U.S. Government intermediate Term Bond Fund contained in Part B of the
Registration Statement at the section entitled "Principal Holders of
Securities."
ITEM 26. Number of Holders of Securities
The number of record holders, as of July 15, 1998, 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 23
Class A 0
Class B 5
Class C 2
Pauze U.S. Government Short Term Bond Fund
No-Load 7
Class A 0
Class B 0
Class C 4
Pauze U.S. Government Intermediate Term Bond Fund
No-Load 6
Class A 0
Class B 10
Class C 0
Pauze Tombstone Fund
Class A 158
Class B 118
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
<PAGE>
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee,
except with respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith in the
reasonable belief that such covered Person's action was in or not
opposed to the best interests of the Trust or (ii) had acted with
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Persons's office
(either and both of the conduct described in (i) and (ii) being
referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is not entitled to indemnification may be made by
(i) a final decision on the merits by a court or other body before
whom the proceeding was brought that the person to be indemnified was
not liable by reason of Disabling Conduct, (ii) dismissal of a court
action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee
was not liable by reason of Disabling Conduct by (a) a vote of the
majority of a quorum of Trustees who are neither "interested persons"
of the Trust as defined in Section 1(a)(19) of the 1940 Act nor
parties to the proceeding, or (b) as independent legal counsel in a
written opinion.
ITEM 28. Business and Other Connections of Investment Advisor and Investment
Administrator
Philip C. Pauze
Current Affiliations:
PAUZE, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014 President and
Member of the Board of Directors: 10/21/93 to Present
PAUZE FUNDS(TM)
P.O. Box 844
Conshohocken, PA 19428
President, Portfolio Manager, and Member Board of Directors:
November 1, 1993 to Present.
GS2 SECURITIES, INC.
250 E. Wisconsin Avenue, Suite 800
Milwaukee, WI 53202
Broker/Dealer Branch Officer Manager: 1993 to Present
Licensed Registered Representative: 1993 to Present
Patricia S. Dobson
Current Affiliations:
PAUZE, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
Vice President: December 1996 to Present
Corporate Secretary and Member of the Board of Directors:
May 19, 1997 to Present
Assistant Vice President: October 1995 to December 1996
PAUZE FUNDS(TM)
P.O. Box 844
Conshohocken, PA 19428
Assistant Secretary: June 13, 1997 to Present
<PAGE>
GS2 SECURITIES, INC.
250 E. Wisconsin Avenue, Suite 800
Milwaukee, WI 53202
Licensed Registered Representative: 1993 to Present
ITEM 29. Principal Underwriters: Registrant has entered into a Distribution
Agreement with Declaration Distributors, Inc., ("DDI").
(a) DDI acts as distributor for the Declaration Fund, the Henssler
Equity Fund, the JWB Aggressive Growth Fund and the 1838
Investment Advisers Fund.
(b) 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 at 425 Walnut Street, Cincinnati, Ohio
45202.
ITEM 31. Not Applicable
ITEM 32. Undertakings
(a) 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.
(b) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest applicable
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and it has duly caused this
Amendment to the Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized in the city of Conshohocken, state
of Pennsylvania, on the 31st day of August, 1998.
PAUZE FUNDS
By: /S/ TERENCE P. SMITH
------------------------
Terence P. Smith
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title
- --------- -----
Gordon Anderson* Trustee
Wayne F. Collins* Trustee
Paul J. Hilbert* Trustee
Philip C. Pauze* Trustee and President
Robert J. Pierce* Trustee
* By: /S/ TERENCE P. SMITH, Attorney-In-Fact
--------------------------------------
Terence P. Smith
/S/ TERENCE P. SMITH
- --------------------
Terence P. Smith Trustee, Treasurer and Chief Accounting Officer
August 31, 1998
<PAGE>
EXHIBIT INDEX
Page
1. By-Laws.............................................................EX-99.B2
2. Advisory Agreement..................................................EX-99.B5
3. Amended Schedule to Accounting Services Agreement.................EX-99.B9.1
4. Amended Schedule to Administration Agreement......................EX-99.B9.2
5. Consent of Independent Accountants.................................EX-99.B11
6. 12b-1 Plan.........................................................EX-99.B15
7. Schedule for Computation of Performance Quotation..................EX-99.B16
BY-LAWS
OF
PAUZE/SWANSON UNITED SERVICES FUNDS
ARTICLE 1
AGREEMENT AND DECLARATION
OF TRUST AND PRINCIPAL OFFICES
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject
to the Master Trust Agreement, as from time to time in effect (the "Declaration
of Trust"), of Pauze/Swanson United Services Funds, a Massachusetts business
trust established by the Declaration of Trust (the "Trust").
ARTICLE 2
MEETINGS OF TRUSTEES
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the President or the Treasurer or by two or more Trustees, sufficient notice
thereof being given to each Trustee by the Secretary or an Assistant Secretary
or by the Trustees calling the meeting.
2.3 NOTICE. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least four days or by telegram/fax at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her.
2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 PARTICIPATION BY TELEPHONE. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
OFFICERS
3.1 ENUMERATION: QUALIFICATION. The officers of the Trust shall be a
President, a Treasurer, a Secretary and such other officers, including Vice
Presidents, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time may
in their discretion appoint. Any officer may be but need not be a Trustee or
shareholder. Any two or more offices may be held by the same person.
3.2 ELECTION. The President, the Treasurer and the Secretary shall be
elected annually by the Trustees at a meeting held within the first four months
of the Trust's fiscal year. The meeting at which the officers are elected shall
be known as the annual meeting of Trustees. Other officers, if any, may be
elected or appointed by the Trustees at said meeting or at any other time.
Vacancies in any office may be filled at any time.
3.3 TENURE. The President, the Treasurer and the Secretary shall hold
office until the next annual meeting of the Trustees and until their respective
successors are chosen and qualified, or in each case until he or she sooner
dies, resigns, is removed or becomes disqualified. Each other officer shall hold
office and each agent shall retain authority at the pleasure of the Trustees.
3.4 POWERS. Subject to other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5 PRESIDENT. Unless the Trustees otherwise provide, the President
shall preside at all meetings of the shareholders and of the Trustees. The
President shall be the chief executive officer.
3.6 VICE PRESIDENT. The Vice President, or if there be more than one
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in order of their election) shall in the
absence of the President or in the event of his inability or refusal to act,
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.7 TREASURER. The Treasurer shall be the chief accounting officer of
the Trust, and shall, subject to the provisions of the Declaration of Trust and
to any arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.
3.8 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
3.9 SECRETARY. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.10 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.11 RESIGNATION AND REMOVALS. Any Trustee or officer may resign at any
time by written instrument signed by him or her and delivered to the President
or the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time. The
Trustees may remove any officer elected by them with or without cause. Except to
the extent expressly provided in a written agreement with the Trust, no Trustee
or officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
ARTICLE 4
COMMITTEES
4.1 GENERAL. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
ARTICLE 5
REPORTS
5.1 GENERAL. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
FISCAL YEAR
6.1 GENERAL. The fiscal year of the Trust shall be fixed by resolution
of the Trustees.
ARTICLE 7
SEAL
7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die
with the word Massachusetts, together with the name of the Trust and the year of
its organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 GENERAL. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
ISSUANCE OF SHARE CERTIFICATES
9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the
Trustees of the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him,
in such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the president or a vice president and by the
treasurer or assistant treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustees, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he were such officer at the time of its issue.
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 ISSUANCE OF NEW CERTIFICATE TO PLEDGE. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder, and entitled to vote
thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of shares certificates to the Trust
for cancellation. Such surrender shall not affect the ownership of shares of the
Trust.
ARTICLE 10
DEALINGS WITH TRUSTEES AND OFFICERS
10.1 GENERAL. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may accept subscriptions to
shares or repurchase from any firm or company in which any Trustees, officer or
other agent of the Trust may have an interest.
ARTICLE 11
AMENDMENTS TO THE BY-LAWS
11.1 GENERAL. These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
The foregoing By-Laws were adopted by the Board of Trustees on November
1, 1993.
/s/ Charles W. Lutter, Jr.
--------------------------
Charles W. Lutter, Jr.
Secretary of the Trust
ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of November 1993, between PAUZE / SWANSON
& ASSOCIATES INVESTMENT ADVISORS, INC., a corporation organized under the laws
of the State of Texas and having its principal place of business in Houston,
Texas (the "Portfolio Manager"), and PAUZE / SWANSON UNITED SERVICES FUNDS, a
Massachusetts business trust having its principal place of business in San
Antonio, Texas (the "Trust").
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Portfolio Manager is engaged principally in the business of
rendering investment management services and is registered under the Investment
Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust intends to initially offer shares in the Pauze U.S
Government Total return Bond Fund (the "Initial Fund") together with all other
series subsequently established by the Trust with respect to which the Trust
desires to retain the Portfolio Manager to render investment advisory services
hereunder the Portfolio Manager is willing so to do (collectively referred to as
the "Funds");
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT OF PORTFOLIO MANAGER.
(a) Initial Fund. The Trust hereby appoints the Portfolio Manager to
act as manager and investment adviser to the Initial Fund for the
period and on the terms set forth. The Portfolio Manager accepts
such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
(b) Additional Funds. In the event that the Trust establishes one or
more series of shares other than the Initial Fund with respect to
which it desires to retain the Portfolio Manager to render
management and investment advisory services hereunder, it shall
so notify the Portfolio Manager in writing, indicating the
advisory fee which will be payable with respect to the additional
series of shares. If the Portfolio Manager is willing to render
such services, it shall so notify the Trust in writing, whereupon
such series of shares shall become a Fund hereunder.
2. DUTIES OF PORTFOLIO MANAGER.
The Portfolio Manager, at its own expense, shall furnish the following
services and facilitates to the Trust:
(a) Investment Program. The Portfolio Manager will (i) furnish
continuously an investment program of each Fund, (ii) determine
(subject to the overall supervision and review of the Board of
Trustees of the Trust) what investments shall be purchased, held,
sold or exchanged by the Fund and what portion, if any, of the
assets of the/each Fund shall be held uninvested, and (iii) make
changes on behalf of the Trust in the investments of each Fund.
(b) The Portfolio Manager shall forward all instructions for the
purchase and sale of portfolio securities for the account of each
Fund to United Services Advisors, Inc., the Trust's
Administrator.
3. ALLOCATION OF EXPENSES.
Except for the services to be provided by the Portfolio Manager as set
forth in paragraph 2 above, the Trust assumes and shall pay all expenses
for all other Trust operations and activities and shall reimburse the
Portfolio Manager for any such expenses incurred by the Portfolio Manager.
The expenses to be borne by the Trust shall include, without limitation:
(a) the charges and expenses of administering the Trust's affairs;
(b) the charges and expenses of any registrar, stock transfer or
dividend disbursing agent, custodian, or depository appointed by
the Trust for the safekeeping of its cash, portfolio securities
and other property;
(c) the charges and expenses of auditors;
(d) brokerage commissions for transactions in the portfolio
securities of the Trust;
(e) all taxes, including issuance and transfer taxes, and corporate
fees payable by the Trust to Federal, state or other governmental
agencies;
(f) the cost of stock certificates (if any) representing shares of
the Trust;
(g) expenses involved in registering and maintaining registrations of
the Trust and of its shares with the Securities and Exchange
Commission and various states and other jurisdictions, including
reimbursement of actual expenses incurred by the Portfolio
Manager in performing such functions for the Trust, and including
compensation of persons who are Portfolio Manager employees in
proportion to the relative time spent on such matters;
(h) all expenses of shareholders' and Trustees' meetings, including
meetings of committees, and of preparing, printing and mailing
proxy statements, quarterly reports, semi-annual reports, annual
reports and other communications to shareholders;
(i) all expenses of preparing and setting in type prospectuses, and
expenses of printing and mailing the same to shareholders [but
not expenses of printing and mailing of prospectuses and
literature used for promotional purposes in accordance with
paragraph 2(d) above];
(j) compensation and travel expenses of Trustees who are not
"interested persons" within the meaning of the 1940 Act;
(k) the expense of furnishing, or causing to be furnished, to each
shareholder a statement of his account, including the expense of
mailing;
(l) charges and expenses of legal counsel and internal
audit/compliance personnel in connection with matters relating to
the Trust, including, without limitations, legal services
rendered in connection with the Trust's corporate and financial
structure and relations with its shareholders, issuance of Trust
shares, and registration and qualification of securities under
Federal, state and other laws;
(m) the expenses of attendance at professional meetings of
organizations such as the Investment Company Institute, the No
Load Mutual Fund Association, or Commerce Clearing House by
officers and Trustees of the Trust, and the membership or
association dues of such organizations;
(n) all cost and expense of maintaining the books and records of the
Trust, including, but not limited to, general ledger accounting
and preparation of financial statements; (o) the expense of
obtaining and maintaining a fidelity bond as required by Section
17(g) of the 1940 Act;
(p) interest payable on Trust borrowings; and
(q) postage.
4. PORTFOLIO MANAGEMENT FEE.
(a) For the services and facilities to be provided to each of the
Funds by the Portfolio Manager as provided in Paragraph 2 hereof,
the Trust shall pay the Portfolio Manager a monthly fee with
respect to each of the Funds as soon as practical after the last
day of each calendar month, which fee shall be paid at the rate
set forth below based upon the Monthly Average Net Assets [as
defined in subparagraph (c) below] of such Fund for such calendar
month:
PORTFOLIO MANAGEMENT FEE SCHEDULE
Monthly
Fee Rate
Pauze U.S. Government Total Return Bond Fund
Up to and including $50 million 1/12 of .40%
Over $50 million 1/12 of .24%
(b) In the case of termination of this Agreement with respect to any
Fund during any calendar month, the fee with respect to such Fund
for that month shall be reduced proportionately based upon the
number of calendar days during which it is in effect and the fee
shall be computed upon the average net assets of such Fund for
the business days which it is so in effect.
(c) The "Monthly Average Net Assets" of any Fund of the Trust for any
calendar month shall be equal to the quotient produced by
dividing (i) the sum of the net assets of such Fund, determined
in accordance with procedures established from time to time by or
under the direction of the Board of Trustees of the Trust in
accordance with the Master Trust Agreement of the Trust, as of
the close of business on each day during such month that such
Fund was open for business, by (ii) the number of such days.
5. EXPENSE LIMITATION.
The Portfolio Manager agrees that for any fiscal year of the Trust during
which the total of all expenses of the Trust (including investment advisory
fees under this agreement, but excluding interest, portfolio brokerage
commissions and expenses, taxes and extraordinary items and any other item
excludable under the applicable state laws) exceeds the lowest expenses
limitation imposed in any state in which the Trust is then making sales of
its shares or in which its shares are then qualified for sale, the
Portfolio Manager will reimburse the Trust (an amount not to exceed its
investment advisory fees) for such expenses not otherwise excluded from
reimbursement by this Paragraph 5 to the extent that they exceed such
expense limitation.
6. TRUST TRANSACTIONS.
The Portfolio Manager agrees that neither it nor any of its officers or
Directors will take any long or short term position in the shares of the
Trust; provided, however, that such prohibition:
(a) shall not prevent the Portfolio Manager from purchasing shares of
the Trust if orders to purchase such shares are placed upon the
receipt by the Portfolio Manager of purchase orders for such
shares and are not in excess of such purchase orders received by
the Portfolio Manager; and
(b) shall not prevent the purchase of shares of the Trust by any of
the persons above described for their account and for investment
at the price at which such shares are available to the public at
the time of purchase or as part of the initial capital of the
Trust.
7. RELATIONS WITH TRUST.
Subject to and in accordance with the Trust's Master Trust Agreement and
By-Laws of the Trust and the Articles of Incorporation and By-Laws of the
Portfolio Manager, respectively, it is understood that Trustees, officers,
agents and shareholders of the Trust are or may be interested in the
Portfolio Manager (or any successor thereof) as directors, officers, or
otherwise; that directors, officers, agents and shareholders of the
Portfolio Manager are or may be interested in the Trust as Trustees,
officers, shareholders, or otherwise; that the Portfolio Manager (or any
such successor) is or may be interested in the Trust as a shareholder or
otherwise; and that the effect of any such adverse interests shall be
governed by said Master Trust Agreement, Articles of Incorporation and
By-Laws.
8. LIABILITY OF PORTFOLIO MANAGER AND OFFICERS AND TRUSTEES OF THE TRUST.
No provision of this Agreement shall be deemed to protect the Portfolio
Manager against any liability to the Trust or its shareholders to which it
might otherwise be subject by reason of any willful misfeasance, bad faith
or gross negligence in the performance of its duties or the reckless
disregard of its obligations and duties under this Agreement. Nor shall any
provision hereof be deemed to protect any Trustee or officer of the Trust
against any such liability to which he might otherwise be subject by reason
of any willful misfeasance, bad faith or gross negligence in the
performance of his duties or the reckless disregard of his obligations and
duties. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to
the Initial Fund on the date hereof and, with respect to any
additional Fund, on the date of receipt by the Trust of notice
from the Portfolio Manager in accordance with Paragraph 1(b)
hereof that the Portfolio Manager is willing to serve as
Portfolio Manager with respect to such Fund. Unless terminated as
herein provided, this Agreement shall remain in full force and
effect for two years after initial approval by shareholders with
respect to the Initial Fund and, with respect to each additional
Fund, until the next date of the Initial Fund is subject to
review for continuance following the date on which such Fund
becomes a Fund hereunder, and shall continue in full force and
effect for a period of one year thereafter with respect to each
Fund so long as such continuance with respect to any such Fund is
approved at least annually (i) by either the Trustees of the
Trust or by vote of a majority of the outstanding voting shares
(as defined in the 1940 Act) of such Fund, and (ii) in either
event by the vote of a majority of the Trustees of the Trust who
are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of
the outstanding shares (as defined in the 1940 Act) of any Fund
shall be effective to continue this Agreement with respect to any
such Fund notwithstanding (i) that this Agreement has not been
approved by the holders of a majority of the outstanding shares
of any other Fund affected thereby, and (ii) that this Agreement
has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless approval shall be
required by any other applicable law or otherwise.
(b) Termination. This Agreement may be terminated at any time,
without payment of any penalty, by vote of the Trustees of the
Trust or by vote of a majority of the outstanding shares (as
defined in the 1940 Act), or by the Portfolio Manager on sixty
(60) days' written notice to the other party.
(c) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.
10. PRIOR AGREEMENT SUPERSEDED.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties.
11. NAME OF TRUST.
It is understood that the names "Pauze" and "Swanson" and any logo
associated with that name, is valuable property of the Portfolio
Manager, and that the Trust has the right to include "Pauze / Swanson"
as a part of its name only so long as this Agreement shall continue.
Upon termination of this Agreement the Trust shall forthwith cease to
use said names and logos and shall submit to its shareholders an
amendment to its Master Trust Agreement to change the Trust's name.
12. SERVICES NOT EXCLUSIVE.
The services of the Portfolio Manager to the Trust hereunder are not
to be deemed exclusive, and the Portfolio Manager shall be free to
render similar services to others so long as its services hereunder
are not impaired thereby.
13. LIMITATION OF LIABILTY
The term "Pauze / Swanson United Services Funds" means and refers to
the Trustees from time to time serving under the Master Trust
Agreement of the Trust dated October 12, 1993, as the same may
subsequently thereto have been, or subsequently hereto be amended. It
is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only
the assets and property of the Trust, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement
have been authorized by the Trustees and shareholders of the Trust and
signed by an authorized officer of the Trust, acting as such, and
neither such authorization by such Trustees and shareholders nor such
execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the
Trust as provided in its Master Trust Agreement. The Master Trust
Agreement is on file with the Secretary of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
PAUZE / SWANSON PAUZE / SWANSON &
UNITED SERVICES FUNDS ASSOCIATES INVESTMENT
ADVISORS, INC.
By /s/ Philip Pauze By /s/ Philip Pauze
------------------ ------------------
President President
Attest: Attest:
/s/ Mary J. Weber /s/ Mary J. Weber
- --------------------- ----------------------
Assistant Secretary Assistant Secretary
Pauze Funds
Accounting Services Agreement
Schedule A - Amendment No. 1
Portfolio and Fee Schedule
Portfolios Covered by Accounting Services Agreement:
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze Tombstone Fund
Annual Fee for Accounting Services:
$178,000
Plus standard out-of-pocket expenses including (but not limited to): postage,
courier, telephone, travel, Fund specific costs related to Fund/SERV and
Networking, printing, copying, and other standard miscellaneous items.
May 1, 1997
- ----------- -----------------------------------
Date By: Philip C. Pauze
Pauze Funds
-----------------------------------
By: Terence P. Smith
Declaration Service Company
Pauze Funds
Administration Agreement
Schedule A - Amendment No. 1
Portfolio and Fee Schedule
Portfolios Covered by Administration Agreement:
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze Tombstone Fund
Annual Fee for Accounting Services:
$196,000
Plus standard out-of-pocket expenses including (but not limited to): postage,
courier, telephone, travel, Fund specific costs related to Fund/SERV and
Networking, printing, copying, and other standard miscellaneous items.
May 1, 1997
- ----------- -----------------------------------
Date By: Philip C. Pauze
Pauze Funds
-----------------------------------
By: Terence P. Smith
Declaration Service Company
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement, (Form
N-1A), and related Statement of Additional Information of Pauze Tombstone Fund,
a Series of Pauze Funds and to the inclusion of our report dated June 11, 1998
to the Shareholders and Board of Trustees of Pauze Tombstone Fund.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 28, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement, (Form
N-1A), and related Statement of Additional Information of Pauze Funds, and to
the inclusion of our report dated June 11, 1998 to the Shareholders and Board of
Trustees of Pauze Tombstone Fund.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 28, 1998
PLAN PURSUANT TO RULE 12-B1
Adopted __________, 199__
RECITALS
1. PAUZE/ SWANSON UNITED SERVICES FUNDS, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (the
"Trust") is engaged in business as an open-end management investment company and
its registered as such under the Investment Company Act of 1940, as amended (the
"Act").
2. The Trust operates as a "series company" within the meaning of Rule
18f-2 under the Act and is authorized to issue shares of beneficial interest in
various series or sub-trusts (collectively the "Funds").
3. Funds of the Trust may utilize Fund assets to pay for, or reimburse
payment for, sales or promotional services or activities that have been or will
be provided in connection with distribution of shares of the Funds if such
payments are made pursuant to a Plan adopted and continued in accordance with
Rule 12b-1 under the Act.
4. Pauze U.S. Government Total Return Bond Fund, a series of the Trust
(the "Fund") by virtue of such arrangement may be deemed to act as a distributor
of its shares as provided in Rule 12b-1 under the Act and desires to adopt a
Plan pursuant to such Rule (the "Plan").
5. The Trustees as a whole, and the Trustees who are not interested
persons of the Trust (as defined in the Act) and who have no direct or indirect
financial interest in the operation of this Plan and any agreements relating to
it (the "Qualified Trustees"), having determined, in the exercise of reasonable
business judgement and in light of their fiduciary duties under state law and
under Section 36(a) and (b) of the Act, that there is a reasonable likelihood
that this Plan will benefit the Fund and its shareholders, have approved the
Plan by votes cast in person at a meeting called for the purpose of voting on
this Plan and agreements related thereto.
6. United Services Advisors, Inc., as the sole shareholder of the Fund,
has approved the Plan.
PLAN PROVISIONS
SECTION 1. EXPENDITURES
(a) Purposes. Fund assets may be utilized 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 include the costs 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.
(b) Amounts. Fund assets may be utilized 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, provided the total amount expended pursuant to
this Plan does not exceed 0.25% of net assets on an annual basis.
SECTION 2. TERM AND TERMINATION
(a) Initial Term. This Plan shall become effective on
_________________, 1993 and shall continue in effect for a period of one year
thereafter unless terminated or otherwise continued or discontinued as provided
in this Plan.
(b) Continuation of the Plan. The Plan and any related agreements shall
continue in effect for periods of one year thereafter for so long as such
continuance is specifically approved at least annually by votes of a majority of
both (a) the Trustees of the Trust and (b) the Qualified Trustees, cast in
person at a meeting called for the purpose of voting on this Plan and such
related agreements.
(c) Termination of the Plan. This 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.
SECTION 3. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof unless such amendment
is approved by a vote of the majority of the outstanding voting securities of
the Fund, and no material amendment to the Plan shall be made unless approved in
the manner provided for annual renewal in Section 2(b) hereof.
SECTION 4. INDEPENDENT TRUSTEES
While this Plan is in effect with respect to the Fund, the selection
and nomination of Trustees who are not interested persons of the Trust (as
defined in the Act) shall be committed to the discretion of the Trustees who are
not interested persons.
SECTION 5. QUARTERLY REPORTS
The Treasurer of the Trust shall provide to the Trustees and the
Trustees shall review, at least quarterly, a written report of the amounts
accrued and the amounts expended under this Plan for distribution, along with
the purposes for which such expenditures were made.
SECTION 6. RECORDKEEPING
The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Section 5 hereof, for a period of not less than
six years from the date of this Plan, the agreements or such report, as the case
may be, the first two years in an easily accessible place.
SECTION 7. AGREEMENTS RELATED TO THIS PLAN
Agreements with persons providing distribution services to be paid for
or reimbursed under this Plan shall provide that:
(a) the agreement will continue in effect for a period of one year and
will continue thereafter only if specifically approved by vote of a
majority of the Trustees of the Trust;
(b) the agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of (i) the Qualified Trustees or (ii)
the outstanding voting securities of the Fund, on not more than sixty
(60) days' written notice to any other party to the agreement;
(c) the agreement will terminate automatically in the event of an
assignment;
(d) in the event the agreement is terminated or otherwise discontinued,
no further payments or reimbursements will be made by the Fund after
the effective date of such action; and
(e) payments and/or reimbursements may only be made for the specific
sales or promotional services or activities identified in Section 1 of
this Plan and must be made on or before the last day of the one year
period commencing on the last day of the calendar quarter during which
the service or activity was performed.
Pauze Funds
-----------
Exhibit 16 - Calculation of Performance Data
--------------------------------------------
1. Calculation of Total Return
---------------------------
Pauze U.S. Government Total Return Bond Fund:
---------------------------------------------
No-Load Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1189.08
1000 + 1000T = 1189.08
1000T = 1189.08 - 1000
1000T = 189.08
T = 189.08/1000
T = 18.91%
Class B Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1181.64
1000 + 1000T = 1181.64
1000T = 1181.64 - 1000
1000T = 181.64
T = 181.64/1000
T = 18.16%
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
No-Load Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1080.11
1000 + 1000T = 1080.11
1000T = 1080.11 - 1000
1000T = 80.11
T = 80.11/1000
T = 8.01%
Class B Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1071.30
1000 + 1000T = 1071.30
1000T = 1071.30 - 1000
1000T = 71.31
T = 71.31/1000
T = 7.13%
Pauze U.S. Government Short Term Bond Fund
------------------------------------------
No-Load Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1037.56
1000 + 1000T = 1037.56
1000T = 1037.56 - 1000
1000T = 37.56
T = 37.56/1000
T = 3.76%
Class B Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1019.90
1000 + 1000T = 1019.90
1000T = 1019.90 - 1000
1000T = 19.90
T = 19.90/1000
T = 1.99%
Class C Shares
--------------
n
P(1 + T) = ERV
1
1000(1 + T) = 1029.24
1000 + 1000T = 1029.24
1000T = 1029.24 - 1000
1000T = 29.24
T = 29.24/1000
T = 2.92%
2. Calculation of 30 Day Yield at April 30, 1998:
----------------------------------------------
Pauze U.S. Government Total Return Bond Fund
--------------------------------------------
No Load Shares
--------------
6
Yield = 2[((A - B)/(C * D) + 1) - 1]
6
Yield = 2[((349,969.68 - 105,004.40)/(8,155,092.094 * 9.63) + 1) - 1]
Yield = 3.77%
Pauze U.S. Government Total Return Bond Fund
--------------------------------------------
Class B Shares
--------------
6
Yield = 2[((A - B)/(C * D) + 1) - 1]
6
Yield = 2[((23,123.76 - 9,260.52)/(29,400.326 * 10.43) + 1) - 1]
Yield = 2.82%
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
No Load Class
-------------
6
Yield = 2[((A - B)/(C * D) + 1) - 1]
6
Yield = 2[((12,275.39 - 7,627.15)/(269,444.739 * 10.10) + 1) - 1]
Yield = 2.06%
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
Class B
-------
6
Yield = 2[((A - B)/(C * D) + 1) - 1]
6
Yield = 2[((2,147.49 - 1,470.15)/(49,061.951 * 10.12) + 1) - 1]
Yield = 1.64%
Pauze U.S. Government Short Term Bond Fund
------------------------------------------
No Load Class
-------------
6
Yield = 2[((A - B)/(C * D) + 1) - 1]
6
Yield = 2[((8,609.18 - 5,442.03)/(185,654.647 * 10.06) + 1) - 1]
Yield = 2.04%
Pauze U.S. Government Short Term Bond Fund
------------------------------------------
Class C Shares
--------------
6
Yield = 2[((A - B)/(C * D) + 1) - 1]
6
Yield = 2[((800.61 - 601.84)/(18,404.568 * 9.98) + 1) - 1]
Yield = 1.30%
