PAUZE' FUNDS(TM)
PAUZE' TOMBSTONE FUND(TM)
ANNUAL REPORT
APRIL 30, 1998
Dear Investor:
Thank you for investing in the Pauze' Tombstone Fund(TM), the first-ever
mutual fund that invests in stocks of the death care industry. In the past, the
death care industry has been largely overlooked by the investing public. Now,
with the introduction of the Pauze' Tombstone Fund(TM), investors are focusing
in on this growth industry where U.S. and Canadian companies are leading the way
towards globalization and consolidating what has been traditionally an
independent funeral home dominated industry. Of the 22,500 funeral homes in the
U.S., about 17% are now owned by consolidators such as Service Corporation
International, the Loewen Group, Equity Corporation International, Carriage
Services, and Stewart Enterprises. Eager for more market share, these companies
are aggressively purchasing funeral and cemetery properties at a brisk pace. It
is our opinion that over the next twenty years consolidators will own over 80%
of the funeral homes in the country. In addition, many of these companies are
now international in scope with operations in Europe, Australia, New Zealand,
and Mexico. Again, in our opinion, over the next twenty years, these companies,
and other North American companies like them, will dominate funeral service
globally. As the world now turns to U.S. companies for computer chips,
airplanes, personal computers, telecommunications, and energy, the world will
also be turning to North American companies for funeral service.
Aside from the expansion of services offered by the consolidators, there
are also the demographics of an aging "baby boomer" population in not only the
United States and Canada, but in most countries that were Allies during World
War II. This fact leads to strong markets overseas as well.
The Pauze' Tombstone Fund(TM) Class A shares gained 7.20% (3.18% after
deducting the sales charge) and Class B shares gained 6.49% (2.69% after
deducting the maximum contingent deferred sales charge applicable to a
withdrawal at the end of the first year) during the Fund's first year. The
performance of both Classes trailed the performance of the S&P 500 for the year
because the Fund generally tracks the Pauze' Tombstone Common Stock Index(TM)
and the stocks in the Index did not perform as well as the S&P 500 over the
year.
<PAGE>
PAUZE' TOMBSTONE FUND
[GRAPHIC OMITTED]
Comparison of the change in value since April 1997 of a $10,000 investment in
the Pauze' Tombstone Fund - Class "A", Pauze' Tombstone Fund - Class "B" and the
S&P 500 Index.
4/30/98
-------
Pauze' Tombstone Fund - Class "A" $10,720
Pauze' Tombstone Fund - Class "B" 10,649
S&P 500 Index 13,874
AVERAGE ANNUAL RETURNS
Annualized
1 Year* Since Inception*
------ ---------------
Class "A" Shares 3.18% 3.18%
Class "B" Shares 2.69% 2.69%
S&P 500 Index 33.91% 33.91%
* From inception 5/6/97 - 4/30/98
Again, thank you for your trust and confidence in allowing us to serve your
investment needs.
Sincerely yours,
Philip C. Pauze'
President
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
PAUZE' TOMBSTONE FUND
HOUSTON, TEXAS
We have audited the accompanying statement of assets and liabilities of Pauze'
Tombstone Fund, a series of shares of Pauze' Funds, including the schedule of
investments, as of April 30, 1998, and the related statement of operations and
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of April 30, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Pauze'
Tombstone Fund, as of April 30, 1998, the results of its operations, the changes
in its net assets and the financial highlights for the period then ended, in
conformity with generally accepted accounting principles.
PHILADELPHIA, PENNSYLVANIA
JUNE 11, 1998
<PAGE>
Pauze' Tombstone Fund
Schedule of Investments
April 30, 1998
- --------------------------------------------------------------------------------
Number of Market
Shares Value
----------
Equity securities (99.46%)
1,780 American Annuity Group, Inc. $ 41,941
2,815 Carriage Services, Inc. * 68,616
5,505 Equity Corporation International * 136,593
8,200 Hillenbrand Industries, Inc. 511,475
19,435 The Loewen Group, Inc. 551,468
2,290 Matthews International Corporation, Class A 105,340
2,000 Rock of Ages Corporation * 32,250
65,800 Service Corporation International 2,714,250
25,750 Stewart Enterprises, Inc., Class A 663,063
2,370 The York Group, Inc. 43,253
----------
Total equity securities (Cost $4,363,993) $4,868,249
----------
Total Investments (Cost $4,363,993) (99.46%) $4,868,249
Other assets in excess of liabilities (0.54%) 26,673
----------
Net Assets (100.00%) $4,894,922
==========
* Denotes non- income producing securities
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pauze' Tombstone Fund
Statement of Assets and Liabilities
April 30, 1998
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at market value
(cost $ 4,363,993) (Note 2) $ 4,868,249
Cash 17,125
Receivables:
Capital shares sold 2,329
Interest 133
Dividends 1,508
Due from Adviser 6,493
Unamortized organization costs (Note 2) 15,951
-----------
Total assets 4,911,788
-----------
Liabilities:
Payables:
Accrued expenses 16,148
Other liabilities 718
-----------
Total liabilities 16,866
-----------
Net assets $ 4,894,922
===========
Net assets:
Paid-in-capital 4,394,397
Accumulated net realized loss from investments (3,731)
Net unrealized appreciation on investments 504,256
-----------
Net assets applicable to outstanding capital shares $ 4,894,922
===========
Class A:
Net assets $ 1,419,440
===========
Shares outstanding, no par value, unlimited shares authorized 132,485
===========
Net asset value and redemption price per share $ 10.71
===========
Offering price per share (Net asset value / 96.25%) $ 11.13
===========
Class B:
Net assets $ 3,475,482
===========
Shares outstanding, no par value, unlimited shares authorized 326,530
===========
Net asset value, offering price and redemption price per share $ 10.64
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pauze' Tombstone Fund
Statement of Operations
For the year ended April 30, 1998
- --------------------------------------------------------------------------------
Investment income:
Interest income $ 19,226
Dividend income 25,689
---------
Total income 44,915
---------
Expenses:
Investment advisory fees (Note 5) 13,511
Administrative fees (Note 5) 10,616
Distribution fees- Class A (Note 5) 2,584
Distribution fees- Class B (Note 5) 25,220
Accounting service fees (Note 5) 8,276
Transfer agent fees (Note 5) 13,232
Registration fees 44,953
Custodian fees 4,294
Professional fees 8,236
Trustees' fees and expenses (Note 5) 2,941
Amortization of organization expense (Note 3) 3,973
Insurance expense 436
Miscellaneous 5,754
---------
Total expenses 144,026
Expense reimbursement by Adviser (5,141)
---------
Net expenses 138,885
---------
Net investment loss (93,970)
---------
Net realized and unrealized gain (loss) from investments:
Net realized loss on investments (3,731)
Net change in unrealized appreciation
of investments 504,256
---------
Net realized and unrealized gain on investments 500,525
---------
Net increase in net assets resulting
from operations $ 406,555
=========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pauze' Tombstone Fund
Statement of Changes in Net Assets
For the year ended April 30, 1998
- --------------------------------------------------------------------------------
From operations:
Net investment loss ($ 93,970)
Net realized loss on investments (3,731)
Net change in unrealized appreciation
of investments 504,256
-----------
Net increase in net assets
resulting from operations 406,555
-----------
Capital share transactions - net (Note 4) 4,488,367
-----------
Net increase in net assets 4,894,922
Net assets at beginning of period --
-----------
Net assets at end of period (including
undistributed net investment income
of $0.) $ 4,894,922
===========
The accompanying notes are an integral part of these financial statements
<PAGE>
PAUZE' TOMBSTONE FUND
Notes To Financial Statements
April 30, 1998
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Pauze' Tombstone Fund (the "FUND") is a non-diversified, open-end
management investment company, organized as a series of Pauze' Funds (the
"TRUST") on January 29, 1997, and commencing operations on May 1, 1997. The
Trust was organized as a Massachusetts business trust on October 15, 1993.
There are currently three additional series within the Trust which are not
a subject of these financial statements.
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 on redemptions made within seven years of
purchase.
The investment objective of the Fund is to provide shareholders with
long-term capital appreciation by investing primarily in all or a
representative group of equity securities comprising the Pauze' Tombstone
Common Stock Index, an index of publicly traded companies providing goods
and/or services to the death care 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. 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
<PAGE>
PAUZE' TOMBSTONE FUND
Notes To Financial Statements - (continued)
April 30, 1998
- --------------------------------------------------------------------------------
SECURITY VALUATION
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.
INCOME AND EXPENSES
Expenses directly attributable the Fund are charged to the Fund; other
expenses of the Trust are allocated proportionately among each of the Funds
within the Trust in relation to the net assets of each Fund or on another
reasonable basis. Expenses directly attributable to a particular class are
charged directly to such class. In calculating net asset value per share of
each class, investment income, realized and unrealized gains and losses and
expenses other than class specific expenses are allocated daily to each
class of shares based upon the proportion of net assets of each class at
the beginning of each day.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME
Investment transactions are accounted for on the trade date (the date the
order to buy or sell is executed). Securities gains and losses are
calculated on the identified cost basis. Interest income is determined on
the basis of coupon interest accrued daily, adjusted for amortization of
premiums, and accretion of discount. Dividend income is recorded on the
ex-dividend date.
REPURCHASE AGREEMENTS
The Trust's policy is for the custodian to receive delivery of the
underlying securities used to collateralize the repurchase agreements in an
amount at least equal to 102% of the resale price. In the event of default
of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation.
Provisions of each agreement require that the market value of the
collateral is sufficient to pay principal and interest; however, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
<PAGE>
PAUZE' TOMBSTONE FUND
Notes To Financial statements - (continued)
April 30, 1998
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
It is the intention of the Fund to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code and to
distribute all of its taxable income to its shareholders. Accordingly, no
federal income tax provision is required.
DEFERRED ORGANIZATIONAL COSTS
Costs incurred by the Fund in connection with its organization have been
deferred and are being amortized using the straight-line method over a
five-year period beginning with the commencement of operations of the Fund.
In the event that any of the initial shares of the Fund are redeemed during
the amortization period by any holder thereof, the redemption proceeds will
be reduced by any unamortized organization expenses in the same proportion
as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of such redemption.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions to shareholders are recorded by the Fund on
ex-dividend date. The Fund generally pays dividends quarterly and capital
gains distributions, if any, at least annually. The Fund distributes tax
basis earnings in accordance with the minimum distribution requirements of
the Internal Revenue Code, which may result in dividends or distributions
in excess of financial statement (book) earnings. Income dividends and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
(3) INVESTMENT TRANSACTIONS
For the period ended April 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were
$8,472,126 and $4,104,402, respectively. At April 30, 1998, the unrealized
appreciation of investments for tax purposes was $481,816. Gross unrealized
appreciation of investments aggregated $550,762 and gross unrealized
depreciation of investments aggregated $68,946. The cost of investments for
federal income tax purposes at April 30, 1998 was $4,386,433. Accumulated
net realized losses on investment transactions at April 30, 1998 amounted
to $3,731; these carryforwards will expire in 2006. The loss carryforwards
will be reduced by future realized gains.
<PAGE>
PAUZE' TOMBSTONE FUND
Notes To Financial Statements - (continued)
April 30, 1998
- --------------------------------------------------------------------------------
(4) CAPITAL SHARES TRANSACTIONS
MAY 1, 1997
TO
APRIL 30, 1998
-------------------------
CLASS A SHARES AMOUNT
- ------- ------ ------
Shares sold 159,333 $ 1,558,718
Reinvestment of dividends -- --
Shares redeemed (26,848) (255,437)
-------- -----------
Net Increase 132,485 $ 1,303,281
======== ===========
CLASS B SHARES AMOUNT
- ------- ------ ------
Shares sold 335,481 $ 3,275,767
Reinvestment of dividends -- --
Shares redeemed (8,951) (90,681)
-------- -----------
Net Increase 326,530 $ 3,185,086
======== ===========
(5) TRANSACTIONS WITH THE MANAGER AND AFFILIATES
Pauze', Swanson & Associates Investment Advisors, Inc. d/b/a Pauze' Swanson
Capital Management Co. (the "ADVISOR" or the "MANAGER"), under an
Investment Advisory Agreement with the Trust in effect through February 28,
1999, furnishes management and investment advisory services to the Fund.
This agreement provides for a monthly management fee at the annual rate of
0.38% of the average daily net assets of the Fund.
Expenses were initially limited by the Advisor. For the year ended April
30, 1998, the Advisor reimbursed $5,141 to the Fund.
Certain officers/trustees of the Fund are also officers and/or directors of
the Manager.
<PAGE>
PAUZE' TOMBSTONE FUND
Notes To Financial Statements - (continued)
April 30, 1998
- --------------------------------------------------------------------------------
Declaration Service Company serves as the Administrator to the Trust
pursuant to an Administrative Services Agreement with the Trust. As
Administrator, Declaration Service Company is responsible for services such
as financial reporting, compliance monitoring and corporate management. For
the Services provided, the Administrator receives an annual fee of
$196,000, payable in equal monthly installments which are allocated to each
series based upon the relative net assets of each series. The series also
pay standard out-of-pocket costs to Declaration Service Company. The Fund's
share of these fees and expenses for the year ended April 30, 1998 was
$10,616.
Declaration Service Company determines the net asset value per share of the
Fund and provides accounting services to the Fund pursuant to an Accounting
Services Agreement with the Trust. For its services, Declaration Service
Company receives an annual fee of $178,000, payable in equal monthly
installments which are allocated to each series based upon the relative net
assets of each series. The series also pay standard out-of-pocket costs to
Declaration Service Company. The Fund's share of these fees and expenses
for the year ended April 30, 1998 was $8,276.
Declaration Distributors, Inc., an affiliate of Declaration Service
Company, serves as the Trust agent in connection with the distribution of
Fund shares. For the services provided, Declaration Distributors, Inc.
receives an annual fee of $20,000 from the Trust. The Fund's share of these
expenses for the year ended April 30, 1998 was $1,000.
Declaration Service Company serves as transfer agent and dividend paying
agent of the Trust pursuant to a separate transfer agency and shareholder
Services Agreement with the Trust. For its services, the Trust pays
Declaration Service Company an annual fee of $18 per account (subject to a
minimum annual fee of $24,000 for the trust) plus standard out-of-pocket
expenses. The Fund's share of these fees and expenses for the year ended
April 30, 1998 was $13,232.
An officer of Declaration Service Company and Declaration Distributors,
Inc. (the underwriter of the Trust) is an officer/trustee of the Trust. The
officer receives no compensation for these services.
GS2 Securities, Inc. of which officers/directors of the Advisor may be
deemed to be affiliates received $16,967 in brokerage commissions on
purchases and sales of Fund investments during the year ended April 30,
1998.
Independent trustees are each paid an annual fee of $10,000 from the Trust
plus $500 per meeting and out-of-pocket expenses. The Fund's share of these
expenses for the year ended April 30, 1998 was $2,941.
<PAGE>
PAUZE' TOMBSTONE FUND
Notes To Financial Statements - (continued)
April 30, 1998
- --------------------------------------------------------------------------------
DISTRIBUTION AND UNDERWRITING FEES
CLASS A SHARES
Class A shares of the Fund are sold at net asset value plus a sales charge
and are redeemed at net asset value (without a contingent deferred sales
charge).
During the period ended April 30, 1998, Declaration Distributors, Inc., the
Fund's Underwriter (the "UNDERWRITER") received $74,062 from commissions
earned on sales of Class A shares of the Fund of which $8,795 was retained
by the Underwriter and the remaining $65,267 was reallowed to investment
dealers. Of this amount $26,076 was paid to GS2 Securities, Inc., of which
officers/directors of the Advisor may be deemed to be affiliates.
CLASS B SHARES
Class B shares of the Fund are sold at net asset value and are redeemed at
net asset value less a contingent deferred sales charge if redeemed within
seven years of purchase. The charge is a declining percentage starting at
3.75% of the lesser of net asset value of the shares redeemed or the total
cost of such shares.
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 the 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.
