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)
SEMI-ANNUAL REPORT
October 31, 1999
Dear Investor:
This reporting period has experienced another interesting time for the interest
sensitive markets. From May 1, 1999 through October 31, 1999, the representative
total return figures ranged widely as follows:
================================================================================
3 MO 1YR 2YR 5YR 10YR 30YR
U.S. Treasury Bills Bills Notes Notes Notes Bonds
- --------------------------------------------------------------------------------
2.36% 2.29% 1.33% -0.38% -2.99% -5.05%
Total Return*
================================================================================
*Source: Salomon Brothers Indexes. Includes capital gain (loss) and paid/accrued
interest.
The economy of the United States strengthened during this period to its highest
level in decades driven by a boom in the telecommunications industry and other
high-tech industries. Unemployment fell to its lowest level in thirty-five
years. While high-tech led the way, no sector was left out of the economic
expansion. Low unemployment and strong economic growth caused many investors to
feel that inflation was soon to follow. The fear was not validated by government
reports of inflation. All gauges of inflation rose only slightly, not to levels
of concern. Having said this, however, the Federal Reserve raised short term
interest rates one-quarter point on two different occasions.
Short term interest rate increases by the Fed and the fear of inflation sent
longer term rates higher and bond prices lower. As a result, the price of the
benchmark 30 year Treasury bond fell by 5.05% during the period. Smaller
declines were experienced in short maturities. Future movement of interest rates
will depend upon the investment community's perception of the effectiveness of
Fed action. A strong Christmas season will give the Fed reason to increase rates
again in early 2000. However, historically the Fed has been reluctant to raise
rates near an election. Thus, if the Christmas season is exceptionally strong
for retailers, the Fed might well raise rates one-half point in the First
Quarter of 2000.
Our commitment to our Shareholders has been and always will be to work
diligently to maximize investor returns. We will continue to strive to do so now
and in the future.
We thank all of our investors for their confidence in our abilities to manage
cash prudently and wisely.
Philip C. Pauze, President
<PAGE>
PAUZE FUNDS OCTOBER 31, 1999
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Principal
or Shares Value
----------- -----------
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
--------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 100.09%
U.S. Treasury Bill, 4.45%*, 11/04/99
(Cost $61,570,775) $61,590,000 $61,570,775
OTHER INVESTMENTS - 0.15%
Firstar Treasury Fund (Cost $93,943) 93,943 93,943
-----------
TOTAL INVESTMENTS
(Cost $61,664,718) - 100.24% 61,664,718
Other assets and liabilities, net - (0.24%) (147,909)
-----------
NET ASSETS - 100.00% $61,516,809
===========
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
-------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 99.62%
U.S. Treasury Bill, 4.45%*, 11/12/99
(Cost $4,924,742) $ 4,931,000 $ 4,924,742
OTHER INVESTMENTS - 0.72%
Firstar Treasury Fund (Cost $35,751) 35,751 35,751
-----------
TOTAL INVESTMENTS (Cost $4,960,493) -100.34% 4,960,493
Other assets and liabilities, net - (0.34%) (16,980)
-----------
NET ASSETS - 100.00% $ 4,943,513
===========
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 97.20%
U.S. Treasury Bill, 4.45*, 11/12/99 $ 1,280,000 $ 1,278,376
U.S. Treasury Note 6.375%, 08/15/02 200,000 202,437
-----------
Total U.S. Government Obligations
(Cost $1,482,242) 1,480,813
OTHER INVESTMENTS - 1.79%
Firstar Treasury Fund (Cost $27,241) 27,241 27,241
-----------
TOTAL INVESTMENTS (Cost $1,509,483) - 98.99% 1,508,054
Other assets and liabilities, net - 1.01% 15,435
-----------
NET ASSETS - 100.00% $ 1,523,489
===========
* Discount rate at October 31, 1999
See accompanying notes to financial statements.
2
<PAGE>
PAUZE FUNDS OCTOBER 31, 1999
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
U.S. GOVERNMENT U.S.
GOVERNMENT INTERMEDIATE GOVERNMENT
TOTAL RETURN TERM SHORT TERM
BOND FUND BOND FUND BOND FUND
------------ ------------ ------------
Assets:
<S> <C> <C> <C>
Investments, at value (cost $61,664,718,
$4,960,493 and $1,509,483, respectively) $ 61,664,718 $ 4,960,493 $ 1,508,054
Receivables:
Interest 188 153 2,797
Fund shares sold 340 -- --
Due from affiliates -- -- 13,960
Organizational costs -- 2,730 2,730
------------ ------------ ------------
Total assets 61,665,246 4,963,376 1,527,541
------------ ------------ ------------
Liabilities:
Accounts payable and accrued expenses 117,814 15,639 3,408
Advisory fees payable 30,623 4,224 644
------------ ------------ ------------
Total liabilities 148,437 19,863 4,052
------------ ------------ ------------
NET ASSETS $ 61,516,809 $ 4,943,513 $ 1,523,489
============ ============ ============
Net assets consist of:
Paid-in-capital $ 68,155,175 $ 5,448,970 $ 1,538,495
Undistributed net investment income 2,169 (6,862) 110
Accumulated net realized loss on investments (6,640,535) (498,595) (13,687)
Net unrealized depreciation of investments -- -- (1,429)
------------ ------------ ------------
Net assets applicable to outstanding
capital shares $ 61,516,809 $ 4,943,513 $ 1,523,489
============ ============ ============
NO LOAD CLASS:
Net assets $ 60,158,834 $ 3,916,658 $ 1,393,012
============ ============ ============
Shares outstanding 7,002,588 407,771 139,280
============ ============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 8.59 $ 9.61 $ 10.00
============ ============ ============
CLASS B:
Net assets $ 1,290,287 $ 1,026,855 $ 106,236
============ ============ ============
Shares outstanding 137,654 106,477 10,827
============ ============ ============
NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 9.37 $ 9.64 $ 9.81
============ ============ ============
Minimum redemption price per share (Net asset
value X 96.25%) $ 9.02 $ 9.28 $ 9.44
============ ============ ============
CLASS C:
Net assets $ 67,688 $ 24,241
============ ============
Shares outstanding 7,546 2,439
============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 8.97 $ 9.94
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PAUZE FUNDS FOR THE SIX MONTHS ENDED OCTOBER 31, 1999
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
U.S. GOVERNMENT U.S.
GOVERNMENT INTERMEDIATE GOVERNMENT
TOTAL RETURN TERM SHORT TERM
BOND FUND BOND FUND BOND FUND
----------- ----------- -----------
Investment income:
<S> <C> <C> <C>
Interest income $ 1,490,005 $ 194,829 $ 36,890
----------- ----------- -----------
Expenses:
Investment advisory fees 172,910 19,331 3,808
Administrative fees 69,307 11,447 2,086
Distribution fees- No load class 70,354 8,353 1,738
Distribution fees- Class B 6,431 5,252 529
Distribution fees- Class C 336 -- 136
Accounting service fees 59,285 9,788 1,780
Transfer agent fees 30,249 4,950 849
Registration fees 2,011 2,011 2,011
Shareholder reporting 352 352 352
Custodian fees 6,033 3,017 1,508
Legal fees 34,095 5,620 1,012
Audit fees 7,039 3,519 2,514
Trustees' fees and expenses 24,029 3,961 713
Amortization of organization expense -- 745 745
Miscellaneous 17,768 5,308 3,310
----------- ----------- -----------
Total expenses 500,199 83,654 23,091
----------- ----------- -----------
NET INVESTMENT INCOME 989,806 111,175 13,799
----------- ----------- -----------
Net realized and unrealized loss on investments:
Net realized loss (831,405) (120,080) (14,016)
Net unrealized appreciation (depreciation) 609,169 -- (554)
----------- ----------- -----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (222,236) (120,080) (14,570)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 767,570 ($ 8,905) ($ 771)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PAUZE FUNDS
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT U.S. GOVERNMENT
TOTAL RETURN BOND FUND INTERMEDIATE TERM BOND FUND
-------------------------------- --------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
October 31, 1999 April 30, 1999 October 31, 1999 April 30, 1999
---------------- -------------- ---------------- --------------
INCREASE (DECREASE) IN NET ASSETS
From operations:
<S> <C> <C> <C> <C>
Net investment income $ 989,806 $ 2,547,099 $ 111,175 $ 238,675
Net realized gain (loss) (831,405) (4,518,213) (120,080) (263,090)
Net unrealized appreciation (depreciation) 609,169 (608,816) -- 10,037
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from operations 767,570 (2,579,930) (8,905) (14,378)
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
No load class (1,002,132) (2,485,025) (106,801) (239,328)
Class B (15,232) (30,106) (11,236) (22,496)
Class C (850) (1,391) -- --
Net realized gains:
No load class -- (1,264,342) -- (102,579)
Class B -- (25,713) -- (12,846)
Class C -- (862) -- --
------------ ------------ ------------ ------------
Total distributions to shareholders (1,018,214) (3,807,439) (118,037) (377,249)
------------ ------------ ------------ ------------
From net capital share transactions - (Note 4) 4,291,767 (14,766,212) (4,552,795) 6,850,578
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 4,041,123 (21,153,581) (4,679,735) 6,458,951
Net assets at beginning of period 57,475,686 78,629,267 9,623,248 3,164,297
------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 61,516,809 $ 57,475,686 $ 4,943,513 $ 9,623,248
============ ============ ============ ============
Including undistributed net
investment income of: $ 2,169 $ 30,577 ($ 6,862) --
============ ============ ============ ============
<CAPTION>
U.S. GOVERNMENT
SHORT TERM BOND FUND
--------------------------------
Six Months Ended Year Ended
October 31, 1999 April 30, 1999
---------------- --------------
INCREASE (DECREASE) IN NET ASSETS
From operations:
<S> <C> <C>
Net investment income $ 13,799 $ 119,593
Net realized gain (loss) (14,016) 50,479
Net unrealized appreciation (depreciation) (554) (6,819)
------------ ------------
Net increase (decrease) in net assets
from operations (771) 163,253
------------ ------------
Distributions to shareholders from:
Net investment income:
No load class (13,010) (123,663)
Class B (563) (1,906)
Class C (116) (2,408)
Net realized gains:
No load class -- (44,247)
Class B -- (1,238)
Class C -- (456)
------------ ------------
Total distributions to shareholders (13,689) (173,918)
------------ ------------
From net capital share transactions - (Note 4) (616,007) 138,097
------------ ------------
Net increase (decrease) in net assets (630,467) 127,432
Net assets at beginning of period 2,153,956 2,026,524
------------ ------------
NET ASSETS AT END OF PERIOD $ 1,523,489 $ 2,153,956
============ ============
Including undistributed net
investment income of: 110 --
============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
For a capital share outstanding throughout each period indicated:
U.S. GOVERNMENT TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
NO LOAD
------------------------------------------------------------------------------
5/1/99 Year Ended April 30,
to ----------------------------------------------------------------
10/31/99 1999 1998 1997 1996 1995 #
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.62 $ 9.60 $ 9.17 $ 9.54 $ 9.37 $ 9.25
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.15 0.35 0.43 0.45 0.44 0.35
Net realized and unrealized
gain (loss) on investments (0.03) (0.79) 1.27 (0.37) 0.31 0.12
Dividends from net investment
income (0.15) (0.35) (0.44) (0.45) (0.44) (0.35)
Distributions from capital gains -- (0.19) (0.83) -- (0.14) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 8.59 $ 8.62 $ 9.60 $ 9.17 $ 9.54 $ 9.37
======== ======== ======== ======== ======== ========
TOTAL RETURN 1.44% -4.83% 18.91% 0.80% 8.08% 5.21%
Ratios to Average Net Assets (a)
Net investment income 3.48% 3.73% 4.41% 4.75% 4.74% 4.87%
Total expenses (before waivers) 1.73% 1.68% 1.65% 1.40% 1.23% 1.66%
Waivers (b) 0.00% 0.00% 0.00% 0.00% 0.00% -0.16%
Net expenses 1.73% 1.68% 1.65% 1.40% 1.23% 1.50%
Net assets, end of period (000's) $ 60,158 $ 56,124 $ 78,350 $ 67,936 $ 71,294 $ 31,994
<CAPTION>
CLASS B CLASS C
-------------------------------------------------- ----------------------
5/1/99 Year Ended 4/30 9/3/97* 5/1/99 5/13/98*
to ---------------------- to to to
10/31/99 1999 1998 4/30/97 10/31/99 4/30/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.39 $ 10.41 $ 9.84 $ 10.00 $ 8.99 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.11 0.27 0.36 0.27 0.11 0.28
Net realized and unrealized
gain (loss) on investments (0.02) (0.83) 1.40 (0.16) (0.02) (0.82)
Dividends from net investment
income (0.11) (0.27) (0.36) (0.27) (0.11) (0.28)
Distributions from capital gains -- (0.19) (0.83) -- -- (0.19)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.37 $ 9.39 $ 10.41 $ 9.84 $ 8.97 $ 8.99
======== ======== ======== ======== ======== ========
TOTAL RETURN 0.98% -5.57% 18.16% 1.09% 1.05% -5.63%
Ratios to Average Net Assets (a)
Net investment income 2.28% 2.98% 3.41% 3.82% 2.44% 2.98%
Total expenses (before waivers) 2.48% 2.43% 2.66% 2.33% 2.48% 2.43%
Waivers (b) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net expenses 2.48% 2.43% 2.66% 2.33% 2.48% 2.43%
Net assets, end of period (000's) $ 1,290 $ 1,285 $ 280 $ 387 $ 68 $ 67
</TABLE>
* Commencement of operations.
# For the period July 1, 1994 to April 30, 1995 when fiscal year end changed.
(a) Ratios are annualized for periods of less than one year, except for the
total return ratio.
(b) Expenses waived reflect reductions to total expenses and would, similarly,
decrease the net investment income ratio for the period had such reductions
not occurred.
See accompanying notes to financial statements.
6
<PAGE>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
For a capital share outstanding throughout each period indicated:
U.S. GOVERNMENT INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
NO LOAD
--------------------------------------------------
5/1/99 Year Ended April 30, 10/10/96*
to ---------------------- to
10/31/99 1999 1998 4/30/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 10.10 $ 9.72 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.13 0.33 0.34 0.18
Net realized and unrealized gain (loss)
on investments (0.14) (0.21) 0.43 (0.19)
Dividends from net investment income (0.15) (0.33) (0.34) (0.18)
Distributions from capital gains -- (0.12) (0.05) (0.09)
NET ASSET VALUE, END OF PERIOD $ 9.61 $ 9.77 $ 10.10 $ 9.72
TOTAL RETURN -0.14% 1.13% 8.01% -0.12%
Ratios of Average Net Assets (a)
Net investment income 3.07% 3.15% 3.51% 3.23%
Total expenses (before waivers) 2.02% 1.66% 2.17% 2.48%
Waivers (b) 0.00% 0.00% 0.00% -0.01%
Net expenses 2.02% 1.66% 2.17% 2.47%
Net assets, end of period (000's) $ 3,917 $ 8,564 $ 2,722 $ 1,247
<CAPTION>
CLASS B
--------------------------------------------------
5/1/99 Year Ended April 30, 10/10/96*
to ---------------------- to
10/31/99 1999 1998 4/30/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.81 $ 10.12 $ 9.74 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.09 0.25 0.26 0.18
Net realized and unrealized gain (loss)
on investments (0.16) (0.19) 0.43 (0.15)
Dividends from net investment income (0.10) (0.25) (0.26) (0.17)
Distributions from capital gains -- (0.12) (0.05) (0.12)
NET ASSET VALUE, END OF PERIOD $ 9.64 $ 9.81 $ 10.12 $ 9.74
TOTAL RETURN -0.67% 0.58% 7.13% 0.32%
Ratios of Average Net Assets (a)
Net investment income 1.88% 2.40% 2.55% 2.64%
Total expenses (before waivers) 3.24% 2.41% 2.96% 3.20%
Waivers (b) 0.00% 0.00% 0.00% -0.02%
Net expenses 3.24% 2.41% 2.96% 3.18%
Net assets, end of period (000's) $ 1,027 $ 1,060 $ 442 $ 1,418
</TABLE>
* Commencement of operations.
(a) Ratios are annualized for periods of less than one year, except for the
total return ratio.
(b) Expenses waived reflect reductions to total expenses and would, similarly,
decrease the net investment income ratio for the period had such reductions
not occurred.
See accompanying notes to financial statements.
7
<PAGE>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
For a capital share outstanding throughout each period indicated:
U.S. GOVERNMENT SHORT TERM BOND FUND
<TABLE>
<CAPTION>
NO LOAD CLASS B
-------------------------------------------- --------------------------------------------
5/1/99 Year Ended 4/30 9/3/96* 5/1/99 Year Ended 4/30 11/7/96*
to -------------------- to to -------------------- to
10/31/99 1999 1998 04/30/97 10/31/99 1999 # 1998 # 04/30/97
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.09 $ 10.06 $ 9.98 $ 10.00 $ 9.91 $ 10.00 $ 9.96 $ 10.00
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations: 0.13
Net investment income 0.10 0.29 0.29 0.14 0.05 0.14 0.13
Net realized and unrealized gain
(loss) on investments (0.10) 0.19 0.08 (0.01) (0.10) 0.07 0.07 (0.03)
Dividends from net investment income (0.09) (0.33) (0.29) (0.14) (0.05) (0.18) (0.13) (0.13)
Distributions from capital gains -- (0.12) -- (0.01) -- (0.12) -- (0.01)
Liquidations from Capital -- -- -- -- -- -- (10.03) --
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.00 $ 10.09 $ 10.06 $ 9.98 $ 9.81 $ 9.91 $ 0.00 $ 9.96
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN 0.05% 4.79% 3.76% 1.25% -0.48% 2.11% 1.99% 1.05%
Ratios to Average Net Assets (a)
Net investment income 1.91% 3.15% 3.18% 2.58% 1.08% 2.40% 2.01% 1.96%
Total expenses (before waivers) 3.00% 1.73% 2.60% 5.18% 3.76% 2.48% 3.56% 6.01%
Waivers (b) 0.00% 0.00% -0.18% -2.15% 0.00% 0.00% 0.00% -2.16%
Net expenses 3.00% 1.73% 2.42% 3.03% 3.76% 2.48% 3.56% 3.85%
Net assets, end of period (000's) $ 1,393 $ 2,008 $ 1,868 $ 236 $ 106 $ 106 -- $ 177
<CAPTION>
CLASS C
--------------------------------------------
5/1/99 Year Ended 4/30 9/3/96*
to -------------------- to
10/31/99 1999 1998 04/30/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.98 $ 9.91 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.05 0.22 0.22 0.09
Net realized and unrealized gain
(loss) on investments (0.06) 0.18 0.07 (0.10)
Dividends from net investment income (0.05) (0.26) (0.22) (0.08)
Distributions from capital gains -- (0.12) -- --
Liquidations from Capital -- -- -- --
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.94 $ 10.00 $ 9.98 $ 9.91
======== ======== ======== ========
TOTAL RETURN -0.14% 4.01% 2.93% -0.07%
Ratios to Average Net Assets (a)
Net investment income 0.88% 2.40% 2.22% 1.74%
Total expenses (before waivers) 3.73% 2.48% 3.49% 5.55%
Waivers (b) 0.00% 0.00% -0.23% -2.02%
Net expenses 3.73% 2.48% 3.26% 3.53%
Net assets, end of period (000's) $ 24 $ 39 $ 158 $ 302
</TABLE>
* Commencement of operations.
# Class B ceased operations from December 20, 1998 through September 16,
1998.
(a) Ratios are annualized for periods of less than one year, except for the
total return ratio.
(b) Expenses waived reflect reductions to total expenses and would, similarly,
decrease the net investment income ratio for the period had such reductions
not occurred.
See accompanying notes to financial statements.
8
<PAGE>
PAUZE FUNDS October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Pauze Funds (the "Trust") is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Trust was organized as a Massachusetts business trust on October 15, 1993. There
are presently four series within the Trust: the Pauze U.S. Government Total
Return Bond Fund (the "Total Return Fund"), which commenced operations on
January 10, 1994; the Pauze U.S. Government Intermediate Term Bond Fund (the
"Intermediate Term Fund"), which commenced operations on September 3, 1996; the
Pauze U.S. Government Short Term Bond Fund (the "Short Term Fund"), which
commenced operations on September 3, 1996; and the Pauze Tombstone Fund, which
is not a subject of these financial statements. The three series included in
these financial statements are collectively referred to herein as the "Funds"
and individually as a "Fund".
Each Fund seeks to provide investors with a high total return (investment income
plus or minus realized and unrealized capital appreciation and depreciation)
consistent with preservation of capital and liquidity.
Shares of each Fund are issued in classes. No load shares and Class C shares are
sold and redeemed at net asset value without sales commission or redemption
fees. Class B shares are sold at net asset value and are subject to a maximum
3.75% contingent deferred sales charge on redemptions made within seven years of
purchase.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
SECURITY VALUATION. Fund securities (except securities with less than 60 days to
maturity and repurchase agreements) are valued at market prices based on an
independent pricing service, or, 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 are valued on the
amortized cost basis. 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.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Investment transactions are
accounted for on the trade date. Realized gains and losses from security
transactions are determined on the identified cost basis. Interest income is
recorded 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 hold, as
collateral for the repurchase agreement, underlying securities with a value of
at least 102% of the repurchase price. In the event of default or bankruptcy by
the other party a Fund has a right to the collateral, which may be subject to
legal proceedings, for satisfaction of the obligation.
9
<PAGE>
PAUZE FUNDS October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORGANIZATIONAL COSTS. Organizational costs incurred by the Trust were
capitalized and are being amortized ratably over a five-year period from
commencement of operations of the Fund. If the initial shares of a Fund are
redeemed during the amortization period, the redemption proceeds will be reduced
by any unamortized organization expenses.
INCOME AND EXPENSES. Each Fund bears expenses incurred specifically on its
behalf plus an allocation of its share of Trust level expenses. Trust expenses
are allocated based on the relative net assets of each Fund or on another
reasonable basis. Class specific expenses 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 to each class of shares based on the relative net assets of each
class.
FEDERAL INCOME TAXES. Each Fund intends to continue to qualify as regulated
investment companies 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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on ex-dividend date. The Funds generally pay dividends
monthly and capital gains distributions, if any, at least annually. The Funds
distribute tax basis earnings in accordance with the minimum distribution
requirements of the Internal Revenue Code, which may result in dividends or
distributions in excess of financial statement (book) earnings. Income dividends
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
3. INVESTMENT TRANSACTIONS
TOTAL RETURN FUND
For the six months ended October 31, 1999, the cost of purchases and proceeds
from sales/maturities of investments, excluding short-term investments, were
$341,120,081 and $343,559,069, respectively. All purchases and sales were U.S.
Government securities. At October 31, 1999, there was no unrealized appreciation
(depreciation) of investments and the cost of investments for federal income tax
purposes was $61,664,718.
INTERMEDIATE TERM FUND
For the six months ended October 31, 1999, the cost of purchases and proceeds
from sales/maturities of investments, excluding short-term investments, were
$50,716,641 and $50,598,438, respectively. All purchases and sales were U.S.
Government securities. At October 31, 1999, there was no unrealized appreciation
(depreciation) of investments and the cost of investments for Federal income tax
purposes was $4,960,493.
SHORT TERM FUND
For the six months ended October 31, 1999, the cost of purchases and proceeds
from sales/maturities of investments, excluding short-term investments, were
$204,250 and $1,385,547, respectively. All purchases and sales were U.S.
Government securities. At October 31, 1999, the gross and net unrealized
depreciation of investments for tax purposes was $1,429 and the cost of
investments for Federal income tax purposes was $1,509,483.
10
<PAGE>
PAUZE FUNDS October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Each class of shares in each Fund has an unlimited number of no par value shares
authorized. The following is a summary of capital share activity for the period
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
TOTAL RETURN FUND
- -----------------
NO LOAD CLASS
<S> <C> <C> <C> <C>
Shares sold 748,900 $ 6,450,860 811,609 $ 7,643,904
Shares reinvested 45,145 387,605 154,843 1,414,273
Shares redeemed (299,242) (2,555,042) (2,617,422) (25,041,204)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) 494,803 $ 4,283,423 (1,650,970) ($15,983,027)
============ ============ ============ ============
CLASS B
Shares sold 396 $ 3,712 193,172 $ 2,032,042
Shares reinvested 1,631 15,232 5,584 56,373
Shares redeemed (1,234) (11,450) (88,776) (944,612)
------------ ------------ ------------ ------------
NET INCREASE 793 $ 7,494 109,980 $ 1,143,803
============ ============ ============ ============
CLASS C
Shares sold -- $ -- 7,215 $ 70,761
Shares reinvested 95 850 236 2,251
Shares redeemed -- -- -- --
------------ ------------ ------------ ------------
NET INCREASE 95 $ 850 7,451 $ 73,012
============ ============ ============ ============
INTERMEDIATE TERM FUND
- ----------------------
NO LOAD CLASS
Shares sold 26,741 $ 260,681 642,136 $ 6,543,518
Shares reinvested 5,333 51,684 18,500 185,839
Shares redeemed (500,613) (4,850,194) (53,913) (543,229)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) (468,539) ($ 4,537,829) 606,723 $ 6,186,128
============ ============ ============ ============
CLASS B
Shares sold -- $ -- 67,215 $ 693,855
Shares reinvested 1,155 11,236 3,505 35,341
Shares redeemed (2,715) (26,200) (6,342) (64,746)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) (1,560) ($ 14,964) 64,378 $ 664,450
============ ============ ============ ============
</TABLE>
11
<PAGE>
PAUZE FUNDS October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
SHORT TERM FUND
- ---------------
NO LOAD CLASS
<S> <C> <C> <C> <C>
Shares sold 11,145 $ 110,932 697,901 $ 7,114,217
Shares reinvested 1,153 11,505 7,493 75,779
Shares redeemed (72,058) (724,631) (692,061) (7,038,390)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) (59,760) ($ 602,194) 13,333 $ 151,606
============ ============ ============ ============
CLASS B
Shares sold 64 $ 623 10,390 $ 103,896
Shares reinvested 57 563 316 3,144
Shares redeemed -- -- -- --
------------ ------------ ------------ ------------
NET INCREASE 121 $ 1,186 10,706 $ 107,040
============ ============ ============ ============
CLASS C
Shares sold -- $ -- -- $ --
Shares reinvested 12 116 286 2,863
Shares redeemed (1,517) (15,115) (12,223) (123,412)
------------ ------------ ------------ ------------
NET DECREASE (1,505) ($ 14,999) (11,937) ($ 120,549)
============ ============ ============ ============
</TABLE>
5. TRANSACTIONS WITH THE ADVISOR AND AFFILIATES
Pauze, Swanson & Associates Investment Advisors, Inc. d/b/a Pauze Swanson
Capital Management Co. (the "Advisor"), under an Advisory Agreement with the
Trust in effect through October 31, 2000, furnishes management and investment
advisory services and, subject to the supervision of the Trust's Board of
Trustees, directs the investments of the Trust in accordance with the individual
Fund's investment objectives, policies and limitations.
Total Return Fund pays a monthly management fee at the annual rate of 0.60% of
the average daily net assets 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 and Short Term Fund each pay a monthly
management fee at the annual rate of 0.50% of the average daily net assets.
12
<PAGE>
PAUZE FUNDS October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
5. TRANSACTIONS WITH THE ADVISOR AND AFFILIATES (CONTINUED)
Effective July 1, 1999, Champion Fund Services ("Champion"), an affiliate of the
Advisor, became the Administrator, Fund Accounting Agent and Transfer Agent for
the Trust under a two year contract. The annual fees of $145,000, $125,000 and
$90,000 plus $20 per shareholder account, respectively, and standard
out-of-pocket expenses are paid monthly and allocated to the four funds in the
Trust based on each fund's relative net assets. The Administrator is responsible
for financial reporting, compliance monitoring and corporate management. The
Fund Accounting Agent determines the net asset value per share of each Fund and
provides accounting services to the Trust. The Transfer Agent provides
shareholder services and is the dividend paying agent of the Trust. The fees to
Champion for the period ended October 31, 1999 were:
Total Return Intermediate Term Short Term
------------ ----------------- ----------
Administrative fees $40,410 $6,548 $1,222
Accounting service fees 34,836 5,645 1,053
Transfer agency fees 25,082 4,064 758
Such services were provided by another service company in May and June and the
Bond Funds' combined fees for that period were $64,468.
B. C. Ziegler and Company ("Distributor"), an indirect affiliate of the Advisor,
became the Trust agent in connection with the distribution of Fund shares
effective July 1, 1999. For the services provided, the Distributor receives an
annual fee of $30,000 from the Trust. The Bond Funds' share of this expense for
the period ended October 31, 1999 was $12,910.
Independent trustees each receive an annual fee of $11,000 from the Trust plus
$500 per meeting and out-of-pocket expenses. Certain employees of the Advisor
and Champion are trustees and officers of the Trust but receive no compensation
from the Trust.
The Trust has adopted a plan of distribution under Rule 12b-1 of the Investment
Company Act of 1940 for each Fund, with separate provisions for each class of
shares. The Advisor, for its distribution related services and expenses,
receives a 12b-1 fee at an annual rate of 0.25% of each Fund's average net
assets. Additionally, the Advisor receives a 12b-1 annual fee of 0.75% of the
average net assets of Class B shares as compensation for fees the Advisor paid
to broker-dealers. Class C shares pay an annual 12b-1 fee of 0.75% of their
average net assets directly to broker-dealers. All fees are paid monthly. Under
the plans, the Advisor bears all distribution expenses of the Funds in excess of
the 12b-1 fees, however, the fees received by the Advisor for any class of
shares during any year may be more or less than its distribution related costs.
13
<PAGE>
PAUZE FUNDS(TM)
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS ON OCTOBER 8, 1999
A special meeting of the Shareholders of the Pauze Funds(TM) was held on October
8, 1999.
The first matter voted upon was the election of Trustees. The results were as
follows:
Nominee Votes For Votes Against Abstaining
- ------- --------- ------------- ----------
Patricia S. Dobson 7,112,257.136 1,340.098 8,759
Philip C. Pauze 7,112,049.069 1,548.165 8,756
Robert J. Pierce 7,112,257.136 1,340.098 8,756
Gordon Anderson, Wayne Collins, and Paul Hilbert each continued their term of
office as director after the special meeting.
The next matter voted upon was the ratification of the selection of Tait, Weller
& Baker as independent accounts for the Trust for the fiscal year ending April
30, 2000. The Shareholders ratified the selection and the results of the voting
were as follows:
Fund Votes For Votes Against Abstaining
- ---- --------- ------------- ----------
Total Return Bond Fund 6,135,800.242 10,779.953 0
Intermediate Term Fund 741,122.248 0 0
Short Term Fund 101,454.671 0 4,255
14
