PAUZE FUNDS(TM)
Pauze Tombstone Fund(TM)
SEMI-ANNUAL REPORT
October 31, 1999
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. 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
18% are now owned by consolidators such as Service Corporation International,
the Loewen Group, Carriage Services, and Stewart Enterprises. Eager for more
market share, these companies have been aggressive purchasers of funeral and
cemetery properties. While purchases have slowed during the past months, 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. We expect to see these companies, and other North American companies
like them, dominate funeral service globally in the next two decades. 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.
As you know, the Pauze Tombstone Fund, based upon the Pauze Tombstone Common
Stock Index ("Index"), is composed of the common stock of public companies which
service the death care industry. During this reporting period year, there were
significant events that impacted the Net Asset Value of the shares of the Fund:
o Service Corporation International ("Service Corp"), the largest
funeral service company in the world, had earnings that disappointed
most investors. In the current market environment, disappointing
earnings will usually cause a dramatic sell-off of the shares of the
company and that is what happened in the case of Service Corp. Service
Corp is the largest component of the Index and generally the largest
holding of the Fund. Additionally, Service Corp has been the target of
numerous law suits stemming primarily from their takeover of Equity
Corporation International and from officers of the firm selling shares
of stock ahead of earnings announcements.
o The Loewen Group ("Loewen"), the second largest funeral service
company in the world, experienced severe financial difficulties. As a
result, the stock steadily declined in price. In June, Loewen filed
for Chapter 11 bankruptcy protection.
<PAGE>
o Stewart Enterprises also announced disappointing earnings during this
reporting period. As a result, the stock declined severely.
The decline in price of the shares of Service Corporation International, the
Loewen Group, and Stewart Enterprises, comprising more than fifty percent of the
Pauze Tombstone Common Stock Index(TM) and generally more than fifty percent of
the assets of the Fund, caused the net asset value of the shares of the Fund to
decline by all most fifty percent during this reporting period.
It is our opinion that the net asset value of the shares of the Pauze Tombstone
Fund(TM) will depend upon the quality of earnings of the major components of the
Pauze Tombstone Common Stock Index(TM).
Again, thank you for your trust and confidence in allowing us to serve your
investment needs.
Philip C. Pauze, President
<PAGE>
PAUZE TOMBSTONE FUND OCTOBER 31, 1999
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Value
------ ----------
COMMON STOCK - 27.54%
1,472 Carriage Services, Inc. * $ 10,028
506 Hillenbrand Industries, Inc 16,761
1,575 Matthews International Corporation, Class A 39,572
1,420 Neptune Society, Inc * 8,520
515 Rock of Ages Corporation * 3,283
2,300 Service Corporation International 21,994
4,509 Stewart Enterprises, Inc., Class A 21,418
8,693 The Loewen Group, Inc.* 3,531
1,045 The York Group, Inc. 3,919
----------
Total Common Stock - (Cost $567,136) 129,026
----------
OTHER INVESTMENTS - 5.70%
26,728 Firstar Treasury Fund (Cost $26,728) 26,728
----------
Total Investments (Cost $593,864) - 33.24% 155,754
Other Assets and Liabilities, net - 66.76% 312,869
----------
NET ASSETS - 100.00% $ 468,623
==========
* Non-incoming producing
See accompanying notes to financial statements.
3
<PAGE>
PAUZE TOMBSTONE FUND OCTOBER 31, 1999
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $593,864) $ 155,754
Cash 2,700
Receivables:
Capital shares sold 5,430
Investment sold 344,503
Dividends and interest 494
Due from affiliates 17,967
Organizational costs 9,962
-----------
Total assets 536,810
-----------
Liabilities:
Payables:
Payable fund shares purchased 64,170
Advisory fees 3,174
Accounts payable and accrued expenses 843
-----------
Total liabilities 68,187
-----------
NET ASSETS $ 468,623
===========
Net assets consist of:
Paid-in-capital $ 1,868,871
Accumulated deficit (11,085)
Accumulated net realized loss on investments (951,053)
Net unrealized depreciation of investments (438,110)
-----------
Net assets applicable to outstanding capital shares $ 468,623
===========
CLASS A:
Net assets $ 218,279
===========
Shares outstanding, no par value, unlimited shares authorized 78,256
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 2.79
===========
Offering price per share (Net asset value / 96.25%) $ 2.90
===========
CLASS B:
Net assets $ 250,344
===========
Shares outstanding, no par value, unlimited shares authorized 91,419
===========
NET ASSET VALUE, OFFERING PRICE PER SHARE $ 2.74
===========
Minimum redemption price per share (Net asset value X 96.25%) $ 2.64
===========
See accompanying notes to financial statements.
4
<PAGE>
PAUZE TOMBSTONE FUND FOR THE SIX MONTHS ENDED OCTOBER 31, 1999
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Investment income:
Dividend income $ 6,068
Interest income 5,739
----------
Total income 11,807
----------
Expenses:
Investment advisory fees 1,503
Administrative fees 1,201
Distribution fees- Class A 493
Distribution fees- Class B 1,984
Accounting service fees 1,026
Transfer agent fees 508
Registration fees 5,028
Shareholder reporting 1,760
Custodian fees 1,659
Auditing fees 2,011
Legal fees 587
Trustees' fees and expenses 414
Amortization of organization expense 2,004
Miscellaneous 2,714
----------
Total expenses 22,892
----------
NET INVESTMENT LOSS (11,085)
----------
Net realized and unrealized loss on investments:
Net realized loss (300,281)
Net unrealized depreciation (127,088)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (427,369)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($ 438,454)
==========
See accompanying notes to financial statements.
5
<PAGE>
PAUZE TOMBSTONE FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
Six Months Year
Ended Ended
INCREASE (DECREASE) IN NET ASSETS October 31, 1999 April 30, 1999
---------------- --------------
From operations:
Net investment loss ($ 11,085) ($ 19,103)
Net realized loss (300,281) (341,054)
Net unrealized depreciation (127,088) (815,278)
----------- -----------
Net increase (decrease) in net assets
from operations (438,454) (1,175,435)
----------- -----------
Distributions to shareholders from:
Net realized gains
Class A -- (162,910)
Class B -- (143,077)
----------- -----------
-- (305,987)
----------- -----------
Capital share transactions - net (Note 4) (185,861) (2,320,562)
----------- -----------
Net decrease in net assets (624,315) (3,801,984)
Net assets at beginning of period 1,092,938 4,894,922
----------- -----------
NET ASSETS AT END OF PERIOD $ 468,623 $ 1,092,938
=========== ===========
Including accumulated deficit of: ($ 11,085) --
=========== ===========
See accompanying notes to financial statements.
6
<PAGE>
PAUZE TOMBSTONE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
For a capital share outstanding throughout each period indicated:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ ------------------------------------
5/1/99 to Year Ended April 30, 5/1/99 to Year Ended April 30,
---------------------- ----------------------
10/31/99 1999 1998 * 10/31/99 1999 1998 *
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 5.14 $ 10.71 $ 10.00 $ 5.03 $ 10.64 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (0.07) (0.03) (0.16) (0.06) (0.15) (0.22)
Net realized and unrealized gain (loss)
on investments (2.28) (3.95) 0.87 (2.23) (3.87) 0.86
-------- -------- -------- -------- -------- --------
Total from investment operations (2.35) (3.98) 0.71 (2.29) (4.02) 0.64
-------- -------- -------- -------- -------- --------
Distributions from net realized gains -- (1.59) -- -- (1.59) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 2.79 $ 5.14 $ 10.71 $ 2.74 $ 5.03 $ 10.64
======== ======== ======== ======== ======== ========
Total return (45.72)% (43.02)% 7.20% (45.53)% (43.76)% 6.49%
Ratios to Average Net Assets (a)
Net investment loss -2.66% -0.30% -2.08% -3.02% -1.05% -2.86%
Total expenses (before waivers) 2.80% 2.06% 3.51% 3.07% 2.81% 4.25%
Waivers (b) 0.00% 0.00% -0.15% 0.00% 0.00% -0.15%
Net expenses 5.60% 2.06% 3.36% 6.13% 2.81% 4.10%
Portfolio turnover rate 166% 278% 124% 166% 278% 124%
Net assets, end of period (000's) $ 218 $ 569 $ 1,419 $ 250 $ 524 $ 3,476
</TABLE>
* Commencement of operations on May 6, 1997.
(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 TOMBSTONE FUND(TM) October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Pauze Tombstone Fund TM (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 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.
The investment objective of the Fund is to provide shareholders with long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in all or a representative group of equity securities comprising the
Pauze Tombstone Common Stock Index TM, 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. As a
non-diversified fund, the Fund 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 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. Securities which are traded on an exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price or at its last
bid price if no last sale price is available. Short-term investments with
maturities of 60 days or less at the time of purchase are valued on the
amortized cost basis. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. If market
quotations are not readily available, or the Advisor determines the last bid
price does not accurately reflect the current value or if a security is
restricted, the value is determined in good faith by the Advisor, subject to
review by the Board of Trustees of the Trust.
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.
8
<PAGE>
PAUZE TOMBSTONE FUND(TM) October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 including accrued interest. 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.
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 the Fund are
redeemed during the amortization period, the redemption proceeds will be reduced
by any unamortized organization expenses.
INCOME AND EXPENSES. The 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. The Fund intends 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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on ex-dividend date. The Fund's policy is to pay
dividends, if any, 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 October 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $1,081,177 and
$866,822, respectively. At October 31, 1999, the net unrealized depreciation of
investments for tax purposes was $311,022 composed of gross unrealized
appreciation of $6,056 and gross unrealized depreciation of $444,166. The cost
of investments for federal income tax purposes at October 31, 1999 was $593,864.
9
<PAGE>
PAUZE TOMBSTONE FUND(TM) October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
4. CAPITAL SHARES TRANSACTIONS
Each class of shares has an unlimited number of no par value shares authorized.
The following is a summary of capital share activity for the period indicated.
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
---------------- --------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
CLASS A
- -------
Shares sold 2,720 $ 10,012 13,785 $ 92,092
Shares reinvested -- -- 19,689 162,910
Shares redeemed (35,204) (146,930) (55,219) (441,205)
----------- ----------- ----------- -----------
Net decrease (32,484) ($ 136,918) (21,745) ($ 186,203)
=========== =========== =========== ===========
CLASS B
- -------
Shares sold 1,779 $ 6,615 4,139 $ 41,545
Shares reinvested -- -- 16,732 143,077
Shares redeemed (14,585) (55,558) (243,176) (2,318,981)
----------- ----------- ----------- -----------
Net decrease (12,806) ($ 48,943) (222,305) ($2,134,359)
=========== =========== =========== ===========
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 Investment Advisory Agreement
with the Trust in effect through October 31, 2000, furnishes management and
investment advisory services to the Fund. The Fund pays a monthly management fee
at the annual rate of 0.38% of its average net assets.
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 $684 for Administration,
$590 for Accounting services and $425 for Transfer Agency. Such services were
provided by another service company in May and June and the combined fees for
that period were $988.
10
<PAGE>
PAUZE TOMBSTONE FUND(TM) October 31, 1999
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
5. TRANSACTIONS WITH THE ADVISOR AND AFFILIATES (CONTINUED)
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 Fund's share of this expense for the
period ended October 31, 1999 was $184. The Distributor received commissions of
$263 on sales of Class A shares of the Fund. Additionally, B.C. Ziegler, acting
as a broker for purchases and sales of Fund investments received commissions of
$3,974.
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 the 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 the 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. All fees are paid monthly. Under the plan, the Advisor bears
all distribution expenses of the Fund 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.
11
<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
- ---- --------- ------------- ----------
Tombstone Fund 119,493.178 1,010.148 8,437.794
