SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 14 X
(Check appropriate box or boxes)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 14 X
PAUZE FUNDS - File Nos. 33-71562 and 811-8148
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(Exact Name of Registrant as Specified in Charter)
14340 Torrey Chase Blvd., Ste. 170, Houston, Texas 77014
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (281) 444-6012
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Philip C. Pauze, President, Pauze Funds, 14340 Torrey Chase Blvd.
Ste. 170, Houston, Texas 77014
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(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:
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 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.
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PROSPECTUS
[LOGO]
PAUZE
FUNDS(TM)
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PAUZE U.S. GOVERNMENT TOTAL RETURN
BOND FUND(TM)
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PAUZE U.S. GOVERNMENT
INTERMEDIATE TERM BOND FUND(TM)
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PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND(TM)
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NO LOAD SHARES
For Information, Shareholder Services and Requests
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
1-800-327-7170
[LOGO]
As with all mutual funds, the Securities and Exchange Commission has not
determined that the information in this prospectus is accurate or complete, nor
has it approved or disapproved of the Funds' shares. It is a criminal offense to
state otherwise.
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September __, 1999
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TABLE OF CONTENTS
ABOUT THE FUNDS.............................................................
HOW THE FUNDS HAVE PERFORMED................................................
COSTS OF INVESTING IN THE FUNDS.............................................
HOW TO PURCHASE SHARES......................................................
HOW TO EXCHANGE SHARES......................................................
HOW TO REDEEM SHARES........................................................
MANAGEMENT OF THE FUNDS.....................................................
SHAREHOLDER SERVICES........................................................
HOW SHARES ARE VALUED.......................................................
DISTRIBUTIONS AND TAXES.....................................................
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS..................
YEAR 2000 ISSUE.............................................................
FINANCIAL HIGHLIGHTS........................................................
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ABOUT THE FUNDS
INVESTMENT OBJECTIVE
Pauze Funds(TM) offers investors three fixed income funds: the Pauze U.S.
Government Total Return Bond Fund(TM), the Pauze U.S. Government Short Term Bond
Fund(TM) and the Pauze U.S. Government Intermediate Term Bond Fund(TM) The
investment objective of each Fund is 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. 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.
PRINCIPAL STRATEGIES
The TOTAL RETURN BOND FUND invests exclusively in U. S. government debt
securities. These securities may be issued by the U. S. government, or by an
agency of the U. S. government. The Fund invests in debt securities of varying
maturities, based upon the Fund's advisor's perception of market conditions,
with no stipulated average maturity or duration.
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The Fund's advisor seeks above average total return by restructuring the
average duration of the Fund's portfolio securities to take advantage of
anticipated changes in interest rates. Duration is the weighted average life of
a fund's debt instruments measured on a present value basis The advisor uses
extensive fundamental and technical analysis to formulate interest rate
forecasts. 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.
The INTERMEDIATE TERM BOND FUND invests exclusively in U. S. government
debt securities. These securities may be issued by the U. S. government.or by an
agency of the U. S. government. The Fund's advisor will restructure the average
duration of the Fund's portfolio to take advantage of anticipated changes in
interest rates, but will maintain the weighted average maturity of the Fund's
portfolio between three and ten years.
The SHORT TERM BOND FUND invests exclusively in U. S. government debt
securities. These securities may be issued by the U. S. government, or by an
agency of the U. S. government. The Fund's advisor will restructure the average
duration of the Fund's portfolio to take advantage of anticipated changes in
interest rates, but will maintain the weighted average maturity of the Fund's
portfolio between one and three years.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
INTEREST RATE RISK. The value of your investment may decrease when interest
rates rise. Because a portfolio with a longer duration is impacted by interest
rate changes more than one with a shorter duration, the Total Return Bond Fund
will be more volatile than the Intermediate Term Bond Fund, and the Long Term
Bond Fund will be more volatile than the Short Term Bond Fund
CREDIT RISK. The issuer of the fixed income security (U.S. government agencies)
may not be able to make interest and principal payments when due.
GOVERNMENT RISK. It is possible that the U.S. Government would not provide
financial support to its agencies or instrumentalities if it is not required to
do so by law. If a U.S. Government agency or instrumentality in which the Fund
invests defaults and the U.S. Government does not stand behind the obligation,
the Fund's share price or yield could fall.
The United States Government's guarantee of ultimate payment of principal and
timely payment of interest of the United States Government securities owned by a
Fund does not imply that the Fund's shares are guaranteed or that the price of
the Fund's shares will not fluctuate.
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MANAGEMENT RISK. Each Fund's success at achieving its investment objective is
dependent upon the Fund's advisor correctly forecasting future changes in
interest rates. 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.
As with any mutual fund investment, each Fund's returns will vary and you could
lose money.
IS THIS FUND RIGHT FOR YOU?
The Funds may be a suitable investment for:
o long term investors seeking a fund with an income and capital preservation
strategy
o investors seeking to diversify their holdings with bonds and other fixed
income securities
o investors willing to accept price fluctuations in their investments.
HOW THE FUNDS HAVE PERFORMED
The charts and tables below show the variability of each Fund's returns,
which is one indicator of the risks of investing in the Fund. The bar charts
show changes in each Fund's returns from year to year since the Fund's
inception. The tables show how each Fund's average annual total returns over
time compare to those of a broad-based securities market index. Of course, each
Fund's past performance is not necessarily an indication of its future
performance.
[Insert bar chart with the following data:]
Annual Total Returns as of December 31, of each year
Total Return Bond Fund Short TermBond Fund Intermediate Term Bond Fund
1995............_____% 1997 _____% 1997 _____%
1996............_____% 1998 _____% 1998 _____%
1997............_____%
1998............_____%
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AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING 12/31/98:
1 Year Since Inception
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Total Return Bond Fund _____% _____%*
Lehman Government Bond Index _____% _____%
Intermediate Term Bond Fund _____% _____%**
Lehman U.S. Treas. Intermediate Index _____% _____%
Short Term Bond Fund _____% _____%***
Lehman 1-3 Government Index _____% _____%
* January 10, 1996 **October 10, 1996
***September 30, 1996
Each Fund's year-to-date return as of April 30, 1999 was as follows:
Total Return Bond Fund _____%
Intermediate Term Bond Fund _____%
Short Term Bond Fund _____%
For the Total Return Bond Fund, the highest return during the periods shown
for a calendar quarter was ______% in the ______ quarter of 199_, and the lowest
return was _____% for the _____ quarter of 199_.
For the Intermediate Term Bond Fund, the highest return during the periods
shown for a calendar quarter was ______% in the ______ quarter of 199_, and the
lowest return was _____% for the _____ quarter of 199_.
For the Short Term Bond Fund, the highest return during the periods shown
for a calendar quarter was ______% in the ______ quarter of 199_, and the lowest
return was _____% for the _____ quarter of 199_.
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COSTS OF INVESTING IN THE FUNDS
The following table describes the expenses and fees that you may pay if you
buy and hold shares of a Fund.[Update]
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Account Closing Fee (does not apply to exchanges) $10
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Total Return Intermediate Short Term
Bond Fund Term Bond Fund Bond Fund
--------- -------------- ---------
Management Fees ____% ____% ____%
Distribution (12b-1) Fees 0.25% 0.25% 0.25%
Other Expenses ____% ____% ____%
Total Annual Fund
Operating Expenses ____% ____% ____%
EXAMPLE:
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The example below is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, 5% annual total return, reinvested dividends and
distributions, constant operating expenses, and sale of all shares at the end of
each time period. Although your actual expenses may be different, based on these
assumptions your costs would be:
Total Return Fund Intermediate Term Fund Short Term Fund
----------------- ---------------------- ---------------
1 year
3 years
5 years
10 years
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HOW TO PURCHASE SHARES
The minimum initial investment is $25,000 and minimum subsequent investment
is $50, $30 per month per account for persons enrolled in an automatic
investment plan.
BY MAIL: You may purchase shares of the Funds by completing and signing the
investment application form which accompanies this Prospectus and mailing it it,
in proper form, together with a check made payable to the appropriate Fund, to
the address listed below.
PAUZE FUNDS
c/o Champion Fund Services
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
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 Fund 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. 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 Funds' administrator or their agents.
If your telephone order to purchase shares is canceled due to nonpayment
(whether or not your check has been processed by the Funds), you will be
responsible for any loss incurred by the Fund because of such cancellation.
BY WIRE: You may make your initial or subsequent investments in the Funds
by wire transfer. To do so, call the Funds 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 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 Funds for purchases of $1,000 or more. A $10 wire
fee will be charged by the Funds on wire purchases of less than $1,000. Your
bank also may charge wire fees for this service.
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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. You may automatically
invest as little as $30 a month, beginning within thirty (30) days after your
account is opened. Ask 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 fifteen business days before the change is
to become effective.
ADDITIONAL INFORMATION ABOUT PURCHASES
All purchases of shares are subject to acceptance by the Funds and are not
binding until accepted. the Funds. The Funds reserve 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 Funds' prospectuses. However, investors may purchase and sell
shares through registered broker-dealers who may charge additional fees for
their services.
If checks are returned unpaid due to nonsufficient funds, stop payment or
other reasons, the Fund will charge $20 and you will be responsible for any loss
incurred by the Fund with respect to canceling the purchase. To recover any such
loss or charge, the Funds reserve 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 Fund for collection procedures will be deducted from the
amount invested.
Distribution (12b-1) Fees
Each Fund has adopted a plan under Rule 12b-1 that allows the Fund to pay
distribution and other fees for the sale and distribution of its shares. Each
plan provides that the applicable Fund will pay a 12b-1 fee at an annual rate of
0.25% of the Fund's average net assets to the advisor for its distribution
related services and expenses. Under the plans, the Advisor bears all
distribution expenses of the Funds in excess of the 12b-1 fees. The fees
received by the Advisor for any class of shares during any year may be more or
less than its costs for distribution related services provided to the class of
shares. Because the distribution fees are paid out of each Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
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HOW TO EXCHANGE SHARES
You may exchange 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 Funds 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 Funds and/or the 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 Funds and/or thes 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 Funds may 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 Funds may 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 this 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.
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HOW TO REDEEM SHARES
You may redeem any or all of your shares at any time. Each Fund redeems
shares at the net asset value next determined after it has received 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:
PAUZE FUNDS
c/o Champion Fund Services
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
To be in "proper order" each Fund requires:
(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" below);
and
(3) such additional documents as are customarily required for persons
making 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: You may redeem shares by telephone, provided you have
completed the Telephone Redemption Authorization section of the purchase
application. Upon proper authorization and instruction, the Funds will wire
redemptions (for a separate bank wire charge) to the bank account identified on
the account registration or, for amounts of $15,000 or less, will mail
redemptions to the address on the account registration. In connection with
telephone redemptions, neither the Funds nor the transfer agent will be
responsible for acting upon any instructions reasonably believed by them to be
genuine. The Funds and/or the 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 Funds or the
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 Funds at
1-800-327-7170.
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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 Funds at 1-800-327-7170 to determine whether the guarantor is eligible.
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 Funds may 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, which may take up to seven days. 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 Funds to transmit redemption proceeds by
wire provided you send written instructions with a signature guarantee at the
time of redemption. Proceeds from your redemption will usually be transmitted on
the first business day following the redemption. However, the Funds may 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) 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.
(2) 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.
(3) Each Fund may redeem existing accounts and refuse a potential account
the privilege of having an account in the Fund if the Fund reasonably determines
that the failure to do so would have a material adverse consequence to the Fund
and its shareholders.
(4) Excessive short term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Funds may refuse
investments from shareholders who engage in short term trading.
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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 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 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 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 Fund's administrator or its agents or affiliates will not be
subject to the small account charge.
In order to reduce expenses, each Fund may redeem all of the shares in any
shareholder account, other than an active automatic investment plan, UGMA/UTMA
and retirement plan account, 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.
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MANAGEMENT OF THE FUNDS
Pauze, Swanson & Associates Investment Advisors Inc. d/b/a Pauze Swanson
Capital Management Co.(TM), 14340 Torrey Chase Blvd., Suite 170, Houston, Texas
77014, the Funds' advisor, is a Texas corporation which was registered with the
Securities and Exchange Commission as an investment 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 the Total Return and
Short Term Fund's portfolio. He has managed the Total Return Fund since
commencement of operations in January 1994 and the Short Term Fund 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. Philip 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. Philip 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.
Since October 1998, Mr. Stephen P. Pauze, Assistant Vice President of the
advisor, has been responsible for the day-to-day management of the Intermediate
Term Fund's portfolio. Mr. Stephen Pauze has a degree in Financial Planning and
served as broker-dealer wholesaler and an account executive for the advisor in
the Mid-Central and Southeast Regions of the United States from June 1997 to
October 1998. From April 1996 to June 1997, Mr. Stephen Pauze was a supervisor
at Roadway Express, Inc.
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 For these services, the
advisor received $______ from the Total Return Fund, $______ from the
Intermediate Term Fund, an $______ from the Short Term Fund for the fiscal year
ended April 30, 1999.
SHAREHOLDER SERVICES
Each Fund 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.
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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 by calling 1-800-327-7170.
HOW SHARES ARE VALUED
The price you pay for your shares is based on the applicable Fund's net
asset value per share (NAV). The NAV is calculated at the close of trading
(normally 4:00 p.m. Eastern time) on each day the New York Stock Exchange is
open for business (the Stock Exchange is closed on weekends, Federal holidays
and Good Friday). The NAV is calculated by dividing the value of the Fund's
total assets (including interest and dividends accrued but not yet received)
minus liabilities (including accrued expenses) by the total number of shares
outstanding.
Each Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
DISTRIBUTIONS AND TAXES
As a shareholder of a Fund, you are entitled to your share of the Fund's
distributed net income and any net gains realized on its investments. Dividend
and capital gains distributions will have tax consequences you should know
about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income as DIVIDENDS to its shareholders at the end of each month. Short-term
capital gains are distributed at the end of the calendar year and are included
in net investment income. Each 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. Each 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. The Fund expects that its distributions will consist primarily of
_____________.
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 you reinvest the
distribution, the total value of your account will not change.
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REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the applicable Fund, unless:
o you request the Fund in writing or by phone to pay dividend and/or
capital gain 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.]
If your distribution check is returned as undeliverable, or not cashed
after 180 days, we will reinvest the check 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. 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.
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.
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.
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: This is a brief 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.
14
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS
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, 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.
FUTURES CONTRACTS AND OPTIONS
The Short Term Fund and the Intermediate Term Fund 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 the hedging purposes only. The Funds will not buy call options or sell
put options.
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.
15
<PAGE>
OBJECTIVE NOT FUNDAMENTAL
The investment objective of each Fund is not fundamental, and may be
changed by the Board of Trustees without shareholder approval. Any such change
may result in a Fund having an investment objective different from what the
shareholder considered appropriate at the time of investment in the Fund.
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.
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 Fund's
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.
16
<PAGE>
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, the Fund will 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
of delivery of 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.
YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Funds' advisor or the Funds' various service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Issue."
The advisor has taken steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to computer systems that are used and
to obtain reasonable assurances that comparable steps are being taken by the
Funds' major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Funds. In
addition, the advisor cannot make any assurances that the Year 2000 Issue will
not affect the companies in which the Funds invest or worldwide markets and
economies.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The following condensed financial information for the year ended April 30,
1999 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 1999 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. [TO BE SUPPLIED BY SUBSEQUENT AMENDMENT]
[insert list of service providers]
18
<PAGE>
PAUZE FUNDS(TM)
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this Prospectus,
contains detailed information on Fund policies and operation. Shareholder
reports contain management's discussion of market conditions, investment
strategies and performance results as of the Funds' latest semi-annual or annual
fiscal year end.
Call the Funds at 800-327-7170 to request free copies of the SAI and the
Funds' annual and semi-annual reports, to request other information about the
Fund and to make shareholder inquiries.
You may also obtain information about the Funds (including the SAI and
other reports) from the Securities and Exchange Commission on their Internet
site at http://www.sec.gov or at their Public Reference Room in Washington, D.C.
Call the SEC at 800-SEC-0330 for room hours and operation. You may also obtain
Fund information by sending a written request and duplicating fee to the Public
Reference Section of the SEC, Washington, D.C. 20549-6609.
Investment Company Act # 811-08148
19
<PAGE>
PROSPECTUS
[LOGO]
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)
- --------------------------------------------------------------------------------
LOAD SHARES
For Information, Shareholder Services and Requests
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
1-800-327-7170
[LOGO]
As with all mutual funds, the Securities and Exchange Commission has not
determined that the information in this prospectus is accurate or complete, nor
has it approved or disapproved of the Funds' shares. It is a criminal offense to
state otherwise.
- --------------------------------------------------------------------------------
September __, 1999
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUNDS...........................................................
HOW THE FUNDS HAVE PERFORMED..............................................
COSTS OF INVESTING IN THE FUNDS...........................................
HOW TO PURCHASE SHARES....................................................
ALTERNATIVE PURCHASE PLANS................................................
HOW TO EXCHANGE SHARES....................................................
HOW TO REDEEM SHARES......................................................
MANAGEMENT OF THE FUNDS...................................................
SHAREHOLDER SERVICES......................................................
HOW SHARES ARE VALUED.....................................................
DISTRIBUTIONS AND TAXES...................................................
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS................
YEAR 2000 ISSUE...........................................................
FINANCIAL HIGHLIGHTS......................................................
<PAGE>
ABOUT THE FUNDS
INVESTMENT OBJECTIVE
Pauze Funds(TM) offers investors three fixed income funds: the Pauze U.S.
Government Total Return Bond Fund(TM), the Pauze U.S. Government Short Term Bond
Fund(TM) and the Pauze U.S. Government Intermediate Term Bond Fund(TM) The
investment objective of each Fund is 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. 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.
PRINCIPAL STRATEGIES
The TOTAL RETURN BOND FUND invests exclusively in U. S. government debt
securities. These securities may be issued by the U. S. government, or by an
agency of the U. S. government. The Fund invests in debt securities of varying
maturities, based upon the Fund's advisor's perception of market conditions,
with no stipulated average maturity or duration.
The Fund's advisor seeks above average total return by restructuring the
average duration of the Fund's portfolio securities to take advantage of
anticipated changes in interest rates. Duration is the weighted average life of
a fund's debt instruments measured on a present value basis The advisor uses
extensive fundamental and technical analysis to formulate interest rate
forecasts. 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.
The INTERMEDIATE TERM BOND FUND invests exclusively in U. S. government
debt securities. These securities may be issued by the U. S. government.or by an
agency of the U. S. government. The Fund's advisor will restructure the average
duration of the Fund's portfolio to take advantage of anticipated changes in
interest rates, but will maintain the weighted average maturity of the Fund's
portfolio between three and ten years.
The SHORT TERM BOND FUND invests exclusively in U. S. government debt
securities. These securities may be issued by the U. S. government, or by an
agency of the U. S. government. The Fund's advisor will restructure the average
duration of the Fund's portfolio to take advantage of anticipated changes in
interest rates, but will maintain the weighted average maturity of the Fund's
portfolio between one and three years.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
INTEREST RATE RISK. The value of your investment may decrease when interest
rates rise. Because a portfolio with a longer duration is impacted by interest
rate changes more than one with a shorter duration, the Total Return Bond Fund
will be more volatile than the Intermediate Term Bond Fund, and the Long Term
Bond Fund will be more volatile than the Short Term Bond Fund
CREDIT RISK. The issuer of the fixed income security (U.S. government agencies)
may not be able to make interest and principal payments when due.
1
<PAGE>
GOVERNMENT RISK. It is possible that the U.S. Government would not provide
financial support to its agencies or instrumentalities if it is not required to
do so by law. If a U.S. Government agency or instrumentality in which the Fund
invests defaults and the U.S. Government does not stand behind the obligation,
the Fund's share price or yield could fall.
The United States Government's guarantee of ultimate payment of principal and
timely payment of interest of the United States Government securities owned by a
Fund does not imply that the Fund's shares are guaranteed or that the price of
the Fund's shares will not fluctuate.
MANAGEMENT RISK. Each Fund's success at achieving its investment objective is
dependent upon the Fund's advisor correctly forecasting future changes in
interest rates. 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.
As with any mutual fund investment, each Fund's returns will vary and you could
lose money.
IS THIS FUND RIGHT FOR YOU?
The Funds may be a suitable investment for:
o long term investors seeking a fund with an income and capital preservation
strategy
o investors seeking to diversify their holdings with bonds and other fixed
income securities
o investors willing to accept price fluctuations in their investments.
HOW THE FUNDS HAVE PERFORMED
The charts and tables below show the variability of each Fund's returns,
which is one indicator of the risks of investing in the Fund. The bar charts
show changes in each Fund's returns from year to year since the Fund's
inception. Sales loads are not reflected in the bar chart and, if these amounts
were reflected, returns would be less than those shown. The tables show how each
Fund's average annual total returns over time compare to those of a broad-based
securities market index. Of course, each Fund's past performance is not
necessarily an indication of its future performance.
[Insert bar chart with the following data:]
Annual Total Returns as of December 31, of each year
Total Return Bond Fund - Class B Short Term Bond Fund - Class C
1997.................._____% 1997 _____%
1998.................._____% 1998 _____%
Intermediate Term Bond Fund - Class B
1997.................._____%
1998.................._____%
2
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING 12/31/98:
1 Year Since
------ Inception
---------
Total Return Bond Fund - Class B _____% _____%*
Lehman Government Bond Index _____% _____%
Intermediate Term Bond Fund - Class B _____% _____%*
Lehman U.S. Treas. Intermediate Index _____% _____%
Short Term Bond Fund - Class C _____% _____%**
Lehman 1-3 Government Index _____% _____%
*September 3, 1996
**November 7, 1996
Each Fund's year-to-date return as of April 30, 1999 was as follows:
Total Return Bond Fund - Class B _____%
Intermediate Term Bond Fund - Class B _____%
Short Term Bond Fund - Class C _____%
For the Total Return Bond Fund (Class B), the highest return during the
periods shown for a calendar quarter was ______% in the ______ quarter of 199_,
and the lowest return was _____% for the _____ quarter of 199_.
For the Intermediate Term Bond Fund (Class B), the highest return during
the periods shown for a calendar quarter was ______% in the ______ quarter of
199_, and the lowest return was _____% for the _____ quarter of 199_.
For the Short Term Bond Fund (Class C), the highest return during the
periods shown for a calendar quarter was ______% in the ______ quarter of 199_,
and the lowest return was _____% for the _____ quarter of 199_.
COSTS OF INVESTING IN THE FUNDS
The following table describes the expenses and fees that you may pay if you
buy and hold shares of a Fund.[Update]
<TABLE>
<CAPTION>
Total Return Bond Fund
----------------------
Class B Class C
<S> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Load Imposed on Purchases None None
Sales Load Imposed on Redemptions(1) 3.75% None
Account Closing Fee (does not apply to exchanges) $ 10 $ 10
Exchange fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees .60% .60%
12b-1 Fees 1.00%(2 )1.00%
Other Expenses 1.06% 1.06%
Total Fund Operating Expenses 2.66% 2.66%
3
<PAGE>
Intermediate Term Bond Fund
---------------------------
Class B Class C
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Load Imposed on Purchases None None
Sales Load Imposed on Redemptions(1) 3.75% None
Account Closing Fee (does not apply to exchanges) $ 10 $ 10
Exchange fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees .50% .50%
12b-1 Fees 1.00%(2) 1.00%
Other Expenses 1.46% 1.46%
Total Fund Operating Expenses 2.96% 2.96%
Short Term Bond Fund
--------------------
Class B Class C
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Load Imposed on Purchases None None
Sales Load Imposed on Redemptions(1) 3.75% None
Account Closing Fee (does not apply to exchanges) $ 10 $ 10
Exchange fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees .50% .50%
12b-1 Fees 1.00%(2) 1.00%
Other Expenses 2.06% 1.76%
Total Fund Operating Expenses 3.56% 3.26%
</TABLE>
EXAMPLE:
- --------
The example below is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, 5% annual total return, reinvested dividends and
distributions, constant operating expenses, and sale of all shares at the end of
each time period. Although your actual expenses may be different, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Total Return Fund
- -----------------
Class B
if you sold your shares
at the end of the period $____ $____ $____ $____
if you stayed in the Fund $____ $____ $____ $____
Class C $____ $____ $____ $____
Intermediate Term Fund
- ----------------------
Class B
if you sold your shares
at the end of the period $____ $____ $____ $_____
if you stayed in the Fund $____ $____ $____ $____
Class C $____ $____ $____ $____
4
<PAGE>
Short Term Fund
- ---------------
Class B
if you sold your shares
at the end of the period $____ $____ $____ $____
if you stayed in the Fund $____ $____ $____ $____
Class C $____ $____ $____ $____
(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 over the period of seven years, to zero, and the Class B shares
convert to no-load shares at that time. See "Alternative Purchase Plans."
(2) Class B shares convert to no-load shares which pay 12b-1 fees of 0.25%, not
1.00%.
HOW TO PURCHASE SHARES
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.
You may purchase shares 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 are 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 Funds' 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 share price. Otherwise, your purchase will be
processed the next business day, and you will pay the next day's share price.
You may also invest in the following ways:
BY MAIL: Send your application and check or money order, made payable to
the appropriate Fund to:
Pauze Funds
c/o Firstar Bank
P.O. Box 641367
Cincinnati, Ohio 45264-1367
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.
5
<PAGE>
BY TELEPHONE: Once your account is open, you may make investments by
telephone by calling 1-800-327-7170. 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 Funds' administrator or their agents.
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 because of such cancellation.
BY WIRE: You may make your initial or subsequent investments in the Funds
by wiring funds. To do so, call the Funds at 1-800-327-7170 for a confirmation
number and wiring instructions.
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 indicated in "By Mail" above after completing your wire arrangement.
Note: Federal funds wire purchase orders will be accepted only when the Funds
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 Funds for purchases of $1,000 or more. A $10 wire
fee will be charged by the Funds 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 the Funds to regularly draw on your bank account. You may
automatically invest as little as $30 a month beginning within thirty (30) days
after your account is opened. Ask 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 fifteen business days before the change is
to become effective.
ADDITIONAL INFORMATION ABOUT PURCHASES
All purchases of shares are subject to acceptance by the Funds 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 Funds' prospectuses. However, investors may purchase and sell
shares through registered broker-dealers who may charge additional fees for
their services.
If checks are returned unpaid due to nonsufficient funds, stop payment or
other reasons, the Funds will charge $20 and you will be responsible for any
loss incurred by the Fund with respect to canceling the purchase. To recover any
such loss or charge, the Funds reserve 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.
6
<PAGE>
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 Fund for collection procedures will be deducted from the
amount invested.
If a Fund incurs a charge for locating a shareholder without a current
address, such charge will be passed through to the shareholder.
ALTERNATIVE PURCHASE PLANS
CLASS B. Class B shares are sold subject to 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 Fund's advisor pays the Fund's
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. If the
broker-dealer provides additional shareholder services, it may receive a
servicing fee of up to 0.25% of Fund assets attributable to your investment. The
servicing fee is paid by the Fund's advisor from the 12b-1 fees it receives from
the Fund. The distributor pays the participating broker-dealer's fee or
commission of 3.25%, which may be increased or decreased in certain
circumstances.
IF A REDEMPTION IS MADE: THE REDEMPTION RATE FOR THE CDSC IS:
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 is 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. [If you exchanged Class B shares of one
Pauze Fund for Class B shares of another Pauze Fund, the holding periods will be
aggregated for purposes of calculating the CDSC.]
CLASS C. If you buy Class C shares, all of the purchase payment 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 your investment. If the broker-dealer
provides additional shareholder services, it may receive a servicing fee of up
to 0.25% of Fund assets attributable to your investment. The servicing fee is
paid by the Fund's advisor from the 12b-1 fees it receives from the Fund.
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HOW TO DECIDE WHEN TO PURCHASE CLASS B OR CLASS C. The alternative purchase
plans offered by the Funds 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 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 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 Funds upon written request to the address in this Prospectus or by
calling 1-800-327-7170.
Distribution (12b-1) Fees. Each Fund has adopted a plan under Rule 12b-1
that allows the Fund to pay distribution and other fees for the sale and
distribution of its shares. Each plan provides that the applicable Fund will pay
a 12b-1 fee at an annual rate of 0.25% of the Fund's average net assets to the
advisor for its distribution related services and expenses. With respect to
Class B shares and Class C shares, the plans provide that each Fund will use
Fund assets allocable to those shares topay additional Rule 12b-1 fees of 0.75%
of said assets to cover fees paid to broker-dealers for sales and promotional
services. The payments with respect to Class B shares go to the advisor to
compensate it for fees paid to the selling broker-dealers, and the payments with
respect to the Class C shares go directly to the broker-dealers. Under the
plans, the Advisor bears all distribution expenses of the Funds in excess of the
12b-1 fees. The fees received by the Advisor for any class of shares during any
year may be more or less than its costs for distribution related services
provided to the class of shares Because the distribution fees are paid out of
each Fund's assets on an on-going basis, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
HOW TO EXCHANGE SHARES
You may exchange 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
Funds 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 Funds and/or the 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 Funds and/or the transfer agent do not employ
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent transactions.
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<PAGE>
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 Funds may 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 Funds may 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 this 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 any time. Each Fund redeems
shares at the net asset value next determined after it has received 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:
Pauze Funds
c/o Firstar Bank
P.O. Box 641367
Cincinnati, Ohio 45264-1367
To be in "proper order" each Fund requires:
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<PAGE>
(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 __);
and
(3) such additional documents as are customarily required for persons
making 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: You may redeem shares by telephone, provided you have
completed the Telephone Redemption Authorization section of the purchase
application. Upon proper authorization and instruction, the Funds will wire
redemptions (for a separate bank wire charge) to the bank account identified on
the account registration or, for amounts of $15,000 or less, will mail
redemptions to the address on the account registration. In connection with
telephone redemptions, neither the Funds nor the transfer agent will be
responsible for acting upon any instructions reasonably believed by them to be
genuine. The Funds and/or the 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 Funds or the
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 Funds 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 Funds at 1-800-327-7170 to determine whether the guarantor is eligible.
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 Funds may 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, which may take up to seven days. 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 Funds to transmit redemption proceeds by
wire provided you send written instructions with a signature guarantee at the
time of redemption. Proceeds from your redemption will usually be transmitted on
the first business day following the redemption. However, the Funds may 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.
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<PAGE>
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
(1) 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.
(2) 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.
(3) Each Funds may redeem existing accounts and refuse a potential account
the privilege of having an account in the Fund if the Fund reasonably determines
that the failure to do so would have a material adverse consequence to the Fund
and its shareholders.
(4) Excessive short term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Funds may 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 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 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 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 Fund's administrator or its agents or affiliates will not be
subject to the small account charge.
In order to reduce expenses, each Fund may redeem all of the shares in any
shareholder account, other than an active automatic investment plan, UGMA/UTMA
and retirement plan account, 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.
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MANAGEMENT OF THE FUNDS
Pauze, Swanson & Associates Investment Advisors Inc. d/b/a Pauze Swanson
Capital Management Co.(TM), 14340 Torrey Chase Blvd., Suite 170, Houston, Texas
77014, the Funds' investment advisor, is a Texas corporation which was
registered with the Securities and Exchange Commission as an investment 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 the Total
Return and Short Term Fund's portfolio. He has managed the Total Return Fund
since commencement of operations in January 1994 and the Short Term Fund 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. Philip 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. Philip 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.
Since October 1998, Mr. Stephen P. Pauze, Assistant Vice President of the
advisor, has been responsible for the day-to-day management of the Intermediate
Term Fund portfolio. Mr. Stephen Pauze has a degree in Financial Planning and
served as broker-dealer wholesaler and an account executive for the advisor in
the Mid-Central and Southeast Regions of the United States from June 1997 to
October 1998. From April 1996 to June 1997, Mr. Stephen Pauze was a supervisor
at Roadway Express, Inc.
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 For these services, the
advisor received $______ from the Total Return Fund, $______ from the
Intermediate Term Fund, an $______ from the Short Term Fund for the fiscal year
ended April 30, 1999.
SHAREHOLDER SERVICES
Each Fund 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.
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<PAGE>
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 by calling 1-800-327-7170.
HOW SHARES ARE VALUED
The price you pay for your shares is based on the applicable Fund's net
asset value per share (NAV). The NAV is calculated at the close of trading
(normally 4:00 p.m. Eastern time) on each day the New York Stock Exchange is
open for business (the Stock Exchange is closed on weekends, Federal holidays
and Good Friday). The NAV is calculated by dividing the value of the Fund's
total assets (including interest and dividends accrued but not yet received)
minus liabilities (including accrued expenses) by the total number of shares
outstanding.
Each Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
DISTRIBUTIONS AND TAXES
As a shareholder of a Fund, you are entitled to your share of the Fund's
distributed net income and any net gains realized on its investments. Dividend
and capital gains distributions will have tax consequences you should know
about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income as DIVIDENDS to its shareholders at the end of each month. Short-term
capital gains are distributed at the end of the calendar year and are included
in net investment income. Each 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. Each 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. The Fund expects that its distributions will consist primarily of
_____________.
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 you reinvest the
distribution, the total value of your account will not change.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the applicable Fund, unless:
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<PAGE>
o you request the Fund in writing or by phone to pay dividend and/or
capital gain 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.]
If your distribution check is returned as undeliverable, or not cashed
after 180 days, we will reinvest the check 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. 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.
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.
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.
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: This is a brief 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.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS
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.
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<PAGE>
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, 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.
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 the hedging purposes only. The Funds will not buy call options
or sell put options.
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 FUNDAMENTAL
The investment objective of each Fund is not fundamental, and may be
changed by the Board of Trustees without shareholder approval. Any such change
may result in a Fund having an investment objective different from what the
shareholder considered appropriate at the time of investment in the Fund.
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<PAGE>
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.
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 Fund's
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, the Fund will 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
of delivery of 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.
YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Funds' advisor or the Funds' various service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Issue."
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<PAGE>
The advisor has taken steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to computer systems that are used and
to obtain reasonable assurances that comparable steps are being taken by the
Funds' major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Funds. In
addition, the advisor cannot make any assurances that the Year 2000 Issue will
not affect the companies in which the Funds invest or worldwide markets and
economies.
FINANCIAL HIGHLIGHTS
The following condensed financial information for the year ended April 30,
1999 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 1999 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. [TO BE SUPPLIED BY SUBSEQUENT AMENDMENT]
[insert list of service providers]
17
<PAGE>
PAUZE FUNDS(TM)
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated by reference into this
Prospectus, contains detailed information on Fund policies and operation.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of the Funds' latest
semi-annual or annual fiscal year end.
Call the Funds at 800-327-7170 to request free copies of the SAI and the
Funds' annual and semi-annual reports, to request other information about the
Funds and to make shareholder inquiries.
You may also obtain information about the Funds (including the SAI and
other reports) from the Securities and Exchange Commission on their Internet
site at http://www.sec.gov or at their Public Reference Room in Washington, D.C.
Call the SEC at 800-SEC-0330 for room hours and operation. You may also obtain
Fund information by sending a written request and duplicating fee to the Public
Reference Section of the SEC, Washington, D.C. 20549-6609.
Investment Company Act # 811-08148
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PROSPECTUS
[LOGO]
PAUZE
FUNDS(TM)
- --------------------------------------------------------------------------------
PAUZE TOMBSTONE FUND(TM)
- --------------------------------------------------------------------------------
Information, Shareholder Services and Requests:
1-800-327-7170
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
[LOGO]
As with all mutual funds, the Securities and Exchange Commission has not
determined that the information in this prospectus is accurate or complete, nor
has it approved or disapproved of the Fund's shares. It is a criminal offense to
state otherwise.
- --------------------------------------------------------------------------------
Septmber _, 1999
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUND............................................................
HOW THE FUND HAS PERFORMED................................................
COSTS OF INVESTING IN THE FUND............................................
HOW TO PURCHASE SHARES....................................................
ADDITIONAL INFORMATION ABOUT PURCHASES....................................
RULE 12b-1 DISTRIBUTION PLAN..............................................
HOW TO EXCHANGE SHARES....................................................
HOW TO REDEEM SHARES......................................................
VALUING FUND SHARES.......................................................
DISTRIBUTIONS AND TAXES...................................................
MANAGEMENT OF THE FUND....................................................
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS................
YEAR 2000 ISSUE...........................................................
FINANCIAL HIGHLIGHTS......................................................
<PAGE>
ABOUT THE FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders with long
term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
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"). The Index is an unmanaged index developed by 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 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, and
(3) funeral and cemetery support goods and services.
As an index fund, the Fund 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 are 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. UPDATE: As of August 1,
1999, [nine] companies were included in the Index. They had market
capitalizations ranging from $__ million to $____ billion, and the aggregate
market capitalization of the Index approximated $____ billion.
PRINCIPAL RISKS OF INVESTING IN THE FUND
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 decline.
Because the Fund invests primarily in the stocks of the death care
companies comprising the Index, 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 August 1, 1999
there were only [nine] companies in the Index, and that one company comprised
approximately __%, two companies comprised approximately __%, and four companies
comprised approximately __% 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.
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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 a non-diversified fund, and, as such, presents substantially
more investment risk and potential for volatility than a mutual fund that 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. As with any mutual fund investment, the Fund's returns will vary and
you could lose money.
IS THE FUND RIGHT FOR YOU?
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. The Fund
may be suitable for you if you are willing to concentrate your investment in the
death care sector and are willing to accept price fluctuations in your
investment.
HOW THE FUND HAS PERFORMED
The charts and tables below show the variability of the Fund's returns,
which is one indicator of the risks of investing in the Fund. The bar charts
show changes in the Fund's returns from year to year since the Fund's inception.
Sales loads are not reflected in the bar chart and, if these amounts were
reflected, returns would be less than those shown. The tables show how the
Fund's average annual total returns over time compare to those of a broad-based
securities market index. Of course, the Fund's past performance is not
necessarily an indication of its future performance.
[Insert bar chart with the following data:]
Annual Total Returns as of December 31, of each year
Class _
1998.................._____%
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING 12/31/98:
1 Year Since
------ Inception*
----------
Class __ _____% _____%
________________ Index _____% _____%
*____________, 199
The Fund's year-to-date return as of April 30, 1999 was ___________%.
The Fund's highest return during the periods shown for a calendar quarter was
______% in the ______ quarter of 199_, and the lowest return was _____% for the
_____ quarter of 199_.
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COSTS OF INVESTING IN THE FUND
The following table describes the expenses and fees that you may pay if you
buy and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees (fees paid directly from your investment) Class A Class B
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) ...............................3.75 None
Maximum Deferred Sales Charge (Load)
(as a percentage of _______)1......................................None 3.75%
Exchange Fees......................................................None None
Account Closing Fee................................................$10 $10
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees...................................................0.38% 0.38%
Distribution (12b-1) Fees.........................................0.25% 1.00%
Other Expenses2...................................................____% ____%
Total Annual Fund Operating Expenses............................. ____% ____%
</TABLE>
1 The maximum contingent deferred sales charge (CDSC) applies to
redemptions within two years of purchase. The CDSC decreases overtime to
zero, and the Class B shares convert to no-load shares at that time. You
may be charged a fee if redemption proceeds are wired.
2 Update for reimbursement.
EXAMPLE:
- --------
The example below is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, 5% annual total return, reinvested dividends and
distributions, constant operating expenses, and sale of all shares at the end of
each time period. Although your actual expenses may be different, based on these
assumptions your costs would be:
1 year 3 years 5 years 10 years
Class A: $_____ $_____ $_____ $_____
Class B: $_____ $_____ $_____ $_____
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<PAGE>
HOW TO PURCHASE SHARES
The Fund offers its shares in two classes. Class A shares are sold at the
public offering price, which includes a front-end sales charge. Class B shares
are sold at net asset value, subject to a contingent deferred sales charge
(CDSC) on redemptions made within seven years of purchase.
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 your order is received in
proper order by the Fund's distributor, plus any applicable sales charge for
Class A shares. When opening an account, you must 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)
c/o Firststar Bank
P.O. Box 641367
Cincinnati, Ohio 45264-1367
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
their sales charge structures and their ongoing expenses. These differences are
summarized in the table below.
<TABLE>
<CAPTION>
SALES CHARGE DISTRIBUTION & SERVICE FEES OTHER INFORMATION
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of No distribution fee; service Initial sales charge
3.75% fee of 0.25% of average daily waived or reduced for
net assets certain purchases
CLASS B No initial sales charge; CDSC of Distribution fee of 0.75%; Shares convert to Class A
3.75% declines to 0% after seven service fee of 0.25% of after seventh year
years average daily net assets
</TABLE>
HOW TO DECIDE 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 shares of stock. However, you will
will go to pay the sales charge. You pay a declining sales charge if you
will not pay a sales charge when you redeem your shares within seven years
redeem your shares. of purchase.
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<PAGE>
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 for
expense ratio than Class B shares. 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 on Class A shares.
To help you in this analysis, the example on page _____ illustrates the charges
for each class of shares.
BY WIRE: You may make your initial or subsequent investments by wiring
money. To do so, call the Fund at 1-800-327-7170 for a confirmation number and
wiring instructions. 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.
Wire purchases are completed when wired payment is received and the Fund
accepts the purchase. The Fund and the Fund's distributor are not responsible
for any delays that occur in wiring funds, including delays in processing by the
bank. Note: Federal Funds wire purchase orders will be accepted only when the
Fund and the custodian bank are open for business.
There are no wire fees charged by the Fund for purchases of $1,000 or more.
A $10 wire fee will be charged by the Fund on wire purchases of less than
$1,000. Your bank may charge wire fees for this service.
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 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 Fund because of such cancellation. Investments by telephone are
not available for retirement accounts.
BY AUTOMATIC INVESTMENT PLAN: Once your account is open, you may make
investments automatically by completing the automatic investment plan form
authorizing the Fund to regularly draw on your bank account. You may
automatically invest as little as $30 a month beginning within thirty (30) days
after your account is opened. Ask 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 the Fund at least 15 business days before the change is
to become effective.
5
<PAGE>
ADDITIONAL INFORMATION ABOUT PURCHASES
PURCHASE POLICIES:
o Investments must be received in proper form by the Fund's distributor 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.
o The maximum single purchase allowed is $5 million. Any individual order for
$5 million or more must be pre-approved by the Fund's 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 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, the Fund will assume that you are investing in Class A shares.
ABOUT THE SALES CHARGE
CLASS A
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, as
follows:
Total Investment Sales Charge as a % of:* Dealer Reallowance
Public Offering Net Invested as Percentage of
Price Amount Public Offering Price**
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%
* 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.
** Under certain circumstances, the Fund's distributor may increase or
decrease the reallowance amounts paid to participating broker/dealers.
REDUCTION OF THE CLASS A SALES CHARGE
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in the Fund now
o the amount of your existing investment in the Fund, if any, and
6
<PAGE>
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.)
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.
WAIVER OF THE CLASS A SALES CHARGE
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund, the
Fund's advisor, administrator, and distributor, or their respective
subsidiaries, 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 any Pauze
Fund(TM).]
o Broker/dealers with dealer agreements with the Fund's distributor, and
registered representatives of such entities.
CLASS B
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 Fund's
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%.
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.
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-
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<PAGE>
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.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES -- Seven years after you
purchase Class B shares, the 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 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.
RULE 12B-1 DISTRIBUTION PLAN
The Fund has adopted a plan of distribution under Rule 12b-1 of the
Investment Company Act of 1940 that allows the Fund to pay distribution fees for
the sale and distribution of its shares. The plan provides that the Fund will
pay a 12b-1 fee at an annual rate of 0.25% of the Fund's average net assets to
the Advisor for its distribution related services and expenses. With respect to
Class B shares, the plan provides that the Fund will use Fund assets allocable
to those shares to pay additional Rule 12b-1 fees of 0.75% of said assets to
compensate the Advisor for fees paid to the selling broker/dealers. Because the
distribution fees are paid out of each Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
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 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.
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<PAGE>
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.
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 Fund may
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 may 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 this 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 any time. The Fund redeems
shares at the net asset value next determined after it has received 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. send your written
request for redemption in proper form to:
Champion Fund Services (TM)
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
To be in "proper form", the Funds require:
(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
___); and
(3) such additional documents as are customarily required for persons
making 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.")
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<PAGE>
By telephone: You may redeem shares by telephone, if you have completed the
Telephone Redemption Authorization section of the purchase application. Upon
proper authority and instruction, the Fund will wire redemptions (for a separate
bank wire charge) to the bank account identified on the account registration or,
for amounts of $15,000 or less will mail redemptions 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 Fund 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 Fund at 1-800-327-7170 to determine whether the guarantor is eligible.
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 may 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, which may take up to seven days. 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 Fund to transmit redemption proceeds by wire
provided you send written instructions with a signature guarantee at the time of
redemption. Proceeds from your redemption will usually be transmitted on the
first business day following the redemption. However, the Fund may 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 __ for the applicable holding period.
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<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 Fund may redeem existing accounts and refuse a potential account
the privilege of having an account in the Fund if the Fund reasonably
determines that the failure to do so, would have a material adverse
consequence to the Fund and its shareholders.
(5) Excessive short-term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Fund may 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 $2,500 (excluding IRA accounts) 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 Fund's administrator or its agents or its affiliates will
not be subject to the small account charge.
In order to reduce expenses of the 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.
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OTHER SERVICES
The Fund 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 Fund by calling 1-800-327-7170.
VALUING FUND SHARES
The price you pay for your shares is based on the Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
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. 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. 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. The Fund expects that its distributions will consist
primarily of capital gains.
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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 you reinvest the
distribution, the total value of your account 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 dividend and/or
capital gain 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.]
If your distribution check is returned, or not cashed after 180 days, we
will reinvest the check 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. 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.
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: This is a brief 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.
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MANAGEMENT OF THE FUND
Pauze, Swanson & Associates Investment Advisors Inc. d/b/a Pauze Swanson
Capital Management Co.(TM) , 14340 Torrey Chase Blvd., Suite 170, Houston, Texas
77014, the Fund's investment 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 fourteen 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 Fund's 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. For the
fiscal year ended April 30, 1999, the advisor received advisory fees of $ from
the Fund. [Check portfolio turnover.]
ADDITIONAL INFORMATION ABOUT 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, for
temporary defensive purposes under adverse market conditions, the Fund 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 portfolio and
performance to vary significantly form the Index.
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 Fund's 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. Information about the
companies' revenues is provided by each company, which may or may not be
accurate. 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.
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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 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.
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<PAGE>
The investment objective of the Fund is fundamental, and may be changed by
the Board of Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from what the shareholder
considered appropriate at the time of investment in the Fund.
YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Advisor or the Fund's various service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Issue."
The Advisor has taken steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to computer systems that are used and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund. In
addition, the Advisor cannot make any assurances that the Year 2000 Issue will
not affect the companies in which the Fund invests or worldwide markets and
economies.
FINANCIAL HIGHLIGHTS
The following condensed financial information for the year ended April 30,
1999 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 1999 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. [to be supplied by subsequent amendment]
[Insert list of service providers]
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PAUZE FUNDS(TM)
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this Prospectus,
contains detailed information on Fund policies and operation. Shareholder
reports contain management's discussion of market conditions, investment
strategies and performance results as of the Fund's latest semi-annual or annual
fiscal year end.
Call the Fund at 800-327-7170 to request free copies of the SAI and the
Fund's annual and semi-annual reports, to request other information about the
Fund and to make shareholder inquiries.
You may also obtain information about the Fund (including the SAI and other
reports) from the Securities and Exchange Commission on their Internet site at
http://www.sec.gov or at their Public Reference Room in Washington, D.C. Call
the SEC at 800-SEC-0330 for room hours and operation. You may also obtain Fund
information by sending a written request and duplicating fee to the Public
Reference Section of the SEC, Washington, D.C. 20549-6609.
Investment Company Act # 811-08148
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PAUZE FUNDS
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
This Statement of Additional Information ("SAI") is not a Prospectus. It
should be read in conjunction with the PROSPECTUS OF THE FUNDS DATED _______,
1999. THIS SAI INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT FROM THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR
THE FISCAL YEAR ENDED APRIL 30, 1999 ("ANNUAL REPORT"). A FREE COPY OF THE
PROSPECTUS AND ANNUAL REPORT CAN BE OBTAINED BY WRITING THE FUNDS AT
_______________________________ OR BY CALLING THE FUNDS AT (800) 327-7170.
The date of this Statement of Additional Information is _________, 1999.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION......................................................
INVESTMENT OBJECTIVES AND POLICIES.......................................
PORTFOLIO TURNOVER.......................................................
PORTFOLIO TRANSACTIONS...................................................
MANAGEMENT OF THE TRUST..................................................
PRINCIPAL HOLDERS OF SECURITIES..........................................
INVESTMENT ADVISORY SERVICES.............................................
ADMINISTRATOR SERVICES...................................................
TRANSFER AGENCY AND OTHER SERVICES.......................................
12b-1 PLAN OF DISTRIBUTION...............................................
ADDITIONAL INFORMATION ON REDEMPTIONS....................................
CALCULATION OF PERFORMANCE DATA..........................................
TAX STATUS...............................................................
CUSTODIAN................................................................
INDEPENDENT ACCOUNTANTS..................................................
FINANCIAL STATEMENTS.....................................................
<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 on
October 15, 1993 under the laws of the Commonwealth of Massachusetts. 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. 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 offered by this Prospectus is authorized to issue
four classes of shares. 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
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. 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)
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.
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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.
Shares are fully paid and non-assessable by the Trust, 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.
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<PAGE>
(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.
(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.
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(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.
ZERO COUPON BONDS
- -----------------
Each Fund may 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.
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, 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.
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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. Neither 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.
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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 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.
6
<PAGE>
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 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.
7
<PAGE>
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 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.
8
<PAGE>
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.
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.
9
<PAGE>
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. 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, 1997
through April 30, 1999.
MANAGEMENT OF THE TRUST
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 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. [Update]
<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
Age: 58 management of 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.
Paul Giorgio** Treasurer, to be supplied
Suite 6160, 555 N. Lane Chief
Conshohocken, PA 19428 Financial
Age: __ Officer
Patricia S. Dobson Secretary and to be supplied
Trustee
Paul J. Hilbert Trustee Attorney with the firm of Paul J.
2301 FM 1960 West Hilbert & Associates, Houston, Texas,
Houston, TX 77068 practicing civil law since 1975.
Age: 50 Legislator, Texas House of
Representatives since 1982.
Gordon Anderson Trustee Consultant with the Texas Education
1806 Elk River Rd. Agency, Region 4 Education Service
Houston, TX 77090 Center, School Board and Superintendent
Age: 63 Development Program since 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.
10
<PAGE>
Wayne F. Collins Trustee Retired. From September 1991 to February
32 Autumn Crescent 1994 was Vice President of Worldwide
The Woodlands, TX 77381 Business Planning of the Compaq Computer
Age: 58 Corporation. Served 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
1791 #2 Silverado Trail 1967, serving in such capacities as
Napa, CA 94558 President and General Manager. In
Age: 54 addition, in June 1997, became Vice
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.
[update: 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, 1999 is set forth below.]
AGGREGATE COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX) TOTAL COMPENSATION
---- ---------------------- ------------------
Philip C. Pauze $0 $0
Patricia S. Dobson $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
update: Other than indicated below, as of __________, 1999, 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 __________, 1999:
11
<PAGE>
Class Name & Address of Owner % Owned Type of 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
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
12
<PAGE>
Class C Firstar 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
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
13
<PAGE>
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
14
<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
As of _______, 1999, the California Master Trust may be deemed to control
each Fund and the Trust as a result of its beneficial ownership of Fund shares.
As the controlling shareholder, it would control the outcome of any proposal
submitted to the shareholders for approval, including changes to each Fund's
fundamental policies or the terms of the management agreement with the Fund's
adviser.
15
<PAGE>
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 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.
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%.
For the fiscal years ended April 30, 1997, 1998 and 1999 the Trust, on
behalf of the Total Return Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $408,656, $442,281and $______, respectively.
For the fiscal years ended April 30, 1997, 1998 and 1999 the Trust, on
behalf of the Intermediate Term Fund, paid the Advisor fees (net of expenses
paid by the Advisor or fee waivers) of $10,690, $13,686and $______,
respectively.
For the fiscal years ended April 30, 1997, 1998 and 1999, the Trust, on
behalf of the Short Term Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $3,115, $7,608 and $________, respectively.
16
<PAGE>
THE ADMINISTRATOR
Fund Services Inc., ("FSI") dba Champion Fund Services, 14340 Torrey Chase
Blvd., Suite 170 Houston, Texas 77014, under an Administration Agreement with
the Trust dated ___________, administers the affairs of the Trust. Philip C.
Pauze, President of FSI has been President and a Trustee of the Trust since its
inception in 1993. Fund Services, Inc. assumed responsibilities as Administrator
effective July 1, 1999.
Under the Administration Agreement, the Administrator, subject to the
overall supervision and review of the Board of Trustees of the Trust, FSI
supervises parties 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 ________________, which is allocated among all of
the funds of the Trust pro rata based on their respective net assets. FSI also
provides transfer agency, dividend disbursing and accounting services to the
Funds for which it receives separate compensation. [update re transfer agent and
fund accountant.]
12B-1 PLAN OF DISTRIBUTION
A separate plan of distribution has been adopted under Rule 12b-1 of the
Investment Company Act of 1940 for each Fund, with separate provisions for each
class of shares. Each plan provides that the applicable Fund may engage in any
activity related to the distribution of its shares. These activities may
include, among others: (a) payments to securities dealers and others that are
engaged in the sale of shares, or that may be advising shareholders regarding
the purchase, sale or retention of shares; (b) payments to securities dealers
and others that hold shares for shareholders in omnibus accounts or as
shareholders of record or provide shareholder support or administrative services
to the Fund and its shareholders; (c) expenses of maintaining personnel who
engage in or support distribution of shares or who render shareholders support
services not otherwise provided by the Trust's transfer agent; (d) costs of
preparing, printing and distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than existing
shareholders; and (e) costs of formulating and implementing marketing and
promotional activities. Payments to a securities dealer or other entity
generally will be based on a percentage of the value of Fund shares held by
clients of the entity.
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"). Any amendment that materially increases the amount
of expenditures permitted under the Distribution Plan must be approved by a
majority of the outstanding voting securities of the applicable class. A
Distribution Plan may be terminated at any time as to any class by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
voting securities of the applicable class.
17
<PAGE>
The following table provides information regarding the amount and manner in
which amounts paid by the Funds under the previous Distribution Plans were spent
during the fiscal year ended April 30, 1998.[update for new plans]
<TABLE>
<CAPTION>
TOTAL RETURN INT. TERM SHORT TERM
BOND FUND BOND FUND BOND FUND TOTAL
--------- --------- --------- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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.
DISTRIBUTOR
On ________________, pursuant to the Fund's Distribution Plan, the Trust
entered into a Distribution Agreement with B. C. Ziegler and Company
("Ziegler"), pursuant to which Ziegler 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, Ziegler will be paid
a fixed annual fee of ___________ 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.
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.
18
<PAGE>
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:
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 calculation assumes 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 total return for the Total Return Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 1999 was ______% and _____%,
respectively.
The total return for the Intermediate Term Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 1999 was ____% and ____%,
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, 1999 was ____%,_____%,
and ____%, respectively.
YIELD
A Fund may also advertise performance in terms of a 30 day yield quotation.
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.
19
<PAGE>
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 + 1) - 1]
-----
CD
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 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.
The Total Return Fund's 30-day yield for No-load shares and Class B shares
for the 30 days ending April 30, 1999 was ____% and ____%, 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 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.
20
<PAGE>
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.
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.
21
<PAGE>
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 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.
22
<PAGE>
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.
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.
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 a Fund.
CUSTODIAN
Firstar 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.
23
<PAGE>
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, 2000. 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 and auditor's report required with the
Statement of Additional Information will be incorporated by reference to the
Annual Report to Shareholders for the period ended April 30, 1999 by subsequent
amendment]. The Funds will provide the Annual Report without charge at written
request or request by telephone.
24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PAUZE FUNDS
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
This Statement of Additional Information ("SAI") is not a Prospectus. It should
be read in conjunction with the PROSPECTUS OF THE FUNDS DATED _______, 1999.
THIS SAI INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS AND INDEPENDENT
AUDITOR'S REPORT FROM THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL
YEAR ENDED APRIL 30, 1999 ("ANNUAL REPORT"). A FREE COPY OF THE PROSPECTUS AND
ANNUAL REPORT CAN BE OBTAINED BY WRITING THE FUNDS AT
_______________________________ OR BY CALLING THE FUNDS AT (800) 327-7170.
The date of this Statement of Additional Information is _________, 1999.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION........................................................
INVESTMENT OBJECTIVES AND POLICIES.........................................
PORTFOLIO TURNOVER.........................................................
PORTFOLIO TRANSACTIONS.....................................................
MANAGEMENT OF THE TRUST....................................................
PRINCIPAL HOLDERS OF SECURITIES............................................
INVESTMENT ADVISORY SERVICES...............................................
ADMINISTRATOR SERVICES.....................................................
TRANSFER AGENCY AND OTHER SERVICES.........................................
12b-1 PLAN OF DISTRIBUTION.................................................
ADDITIONAL INFORMATION ON REDEMPTIONS......................................
CALCULATION OF PERFORMANCE DATA............................................
TAX STATUS.................................................................
CUSTODIAN..................................................................
INDEPENDENT ACCOUNTANTS....................................................
FINANCIAL STATEMENTS.......................................................
<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 on
October 15, 1993 under the laws of the Commonwealth of Massachusetts. 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. 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 offered by this Prospectus is authorized to issue
four classes of shares. 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
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. 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)
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.
1
<PAGE>
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.
Shares are fully paid and non-assessable by the Trust, 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.
2
<PAGE>
(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.
(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.
3
<PAGE>
(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.
ZERO COUPON BONDS
Each Fund may 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.
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, 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.
4
<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. Neither 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.
5
<PAGE>
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 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.
6
<PAGE>
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 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.
7
<PAGE>
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 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.
8
<PAGE>
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.
9
<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. 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, 1997
through April 30, 1999.
MANAGEMENT OF THE TRUST
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 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. [Update]
10
<PAGE>
<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
Age: 58 management of 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.
Paul Giorgio** Treasurer, to be supplied
Suite 6160, 555 N. Lane Chief
Conshohocken, PA 19428 Financial
Age: __ Officer
Patricia S. Dobson Secretary and to be supplied
Trustee
Paul J. Hilbert Trustee Attorney with the firm of Paul J.
2301 FM 1960 West Hilbert & Associates, Houston, Texas,
Houston, TX 77068 practicing civil law since 1975.
Age: 50 Legislator, Texas House of
Representatives since 1982.
Gordon Anderson Trustee Consultant with the Texas Education
1806 Elk River Rd. Agency, Region 4 Education Service
Houston, TX 77090 Center, School Board and Superintendent
Age: 63 Development Program since 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.
11
<PAGE>
Wayne F. Collins Trustee Retired. From September 1991 to February
32 Autumn Crescent 1994 was Vice President of Worldwide
The Woodlands, TX 77381 Business Planning of the Compaq Computer
Age: 58 Corporation. Served 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
1791 #2 Silverado Trail 1967, serving in such capacities as
Napa, CA 94558 President and General Manager. In
Age: 54 addition, in June 1997, became Vice
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.
[update: 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, 1999 is set forth below.]
AGGREGATE COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX) TOTAL COMPENSATION
---- ---------------------- ------------------
Philip C. Pauze $0 $0
Patricia S. Dobson $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
update: Other than indicated below, as of __________, 1999, 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 __________, 1999:
12
<PAGE>
Class Name & Address of Owner % Owned Type of 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
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
13
<PAGE>
Class C Firstar 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
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
14
<PAGE>
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
15
<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
As of _______, 1999, the California Master Trust may be deemed to control
each Fund and the Trust as a result of its beneficial ownership of Fund shares.
As the controlling shareholder, it would control the outcome of any proposal
submitted to the shareholders for approval, including changes to each Fund's
fundamental policies or the terms of the management agreement with the Fund's
adviser.
16
<PAGE>
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 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.
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%.
For the fiscal years ended April 30, 1997, 1998 and 1999 the Trust, on
behalf of the Total Return Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $408,656, $442,281and $______, respectively.
For the fiscal years ended April 30, 1997, 1998 and 1999 the Trust, on
behalf of the Intermediate Term Fund, paid the Advisor fees (net of expenses
paid by the Advisor or fee waivers) of $10,690, $13,686and $______,
respectively.
For the fiscal years ended April 30, 1997, 1998 and 1999, the Trust, on
behalf of the Short Term Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $3,115, $7,608 and $________, respectively.
17
<PAGE>
THE ADMINISTRATOR
Fund Services Inc., ("FSI") dba Champion Fund Services, 14340 Torrey Chase
Blvd., Suite 170 Houston, Texas 77014, under an Administration Agreement with
the Trust dated ___________, administers the affairs of the Trust. Philip C.
Pauze, President of FSI has been President and a Trustee of the Trust since its
inception in 1993. Fund Services, Inc. assumed responsibilities as Administrator
effective July 1, 1999.
Under the Administration Agreement, the Administrator, subject to the
overall supervision and review of the Board of Trustees of the Trust, FSI
supervises parties 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 ________________, which is allocated among all of
the funds of the Trust pro rata based on their respective net assets. FSI also
provides transfer agency, dividend disbursing and accounting services to the
Funds for which it receives separate compensation. [update re transfer agent and
fund accountant.]
12B-1 PLAN OF DISTRIBUTION
A separate plan of distribution has been adopted under Rule 12b-1 of the
Investment Company Act of 1940 for each Fund, with separate provisions for each
class of shares. Each plan provides that the applicable Fund may engage in any
activity related to the distribution of its shares. These activities may
include, among others: (a) payments to securities dealers and others that are
engaged in the sale of shares, or that may be advising shareholders regarding
the purchase, sale or retention of shares; (b) payments to securities dealers
and others that hold shares for shareholders in omnibus accounts or as
shareholders of record or provide shareholder support or administrative services
to the Fund and its shareholders; (c) expenses of maintaining personnel who
engage in or support distribution of shares or who render shareholders support
services not otherwise provided by the Trust's transfer agent; (d) costs of
preparing, printing and distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than existing
shareholders; and (e) costs of formulating and implementing marketing and
promotional activities. Payments to a securities dealer or other entity
generally will be based on a percentage of the value of Fund shares held by
clients of the entity.
18
<PAGE>
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"). Any amendment that materially increases the amount
of expenditures permitted under the Distribution Plan must be approved by a
majority of the outstanding voting securities of the applicable class. A
Distribution Plan may be terminated at any time as to any class by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
voting securities of the applicable class.
The following table provides information regarding the amount and manner in
which amounts paid by the Funds under the previous Distribution Plans were spent
during the fiscal year ended April 30, 1998.[update for new plans]
<TABLE>
<CAPTION>
TOTAL RETURN INT. TERM SHORT TERM
BOND FUND BOND FUND BOND FUND TOTAL
--------- --------- --------- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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.
DISTRIBUTOR
On ________________, pursuant to the Fund's Distribution Plan, the Trust
entered into a Distribution Agreement with B. C. Ziegler and Company
("Ziegler"), pursuant to which Ziegler 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, Ziegler will be paid
a fixed annual fee of ___________ 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.
19
<PAGE>
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:
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 calculation assumes 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 total return for the Total Return Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 1999 was ______% and _____%,
respectively.
The total return for the Intermediate Term Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 1999 was ____% and ____%,
respectively.
20
<PAGE>
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, 1999 was ____%,_____%,
and ____%, respectively.
YIELD
A Fund may also advertise performance in terms of a 30 day yield quotation.
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 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 + 1) - 1]
-----
CD
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 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.
The Total Return Fund's 30-day yield for No-load shares and Class B shares
for the 30 days ending April 30, 1999 was ____% and ____%, 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.
21
<PAGE>
NONSTANDARDIZED TOTAL RETURN
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.
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.
22
<PAGE>
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 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.
23
<PAGE>
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.
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.
24
<PAGE>
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.
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 a Fund.
CUSTODIAN
Firstar 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, 2000. 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 and auditor's report required with the
Statement of Additional Information will be incorporated by reference to the
Annual Report to Shareholders for the period ended April 30, 1999 by subsequent
amendment]. The Funds will provide the Annual Report without charge at written
request or request by telephone.
25
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. For the Pauze Funds
Exhibits
(a) Articles of Incorporation
(i) 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).
(ii) 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).
(iii) 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).
(iv) 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).
(b) By-Laws - By-laws of Registrant (incorporated by reference to
Post-Effective Amendment #13 filed September 1, 1998).
(c) Instruments Defining Rights of Society Holders - None.
(d) Investment Advisory Contracts
(i) Advisory Agreement between Registrant and Pauze, Swanson &
Associates Investment Advisors, Inc., dated November 1,
1993 (incorporated by reference to Post-Effective
Amendment #13 filed September 1, 1998).
(ii) 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 31, 1996).
(iii) 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).
<PAGE>
(e) Underwriting Contracts - Distribution Agreement among Registrant,
the Advisor and the Underwriter is filed herewith.
(f) Bonus or Profit Sharing -None.
(g) Custodian Agreements
(i) Custodian Agreement between Registrant and Star Bank, N.A.
dated August 1, 1996 (incorporated by reference to
Post-Effective Amendment #7 filed July 31, 1996).
(ii) 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).
(h) Other Material Contracts - None.
(i) Legal Opinion
Opinion and Consent of Counsel with respect to Tombstone Fund,
U.S. Government Total Return Bond Fund, U.S. Government
Intermediate Term Bond Fund, and U.S. Government Short Term Bond
Fund is filed herewith.
(j) Other Opinions - Consent of Independent Accountants is filed
herewith.
(k) Omitted Financial Statements-Financial Statements omitted from
Item 23 - None.
(l) Initial Capital Agreements-Letter of Initial Stockholder
(incorporated by reference to Post-Effective Amendment #13 filed
September 1, 1998).
(m) Rule 12b-1 Plan
(i) 12b-1 Plan for Pauze U.S. Government Total Return Bond
Fund is filed herewith.
(ii) 12b-1 Plan for Pauze U.S. Government Intermediate Term
Bond Fund is filed herewith.
<PAGE>
(iii) 12b-1 Plan for Pauze U.S. Government Short Term Bond Fund
is filed herewith.
(iv) 12b-1 Plan for Pauze Tombstone Fund is filed herewith.
(n) Financial Data Schedule - None.
(o) Rule 18f-3 Plan - 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).
(p) Powers of Attorney for the Trust, the Trustees and Officers are
filed herewith.
ITEM 24. Persons Controlled by or Under Common Control with the Fund.
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 25. Indemnification
(a) 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 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
<PAGE>
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.
(b) The Registrant may maintain a standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy, if maintained, would provide coverage to the
Registrant, its Trustees and officers, and could cover its
Advisor, among others. Coverage under the policy would include
losses by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
ITEM 26. Business and Other Connections of the Investment Advisor
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.
B.C. ZIEGLER AND COMPANY
215 North Main Street
West Bend, WI 53095
Broker/Dealer Branch Officer Manager: July, 1999 to Present
Licensed Registered Representative: July, 1999 to Present
<PAGE>
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
B.C. ZIEGLER AND COMPANY
215 North Main Street
West Bend, WI 53095
Licensed Registered Representative: July, 1999 to Present
ITEM 27. Principal Underwriters
(a) B.C. Ziegler acts as distributor for Firstar Funds and Principal
Preservation Portfolios, Inc.
(b) Information with respect to each director and officer of B.C.
Ziegler and Co. is incorporated by reference to Schedule A of
Form BD filed by it under the Securities and Exchange Act of 1934
(File No. 8-94).
ITEM 28. Location of Accounts and Records
All accounts and records maintained by the Registrant are kept at the
Underwriter's office located at 215 North Main Street, West Bend, WI
53095; the Adviser's office located at 14340 Torrey Chase Blvd., Suite
170 Houston, TX 77014-1024.
All accounts and records maintained by Firstar Bank N.A., custodian
for Registrant, are maintained at 425 Walnut Street, Cincinnati, Ohio
45202.
ITEM 29. Management Services - None
<PAGE>
ITEM 30. Undertakings
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.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 Houston, state of Texas,
on the 2nd day of July, 1999.
PAUZE FUNDS
By: /s/ Philip C. Pauze
--------------------------
Philip C. Pauze, President
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:
- ---------------------------------
Gordon M. Anderson, Trustee
Wayne F. Collins, Trustee*
Date: July 2, 1999
- --------------------------------- ------------
Paul J. Hilbert, Trustee
*By: /s/ Philip C. Pauze
-----------------------
Robert J. Pierce, Trustee* Philip C. Pauze,
Attorney-in-Fact
/s/ Patricia S. Dobson Date: July 2, 1999
- --------------------------------- ------------
Patricia S. Dobson, Trustee and Secretary
/s/ Philip C. Pauze Date: July 2, 1999
- --------------------------------- ------------
Philip C. Pauze, Trustee and President
/s/ Paul Giorgio Date: July 2, 1999
- --------------------------------- ------------
Paul Giorgio, Treasurer and Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Page
1. Distribution Agreement......................................... EX-99.B6
2. Opinion and Consent of Counsel................................. EX-99.B10
3. Consent of Independent Accountants............................. EX-99.B11
4. 12b-1 Plan for U.S. Government Total Return Bond Fund.......... EX-99.B15.1
5. 12b-1 Plan for U.S. Government Intermediate Term Bond Fund..... EX-99.B15.2
6. 12b-1 Plan for U.S. Government Short Term Bond Fund............ EX-99.B15.3
7. 12b-1 Plan for Tombstone Fund.................................. EX-99.B15.4
8. Powers of Attorney............................................. EX-99.P0A
PAUZE FUNDS(TM)
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement") is made as of July 1, 1999 by and
among Pauze Funds(TM) (the "Fund"), a Massachusetts business trust, Pauze
Swanson Capital Management Co. (the "Advisor"), a Texas corporation, and B.C.
Ziegler and Company (the "Distributor"), a Wisconsin corporation.
WITNESSETH THAT:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and has registered its shares of common stock (the "Shares") under the
Securities Act of 1933, as amended (the "1933 Act") in one or more distinct
series of Shares (the "Portfolio" or "Portfolios");
WHEREAS, the Advisor has been appointed investment advisor to the Fund;
WHEREAS, the Distributor is a broker-dealer registered with the U.S.
Securities and Exchange Commission (the "SEC") and a member in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, each Portfolio has adopted a plan of distribution (the
"Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act relating to the
payment by the Fund of distribution expenses with respect to the Portfolio;
WHEREAS, the Fund, the Advisor and the Distributor desire to enter into
this Agreement pursuant to which the Distributor will provide distribution
services to the Portfolios of the Fund identified on Schedule A, as it may be
amended from time to time, on the terms and conditions hereinafter set forth;
and
<PAGE>
WHEREAS, this Agreement has been approved with respect to each Portfolio by
the Fund's Board of Trustees, including the disinterested Trustees, in
conformity with Section 15 of the 1940 Act and Rule 12b-1 under the 1940 Act.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Fund, the Advisor and the Distributor,
intending to be legally bound hereby, agree as follows:
I. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints the Distributor as
its principal distributor for the distribution of the Shares, and the
Distributor hereby accepts such appointment under the terms of this Agreement.
The Fund shall not sell any Shares to any person except to fill orders for the
Shares received through the Distributor; provided, however, that the foregoing
appointment shall not apply: (i) to Shares issued or sold in connection with the
merger or consolidation of any other investment company with the Fund or the
acquisition by purchase or otherwise of all or substantially all of the assets
of any investment company or substantially all of the outstanding shares of any
such company by the Fund; (ii) to Shares which may be offered by the Fund to its
shareholders for reinvestment of cash distributed from capital gains or net
investment income of the Fund; or (iii) to Shares which may be issued to
shareholders of other funds who exercise any exchange privilege set forth in the
Fund's Prospectus; or (iv) directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. Notwithstanding any other
provision hereof, the Fund may terminate, suspend, or withdraw the offering of
the Shares whenever, in its sole discretion, it deems such action to be
desirable, and the Distributor shall process no further orders for Shares after
it receives notice of such termination, suspension or withdrawal.
2
<PAGE>
As used in this Agreement, the term "Registration Statement" shall mean the
registration statement most recently filed by the Fund with the Securities and
Exchange Commission and effective under the 1933 Act and the 1940 Act, as such
Registration Statement is amended by any amendments thereto at the time in
effect, and the terms "Prospectus" and "Statement of Additional Information"
shall mean, respectively, the form of prospectus and statement of additional
information with respect to the Portfolios filed by the Fund as part of the
Registration Statement, or as they may be amended from time to time.
2. FUND DOCUMENTS. The Fund has provided the Distributor with properly
certified or authenticated copies of the following Fund related documents in
effect on the date hereof: the Fund's organizational documents, including Master
Trust Agreement and By-Laws; the Fund's Registration Statement, including all
exhibits thereto; the Fund's most current Prospectus and Statement of Additional
Information; and resolutions of the Fund's Board of Trustees authorizing the
appointment of the Distributor and approving this Agreement. The Fund shall
promptly provide to the Distributor copies, properly certified or authenticated,
of all amendments or supplements to the foregoing. The Fund shall provide to the
Distributor copies of all other information which the Distributor may reasonably
request for use in connection with the distribution of Shares, including, but
not limited to, a certified copy of all financial statements prepared for the
Fund by its independent public accountants. The Fund shall also supply the
Distributor with such number of copies of the current Prospectus, Statement of
Additional Information and shareholder reports as the Distributor shall
reasonably request.
3
<PAGE>
3. DISTRIBUTION SERVICES. The Distributor shall sell and repurchase Shares
as set forth below, subject to the registration requirements of the 1933 Act and
the rules and regulations thereunder, and the laws governing the sale of
securities in the various states ("Blue Sky Laws"):
a. The Distributor, subject to applicable federal and state laws and the
Master Trust Agreement and By-Laws, agrees to sell the Shares from time to time
during the term of this Agreement upon the terms described in the Registration
Statement.
b. The public offering price of the Shares of each Portfolio (and, with
respect to each Portfolio offering multiple classes of Shares, the Shares of
each class of such Portfolio) shall be the respective net asset value of the
Shares of the Portfolio as next determined by the Fund following receipt of an
order at the Distributor's principal office plus the applicable initial sales
charge, if any.
c. The net asset value of the Shares shall be determined in the manner
provided in the then current Prospectus and Statement of Additional Information.
The net asset value of the Shares shall be calculated by the Fund or by another
entity on behalf of the Fund. The Distributor shall have no duty to inquire into
or liability for the accuracy of the net asset value per Share as calculated.
d. Upon receipt of purchase instructions, the Distributor shall transmit
such instructions to the Fund or its transfer agent for registration of the
Shares purchased.
The Distributor is authorized to collect the gross proceeds derived from
the sale of Shares, remit the net asset value thereof to the Fund upon receipt
of the proceeds, and retain any initial sales charge less any reallowance paid
to dealers (the "Net Sales Charges"). The Distributor, in light of Fund
policies, procedures and disclosure documents, shall also have the right to take
all actions which, in the Distributor's judgment, are necessary to effect the
distribution of Shares. The Distributor in its discretion may enter into
agreements to sell Shares to such registered and qualified retail dealers as it
may select at the public offering price less the reallowance established in the
Prospectus. In making agreement with such dealers, the Distributor shall act
only as principal and not as agent for the Fund.
4
<PAGE>
e. The Distributor, for the account of the Fund, may repurchase the Shares
at such prices and upon such terms and conditions as shall be specified in the
Registration Statement (the "Repurchase Price"). Such price shall reflect the
subtraction of the contingent deferred sales charge, if any, computed in
accordance with and in the manner set forth in the Registration Statement. At
the end of each business day, the Distributor shall notify the Fund and the
Fund's transfer agent of the number of shares redeemed, and the identity of the
shareholders or dealers offering Shares for repurchase. Upon such notice, the
Fund shall pay the Distributor the Repurchase Price in cash or in the form of a
credit against monies due the Fund from the Distributor as proceeds from the
sale of Shares. The Distributor will receive no commission or other renumeration
for repurchasing Shares. Any contingent deferred sales charge shall be paid to
the Advisor as repayment for financing the payment of the sales commission for
such shares. The Fund reserves the right to suspend such repurchase right upon
written notice to the Distributor. The Distributor further agrees to receive and
transmit promptly to the Fund's transfer agent, shareholder and dealer requests
for redemption of Shares.
f. Nothing in this Agreement shall prevent the Distributor or any
"affiliated person" from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that the Distributor expressly agrees that it shall
not for its own account purchase any Shares of the Fund except for investment
purposes and that it shall not for its own account sell any such Shares except
for redemption of such Shares by the Fund, and that it shall not undertake
activities which, in its judgment, would adversely affect the performance of its
obligations to the Fund under this Agreement.
5
<PAGE>
4. DISTRIBUTION SUPPORT SERVICES. In addition to the sale and repurchase of
Shares, the Distributor shall perform the distribution support services set
forth on Schedule B attached hereto, as it may be amended from time to time.
Such distribution support services shall include: review of sales and marketing
literature and submission to the NASD; NASD record keeping; and quarterly
reports to the Fund's Board of Trustees. Such distribution support services may
also include: fulfillment services, including telemarketing, printing, mailing
and follow-up tracking of sales leads; and licensing Advisor or Fund personnel
as registered representatives of the Distributor and related supervisory
activities.
5. BEST EFFORTS. The Distributor shall use best efforts in connection with
the distribution of Shares. The Distributor shall have no obligation to sell any
specific number of Shares and shall only sell Shares against orders received
therefor. The Fund shall retain the right to refuse at any time to sell any of
its Shares for any reason deemed adequate by it.
6. COMPLIANCE. In furtherance of the distribution services being provided
hereunder, the Distributor and the Fund agree as follows:
a. The Distributor shall comply with the Rules of Fair Practice of the NASD
and the securities laws of any jurisdiction in which it sells, directly or
indirectly, Shares.
b. The Distributor shall require each dealer with whom the Distributor has
a selling agreement to conform to the applicable provisions hereof and the
Registration Statement, and neither Distributor nor any such dealer shall
withhold the placing of purchase orders so as to make a profit thereby.
6
<PAGE>
c. The Fund agrees to furnish to the Distributor sufficient copies of any
agreements, plans, communications with the public or other materials it intends
to use in connection with any sales of Shares in a timely manner in order to
allow the Distributor to review, approve and file such materials with the
appropriate regulatory authorities and obtain clearance for use. The Fund agrees
not to use any such materials until so filed and cleared for use by appropriate
authorities and the Distributor.
d. The Distributor, at its own expense, shall qualify as a broker or
dealer, or otherwise, under all applicable Federal or state laws required to
permit the sale of Shares in such states as shall be mutually agreed upon by the
parties; provided, however that the Distributor shall have no obligation to
register as a broker or dealer under the Blue Sky Laws of any jurisdiction if it
determines that registering or maintaining registration in such jurisdiction
would be uneconomical.
e. The Distributor shall not, in connection with any sale or solicitation
of a sale of the Shares, make, or authorize any representative, service
organization, broker or dealer to make, any representations concerning the
Shares except those contained in the Fund's most current Prospectus and
Statement of Additional Information covering the Shares and in communications
with the public or sales materials approved by the Distributor and the Fund as
information supplemental to such Prospectus and Statement of Additional
Information.
f. The Fund agrees to take, from time to time, such actions and steps as
may be necessary to maintain the registration of the Shares under the 1933 Act,
maintain qualification of the Shares for sale in such states and other
jurisdictions as the Fund and the Distributor may agree from time to time, and
maintain the registration of the Fund as an investment company under the 1940
Act.
7
<PAGE>
7. EXPENSES. Expenses shall be allocated as follows:
a. The Fund shall bear the following expenses: preparation, setting in
type, and printing of sufficient copies of the Prospectus and Statement of
Additional Information for distribution to existing shareholders; preparation
and printing of reports and other communications to existing shareholders;
distribution of copies of the Prospectus, Statement of Additional Information
and all other communications to existing shareholders; registration of the
Shares under the Federal securities laws; qualification of the Shares for sale
in the jurisdictions mutually agreed upon by the Fund and the Distributor;
transfer agent/shareholder servicing agent services; supplying information,
prices and other data to be furnished by the Fund under this Agreement; any
original issue taxes or transfer taxes applicable to the sale or delivery of the
Shares or certificates therefor; and items covered by the Distribution Plan.
b. To the extent not covered by the Distribution Plan, the Advisor
shall pay all other expenses incident to the sale and distribution of the Shares
sold hereunder, including, without limitation: printing and distributing copies
of the Prospectus, Statement of Additional Information and reports prepared for
use in connection with the offering of Shares for sale to the public;
advertising in connection with such offering, including public relations
services, sales presentations, media charges, preparation, printing and mailing
of advertising and sales literature; data processing necessary to support a
distribution effort; distribution and shareholder servicing activities of
broker-dealers and other financial institutions; filing fees required by
regulatory authorities for sales literature and advertising materials; any
additional out-of-pocket expenses incurred in connection with the foregoing and
any other costs of distribution. The Distributor hereby agrees to reimburse the
Advisor for the above expenses incident to the sale and distribution of the
Shares sold hereunder up to a maximum of 80% of the Net Sales Charges paid to
the Distributor during the applicable period.
8
<PAGE>
8. COMPENSATION. For the distribution and distribution support services
provided by the Distributor pursuant to the terms of this Agreement, the Fund
shall, pursuant to the Distribution Plan, pay to the Distributor the
compensation set forth in Schedule A attached hereto, which schedule may be
amended from time to time. To the extent not covered by the Distribution Plan,
the Advisor shall pay to Distributor the compensation set forth in Schedule A
and shall also reimburse the Distributor for its out-of-pocket expenses related
to the performance of its duties hereunder, including, without limitation,
telecommunications charges, postage and delivery charges, record retention
costs, reproduction charges and traveling and lodging expenses incurred by
officers and employees of the Distributor. If this Agreement becomes effective
subsequent to the first day of the month or terminates before the last day of
the month, the Fund shall pay to the Distributor a distribution fee that is
prorated for that part of the month in which this Agreement is in effect. All
rights of compensation and reimbursement under this Agreement for services
performed by the Distributor as of the termination date shall survive the
termination of this Agreement.
9. USE OF DISTRIBUTOR'S NAME. The Fund shall not use the name of the
Distributor or any of its affiliates in the Prospectus, Statement of Additional
Information, sales literature or other material relating to the Fund in a manner
not approved prior thereto in writing by the Distributor; provided, however,
that the Distributor shall approve all uses of its and its affiliates' names
that merely refer in accurate terms to their appointments or that are required
by the Securities and Exchange Commission (the "SEC") or any state securities
commission; and further provided, that in no event shall such approval be
unreasonably withheld.
9
<PAGE>
10. USE OF FUND'S NAME. Neither the Distributor nor any of its affiliates
shall use the name of the Fund or material relating to the Fund on any forms
(including any checks, bank drafts or bank statements) for other than internal
use in a manner not approved prior thereto in writing by the Fund; provided,
however, that the Fund shall approve all uses of its name that merely refer in
accurate terms to the appointment of the Distributor hereunder or that are
required by the SEC or any state securities commission; and further provided,
that in no event shall such approval be unreasonably withheld.
11. LIABILITY OF DISTRIBUTOR. The duties of the Distributor shall be
limited to those expressly set forth herein, and no implied duties are assumed
by or may be asserted against the Distributor hereunder. The Distributor may, in
connection with this Agreement employ agents or attorneys in fact, and shall not
be liable for any loss arising out of or in connection with its actions under
this Agreement, so long as it acts in good faith and with due diligence, and is
not negligent or guilty of any willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under this
Agreement. As used in this Section 11 and in Section 12 (except the second
paragraph of Section 12), the term "Distributor") shall include directors,
officers, employees and other agents of the Distributor.
12. INDEMNIFICATION OF DISTRIBUTOR. The Fund shall indemnify and hold
harmless the Distributor against any and all liabilities, losses, damages,
claims and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and investigation expenses incident thereto) which the
Distributor may incur or be required to pay hereafter, in connection with any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which the Distributor may be involved as
a party or otherwise or with which the Distributor may be threatened, by reason
of the offer or sale of the Fund shares prior to the effective date of this
Agreement.
10
<PAGE>
Any director, officer, employee, shareholder or agent of the
Distributor who may be or become an officer, Trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with the
Distributor's duties hereunder), to be rendering such services to or acting
solely for the Fund and not as a director, officer, employee, shareholder or
agent, or one under the control or direction of the Distributor, even though
receiving a salary from the Distributor.
The Fund agrees to indemnify and hold harmless the Distributor, and
each person who controls the Distributor within the meaning of Section 15 of the
1933 Act, or Section 20 of the Securities Exchange Act of 1934, as amended
("1934 Act"), against any and all liabilities, losses, damages, claims and
expenses, joint or several (including, without limitation, reasonable attorneys'
fees and disbursements and investigation expenses incident thereto) to which
they, or any of them, may become subject under the 1933 Act, the 1934 Act, the
1940 Act or other federal or state laws or regulations, at common law or
otherwise, insofar as such liabilities, losses, damages, claims and expenses (or
actions, suits or proceedings in respect thereof) arise out of or relate to any
untrue statement or alleged untrue statement of a material fact contained in a
Prospectus, Statement of Additional Information, supplement thereto, sales
literature or other written information prepared by the Fund and provided by the
Fund to the Distributor for the Distributor's use hereunder, or arise out of or
relate to any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Distributor (or any person controlling the Distributor) shall
not be entitled to indemnity hereunder for any liabilities, losses, damages,
claims or expenses (or actions, suits or proceedings in respect thereof)
resulting from (i) an untrue statement or omission or alleged untrue statement
or omission made in the Prospectus, Statement of Additional Information, or
supplement, sales or other literature, in reliance upon and in conformity with
information furnished in writing to the Fund by the Distributor specifically for
use therein or (ii) the Distributor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations in the
performance of this Agreement.
11
<PAGE>
The Distributor agrees to indemnify and hold harmless the Fund, and
each person who controls the Fund within the meaning of Section 15 of the 1933
Act, or Section 20 of the 1934 Act, against any and all liabilities, losses,
damages, claims and expenses, joint or several (including, without limitation
reasonable attorneys' fees and disbursements and investigation expenses incident
thereto) to which they, or any of them, may become subject under the 1933 Act,
the 1934 Act, the 1940 Act or other federal or state laws, at common law or
otherwise, insofar as such liabilities, losses, damages, claims or expenses ( i)
arise out of or relate to any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus or Statement of Additional Information
or any supplement thereto, and to any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if based upon information furnished in
writing to the Fund by the Distributor specifically for use therein, or (ii)
arise out of or relate to actions or oral representations of Distributor's
associated persons.
A party seeking indemnification hereunder (the "Indemnitee") shall
give prompt written notice to the party from whom indemnification is sought
("Indemnitor") of a written assertion or claim of any threatened or pending
legal proceeding which may be subject to indemnity under this Section; provided,
however, that failure to notify the Indemnitor of such written assertion or
claim shall not relieve the Indemnitor of any liability arising from this
Section. The Indemnitor shall be entitled, if it so elects, to assume the
defense of any suit brought to enforce a claim subject to this Indemnity and
such defense shall be conducted by counsel chosen by
12
<PAGE>
the Indemnitor and satisfactory to the Indemnitee; provided, however, that if
the defendants include both the Indemnitee and the Indemnitor, and the
Indemnitee shall have reasonably concluded that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Indemnitor ("conflict of interest"), the Indemnitor shall not
have the right to elect to defend such claim on behalf of the Indemnitee, and
the Indemnitee shall have the right to select separate counsel to defend such
claim on behalf of the Indemnitee. In the event that the Indemnitor elects to
assume the defense of any suit pursuant to the preceding sentence and retains
counsel satisfactory to the Indemnitee, the Indemnitee shall bear the fees and
expense of additional counsel retained by it, except for reasonable
investigation costs which shall be borne by the Indemnitor. If the Indemnitor
(i) does not elect to assume the defense of a claim, (ii) elects to assume the
defense of a claim but chooses counsel that is not satisfactory to the
Indemnitee or (iii) has no right to assume the defense of a claim because of a
conflict of interest, the Indemnitor shall advance or reimburse the Indemnitee,
at the election of the Indemnitee, reasonable fees and disbursements of any
counsel retained by Indemnitee, including reasonable investigation costs.
13. ADVISOR PERSONNEL. The Advisor agrees that only its employees who are
registered representatives for the Distributor ("dual employees") or registered
representatives of another NASD member firm shall offer or sell Shares of the
Portfolios. The Advisor further agrees that the activities of any such employees
as registered representatives of the Distributor shall be limited to offering
and selling Shares. If there are dual employees, one employee of the Advisor
shall register as a principal of the Distributor and assist the Distributor in
monitoring the marketing and sales activities of the dual employees. The Advisor
shall maintain errors and omissions and fidelity bond insurance policies
providing reasonable coverage for its employees' activities and shall provide
copies of such policies to the Distributor. The Advise shall indemnify and hold
harmless the Distributor against any and all liabilities, losses, damages,
claims and expenses (including reasonable attorneys' fees and disbursements and
investigation costs incident thereto) arising from or related to the Advisor's
employees' activities as registered representatives, including, without
limitation, any and all such liabilities, losses, damages, claims and expenses
arising from or related to the breach by such employees of any rules or
regulations of the NASD or SEC.
13
<PAGE>
14. FORCE MAJEURE. The Distributor shall not be liable for any delays or
errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited to, acts of civil or military
authority, national emergencies, work stoppages, fire, flood, catastrophe, acts
of God, insurrection, war, riot or failure of communication or power supply. In
the event of equipment breakdowns, which are beyond the reasonable control of
the Distributor and not primarily attributable to the failure of the Distributor
to reasonably maintain or provide for the maintenance of such equipment, the
Distributor shall, at no additional expense to the Fund, take reasonable steps
in good faith to minimize service interruptions, but shall have no liability
with respect thereto.
15. SCOPE OF DUTIES. The Distributor and the Fund shall regularly consult
with each other regarding the Distributor's performance of its obligations and
its compensation under the foregoing provisions. In connection therewith, the
Fund shall submit to the Distributor, at a reasonable time in advance of filing
with the SEC, copies of any amended or supplemented Registration Statement of
the Fund (including exhibits) under the 1940 Act and the 1933 Act, and at a
reasonable time in advance of their proposed use, copies of any amended or
supplemented forms relating to any plan, program or service offered by the Fund.
Any change in such materials that would require any change in the Distributor's
obligations under the foregoing provisions shall be subject to the Distributor's
approval. In the event that a change in such documents or in the procedures
contained therein increases the cost or burden of the Distributor of performing
its obligations hereunder, the Distributor shall be entitled to receive
reasonable compensation therefor.
16. DURATION. This Agreement shall become effective as of the date first
above written, and shall continue in force for a period of two years from the
date of its execution, and thereafter
14
<PAGE>
from year to year, provided continuance is approved at least annually by (i)
either the vote of a majority of the Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) the vote of
a majority of those Trustees of the Fund who are not interested persons of the
Fund, and who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on the
approval.
17. TERMINATION. This Agreement shall terminate as follows:
a. This Agreement shall terminate automatically in the event of its
assignment.
b. This Agreement shall terminate upon the failure to approve the
continuance of the Agreement after the initial two year term as set forth in
Section 16 above.
c. This Agreement shall terminate, with respect to any Portfolio, at
any time and without the payment of a penalty, upon a vote of the majority of
the Trustees, by a vote of a majority of Trustees who are not interested persons
of the Fund or by a vote of the majority of the outstanding voting securities of
such Portfolio, upon 60 days prior written notice to the Distributor.
d. The Distributor may terminate this Agreement with respect to any
Portfolio, at any time and without the payment of a penalty, upon 60 days prior
written notice to the Fund.
e. Termination of this Agreement with respect to any given Portfolio
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Portfolio.
Upon the termination of this Agreement, the Fund shall pay to the
Distributor such compensation and out-of-pocket expenses as may be payable for
the period prior to the effective date of such termination. In the event that
the Fund designates a successor to any of the Distributor's obligations
hereunder, the Distributor shall, at the expense and direction of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by the Distributor pursuant to the foregoing
provisions.
15
<PAGE>
Sections 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 17, 20, 21, 22, 23, 24,
25, 26 and 27 shall survive any termination of this Agreement.
18. AMENDMENT. The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by a written
instrument signed by the Distributor, the Advisor and the Fund and shall not
become effective unless its terms have been approved by the majority of the
Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund and by a majority of those Trustees who are not
interested persons of the Fund or any party to this Agreement.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of he 1940
Act shall be resolved by reference to such term or provision of the 1940 Act and
to interpretation thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by the Securities and Exchange
Commission or its staff. In addition, where the effect of a requirement of the
1940 Act, reflected in any provision of this Agreement, is revised by rule,
regulation, order or interpretation of the Securities and Exchange Commission or
its staff, such provision shall be deemed to incorporate the effect of such
rule, regulation, order or interpretation.
19. NON-EXCLUSIVE SERVICES. The services of the Distributor rendered to the
Fund are not exclusive. The Distributor may render such services to any other
investment company.
20. DEFINITIONS. As used in this Agreement, the terms "vote of a majority
of the outstanding voting securities," "assignment," "interested person" and
"affiliated person" shall have the respective meanings specified in the 1940 Act
and the rules enacted thereunder as now in effect or hereafter amended.
16
<PAGE>
21. CONFIDENTIALITY. The Distributor shall treat confidentially and as
proprietary information of the Fund all records and other information relating
to the Fund and prior, present or potential shareholders and shall not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except as may be required by
administrative or judicial tribunals or as required by the Fund.
22. NOTICE. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one of the other means specified in
this Section 22 as promptly as practicable thereafter). Notices shall be
addressed as follows:
(a) if to the Fund:
Pauze Funds
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
Attn: Philip C. Pauze, President and Trustee
(b) if to the Advisor:
Pauze Swanson Capital Management Co.
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
Attn: Philip C. Pauze, President
(c) if to the Distributor:
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
17
<PAGE>
or to such other respective addresses as the parties shall designate by like
notices, provided that notice of a change of address shall be effective only
upon receipt thereof.
23. SEVERABILITY. 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.
24. QUESTIONS OF INTERPRETATION.
(a) This Agreement shall be administered, construed and enforced in
accordance with the laws of the State of Texas to the extent that such laws are
not preempted by the provisions of any law of the United States heretofore or
hereafter enacted, as the same may be amended from time to time.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act or the 1933 Act shall be resolved by reference to such term or
provision of the 1940 Act or the 1933 Act and to interpretation thereof, if any,
by the United States courts or in the absence of any controlling decision of any
such court, by the Securities and Exchange Commission or its staff. In addition,
where the effect of a requirement of the 1940 Act or the 1933 Act, reflected in
any provision of this Agreement, is revised by rule, regulation, order or
interpretation of the Securities and Exchange Commission or its staff, such
provision shall be deemed to incorporate the effect of such rule, regulation,
order or interpretation.
25. ENTIRE AGREEMENT. This Agreement (including the Exhibits attached
hereto) contains the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersedes all prior written or oral
agreements and understandings with respect thereto.
18
<PAGE>
26. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction. This Agreement may be executed in three counterparts,
each of which taken together shall constitute one and the same instrument.
27. LIMITATION OF LIABILITY. The terms "Pauze Funds(TM)" and "Fund" means
and refers to the Trustees from time to time serving under the Master Trust
Agreement of the Fund dated October 15, 1993, as the same may subsequently
thereto have been, or subsequently hereto be, amended. It is expressly agreed
that obligations of the Fund hereunder shall not be binding upon any Trustee,
Shareholder, nominees, officers, agents or employees of the Fund, personally,
but bind only the assets and property of the Fund, as provided in the Master
Trust Agreement. The execution and delivery of this Agreement have been
authorized by the Trustees and signed by an authorized officer of the Fund,
acting as such, and neither such authorization nor such execution and delivery
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 Fund as provided in the Master Trust Agreement. The Master Trust
Agreement is on file with the Secretary of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first written above.
PAUZE FUNDS(TM) B. C. ZIEGLER AND COMPANY
By: /s/ Philip C. Pauze By: /s/
---------------------------------- --------------------------------
Philip C. Pauze, President and Trustee
PAUZE SWANSON CAPITAL MANAGEMENT CO.
By: /s/ Philip C. Pauze
----------------------------------
Philip C. Pauze, President
20
<PAGE>
SCHEDULE A
PAUZE FUNDS(TM)
Portfolio and Fee Schedule
Portfolios covered by Distribution Agreement:
Pauze U.S. Government Total Return Bond Fund
Pauze U.S. Government Short Term Bond Fund
Pauze U.S. Government Intermediate Term Bond Fund
Pauze Tombstone Fund
Fees for distribution and distribution support services on behalf of the Fund:
Annual Fee $30,000
<PAGE>
SCHEDULE B
PAUZE FUNDS(TM)
Distribution Support Services
1. Review and submit for approval all advertising and promotional materials.
2. Maintain all books and records required by the NASD.
3. Monitor Distribution Plan(s) and report to Board of Trustees.
4. Prepare quarterly reports to Board of Trustees relating to distribution
activities.
5. Subject to approval of Distributor, license personnel as registered
representatives of the Distributor.
6. Telemarketing services (additional fees to be negotiated).
7. Fund fulfillment services, including sampling prospective shareholders
inquiries and related mailings (additional fees to be negotiated).
July 2, 1999
Pauze Funds
14340 Torrey Chase Boulevard, Suite 170
Houston, TX 77014
Ladies and Gentlemen:
As counsel to Pauze Funds, a Massachusetts business trust (the "Trust"), we
have been asked to render our opinion with respect to the issuance of an
indefinite number of shares of beneficial interest in the Trust representing
interests in the Pauze U.S. Government Total Return Bond Fund, the Pauze U.S.
Government Intermediate Term Bond Fund, the Pauze U.S. Government Short Term
Bond Fund, and the Pauze Tombstone Fund (collectively "the Shares"). The shares
of each such fund are a series of the Trust. The shares of each of the Pauze
U.S. Government Total Return Bond Fund, the Pauze U.S. Government Intermediate
Term Bond Fund and the Pauze U.S. Government Short Term Bond Fund, consist of
three classes of shares, the No Load Class of Shares, the Class B Shares and the
Class C Shares, and the shares of the Pauze Tombstone Fund consist of two
classes of shares, the Class A Shares and the Class B Shares all as more fully
described in the Prospectus and Statement of Additional Information in the form
contained in the Trust's Registration Statement on Form N-1A, as amended through
the date hereof, to which this opinion is an exhibit, to be filed with the
Securities and Exchange Commission.
We have examined the First Amended and Restated Master Trust Agreement of
the Trust dated February 9, 1996, as amended through the date hereof, the
Prospectus and Statement of Additional Information contained in such
Registration Statement, as amended through the date hereof, and such other
documents, records and certificates as we have deemed necessary for the purposes
of this opinion. In rendering this opinion, we have, with your approval, relied,
as to all questions of fact material to this opinion, upon certain certificates
of public officials and of your officers and assumed the genuineness of the
signatures on, and the authenticity of, all documents furnished to us, which
facts we have not independently verified.
Based upon the foregoing, we are of the opinion that the Shares, when
issued, delivered and paid for in accordance with the terms of the Prospectus
and Statement of Additional Information, will be legally issued, fully paid and
non-assessable by the Trust.
We hereby consent to your filing this opinion as an exhibit to Post
Effective Amendment Number 14 to the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ LYNCH, BREWER, HOFFMAN & SANDS, LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to all references to our firm in the Post-Effective
Amendment No. 14 to the Registration Statement of the Pauze Funds.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 1, 1999
PLAN PURSUANT TO RULE 12b-1
OF THE PAUZE
U.S. GOVERNMENT TOTAL RETURN BOND FUND
Adopted by Trustees September 11, 1998
as amended 12-11-98 by Trustees
RECITALS
1. PAUZE 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 is 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"). The Shares of the U.S.
Government Total Return Bond Fund (the "Shares") have been divided into four
classes (no-load, Class A, Class B and Class C) offered pursuant to a plan
adopted pursuant to Rule 18f-3 under the Act.
3. Funds of the Trust may utilize Fund assets to pay 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 judgment 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.
PLAN PROVISIONS
SECTION 1. EXPENDITURES
(a) Distribution Activities. Subject to the supervision of the Trustees of
the Trust, the Fund may, directly or indirectly, engage in any activities
related to the distribution of its Shares, which activities may include, but are
not limited to, the following: (a) payments, including incentive compensation,
to securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that are engaged in the sale of Shares, or that
may be advising shareholders of the Trust regarding the purchase, sale or
retention of Shares; (b) payments including incentive compensation, to
securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that hold Shares for shareholders in omnibus
accounts or as shareholders of record or provide shareholder support or
administrative services to the Fund and its shareholders; (c) expenses of
maintaining personnel (including personnel of organizations with which the Trust
has entered into agreements related to this Plan) who
<PAGE>
engage in or support distribution of Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, allocated overhead, office space and equipment, telephone
facilities and expenses, answering routine inquiries regarding the Trust,
processing shareholder transactions, and providing such other shareholder
services as the Trust may reasonably request; (d) costs of preparing, printing
and distributing prospectuses and statements of additional information and
reports of the Fund for recipients other than existing shareholders of the Fund;
(e) costs of formulating and implementing marketing and promotional activities,
including, but not limited to, sales seminars, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising; (f)
costs of preparing, printing and distributing sales literature; (g) costs of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, deem advisable; and
(h) costs of implementing and operating this Plan. The Trust is authorized to
engage in the activities listed above, and in any other activities related to
the distribution of Shares, either directly or through other persons with which
the Trust has entered into agreements related to this Plan.
(b) Annual Fee. The Fund will pay the Fund's Advisor ("the Advisor") an
annual fee for the Advisor's services in connection with the sales and promotion
of the Fund, including its expenses in connection therewith (collectively,
"Distribution Expenses"). The annual fee paid to the Advisor under this Plan
will be calculated daily and paid monthly by the Fund on the first day of each
month at an annual rate of 0.25% of the average daily net assets of the classes
of the Fund as to which this Plan is effective. Payments received by the Advisor
pursuant to this Plan are in addition to fees paid by the Fund pursuant to the
Advisory Agreement.
(c) Distribution Expenses in Excess of or Less Than Amount of Fee. All
Distribution Expenses in excess of its compensation hereunder shall be borne by
the Advisor. The fees paid by the Fund shall not be refundable in the event that
in any given year the fees are greater than the Advisor's Distribution Expenses
for that year.
(d) Additional Fee for Class B Shares. Class B Shares are sold without an
initial sales charge. The entire purchase price is invested in the Fund and the
Advisor pays the fee or commission of the Fund's principal underwriter (the
"Distributor") and the participating broker-dealer. In addition to the fee paid
by each Class pursuant to section 1(b), the Fund will pay the Advisor, as
compensation for financing the Class B broker-dealer fees and commissions, a fee
(accrued daily and paid monthly) at an annual rate of 0.75% of the Class B
Shares' average daily net assets. The Advisor will also receive any contingent
deferred sales charge ("CDSC") imposed in accordance with the Fund's then
current Prospectus and Statement of Additional Information.
(e) Additional Fee for Class C Shares. Class C Shares are sold subject to
an annual ongoing fee of 0.75% in order to compensate broker-dealers for sales
and promotional services related to distribution of said Shares. The Fund will
pay each broker-dealer an ongoing trail commission, at an annual rate of 0.75%,
based on the amount of Class C Shares sold by such broker-dealer and remaining
outstanding for the specified payment period.
SECTION 2. TERM AND TERMINATION
(a) Initial Term. This Plan shall become effective with respect to a class
of the Fund which has publicity sold shares prior to September 11, 1998, when
approved by a majority of the outstanding voting securities (as defined in the
Act) of the respective class and shall continue in effect for a period of one
year thereafter unless terminated or otherwise continued or discontinued as
provided in this Plan. This Plan shall
-2-
<PAGE>
become effective with respect to any other class of the Fund (whether now
existing or established in the future) on the day before the first public sale
of any of its shares and shall continue in effect for a period of one year
thereafter unless terminated or otherwise continued or discontinued as provided
in this Plan. The Plan shall be effective for those classes whose shareholders
have approved the Plan, even if shareholders of one or more classes fail to
approve the 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 as to
any class by vote of a majority of the Qualified Trustees, or by vote of a
majority of the outstanding voting securities of the applicable class.
SECTION 3. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof as to any class
unless such amendment is approved by a vote of the majority of the outstanding
voting securities of the applicable class, 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 of the Trust.
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;
-3-
<PAGE>
(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 applicable class, 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 with regard to
obligations incurred 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.
-4-
PLAN PURSUANT TO RULE 12b-1
OF THE PAUZE
U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
Adopted by Trustees September 11, 1998
as amended 12-11-98 by Trustees
RECITALS
1. PAUZE 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 is 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"). The Shares of the U.S.
Government Intermediate Term Bond Fund (the "Shares") have been divided into
four classes (no-load, Class A, Class B and Class C) offered pursuant to a plan
adopted pursuant to Rule 18f-3 under the Act.
3. Funds of the Trust may utilize Fund assets to pay 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 Intermediate Term 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 judgment 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.
PLAN PROVISIONS
SECTION 1. EXPENDITURES
(a) Distribution Activities. Subject to the supervision of the Trustees of
the Trust, the Fund may, directly or indirectly, engage in any activities
related to the distribution of its Shares, which activities may include, but are
not limited to, the following: (a) payments, including incentive compensation,
to securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that are engaged in the sale of Shares, or that
may be advising shareholders of the Trust regarding the purchase, sale or
retention of Shares; (b) payments including incentive compensation, to
securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that hold Shares for shareholders in omnibus
accounts or as shareholders of record or provide shareholder support or
administrative services to the Fund and its shareholders; (c) expenses of
maintaining personnel (including personnel of organizations with which the Trust
has entered into agreements related to this Plan) who engage in or support
distribution of Shares or who render shareholder support services not otherwise
<PAGE>
provided by the Trust's transfer agent, including, but not limited to, allocated
overhead, office space and equipment, telephone facilities and expenses,
answering routine inquiries regarding the Trust, processing shareholder
transactions, and providing such other shareholder services as the Trust may
reasonably request; (d) costs of preparing, printing and distributing
prospectuses and statements of additional information and reports of the Fund
for recipients other than existing shareholders of the Fund; (e) costs of
formulating and implementing marketing and promotional activities, including,
but not limited to, sales seminars, direct mail promotions and television,
radio, newspaper, magazine and other mass media advertising; (f) costs of
preparing, printing and distributing sales literature; (g) costs of obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and (h) costs of
implementing and operating this Plan. The Trust is authorized to engage in the
activities listed above, and in any other activities related to the distribution
of Shares, either directly or through other persons with which the Trust has
entered into agreements related to this Plan.
(b) Annual Fee. The Fund will pay the Fund's Advisor ("the Advisor") an
annual fee for the Advisor's services in connection with the sales and promotion
of the Fund, including its expenses in connection therewith (collectively,
"Distribution Expenses"). The annual fee paid to the Advisor under this Plan
will be calculated daily and paid monthly by the Fund on the first day of each
month at an annual rate of 0.25% of the average daily net assets of the classes
of the Fund as to which this Plan is effective. Payments received by the Advisor
pursuant to this Plan are in addition to fees paid by the Fund pursuant to the
Advisory Agreement.
(c) Distribution Expenses in Excess of or Less Than Amount of Fee. All
Distribution Expenses in excess of its compensation hereunder shall be borne by
the Advisor. The fees paid by the Fund shall not be refundable in the event that
in any given year the fees are greater than the Advisor's Distribution Expenses
for that year.
(d) Additional Fee for Class B Shares. Class B Shares are sold without an
initial sales charge. The entire purchase price is invested in the Fund and the
Advisor pays the fee or commission of the Fund's principal underwriter (the
"Distributor") and the participating broker-dealer. In addition to the fee paid
by each Class pursuant to section 1(b), the Fund will pay the Advisor, as
compensation for financing the Class B broker-dealer fees and commissions, a fee
(accrued daily and paid monthly) at an annual rate of 0.75% of the Class B
Shares' average daily net assets. The Advisor will also receive any contingent
deferred sales charge ("CDSC") imposed in accordance with the Fund's then
current Prospectus and Statement of Additional Information.
(e) Additional Fee for Class C Shares. Class C Shares are sold subject to
an annual ongoing fee of 0.75% in order to compensate broker-dealers for sales
and promotional services related to distribution of said Shares. The Fund will
pay each broker-dealer an ongoing trail commission, at an annual rate of 0.75%,
based on the amount of Class C Shares sold by such broker-dealer and remaining
outstanding for the specified payment period.
SECTION 2. TERM AND TERMINATION
(a) Initial Term. This Plan shall become effective with respect to a class
of the Fund which has publicity sold shares prior to September 11, 1998, when
approved by a majority of the outstanding voting securities (as defined in the
Act) of the respective class and shall continue in effect for a period of one
year thereafter unless terminated or otherwise continued or discontinued as
provided in this Plan. This Plan shall become effective with respect to any
other class of the Fund (whether now existing or established in the
-2-
<PAGE>
future) on the day before the first public sale of any of its shares and shall
continue in effect for a period of one year thereafter unless terminated or
otherwise continued or discontinued as provided in this Plan. The Plan shall be
effective for those classes whose shareholders have approved the Plan, even if
shareholders of one or more classes fail to approve the 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 as to
any class by vote of a majority of the Qualified Trustees, or by vote of a
majority of the outstanding voting securities of the applicable class.
SECTION 3. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof as to any class
unless such amendment is approved by a vote of the majority of the outstanding
voting securities of the applicable class, 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 of the Trust.
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;
-3-
<PAGE>
(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 applicable class, 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 with regard to
obligations incurred 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.
-4-
PLAN PURSUANT TO RULE 12b-1
OF THE PAUZE
U.S. GOVERNMENT SHORT TERM BOND FUND
Adopted by Trustees September 11, 1998
as amended 12-11-98 by Trustees
RECITALS
1. PAUZE 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 is 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"). The Shares of the U.S.
Government Short Term Bond Fund (the "Shares") have been divided into four
classes (no-load, Class A, Class B and Class C) offered pursuant to a plan
adopted pursuant to Rule 18f-3 under the Act.
3. Funds of the Trust may utilize Fund assets to pay 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 Short Term 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 judgment 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.
PLAN PROVISIONS
SECTION 1. EXPENDITURES
(a) Distribution Activities. Subject to the supervision of the Trustees of
the Trust, the Fund may, directly or indirectly, engage in any activities
related to the distribution of its Shares, which activities may include, but are
not limited to, the following: (a) payments, including incentive compensation,
to securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that are engaged in the sale of Shares, or that
may be advising shareholders of the Trust regarding the purchase, sale or
retention of Shares; (b) payments including incentive compensation, to
securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that hold Shares for shareholders in omnibus
accounts or as shareholders of record or provide shareholder support or
administrative services to the Fund and its shareholders; (c) expenses of
maintaining personnel (including personnel of organizations with which the Trust
has entered into agreements related to this Plan) who
<PAGE>
engage in or support distribution of Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, allocated overhead, office space and equipment, telephone
facilities and expenses, answering routine inquiries regarding the Trust,
processing shareholder transactions, and providing such other shareholder
services as the Trust may reasonably request; (d) costs of preparing, printing
and distributing prospectuses and statements of additional information and
reports of the Fund for recipients other than existing shareholders of the Fund;
(e) costs of formulating and implementing marketing and promotional activities,
including, but not limited to, sales seminars, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising; (f)
costs of preparing, printing and distributing sales literature; (g) costs of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, deem advisable; and
(h) costs of implementing and operating this Plan. The Trust is authorized to
engage in the activities listed above, and in any other activities related to
the distribution of Shares, either directly or through other persons with which
the Trust has entered into agreements related to this Plan.
(b) Annual Fee. The Fund will pay the Fund's Advisor ("the Advisor") an
annual fee for the Advisor's services in connection with the sales and promotion
of the Fund, including its expenses in connection therewith (collectively,
"Distribution Expenses"). The annual fee paid to the Advisor under this Plan
will be calculated daily and paid monthly by the Fund on the first day of each
month at an annual rate of 0.25% of the average daily net assets of the classes
of the Fund as to which this Plan is effective. Payments received by the Advisor
pursuant to this Plan are in addition to fees paid by the Fund pursuant to the
Advisory Agreement.
(c) Distribution Expenses in Excess of or Less Than Amount of Fee. All
Distribution Expenses in excess of its compensation hereunder shall be borne by
the Advisor. The fees paid by the Fund shall not be refundable in the event that
in any given year the fees are greater than the Advisor's Distribution Expenses
for that year.
(d) Additional Fee for Class B Shares. Class B Shares are sold without an
initial sales charge. The entire purchase price is invested in the Fund and the
Advisor pays the fee or commission of the Fund's principal underwriter (the
"Distributor") and the participating broker-dealer. In addition to the fee paid
by each Class pursuant to section 1(b), the Fund will pay the Advisor, as
compensation for financing the Class B broker-dealer fees and commissions, a fee
(accrued daily and paid monthly) at an annual rate of 0.75% of the Class B
Shares' average daily net assets. The Advisor will also receive any contingent
deferred sales charge ("CDSC") imposed in accordance with the Fund's then
current Prospectus and Statement of Additional Information.
(e) Additional Fee for Class C Shares. Class C Shares are sold subject to
an annual ongoing fee of 0.75% in order to compensate broker-dealers for sales
and promotional services related to distribution of said Shares. The Fund will
pay each broker-dealer an ongoing trail commission, at an annual rate of 0.75%,
based on the amount of Class C Shares sold by such broker-dealer and remaining
outstanding for the specified payment period.
SECTION 2. TERM AND TERMINATION
(a) Initial Term. This Plan shall become effective with respect to a class
of the Fund which has publicity sold shares prior to September 11, 1998, when
approved by a majority of the outstanding voting securities (as defined in the
Act) of the respective class and shall continue in effect for a period of one
year thereafter unless terminated or otherwise continued or discontinued as
provided in this Plan. This Plan shall
-2-
<PAGE>
become effective with respect to any other class of the Fund (whether now
existing or established in the future) on the day before the first public sale
of any of its shares and shall continue in effect for a period of one year
thereafter unless terminated or otherwise continued or discontinued as provided
in this Plan. The Plan shall be effective for those classes whose shareholders
have approved the Plan, even if shareholders of one or more classes fail to
approve the 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 as to
any class by vote of a majority of the Qualified Trustees, or by vote of a
majority of the outstanding voting securities of the applicable class.
SECTION 3. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof as to any class
unless such amendment is approved by a vote of the majority of the outstanding
voting securities of the applicable class, 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 of the Trust.
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;
-3-
<PAGE>
(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 applicable class, 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 with regard to
obligations incurred 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.
-4-
PLAN PURSUANT TO RULE 12b-1
OF THE PAUZE
TOMBSTONE FUND
Adopted by Trustees September 11, 1998
as amended 12-11-98 by Trustees
RECITALS
1. PAUZE 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 is 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"). The Shares of the
Tombstone Fund (the "Shares") have been divided into four classes (no-load,
Class A, Class B and Class C) offered pursuant to a plan adopted pursuant to
Rule 18f-3 under the Act.
3. Funds of the Trust may utilize Fund assets to pay 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 Tombstone 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 judgment 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.
PLAN PROVISIONS
SECTION 1. EXPENDITURES
(a) Distribution Activities. Subject to the supervision of the Trustees of
the Trust, the Fund may, directly or indirectly, engage in any activities
related to the distribution of its Shares, which activities may include, but are
not limited to, the following: (a) payments, including incentive compensation,
to securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that are engaged in the sale of Shares, or that
may be advising shareholders of the Trust regarding the purchase, sale or
retention of Shares; (b) payments including incentive compensation, to
securities dealers or other financial intermediaries, financial institutions,
investment advisors and others that hold Shares for shareholders in omnibus
accounts or as shareholders of record or provide shareholder support or
administrative services to the Fund and its shareholders; (c) expenses of
maintaining personnel (including personnel of organizations with which the Trust
has entered into agreements related to this Plan) who
<PAGE>
engage in or support distribution of Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, allocated overhead, office space and equipment, telephone
facilities and expenses, answering routine inquiries regarding the Trust,
processing shareholder transactions, and providing such other shareholder
services as the Trust may reasonably request; (d) costs of preparing, printing
and distributing prospectuses and statements of additional information and
reports of the Fund for recipients other than existing shareholders of the Fund;
(e) costs of formulating and implementing marketing and promotional activities,
including, but not limited to, sales seminars, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising; (f)
costs of preparing, printing and distributing sales literature; (g) costs of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, deem advisable; and
(h) costs of implementing and operating this Plan. The Trust is authorized to
engage in the activities listed above, and in any other activities related to
the distribution of Shares, either directly or through other persons with which
the Trust has entered into agreements related to this Plan.
(b) Annual Fee. The Fund will pay the Fund's Advisor ("the Advisor") an
annual fee for the Advisor's services in connection with the sales and promotion
of the Fund, including its expenses in connection therewith (collectively,
"Distribution Expenses"). The annual fee paid to the Advisor under this Plan
will be calculated daily and paid monthly by the Fund on the first day of each
month at an annual rate of 0.25% of the average daily net assets of the classes
of the Fund as to which this Plan is effective. Payments received by the Advisor
pursuant to this Plan are in addition to fees paid by the Fund pursuant to the
Advisory Agreement.
(c) Distribution Expenses in Excess of or Less Than Amount of Fee. All
Distribution Expenses in excess of its compensation hereunder shall be borne by
the Advisor. The fees paid by the Fund shall not be refundable in the event that
in any given year the fees are greater than the Advisor's Distribution Expenses
for that year.
(d) Additional Fee for Class B Shares. Class B Shares are sold without an
initial sales charge. The entire purchase price is invested in the Fund and the
Advisor pays the fee or commission of the Fund's principal underwriter (the
"Distributor") and the participating broker-dealer. In addition to the fee paid
by each Class pursuant to section 1(b), the Fund will pay the Advisor, as
compensation for financing the Class B broker-dealer fees and commissions, a fee
(accrued daily and paid monthly) at an annual rate of 0.75% of the Class B
Shares' average daily net assets. The Advisor will also receive any contingent
deferred sales charge ("CDSC") imposed in accordance with the Fund's then
current Prospectus and Statement of Additional Information.
(e) Additional Fee for Class C Shares. Class C Shares are sold subject to
an annual ongoing fee of 0.75% in order to compensate broker-dealers for sales
and promotional services related to distribution of said Shares. The Fund will
pay each broker-dealer an ongoing trail commission, at an annual rate of 0.75%,
based on the amount of Class C Shares sold by such broker-dealer and remaining
outstanding for the specified payment period.
SECTION 2. TERM AND TERMINATION
(a) Initial Term. This Plan shall become effective with respect to a class
of the Fund which has publicity sold shares prior to September 11, 1998, when
approved by a majority of the outstanding voting securities (as defined in the
Act) of the respective class and shall continue in effect for a period of one
year thereafter unless terminated or otherwise continued or discontinued as
provided in this Plan. This Plan shall
-2-
<PAGE>
become effective with respect to any other class of the Fund (whether now
existing or established in the future) on the day before the first public sale
of any of its shares and shall continue in effect for a period of one year
thereafter unless terminated or otherwise continued or discontinued as provided
in this Plan. The Plan shall be effective for those classes whose shareholders
have approved the Plan, even if shareholders of one or more classes fail to
approve the 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 as to
any class by vote of a majority of the Qualified Trustees, or by vote of a
majority of the outstanding voting securities of the applicable class.
SECTION 3. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof as to any class
unless such amendment is approved by a vote of the majority of the outstanding
voting securities of the applicable class, 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 of the Trust.
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;
-3-
<PAGE>
(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 applicable class, 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 with regard to
obligations incurred 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.
-4-
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Pauze Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee and the Secretary of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Philip C.
Pauze her attorney for her and in her name, place and stead, and in her office
and capacity in the Trust, to execute and file any Amendment or Amendments to
the Trust's Registration Statement, hereby giving and granting to said attorney
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as fully
to all intents and purposes as she might or could do if personally present at
the doing thereof, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 30th day
of June, 1999.
/s/ Patricia S. Dobson
-------------------------------
Patricia S. Dobson
Trustee and Secretary
STATE OF TEXAS )
) ss:
COUNTY OF HARRIS )
Before me, a Notary Public, in and for said county and state, personally
appeared Patricia S. Dobson, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that she executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 30th day of June, 1999.
Jeanette L. Sumruld
-------------------------------
Notary Public
My commission expires: March 4, 2000
-------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Pauze Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee and the President of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Patricia S.
Dobson his attorney for him and in his name, place and stead, and in his office
and capacity in the Trust, to execute and file any Amendment or Amendments to
the Trust's Registration Statement, hereby giving and granting to said attorney
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as fully
to all intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th day
of June, 1999.
/s/ Philip C. Pauze
-------------------------------
Philip C. Pauze
Trustee and President
STATE OF TEXAS )
) ss:
COUNTY OF HARRIS )
Before me, a Notary Public, in and for said county and state, personally
appeared Philip C. Pauze, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 30th day of June, 1999.
Jeanette L. Sumruld
-------------------------------
Notary Public
My commission expires: 3/4/00
--------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Pauze Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Patricia S.
Dobson and Philip C. Pauze, and each of them, his attorneys for him and in his
name, place and stead, and in his office and capacity in the Trust, to execute
and file any Amendment or Amendments to the Trust's Registration Statement,
hereby giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of July, 1999.
/s/ Wayne F. Collins
-------------------------------
Wayne F. Collins
Trustee
STATE OF TEXAS )
) ss:
COUNTY OF MONTGOMERY )
Before me, a Notary Public, in and for said county and state, personally
appeared Wayne F. Collins, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 1st day of July, 1999.
Karen Fry
-------------------------------
Notary Public
My commission expires: 2-28-2001
---------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Pauze Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Patricia S.
Dobson and Philip C. Pauze, and each of them, his attorneys for him and in his
name, place and stead, and in his office and capacity in the Trust, to execute
and file any Amendment or Amendments to the Trust's Registration Statement,
hereby giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of July, 1999.
/s/ Robert J. Pierce
-------------------------------
Robert J. Pierce
Trustee
State of California }
County of Napa } ss.
On July 1st, 1999 before me, Christine
M. Rossi, personally appeared Robert J.
Pierce, proved to me on the basis of
satisfactory evidence to be the person
whose name is subscribed to the within
[NOTARY SEAL] instrument and acknowleded to me that he
executed the same in his authorized
capacity and that by his signature on
the instrument the person, or the entity
upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal
Christine M. Rossi
------------------