PROSPECTUS
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)
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 1, 1999
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TABLE OF CONTENTS
ABOUT THE FUNDS................................................................1
HOW THE FUNDS HAVE PERFORMED...................................................2
COSTS OF INVESTING IN THE FUNDS................................................4
HOW TO PURCHASE SHARES.........................................................6
ALTERNATIVE PURCHASE PLANS.....................................................7
HOW TO EXCHANGE SHARES.........................................................9
HOW TO REDEEM SHARES..........................................................10
MANAGEMENT OF THE FUNDS.......................................................12
SHAREHOLDER SERVICES..........................................................13
HOW SHARES ARE VALUED.........................................................13
DISTRIBUTIONS AND TAXES.......................................................14
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS....................15
YEAR 2000 ISSUE...............................................................17
FINANCIAL HIGHLIGHTS..........................................................18
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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 Intermediate
Term Bond Fund(TM) and the Pauze U.S. Government Short 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 Fund's 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 TOTAL RETURN BOND FUND invests exclusively in U.S. government
securities and repurchase agreements backed by U.S. government debt securities.
U.S. government debt 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 high 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 INTERMEDIATE TERM BOND FUND invests exclusively in U.S. government debt
securities, repurchase agreements backed by U.S. government debt securities, and
futures and options on government debt securities for hedging purposes only.
U.S. government debt 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, repurchase agreements backed by U.S. government debt securities, and
futures and options on government debt securities for hedging purposes only.
U.S. government debt 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.
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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 share price of the Total
Return Bond Fund will be more volatile than the Intermediate Term Bond Fund, and
the share price of the Intermediate 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.
PREPAYMENT RISK. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities usually accelerates.
Prepayment may shorten the effective maturities of these securities and a Fund
may have to reinvest at a lower interest rate.
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
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Fund's past performance is not necessarily an indication of its future
performance.
Annual Total Returns as of December 31 of each year
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Pauze U.S. Government Total Return Bond Fund
Class B Shares
Annual Total Returns
1997 12.13%
1998 2.60%
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Pauze U.S. Government Intermediate Term Bond Fund
Class B Shares
Annual Total Returns
1997 3.88%
1998 4.08%
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Pauze U.S. Government Short Term Bond Fund
Class B Shares
Annual Total Returns
1997 1.56%
1998 1.47%
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Each Fund's year-to-date return as of June 30, 1999 was as follows:
Total Return Bond Fund - Class B (4.75)%
Intermediate Term Bond Fund - Class B (1.95)%
Short Term Bond Fund - Class B (0.38)%
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AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 12/31/98:
1 Year Since Inception
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Total Return Bond Fund - Class B (1.25)% 6.04%*
Lehman Government Bond Index 9.85 % 10.30%
Intermediate Term Bond Fund - Class B 0.18 % 2.88%*
Lehman U.S. Treas. Intermediate Index 8.62 % 8.55%
Short Term Bond Fund - Class B (2.34)% 0.44%*
Lehman 1-3 Government Index 7.02 % 7.11%
*September 3, 1996
For the Total Return Bond Fund (Class B), the highest return during the
periods shown for a calendar quarter was 7.01% in the fourth quarter of 1997,
and the lowest return was (5.58)% for the fourth quarter of 1998.
For the Intermediate Term Bond Fund (Class B), the highest return during
the periods shown for a calendar quarter was 3.15% in the fourth quarter of
1997, and the lowest return was 2.16% for the first quarter of 1997.
For the Short Term Bond Fund (Class B), the highest return during the
periods shown for a calendar quarter was 2.18% in the third quarter of 1998, and
the lowest return was 0.98% for the second quarter of 1999.
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 any of the Funds.
Total Return Bond Fund
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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 0.60% 0.60%
12b-1 Fees 1.00%(2) 1.00%
Other Expenses 0.83% 0.83%
Total Fund Operating Expenses 2.43% 2.43%
Intermediate Term Bond Fund
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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
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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 0.50% 0.50%
12b-1 Fees 1.00%(2) 1.00%
Other Expenses 0.91% 0.91%
Total Fund Operating Expenses 2.41% 2.41%
Short Term Bond Fund
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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 0.50% 0.50%
12b-1 Fees 1.00%(2) 1.00%
Other Expenses 0.98% 0.98%
Total Fund Operating Expenses 2.48% 2.48%
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:
1 Year 3 Years 5 Years 10 Years
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Total Return Fund
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Class B
if you sold your shares
at the end of the period $ 640 $1,159 $1,712 $3,266
if you stayed in the Fund $ 265 $ 834 $1.487 $3,266
Class C $ 265 $ 834 $1,487 $3,562
Intermediate Term Fund
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Class B
if you sold your shares
at the end of the period $ 638 $1,152 $1,701 $3,240
if you stayed in the Fund $ 263 $ 827 $1,476 $3,240
Class C $ 263 $ 827 $1,476 $3,536
Short Term Fund
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Class B
if you sold your shares
at the end of the period $ 645 $1,175 $1,741 $3,333
if you stayed in the Fund $ 270 $ 850 $1,516 $3,333
Class C $ 270 $ 850 $1,516 $3,627
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(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 New York Stock Exchange (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. It
is the responsibility of your Representative to transmit orders to the Funds'
distributor on a timely basis.
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(TM)
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.
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.
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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 Application form and mail it to the address
indicated in "By Mail" 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
Funds and Custodian Bank are open for business.
There are no wire fees charged by the Funds for purchases of $1,000 or
more. A wire fee of up to $20 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. 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 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.
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.
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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 the 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
added together 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.
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
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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 to pay 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.
BY MAIL: You may direct Pauze Funds(TM) in writing to exchange your shares.
The request must be
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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. Shareholders will be notified before the Funds impose an
exchange fee.
(3) As with any other redemption, if the shares were purchased by check the
Funds may hold redemption proceeds until the purchase check has cleared. This
may take 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.
HOW TO REDEEM SHARES
If your redemption request is received prior to close of trading on the New
York Stock Exchange (4:00 p.m. Eastern time), your redemption will be priced the
same day. Any redemption request received after that time will be priced the
next day.
BY MAIL: Your redemption request must include:
(a) original signatures of each registered owner exactly as the shares are
registered;
(b) the fund name and the account number ;
(c) the number of shares or dollar amount to be redeemed; and
(d) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities.
Send your written request for redemption form to:
Pauze Funds(TM)
c/o Champion Fund Services
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
BY TELEPHONE: You may request redemption by telephone. If you do not wish
to allow telephone redemptions by any person on the account, you should decline
that option on the account application.
This feature can only be used on non-institutional accounts if:
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a) the redemption proceeds are to be mailed to the address of record or
wired to the pre-authorized bank account;
b) there has been no change of address of record on the account within
the preceding 30 days;
c) the person requesting the redemption can provide proper
identification; and
d) the proceeds of the redemption do not exceed $15,000.
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 $50,000 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 from the purchase
date. You may avoid this requirement by investing by bank wire (Federal funds).
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 proceeds 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 from the purchase date. A
wire fee of up to $20 will be charged by the Funds, which is deducted from
redemption proceeds.
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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,
including exchanges into a Fund.
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
12
<PAGE>
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.
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 debt 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 fees for the fiscal year ended April 30, 1999, as a percentage
of net assets, as follows: Total Return Fund, 0.60%, Intermediate Term Fund,
0.50% and Short Term Fund, 0.50%.
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
13
<PAGE>
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 by calling 1-800-327-7170.
HOW SHARES ARE VALUED
The price of 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, exchange 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. Each Fund expects that its distributions will consist primarily
of dividends.
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.
14
<PAGE>
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.
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
PRINCIPAL STRATEGIES
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
15
<PAGE>
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 debt securities.
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>
NON-PRINCIPAL STRATEGIES
Futures Contracts and Options: The Short Term Fund and the Intermediate Term
Fund may invest in futures contracts and option contracts on U.S. government
debt securities for hedging purposes only. Futures contracts and options
contracts pose additional risks. See the Statement of Additional Information for
a description of the risks.
Investment Objective: 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 debt 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.
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
17
<PAGE>
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 has been audited by Tait, Weller &
Baker, the Funds' 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 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,
except as indicated.
<TABLE>
<CAPTION>
Net Asset Realized Dividends Distributions Net Asset
Value Net and Unrealized from Net From Liquidations Value
Beginning Investment Gains (Losses) Investment Capital From End
Of Period Income of Investments Income Gains Capital of Period
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Total Return Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
1999 $10.41 $0.27 $(0.83) $(0.27) $(0.19) - $ 9.39
1998 9.84 0.36 1.40 (0.36) (0.83) - 10.41
1997 (1) 10.00 0.27 (0.16) (0.27) - - 9.84
CLASS C
1999 (2) $10.00 $0.28 $(0.82) $(0.28) $(0.19) - $ 8.99
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Intermediate Term Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B
1999 $10.12 $0.25 $(0.19) $(0.25) $(0.12) - $ 9.81
1998 9.74 0.26 0.43 (0.26) (0.05) - 10.12
1997 (1) 10.00 0.18 (0.15) (0.17) (0.12) - 9.74
- ---------------------------------------------------------------------------------------------------------------------------
18
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Short Term Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B
1999 (3) $10.00 $0.14 $ 0.07 $(0.18) $(0.12) - $ 9.91
1998 (4)* 9.96 0.13 0.07 (0.13) - (10.03) -
1997 (1) 10.00 0.13 (0.03) (0.13) (0.01) - 9.96
CLASS C
1999 $ 9.98 $0.22 $ 0.18 $(0.26) $(0.12) - $10.00
1998 9.91 0.22 0.07 (0.22) - - 9.98
1997 (5) 10.00 0.09 (0.10) (0.08) - - 9.91
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Investment
Ratio of Net Expenses to Income (loss)
Ratio of Investment Average to Average
Net Assets Expenses to Income Net Assets Net Assets Portfolio
Total End of Average to Average (Excluding (Excluding Turnover
Return Period (000) Net Assets Net Assets Waivers) Waivers) Rate
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government Total Return Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
1999 (5.57)% $1,285 2.43% 2.98% 2.43% 2.98% 1,226.42%
1998 18.16 280 2.66 3.41 2.66 3.41 251.66
1997 (1) 1.09 387 2.33 3.82 2.33 3.82 76.45
CLASS C
1999 (2) (5.63)% $ 67 2.43% 2.98% 2.43% 2.98% 1,226.42%
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Intermediate Term Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
1999 0.58% $1,060 2.41% 2.40% 2.41% 2.40% 711.31%
1998 7.13 442 2.96 2.55 2.96 2.55 259.92
1997 (1) 0.32 1,418 3.18 2.64 3.20 2.62 447.36
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Short Term Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
1999 (3) 2.11% 106 2.48% 2.40% 2.48% 2.40% 257.68%
1998 (4)* 1.99 - 3.56 2.01 3.56 2.01% 47.19
19
<PAGE>
1997 (1) 1.05 177 3.85 1.96 6.01 (0.20) 395.58
CLASS C
1999 4.01% 39 2.48% 2.40% 2.48% 2.40% 257.68%
1998 2.93 158 3.26 2.22 3.49 2.00% 47.19
1997 (5) (0.07) 302 3.53 1.74 5.55 (0.28) 255.61
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective December 19, 1997, the sole shareholder liquidated all Class B
shares.
(1) Commenced operations on September 3, 1996. All ratios, except total return,
for the period have been annualized.
(2) Commenced operations on May 13, 1998. All ratios, except total return, for
the period have been annualized.
(3) Commenced operations on September 17, 1998. All ratios, except total
return, for the period have been annualized.
(4) For the period May 1, 1997 to December 19, 1997. All ratios, except total
return, for the period have been annualized.
(5) Commenced operations on November 7, 1996. All ratios, except total return,
for the period have been annualized.
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co. (TM)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Champion Fund Services
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
DISTRIBUTOR
B.C. Ziegler and Company
215 North Main St
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank, N.A
425 Walnut Street
Cincinnati, Ohio 45202
ACCOUNTANTS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
LEGAL COUNSEL
Brown, Cummins & Brown
3500 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
20
<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 review and copy information about the Funds (including the SAI and
other reports) at the Securities and Exchange Commission 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 on the SEC's Internet site at
http.//www.sec.gov, and copies of this information may be obtained 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
<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)
- --------------------------------------------------------------------------------
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.
SEPTEMBER 1, 1999
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUNDS................................................................1
HOW THE FUNDS HAVE PERFORMED...................................................2
COSTS OF INVESTING IN THE FUNDS................................................4
HOW TO PURCHASE SHARES.........................................................5
HOW TO EXCHANGE SHARES.........................................................7
HOW TO REDEEM SHARES...........................................................8
MANAGEMENT OF THE FUNDS.......................................................11
SHAREHOLDER SERVICES..........................................................12
HOW SHARES ARE VALUED.........................................................12
DISTRIBUTIONS AND TAXES.......................................................12
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS....................14
YEAR 2000 ISSUE...............................................................16
FINANCIAL HIGHLIGHTS..........................................................17
<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 Intermediate
Term Bond Fund(TM) and the Pauze U.S. Government Short Term Bond Fund. 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 Fund's 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 TOTAL RETURN BOND FUND invests exclusively in U. S. government debt
securities and repurchase agreements backed by U.S. government debt securities.
U.S. government debt 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 high 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 INTERMEDIATE TERM BOND FUND invests exclusively in U. S. government
debt securities, repurchase agreements backed by U.S. government debt
securities, and futures and options on U.S. government debt securities for
hedging purposes only. U.S. government debt 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, repurchase agreements backed by U.S. government debt securities, and
futures and options on U.S. government debt securities for hedging purposes
only. U.S. government debt 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.
1
<PAGE>
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 share price of the Total
Return Bond Fund will be more volatile than the Intermediate Term Bond Fund, and
the share price of the Intermediate 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.
PREPAYMENT RISK. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities usually accelerates.
Prepayment may shorten the effective maturities of these securities and a Fund
may have to reinvest at a lower interest rate.
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. The tables show how each Fund's
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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.
Annual Total Returns as of December 31, of Each Year:
--------------------------------------------------------
Pauze U.S. Government Total Return Bond Fund
Annual Total Returns
1995 14.26%
1996 0.90%
1997 12.90%
1998 3.47%
--------------------------------------------------------
--------------------------------------------------------
Pauze U.S. Government Intermediate Term Bond Fund
Annual Total Returns
1997 4.77%
1998 4.69%
--------------------------------------------------------
--------------------------------------------------------
Pauze U.S. Government Short Term Bond Fund
Annual Total Returns
1997 2.71%
1998 5.11%
--------------------------------------------------------
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Each Fund's year-to-date return as of June 30, 1999 was as follows:
Total Return Bond Fund (4.76)%
Intermediate Term Bond Fund (1.58)%
Short Term Bond Fund (0.01)%
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING 12/31/98:
1 Year Since Inception
------ ---------------
Total Return Bond Fund 3.47% 4.94%*
Lehman Government Bond Index 9.85% 5.83%
Intermediate Term Bond Fund 4.69% 4.73%**
Lehman U.S. Treas. Intermediate Index 8.62% 8.10%
Short Term Bond Fund 5.11% 3.83%***
Lehman 1-3 Government Index 7.02% 7.11%
*January 10, 1994
**October 10, 1996
***September 3, 1996
For the Total Return Bond Fund, the highest return during the periods shown
for a calendar quarter was 10.53% in the third quarter of 1997, and the lowest
return was (5.36)% for the fourth quarter of 1998.
For the Intermediate Term Bond Fund, the highest return during the periods
shown for a calendar quarter was 3.39% in the fourth quarter of 1997, and the
lowest return was (1.92)% for the first quarter of 1997.
For the Short Term Bond Fund, the highest return during the periods shown
for a calendar quarter was 1.99% in the third quarter of 1998, and the lowest
return was (0.78)% for the second quarter of 1999.
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 any of the Funds.
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
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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 0.60% 0.50% 0.50%
Distribution (12b-1) Fees 0.25% 0.25% 0.25%
Other Expenses 0.83% 0.91% 0.98%
Total Annual Fund
Operating Expenses 1.68% 1.66% 1.73%
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:
Total Return Fund Intermediate Term Fund Short Term Fund
----------------- ---------------------- ---------------
1 year $ 186 $ 184 $ 192
3 years 584 577 600
5 years 1,047 1,035 1,076
10 years 2,549 2,521 2,618
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
Account Application form which accompanies this Prospectus and mailing it, in
proper form, together with a check made payable to the appropriate Fund, to the
address listed below:
PAUZE FUNDS(TM)
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 Fund reserves the right to refuse to accept second party
checks.
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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 Application form and mail it to the address
indicated in "By Mail" 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
Custodian Bank are open for business.
There are no wire fees charged by the Funds for purchases of $1,000 or
more. A wire fee of up to $20 will be charged by the Funds on wire purchases of
less than $1,000. Your bank also may charge wire fees for this service.
BY AUTOMATIC INVESTMENT PLAN: Once your account is open, you may make
investments automatically by completing the automatic investment plan form
authorizing Pauze Funds(TM) to draw on your bank account. 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 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.
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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 insufficient 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.
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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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 presently 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. Shareholders will be notified before the Funds
impose an exchange fee.
(3) As with any other redemption, if the shares were purchased by check the
Funds may hold redemption proceeds until the purchase check has cleared. This
may take 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.
HOW TO REDEEM SHARES
If your redemption request is received prior to close of trading on the New
York Stock Exchange (4:00 p.m. Eastern time), your redemption will be priced the
same day. Any redemption request received after that time will be priced the
next day.
BY MAIL: Your request must include:
a) original signatures of each registered owner exactly as the shares are
registered;
b) the fund name and the account number;
c) the number of shares or dollar amount to be redeemed; and
d) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities.
Send your written request for redemption to: PAUZE FUNDS(TM)
C/O CHAMPION FUND SERVICES
14340 TORREY CHASE BLVD., SUITE 170
HOUSTON, TEXAS 77014
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BY TELEPHONE: You may request redemption by telephone. If you do not wish
to allow telephone redemptions by any person on the account, you should decline
that option on the account application.
This feature can only be used on non-institutional accounts if:
a) the redemption proceeds are to be mailed to the address of record or
wired to the pre-authorized bank account;
b) there has been no change of address of record on the account within
the preceding 30 days;
c) the person requesting the redemption can provide proper
identification; and
d) the proceeds of the redemption do not exceed $15,000.
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 $50,000 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 from the purchase
date. You may avoid this requirement by investing by bank wire (Federal funds).
Please notify the Fund promptly in writing of any change of address.
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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
redemption proceeds 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 from the purchase date. A
wire fee of up to $20 will be charged by the Funds, 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,
including exchanges into a Fund.
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
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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.
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 debt 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.
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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 fees for the fiscal year ended April 30, 1999, as a percentage
of net assets, as follows: Total Return Fund, 0.60%, Intermediate Term Fund,
0.50% and Short Term Fund, 0.50%.
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.
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 of 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, exchange 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.
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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. Each Fund expects that its distributions will consist primarily
of dividends.
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:
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.
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.
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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
PRINCIPAL STRATEGIES
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.
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
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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.
NON-PRINCIPAL STRATEGIES
Futures Contracts and Options: Each Fund may invest in futures contracts and
option contracts on U.S. government debt securities for hedging purposes only.
Futures contracts and options contracts pose additional risks. See the Statement
of Additional Information for a description of the risks.
Investment Objective: 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.
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
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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.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following condensed financial information has been audited by Tait,
Weller & Baker, the Funds' 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 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,
except as indicated.
<TABLE>
<CAPTION>
Net Asset Realized Dividends Distributions
Value Net and Unrealized from Net from Value
Beginning Investment Gains (Losses) Investment Capital End
of Period Income of Investments Income Gains of Period
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Total Return Bond Fund
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $ 9.60 $ 0.35 $(0.79) $(0.35) $(0.19) $ 8.62
1998 9.17 0.43 1.27 (0.44) (0.83) 9.60
1997 9.54 0.45 (0.37) (0.45) -- 9.17
1996 9.37 0.44 0.31 (0.44) (0.14) 9.54
1995 (2)* 9.25 0.35 0.12 (0.35) -- 9.37
1994 (1) 10.00 0.14 (0.75) (0.14) -- 9.25
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Intermediate Term Bond Fund
- ------------------------------------------------------------------------------------------------------------------
1999 $10.10 $ 0.33 $(0.21) $(0.33) $(0.12) $ 9.77
1998 9.72 0.34 0.43 (0.34) (0.05) 10.10
1997 (3) 10.00 0.18 (0.19) (0.18) (0.09) 9.72
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Short Term Bond Fund
- ------------------------------------------------------------------------------------------------------------------
1999 $10.06 $ 0.29 $ 0.19 $(0.33) $(0.12) $10.09
1998 9.98 0.29 0.08 (0.29) -- 10.06
1997 (4) 10.00 0.14 (0.01) (0.14) (0.01) 9.98
<CAPTION>
Ratio of Net
Ratio of Investment
Ratio of Net Expenses to Income (loss)
Ratio of Investment Average to Average
Net Assets Expenses to Income Net Assets Net Assets Portfolio
Total End of Average to Average (Excluding (Excluding Turnover
Return Period (000) Net Assets Net Assets Waivers) Waivers) Rate
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government Total Return Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
1999 (4.83)% $ 56,124 1.68% 3.73% 1.68% 3.73% 1,226.42%
1998 18.91 78,350 1.65 4.41 1.65 4.41 251.66
1997 0.80 67,936 1.40 4.75 1.40 4.75 202.01
1996 8.08 71,294 1.23 4.74 1.23 4.74 228.03
1995 (2)* 5.21 31,994 1.50 4.87 1.66 4.71 168.90
1994 (1) (6.11) 13,661 1.50 4.06 3.14 2.42 0.00
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government Intermediate Term Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
1999 1.13% $ 8,564 1.66% 3.15% 1.66% 3.15% 711.31%
1998 8.01 2,722 2.17 3.51 2.17 3.51 259.92
1997 (3) (0.12) 1,247 2.47 3.23 2.48 3.22 298.88
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government Short Term Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
1999 4.79% $ 2,008 1.73% 3.15% 1.73% 3.15% 257.68%
1998 3.76 1,868 2.42 3.18 2.60 2.95 47.19
1997 (4) 1.25 236 3.03 2.58 5.18 0.43 351.63
</TABLE>
* Year end changed to April 30th.
(1) For the period January 10, 1994 (commencement of operations) to June 30,
1994. All ratios, except total return, for the period have been annualized.
(2) For the period July 1, 1994 to April 30, 1995. All ratios, except total
return, for the period have been annualized.
(3) Commenced operations on October 10, 1996. All ratios, except total return,
for the period have been annualized.
(4) Commenced operations on September 3, 1996. All ratios, except total return,
for the period have been annualized.
17
<PAGE>
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co. (TM)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Champion Fund Services
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
DISTRIBUTOR
B.C. Ziegler and Company
215 North Main St.
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank, N.A
425 Walnut Street
Cincinnati, Ohio 45202
ACCOUNTANTS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
LEGAL COUNSEL
Brown, Cummins & Brown
3500 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
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 1-800-327-7170 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 review and copy information about the Funds (including the SAI and
other reports) from the Securities and Exchange Commission 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 on the SEC's Internet site at
http:\\www.sec.gov, and copies of this information may be obtained 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
<PAGE>
PROSPECTUS
PAUZE FUNDS(TM)
- --------------------------------------------------------------------------------
PAUZE TOMBSTONE FUND(TM)
- --------------------------------------------------------------------------------
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 FUND'S SHARES. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
SEPTEMBER 1, 1999
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUND.................................................................1
HOW THE FUND HAS PERFORMED.....................................................2
COSTS OF INVESTING IN THE FUND.................................................3
HOW TO PURCHASE SHARES.........................................................4
ABOUT THE SALES CHARGE.........................................................6
RULE 12b-1 DISTRIBUTION PLAN...................................................7
HOW TO EXCHANGE SHARES.........................................................8
HOW TO REDEEM SHARES...........................................................8
HOW SHARES ARE VALUED.........................................................11
DISTRIBUTIONS AND TAXES.......................................................12
MANAGEMENT OF THE FUND........................................................13
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS....................13
YEAR 2000 ISSUE...............................................................14
FINANCIAL HIGHLIGHTS..........................................................15
<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 common stock 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 the percentage of its
market capitalization attributable to death care relative to the aggregate
market capitalization attributable to death care of all stocks 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 $50 million. The Index is composed
primarily of smaller capitalization companies. UPDATE: As of August 1, 1999,
nine companies were included in the Index. They had market capitalizations
ranging from $73 million to $3.8 billion, and the aggregate market
capitalization of the Index attributable to death care approximated $7.2
billion. Although the Fund attempts to replicate the performance of the Index by
investing in the stocks in the Index, the Fund may also invest in cash
equivalents, short term fixed income securities or U.S. government repurchase
agreements at any time to maintain liquidity, to meet regulatory requirements or
pending selection of investments in accordance with its policies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
As with any mutual fund investment, the Fund's returns will vary and you
could lose money.
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 61%, two companies comprised approximately 75%, and four companies
comprised approximately 93% 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. To the
extent the companies in the Index derive their revenues from industries outside
the death care sector, the Fund may be impacted by events affecting those
industries.
1
<PAGE>
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.
Because the Fund may invest in cash equivalents, short term fixed income
securities or U.S. government repurchase agreements for liquidity and other
purposes, there will not necessarily be a high correlation between the Fund's
portfolio and the Index at all times and the Fund may not achieve its objective.
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.
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 chart and table below show the variability of the Fund's returns, which
is one indicator of the risks of investing in the Fund. The bar chart 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 table shows 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.
ANNUAL TOTAL RETURNS AS OF DECEMBER 31 OF EACH YEAR:
=================================================================
Pauze Tombstone Fund
Class A Shares
Annual Total Return
1998 2.62%
=================================================================
The Fund's year-to-date return as of June 30, 1999 was (44.04)%.
2
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING 12/31/98:
1 Year Since
------ Inception*
----------
Class A (9.64)% (1.89)%
S&P 500 Index 28.58% 28.77%
*May 6, 1997
The Fund's highest return during the periods shown for a calendar quarter was
13.03% in the fourth quarter of 1997, and the lowest return was (50.65)% for the
first quarter of 1999.
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 original purchase price or
redemption proceeds, as applicable)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 Expenses....................................................1.43% 1.43%
Total Annual Fund Operating Expenses..............................2.06% 2.81%
</TABLE>
1 The maximum contingent deferred sales charge (CDSC) applies to redemptions
within two years of purchase. The CDSC decreases over time to zero, and the
Class B shares convert to Class A shares at that time. You may be charged a fee
if redemption proceeds are wired.
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: $612 $1,119 $1,703 $3,567
Class B: $680 $1,034 $1,930 $3,764
3
<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 FIRSTAR BANK, N.A.
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 OTHER INFORMATION
FEES
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of No distribution fee; Initial sales charge
3.75% service fee of 0.25% of waived or reduced for
average daily net assets certain purchases
CLASS B No initial sales charge; CDSC Distribution fee of 0.75%; Shares convert to Class
of 3.75% declines to 0% after service fee of 0.25% of A after seventh year
seven 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
<TABLE>
<CAPTION>
IF YOU PURCHASE CLASS A SHARES IF YOU PURCHASE CLASS B SHARES
<S> <C>
You will not have all of your money invested. All of your money is invested in shares of stock.
Part of your purchase price will go to pay the However, you will pay a declining sales charge if
sales charge. You will not pay a sales charge you redeem your shares within seven years of
when you redeem your shares. purchase.
ONGOING EXPENSES
IF YOU PURCHASE CLASS A SHARES IF YOU PURCHASE CLASS B SHARES
Your shares will have a lower ongoing expense The distribution and service fees for Class B
ratio than Class B shares. shares will cause your shares to have a higher
</TABLE>
4
<PAGE>
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 3 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 Application 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 wire fee of up to $20 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.
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. It is the responsibility of your financial advisor to transmit
orders to the Fund's distributor on a timely basis.
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.
5
<PAGE>
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:
<TABLE>
<CAPTION>
Total Investment Sales Charge as a % of:*
Public Offering Net Invested Dealer Reallowance as Percentage of
Price Amount Public Offering Price**
<S> <C> <C> <C>
Up to $250,000 3.75% 3.90% 3.25%
Next $250,000 3.25% 3.36% 2.85%
Next $250,000 3.00% 3.09% 2.70%
Next $250,000 2.00% 2.04% 1.80%
$1,000,000 or more 1.00% 1.00% .90%
</TABLE>
* To calculate the actual sales charge on an investment greater than $250,000
and less than $1,000,000, amounts for each applicable increment must be
totaled.
** 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
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 Broker/dealers with dealer agreements with the Fund's distributor, and
registered representatives of such entities.
6
<PAGE>
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-
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
7
<PAGE>
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. 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. Shareholders will be notified
before the Fund imposes an exchange fee.
(3) As with any other redemption, if the shares were purchased by check the
Fund may hold redemption proceeds until the purchase check has cleared.
This may take up to seven days. In such event, the purchase side of the
exchange transaction will also be delayed. You will be notified immediately
if the 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.
HOW TO REDEEM SHARES
If your redemption request is received prior to close of trading on the New
York Stock Exchange (4:00 p.m. Eastern time), your redemption will be priced the
same day. Any redemption request received after that time will be priced the
next day.
8
<PAGE>
BY MAIL: Your redemption request must include:
(a) original signatures of each registered owner exactly as the shares are
registered;
(b) the fund name and the account number ;
(c) the number of shares or dollar amount to be redeemed; and
(d) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities.
Send your written request for redemption to: Pauze Funds(TM)
c/o Champion Fund Services
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
BY TELEPHONE: You may request redemption by telephone. If you do not wish
to allow telephone redemptions by any person on the account, you should decline
that option on the account application.
This feature can only be used on non-institutional accounts if:
a) the redemption proceeds are to be mailed to the address of record or
wired to the pre-authorized bank account;
b) there has been no change of address of record on the account within
the preceding 30 days;
c) the person requesting the redemption can provide proper
identification; and
d) the proceeds of the redemption do not exceed $15,000.
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 $50,000 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 from the purchase
date. You may avoid this requirement by investing by bank wire (Federal funds).
Please notify the Fund promptly in writing of any change of address.
9
<PAGE>
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
redemption proceeds 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 from the purchase date. A
wire fee of up to $20 will be charged by the Funds, which is deducted from
redemption proceeds.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares, reinvest all or part
of your redemption proceeds back into Class A shares at net asset value in an
identically registered account. You must notify the transfer agent in writing,
at the time you reinstate, that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
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 7 for the applicable holding period.
(2) The redemption price may be more or less than your cost, depending on
the net asset value of the Fund's portfolio next determined after your
request is received.
(3) A request to redeem shares in an IRA or similar retirement account must
be accompanied by an IRS Form W4-P and must state a reason for withdrawal
as specified by the IRS. Proceeds from the redemption of shares from a
retirement account may be subject to withholding tax.
(4) The 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, including
exchanges into the Fund.
(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.
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<PAGE>
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.
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.
HOW SHARES ARE VALUED
The price of 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, exchange and sell shares are processed at the NAV
next calculated after we receive your order in proper form.
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<PAGE>
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.
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 Fund's portfolio has been highly concentrated, and diversification
requirements under the Internal Revenue Code has necessitated 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 greater brokerage commission expenses (which will lower the
Fund's total return), 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.
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).
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<PAGE>
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
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 0.38% of
net assets from the Fund.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS
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 from 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 $50 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.
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
13
<PAGE>
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.
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.
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FINANCIAL HIGHLIGHTS
The following condensed financial information 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.
<TABLE>
<CAPTION>
For the For the For the For the
year ended year ended year ended Year ended
April 30, April 30, April 30, April 30,
1999 1998 1999 1998
Class A Class A Class B Class B
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.71 $ 10.00 $ 10.64 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment loss (0.03) (0.16) (0.15) (0.22)
Net realized and unrealized gain (loss)
on investments (3.95) 0.87 (3.87) 0.86
-------- -------- -------- --------
Total from investment operations (3.98) 0.71 (4.02) 0.64
-------- -------- -------- --------
Distributions from net realized gain on investments (1.59) -- (1.59) --
-------- -------- -------- --------
Net asset value, end of year $ 5.14 $ 10.71 $ 5.03 $ 10.64
======== ======== ======== ========
Total return (43.02)% 7.20%(a) (43.76)% 6.49%(a)
Ratios/Supplemental Data:
Net assets, end of year (000) $ 569 $ 1,419 $ 524 $ 3,476
Ratio of expenses to average net assets 2.06% 3.36%(b) 2.81% 4.1%(b)
Ratio of net investment loss to average net assets (0.30)% (2.08)%(b) (1.05)% (2.86)%(b)
Portfolio turnover rate 278.24% 124.2% 278.24% 124.2%
=================================================================================================================
</TABLE>
(a) Annualized from commencement of investment activity, May 6, 1997.
(b) Net investment income is net of expense reimbursements and fee waivers of
$.002 and $.002 per share for Class A and Class B, respectively. Had such
reimbursements not been made, the expense ratio would have been 3.51% and
4.25% for Class A and Class B, respectively, and the net investment income
ratio would have been (2.22)% and (3.01)% for Class A and Class B
respectively.
15
<PAGE>
INVESTMENT ADVISOR
Pauze Swanson Capital Management Co. (TM)
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
ADMINISTRATOR & TRANSFER AGENT
Champion Fund Services
14340 Torrey Chase Boulevard, Suite 170
Houston, Texas 77014
DISTRIBUTOR
B.C. Ziegler and Company
215 North Main St.
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank, N.A
425 Walnut Street
Cincinnati, Ohio 45202
ACCOUNTANTS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
LEGAL COUNSEL
Brown, Cummins & Brown
3500 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
<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 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 review and copy information about the Fund (including the SAI and
other reports) at the Securities and Exchange Commission Internet site at 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 on the SEC's Internet site
at http://www.sec.gov , and copies of this information may be obtained 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
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
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)
This Statement of Additional Information ("SAI") is not a Prospectus. It should
be read in conjunction with the Prospectus of the Funds dated September 1, 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 14340 Torrey Chase Blvd.,
Suite 170, Houston, TX 77014-1024 or by calling the Funds at (800) 327-7170.
The date of this Statement of Additional Information is September 1, 1999.
TABLE OF CONTENTS
GENERAL INFORMATION............................................................2
INVESTMENT OBJECTIVES AND POLICIES.............................................3
PORTFOLIO TURNOVER............................................................10
PORTFOLIO TRANSACTIONS........................................................11
MANAGEMENT OF THE TRUST.......................................................11
PRINCIPAL HOLDERS OF SECURITIES...............................................14
INVESTMENT ADVISORY SERVICES..................................................16
ADMINISTRATOR SERVICES........................................................17
TRANSFER AGENCY AND OTHER SERVICES............................................18
12b-1 PLAN OF DISTRIBUTION....................................................18
DISTRIBUTOR...................................................................19
ADDITIONAL INFORMATION ON REDEMPTIONS.........................................19
CALCULATION OF PERFORMANCE DATA...............................................19
TAX STATUS....................................................................22
CUSTODIAN.....................................................................25
INDEPENDENT ACCOUNTANTS.......................................................25
FINANCIAL STATEMENTS..........................................................25
<PAGE>
GENERAL INFORMATION
Pauze Funds(TM) (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 the 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.
2
<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.
(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).
3
<PAGE>
(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.
(14) Participate on a joint or joint and several basis in any trading
account.
4
<PAGE>
(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
5
<PAGE>
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.
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.
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.
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.
6
<PAGE>
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin
deposits which may range upward from less than 5% of the value of the contract
being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes, then to the
extent that the margin on deposit does not satisfy margin requirements, payment
of additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on their margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators". Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities 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
7
<PAGE>
will not enter into futures contracts to the extent that its outstanding
obligations to purchase securities under these contracts would exceed 100% of
the Fund's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
the Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge it.
A Fund will minimize the risk that it will be unable to close out a futures
contract by only entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Fund are engaged in only for hedging purposes, Pauze Swanson
Capital Management Co., the Funds' Investment Advisor, does not believe that the
Funds are subject to the risks of loss frequently associated with leveraged
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, it had invested in the underlying financial
instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a
8
<PAGE>
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.
SEGREGATED ASSETS AND COVERED POSITIONS
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<PAGE>
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.
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.
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<PAGE>
PORTFOLIO TURNOVER
Pauze Funds'(TM) 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.
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<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. President of Fund Services,
Inc., d/b/a Champion Fund Services, since
March 1999. Financial Consultant to
California Master Trust since 1986. Financial
consultant to the American Funeral Trust
(Series) since 1993.
Lois Juarez** Treasurer, CPA. March 1999 to Present, Director of
14340 Torrey Chase Chief Administration and Fund Accounting for
Houston, TX 77014 Financial Champion Fund Services. July 1998 to
Age: 47 Officer December 1998, Vice President for
Chase Bank of Texas. July 1992 to July
1998, Volume/Tariff Analyst for ARCO Pipe
Line Company (an Atlantic Richfield
company). 1987 to 1991 Manager of Fund
Reporting and Fund Accounting for Variable
Annuity Life Insurance Co.
Patricia S. Dobson** Trustee and Vice President of Pauze Swanson &
14340 Torrey Chase Secretary Associates Investment Advisors, Inc., since
Houston, TX 77014 1996. Assistant Vice President of Pauze
Age: 56 Swanson from 1995 to 1996. Administrator
of Pauze Swanson from 1993 to 1995. Vice
President of Champion Fund Services since
March 1999.
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<PAGE>
Paul J. Hilbert Trustee Attorney with the firm of Paul J. Hilbert &
2301 FM 1960 West Associates, Houston, Texas, practicing civil
Houston, TX 77068 law since 1975. Legislator, Texas House of
Age: 50 Representatives since 1982.
Gordon M. Anderson Trustee Consultant with the Texas Education
1806 Elk River Rd. Agency, Region 4 Education Service Center,
Houston, TX 77090 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.
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 1967,
1660 Silverado Trail serving in such capacities as President and
Napa, CA 94559 General Manager. In addition, in June 1997,
Age: 54 became Vice President (Western Division)
and Chief Operating Officer (Northern
California Region) of Stewart Enterprises, Inc.
</TABLE>
** This Trustee or Officer may be deemed an "interested person" of the
Trust as defined in the Investment Company Act of 1940.
Trustee fees are Trust expenses and each portfolio pays a portion of the
Trustee fees. The
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<PAGE>
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 $12,500 $12,500
Wayne F. Collins $12,500 $12,500
Gordon M. Anderson $12,500 $12,500
Robert J. Pierce $12,500 $12,500
PRINCIPAL HOLDERS OF SECURITIES
Other than indicated below, as of August 1, 1999, the Officers and Trustees
of the Trust, as a group, owned less than 1% of the outstanding shares of the
Pauze Funds(TM). 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(TM) at August 1, 1999:
Class Name & Address of Owner % Owned Type of Ownership
- ----- ----------------------- ------- -----------------
Pauze U.S. Government Total Return Fund
---------------------------------------
No Load Donaldson, Lufkin & Jenrette 7.78% Record
Securities Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
No Load Mechanics Bank of Richmond, TTEE 77.61% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806
Class B Donaldson, Lufkin & Jenrette 88.41% Record
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
Class B SEI Trust Company 11.58% Record
FBO 601 Banks
One Freedom Valley Dr
Oaks, PA 19456
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<PAGE>
Class C Firstar Bank NA, Custodian FBO 30.87% Record
Theodore F. Mallory, III IRA
P.O. Box 778
Fayetteville, GA 30214
Class C Firstar Bank NA, Custodian FBO 30.79% Record
Alice Mallory IRA
P.O. Box 778
Fayetteville, GA 30214
Class C Peachtree Funeral Trust 38.34% Record
P.O. Box 120
Columbus, GA 31902
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
No Load Mechanics Bank of Richmond TTEE 46.25% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806-1921
No Load Norwest Bank Minnesota, NA 22.32% Record
FBO: TX Prepaid Funeral Fund NG
P.O. Box 1533
Minneapolis, MN 55480
No Load Strafe & Company 12.37% Record
F/A/O Cooper Agency
P.O. Box 160
Westerville, OH 43086
No Load Norwest Bank Minnesota, NA 9.39% Record
FBO: TX Prepaid Funeral Fund G
P.O. Box 1533
Minneapolis, MN 55480
Class B Donaldson, Lufkin & Jenrette 61.13% Record
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
Class B SEI Trust Company 33.60% Record
FBO 601 Banks
One Freedom Valley Drive
Oaks, PA 19456
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Pauze U.S. Government Short Term Bond Fund
------------------------------------------
No Load Norwest Bank Minnesota, NA 66.25% Record
FBO: TX Prepaid Funeral Fund G
P.O. Box 1533
Minneapolis, MN 55480
No Load Strafe & Company 16.09% Record
F/A/O Cooper Agency
P.O. Box 160
Westerville, OH 43086
No Load Norwest Bank Minnesota, NA 15.53% Record
FBO: TX Prepaid Funeral Fund NG
P.O. Box 1533
Minneapolis, MN 55480
No Load Mercantile Bank, Trustee 13.17% Record
American Funeral Trust/Iowa
P.O. Box 387
ST. Louis, MO 63166
Class B Donaldson, Lufkin & Jenrette 100% Record
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
Class C SEI Trust Company 100% Record
FBO 601 Banks
One Freedom Valley Drive
Oaks, PA 19456
As of August 1, 1999, the California Master Trust may be deemed to control
the Total Return, no load, Donaldson, Lufkin & Jenrette may be deemed to control
the Total Return, Class B, Theodore Mallory may be deemed to control the Total
Return, Class C, TX Prepaid Funeral Fund may be deemed to control the Short
Term, no load, Donaldson Lufkin & Jenrette may be deemed to control the Short
Term, Class B, 601 Bank may be deemed to control the Short Term, Class C, the
California Master Trust may be deemed to control the Intermediate, no load,
Donaldson, Lufkin & Jenrette may be deemed to control the Intermediate, Class B
as result of its beneficial ownership of Fund shares. As the controlling
shareholders, they would control the outcome of any proposal submitted to the
shareholders for approval, including changes to each Fund's fundamental policies
16
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or the terms of the management agreement with the Funds' adviser.
INVESTMENT ADVISORY SERVICES
Pauze, Swanson & Associates Investment Advisors, Inc., d/b/a 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 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, $442,281 and $414,189, 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, $13,686 and $38,820,
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 $19,205, respectively.
THE ADMINISTRATOR
Fund Services Inc., ("FSI") d/b/a Champion Fund Services, 14340 Torrey
Chase Blvd.,
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Suite 170 Houston, Texas 77014, under an Administration Agreement with the Trust
dated July 1, 1999, 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, and Patricia S. Dobson, Vice President of Fund Services,
Inc., has been a Trustee and Secretary of the Trust since June 1999. 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, 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 $145,000, which is allocated among all of the
Funds of the Trust pro rata based on their respective net assets.
TRANSER AGENCY AND OTHER SERVICES
FSI also provides transfer agency, dividend disbursing and accounting services
to the Funds for which it receives separate compensation.
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
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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, 1999.
TOTAL RETURN INT. TERM SHORT TERM
BOND FUND BOND FUND BOND FUND TOTAL
--------- --------- --------- -----
Advertising, Printing Promotion $ 48,652 $ 11,237 $ 919 $ 60,808
Administrative Service Fees $132,926 $ 14,401 $ 9,891 $157,218
Class B Shares Financing $ 11,514 $ 8,304 $ 730 $ 20,548
Compensation to Dealers $ 480 $ -- $ 890 $ 1,370
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 July 1, 1999, 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 $30,000 and will be reimbursed for expenses incurred on
behalf of the Trust. The Advisor is committed to pay all sums, if any, that
exceed the amount allowed under the Funds' 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.
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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:
P(1 + T)n = 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).
For the period ended April 30, 1999, the average annual total returns were:
<TABLE>
<CAPTION>
Since
1 Year 3 Year 5 Year Inception
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Pauze U. S. Government Total Return Bond Fund
No Load Shares (Inception 1/10/94) (4.83)% 4.50% 5.25% 3.78 %
Class B Shares (Inception 9/3/96) (9.11)% n/a n/a 3.49 %
Class C Shares (Inception 5/13/98) (5.63)% n/a n/a (5.82)%
Pauze U. S. Government Intermediate Term Bond Fund
No Load Shares (Inception 10/10/96) 1.13 % n/a n/a 3.47 %
Class B Shares (Inception 9/3/96) (3.17)% n/a n/a 1.80 %
Pauze U. S. Government Short Term Bond Fund
No Load Shares (Inception 9/3/96) 4.79 % n/a n/a 3.68 %
Class B Shares (Inception 9/3/96) (1.64)% n/a n/a 1.71 %
Class C Shares (Inception 11/7/96) 4.01 % n/a n/a 2.76 %
</TABLE>
The total return for the Total Return Fund No-load shares, Class B, and Class C
shares for the Fiscal year ended April 30, 1999 was (4.83)%, (5.57)%, and
(5.83)% respectively
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The total return for the Intermediate Term Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 1999 was 1.13% and 0.58%,
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 4.79%, 2.11%,
and 4.01%, 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:
YIELD = 2 [ (A - B + 1)6 - 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, Class B shares and
Class C shares for the 30 days ending April 30, 1999 was 3.64%, 2.88%, and 2.87%
respectively.
The Intermediate Term Fund's 30-day yield for No-load shares and Class B
shares for the 30
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<PAGE>
days ending April 30, 1999 was 4.04% and 3.29%, respectively.
The Short Term Fund's 30-day yield for No-load shares, Class B shares and
Class C shares for the 30 days ending April 30, 1999 was 2.64%, 1.88%, and 1.88%
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.
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.
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<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
23
<PAGE>
currently even though the Fund received no cash payment of interest, and would
need to raise cash to satisfy the obligations to distribute such income to
shareholders from sales of portfolio securities.
A Fund may purchase debt securities at a premium (i.e., at a purchase price
in excess of face amount). The premium may be amortized if the Fund so elects.
The amortized premium on taxable securities is allowed as a deduction, and, for
securities issued after September 27, 1985, must be amortized under an economic
accrual method.
All Shareholders will be notified annually regarding the tax status of
distributions received from a Fund.
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if a
Fund pays the dividends during the following January. Since none of the net
investment income of the Fund is expected to arise from dividends on domestic
common or preferred stock, none of the Funds' distributions will qualify for the
70% corporate dividends-received deduction.
Distributions by a Fund will result in a reduction in the fair market value
of the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of a Fund just prior to a distribution. The price of such shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing the Fund's shares just prior to a distribution may
receive a return of investment upon distribution which will nevertheless be
taxable to them.
A shareholder of a Fund should be aware that a redemption of shares
(including any exchange into another Portfolio) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of a
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of the long term capital gain recognized.
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
24
<PAGE>
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.
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
25
<PAGE>
Statement of Additional Information are hereby incorporated by reference to the
Annual Report to Shareholders for the period ended April 30, 1999. The Funds
will provide the Annual Report without charge at written request or request by
telephone.
26
<PAGE>
PAUZE FUNDS(TM)
PAUZE TOMBSTONE FUND(TM)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a Prospectus. It should
be read in conjunction with the Prospectus of the Pauze Tombstone Fund(TM) dated
September 1, 1999. This SAI incorporates by reference the financial statements
and independent auditor's report from the Fund's 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 Fund at 14340 Torrey
Chase Blvd., Suite 170, Houston, TX 77014-1024 or by calling the Fund at (800)
327-7170.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS SEPTEMBER 1, 1999
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION............................................................2
INVESTMENT OBJECTIVES AND POLICIES.............................................4
INVESTMENT LIMITATIONS.........................................................6
PORTFOLIO TRANSACTIONS.........................................................8
MANAGEMENT OF THE TRUST.......................................................10
INVESTMENT ADVISORY SERVICES..................................................13
THE ADMINISTRATOR ............................................................14
TRANSFER AGENCY AND OTHER SERVICES ...........................................14
RULE 12b-1 DISTRIBUTION PLAN..................................................14
DISTRIBUTOR...................................................................15
ADDITIONAL INFORMATION ON REDEMPTIONS.........................................16
CALCULATION OF PERFORMANCE DATA...............................................16
TAX STATUS....................................................................18
CUSTODIAN.....................................................................19
INDEPENDENT ACCOUNTANTS.......................................................19
FINANCIAL STATEMENTS..........................................................19
1
<PAGE>
GENERAL INFORMATION
Pauze Funds(TM) (the "Trust") is an open-end management investment company
and is a voluntary association of the type known as a "business trust" organized
under the laws of the Commonwealth of Massachusetts. There are several series
within the Trust, each of which represents a separate diversified portfolio of
securities (collectively referred to herein as the "Portfolios" and individually
as a "Portfolio"). Pauze Tombstone Fund(TM) (the "Fund") was organized as a
series of Trust January 29, 1997, and commenced operations on May 6, 1997.
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.
SHAREHOLDER RIGHTS
The shares of each share class making up the Fund represent an interest in
that Fund's assets only (and profits or losses), and in the event of
liquidation, each share of the Fund would have the same rights to dividends and
assets as every other share of the Fund (except that expenses attributable
solely to a class of shares will be borne by that share class). Shares have no
preemptive or subscription rights and are fully transferable. There are no
conversion rights.
No annual or regular meeting of shareholders is required; however, the
Trustees may call meetings to take action on matters which require shareholder
vote and other matters as to which Trustees determine shareholder vote is
necessary or desirable. Shareholders elect the Trustees of the Trust. Subject to
Section 16(a) of the 1940 Act, the Trustees may elect their own successors and
may appoint Trustees to fill vacancies, including vacancies caused by an
increase in the number of Trustees by action of the Board of Trustees. Whether
appointed or elected, a Trustee serves as Trustee of the Trust for a period of
six years. Notwithstanding the foregoing, the Trustees' terms are staggered so
that the terms of at least 25% of the Board of Trustees will expire every three
years. A Trustee whose term is expiring may be re-elected.
2
<PAGE>
As a shareholder, you have voting rights over the Fund's fundamental
policies. You are entitled to one vote for each whole share, and fractional
votes for fractional shares, you own. Shares of the Fund do not have cumulative
voting rights. On matters affecting an individual series, a separate vote of
shareholders of the series is required. On matters affecting an individual class
of shares, a separate vote of shareholders of the class is required. The series'
shares are fully paid and non-assessable by the Trust, have no pre-emptive or
subscription rights, and are fully transferable, with no conversion rights.
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). 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. A majority of the
outstanding shares of the Trust are those of the Pauze U. S. Government Total
Return Bond Fund. As the controlling shareholder of the Total Return Bond Fund,
the California Master Trust ("CMT") could control any proposal submitted to the
shareholders of the Trust. For example, CMT could control any Trustee election.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
As of August 1, 1999, Donaldson, Lufkin & Jenrette Securities Corp., P.O.
Box 2052, Jersey City, NJ 07303, owned, of record, 23.76% of the Class A shares,
and the following persons may be deemed to beneficially own five percent (5%) or
more of the Class A shares of the Fund: Laucik Living Trust, 8 Old Dutch Road,
Warren, NJ 07059 - 5.68%.
3
<PAGE>
As of August 1, 1999, the following persons may be deemed to beneficially own
five percent (5%) or more of the Class B shares of the Fund: Hagner Family
Partnership LTD, 15710 Fleetwood Oaks Drive, Ste 230, Houston, TX 77079-2520 --
9.37%; Robert R. Stoutenburg, Trust, Wisne Center, 3rd Floor, 21000 Telegraph
Rd, Southfield, MI 48034 -- 6.06%; Ann R. Lindell, 3303 S. Omar Ave, Tampa, FL
33629 -- 5.19%.
As of August 1, 1999, Donaldson, Lufkin & Jenrette & Securities Corp. may be
deemed to control the Fund as a result of its beneficial ownership of the shares
of the Fund. As the controlling shareholder, it would control the outcome of any
proposal submitted to the shareholders for approval, including changes to the
Fund's fundamental policies or the terms of the management agreement with the
Fund's adviser. As of August 1, 1999, the officers and trustees as a group owned
own less than 1% of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the investment
objectives and policies of the Pauze Tombstone Fund(TM) (the "Fund") in the
Fund's Prospectus.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a U.S. Government or U.S. Government agency obligation (which may be of any
maturity) and the seller agrees to repurchase the obligation at a future time at
a set price, thereby determining the yield during the purchaser's holding period
(usually not more than seven days from the date of purchase). Any repurchase
transaction in which the Fund engages will require 102% collateralization of the
seller's obligation during the entire term of the repurchase agreement. In the
event of a bankruptcy or other default of the seller, the Fund could experience
both delays in liquidating the underlying security and losses in value. However,
the Fund intends to enter into repurchase agreements only with banks with assets
of $1 billion or more and registered securities dealers determined by the
Advisor (subject to review by the Board of Trustees) to be creditworthy.
FORWARD COMMITMENTS AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase securities on a when-issued or delayed delivery
basis, with payment and delivery taking place at a future date provided, at the
time of purchase, no more than 5% of the Fund's assets are committed to such
purchases. The price and interest rate that will be received on the securities
are each fixed at the time the buyer enters into the commitment. The Fund may
enter into such forward commitments if it holds, and maintains until the
settlement date in a separate account at the Fund's Custodian, cash or U.S.
government securities in an amount sufficient to meet the purchase price.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Any change in value could
increase fluctuations in the Fund's share price and yield. Although the Fund
will generally enter into forward commitments with the intention of acquiring
securities for its portfolio, a Fund may dispose of a commitment prior the
settlement if the Advisor deems it appropriate to do so.
4
<PAGE>
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve sales of portfolio securities by the Fund to member banks of
the Federal Reserve System or recognized securities dealers, concurrently with
an agreement by the Fund to repurchase the same securities at a later date at a
fixed price, which is generally equal to the original sales price plus interest.
The Fund retains record ownership and the right to receive interest and
principal payments on the portfolio security involved. The Fund's objective in
such a transaction would be to obtain funds to pursue additional investment
opportunities whose yield would exceed the cost of the reverse repurchase
transaction. Generally, the use of reverse repurchase agreements should reduce
portfolio turnover and increase yield. In connection with each reverse
repurchase agreement, the Fund will direct its Custodian to place cash or U.S.
government obligations in a separate account in an amount equal to the
repurchase price. In the event of bankruptcy or other default by the purchaser,
the Fund could experience both delays in repurchasing the portfolio securities
and losses. Assets of the Fund may be pledged in connection with borrowings.
When a separate account is maintained in connection with forward commitment
transactions to purchase securities or reverse repurchase agreements, the
securities deposited in the separate account will be valued daily at market for
the purpose of determining the adequacy of the securities in the account. If the
market value of such securities declines, additional cash, U.S. government
obligations or liquid high grade debt obligations will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase or repurchase securities. To the extent
funds are in a separate account, they will not be available for new investment
or to meet redemptions. Reverse repurchase agreements constitute a borrowing by
the Fund and, together with all other borrowings, will not represent more than
5% of the net assets of the Fund.
Securities purchased on a forward commitment basis, securities subject to
reverse repurchase agreements and the securities held in the Fund's portfolio
are subject to changes in market value based upon the public's perception of the
creditworthiness of the issuer and changes in the level of interest rates (which
will generally result in all of those securities changing in value in the same
way, i.e., all those securities experiencing appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, if in order to
achieve a higher level of income, the Fund remains substantially fully invested
at the same time that it has purchased securities on a forward commitment basis
or entered into reverse repurchase transactions, there will be a possibility
that the market value of the Fund's assets will have greater fluctuation.
With respect to 75% of the total assets of the Fund, the value of the
Fund's commitments to purchase or repurchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the commitment
to purchase or repurchase such securities is made; provided, however, that this
restriction does not apply to U.S. government obligations or repurchase
agreements with respect thereto. In addition, the Fund will maintain an asset
coverage of 300% for all of its borrowings and reverse repurchase agreements.
5
<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), i.e.,
they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices which may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. BORROWING MONEY. The Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is an asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. SENIOR SECURITIES. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is (a) consistent with or permitted by the
Investment Company Act of 1940, as amended, the rules and regulations
promulgated thereunder or interpretations of the Securities and Exchange
Commission or its staff and (b) as described in the Prospectus and the Statement
of Additional Information.
3. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. COMMODITIES. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6
<PAGE>
6. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. CONCENTRATION. The Fund will not invest 25% or more of its total assets
in a particular industry other than the death care industry. This limitation is
not applicable to investments in obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities or repurchase agreements with
respect thereto.
With respect to the percentages adopted by the Trust as maximum limitations
on its investment policies and limitations, an excess above the fixed percentage
will not be a violation of the policy or limitation unless the excess results
immediately and directly from the acquisition of any security or the action
taken. This paragraph does not apply to the borrowing policy set forth in
paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment company,
whether organized as a trust, association or corporation, or a personal holding
company, may be merged or consolidated with or acquired by the Trust, provided
that if such merger, consolidation or acquisition results in an investment in
the securities of any issuer prohibited by said paragraphs, the Trust shall,
within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such
portion thereof as shall bring the total investment therein within the
limitations imposed by said paragraphs above as of the date of consummation.
NON-FUNDAMENTAL. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. BORROWING. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.
3. MARGIN PURCHASES. The Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
7
<PAGE>
4. SHORT SALES. The Fund will not effect short sales of securities unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short.
5. OPTIONS. The Fund will not purchase or sell puts, calls, options,
straddles or futures contracts except as described in the Prospectus or the
Statement of Additional Information.
6. ILLIQUID INVESTMENTS. The Fund will not invest in securities for which
there are legal or contractual restrictions on resale or other illiquid
securities.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Trust, the
Advisor is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the Advisor
seeks the best qualitative execution for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Advisor generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Advisor may give consideration to sales of shares of the Fund as a factor in the
selection of brokers and dealers to execute portfolio transactions. It is
anticipated that the Fund will pay brokerage commissions to a registered
broker-dealer with which Philip C. Pauze and Patricia S. Dobson (Trustees of the
Trust) are affiliated.
The Advisor is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Advisor exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Advisor determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Advisor's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities
8
<PAGE>
transactions may also be used by the Advisor in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving other
clients may be useful to the Advisor in connection with its services to the
Fund. Although research services and other information are useful to the Fund
and the Advisor, it is not possible to place a dollar value on the research and
other information received. It is the opinion of the Board of Trustees and the
Advisor that the review and study of the research and other information will not
reduce the overall cost to the Advisor of performing its duties to the Fund
under the Agreement.
While the Fund does not deem it practicable and in its best interests to
solicit competitive bids for commission rates on each transaction, consideration
is regularly given to posted commission rates as well as other information
concerning the level of commissions charged on comparable transactions by
qualified brokers.
The Fund has no obligation to deal with any broker or dealer in the
execution of its transactions. However, it is contemplated that B.C. Ziegler and
Company ("B.C. Ziegler") in its capacity as a registered broker-dealer, will
effect substantially all securities transactions which are executed on a
national securities exchange and over-the-counter transactions conducted on an
agency basis. Such transactions will be executed at competitive commission rates
through Pershing, Division of Donaldson, Lufkin & Jenrette Securities Corp.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers, if the same or a better price, including
commissions and executions, is available. Fixed income securities are normally
purchased directly from the issuer, an underwriter or a market maker. Purchases
include a concession paid by the issuer to the underwriter and the purchase
price paid to a market maker may include the spread between the bid and asked
prices.
Under the Investment Company Act of 1940, persons who may be affiliated
with an affiliate of the Advisor (such as B.C. Ziegler) may be prohibited from
dealing with the Fund as a principal in the purchase and sale of securities.
Therefore, B.C. Ziegler will not serve as the Fund's dealer in connection with
over-the-counter transactions. However, B.C. Ziegler may serve as the Fund's
broker in over-the-counter transactions conducted on an agency basis and will
receive brokerage commissions in connection with such transactions. Such agency
transactions will be executed through Pershing.
The Fund will not effect any brokerage transactions in its portfolio
securities with B.C. Ziegler if such transactions would be unfair or
unreasonable to Fund shareholders, and the commissions will be paid solely for
the execution of trades and not for any other services. The Agreement provides
that affiliates of affiliates of the Advisor may receive brokerage commissions
in connection with effecting such transactions for the Fund. In determining the
commissions to be paid to B.C. Ziegler, it is the policy of the Fund that such
commissions will, in the judgment of the Trust's Board of Trustees, be (a) at
least as favorable to the Fund as those which would be charged by other
qualified brokers having comparable execution capability and (b) at least as
favorable to the Fund as commissions contemporaneously charged by B.C. Ziegler
on comparable transactions
9
<PAGE>
for its most favored unaffiliated customers, except for customers of B.C.
Ziegler considered by a majority of the Trust's disinterested Trustees not to be
comparable to the Fund. The disinterested Trustees from time to time review,
among other things, information relating to the commissions charged by B.C.
Ziegler to the Fund and its other customers, and rates and other information
concerning the commissions charged by other qualified brokers.
The Agreement does not provide for a reduction of the Advisor's fee by the
amount of any profits earned by B.C. Ziegler or Philip C. Pauze or Patricia S.
Dobson from brokerage commissions generated from portfolio transactions of the
Fund.
While the Fund contemplates no ongoing arrangements with any other
brokerage firms, brokerage business may be given from time to time to other
firms. B.C. Ziegler will not receive reciprocal brokerage business as a result
of the brokerage business placed by the Fund with others.
To the extent that the Trust and another of the Advisor's clients seek to
acquire the same security at about the same time, the Trust may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, the Trust may not be able to obtain
as large an execution of an order to sell or as high a price for any particular
portfolio security if the other client desires to sell the same portfolio
security at the same time. On the other hand, if the same securities are bought
or sold at the same time by more than one client, the resulting participation in
volume transactions could produce better executions for the Trust. In the event
that more than one client wants to purchase or sell the same security on a given
date, the purchases and sales will normally be made by random client selection.
For the fiscal years ended April 30, 1998 and 1999, the Fund paid total
brokerage commissions of $22,411 and $23,541, respectively. For the fiscal year
ended April 30, 1998 and 1999, the Fund paid $16,972 and $19,803, respectively,
to B. C. Ziegler (formerly GS2 Securities, Inc.), which may be affiliated with
an affiliate of the Advisor. For the fiscal year ended April 30, 1999, B. C.
Ziegler received 84% of the total brokerage commissions paid for effecting 87%
of all brokerage transactions.
MANAGEMENT OF THE TRUST
The business and affairs of the Fund are managed by the Trust's Board of
Trustees. The Trustees establish policies, as well as review and approve
contracts and their continuance. The Trustees also elect the officers of the
Trust. The Trustees and Officers of the Trust, and their principal occupations
during the past five years are set forth below, along with their business
address.
10
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS & AGE TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- --------------------
<S> <C> <C>
Philip C. Pauze** Trustee and President of Pauze, Swanson & Associates
14340 Torrey Chase Blvd. President 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. President of Fund
Services, Inc., d/b/a Champion Fund
Services since March of 1999. Owner of
Philip C. Pauze & Associates, a
management consulting firm since April
1993. Financial Consultant to California
Master Trust since 1986. Financial
consultant to the American Funeral Trust
(Series) since 1993.
Lois Juarez** Treasurer and Chief CPA. March 1999 to present, Director of
14340 Torrey Chase, Financial Officer Administration and Fund Accounting for
Suite 170 Champion Fund Services. July 1998 to
Houston, TX 77014-1024 December 1998, Vice President for Chase
Age: 47 Bank of Texas. July 1992 to July 1998,
Volume/Tariff Analyst for ARCO Pipe Line
Company (an Atlantic Richfield company).
1987 to 1991 Manager of Fund Reporting
and Fund Accounting for Variable Annuity
Life Insurance Co.
Patricia S. Dobson** Trustee and Vice President of Pauze Swanson &
14340 Torrey Chase, Secretary Associates Investment Advisors, Inc.
Suite 170 since 1996. Assistant Vice President of
Houston,TX 77014-1024 Pauze Swanson from 1995 to 1996.
Age: 56 Administrator for Pauze Swanson from
1993 to 1995. Vice President of Champion
Fund Services since March 1999.
11
<PAGE>
Paul J. Hilbert Trustee Attorney with the firm of Paul J.
2301 FM 1960 West Hilbert & Associates, Houston, TX,
Houston, TX 77068 practicing civil law since 1975.
Age: 50 Legislator, Texas House of
Representatives.
Gordon M. 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.
Superintendent of Spring Independent
School District, Houston, Texas, from
1984 to 1997 (Retired).
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
1660 Silverado Trail 1967, serving in such capacities as
Napa, CA 94559 President and General Manager. In
Age: 54 addition, in June 1997, became Vice
President (Western Division) Chief
Operating Officer (Northern California
Region) of Stewart Enterprises, Inc.
</TABLE>
** This Trustee or Officer may be deemed an "interested person" of the
Trust as defined in the Investment Company Act of 1940.
Trustee fees are Trust expenses and each portfolio pays a portion of the
Trustee fees. The compensation paid to the Trustees of the Trust for the fiscal
year ended April 30, 1999 is set forth below.
12
<PAGE>
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 $12,500 $12,500
Wayne F. Collins $12,500 $12,500
Gordon M. Anderson $12,500 $12,500
Robert J. Pierce $12,500 $12,500
INVESTMENT ADVISORY SERVICES
Pauze, Swanson & Associates Investment Advisors, Inc., dba Pauze Swanson
Capital Management Co., an investment management firm owned by Philip C. Pauze
(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 Advisory Agreement was approved by the Board of Trustees of the Trust
(including a majority of the "disinterested Trustees") and by vote of a majority
of the outstanding voting securities of the Total Return Fund (another Portfolio
of the Trust) in December 1995. The terms of the votes approving the Advisory
Agreement provide that it will continue until October 17, 1996, and from year to
year thereafter as long as it is approved at least annually both (i) by a vote
of a majority of the outstanding voting securities of the Fund (as defined in
the Investment Company Act of 1940 [the "Act"]) or by the Board of Trustees of
the Trust, and (ii) by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically if it is assigned. The Advisory Agreement was
approved with respect to the Fund on February 28, 1997.
The names "Pauze(TM)", "Swanson(TM)", "Pauze Swanson(TM)", "Pauze U.S.
Government Short Term Bond Fund(TM)", "Pauze U.S. Government Intermediate Term
Bond Fund(TM)", "Pauze U.S. Government Total Return Bond Fund(TM)", "Pauze
Tombstone Fund(TM)", and "Pauze Tombstone Common Stock Index(TM)" are trademarks
of the Pauze Swanson Capital Management Co., all rights reserved. The Pauze
Tombstone Common Stock Index is a copyrighted proprietary product of the Pauze
Swanson Capital Management Co., all rights reserved. The Trust is licensed to
use the above-listed names under a separate agreement attached to and made a
part of the Advisory Agreement. The Trust's right to use the names "Pauze",
"Swanson", "Pauze Swanson", "Pauze U.S. Government Short Term Bond Fund", "Pauze
U.S. Government Intermediate Term Bond Fund", "Pauze U.S. Government Total
Return Bond Fund, "Pauze Tombstone Fund", and "Pauze Tombstone Common Stock
Index(TM)" automatically terminates upon termination of the Advisory Agreement.
The Trust is licensed to publish the Index under a separate agreement attached
to and made a part of the Advisory Agreement. The Trust's right to publish the
Index automatically terminates upon termination of the Advisory Agreement.
13
<PAGE>
The Advisory Agreement provides for the Fund to pay the Advisor a monthly
fee at an annual rate of 0.38% of the Fund's average daily net assets. For the
fiscal year ended April 30, 1998 and 1999, the Trust paid the Advisor fees (net
of expenses paid by the Advisor or fee waivers) of $8,370 and $12,651,
respectively, on behalf of the Fund.
THE ADMINISTRATOR
Fund Services Inc., ("FSI"), d/b/a Champion Fund Services(TM), 14340 Torrey
Chase Blvd., Suite 170 Houston, Texas 77014, under an Administration Agreement
with the Trust dated July 1, 1999, 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, and Patricia S. Dobson, Vice President of FSI, has been a
Trustee and Secretary of the Trust since June of 1999. 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, 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 $145,000, which is allocated among all of the
funds of the Trust pro rata based on their respective net assets.
TRANSFER AGENCY AND OTHER SERVICES
FSI also provides transfer agency, dividend disbursing and accounting services
to the Funds for which it receives separate compensation.
RULE 12B-1 DISTRIBUTION PLAN
The Fund's Distribution Plan provides for an "Annual Fee" reciting that the
Fund will pay the Advisor a fee at an annual rate of 0.25% of the Fund's average
net assets for the Advisor's services in connection with the sales and promotion
of the Fund, including its expenses. The plan provides that the 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
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administrative services to the Fund and its shareholders; (c) expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder 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. Under the plan, the Advisor bears all distribution
expenses of the Fund 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.
The Fund's Distribution Plan also provides for an "Additional Fee for Class
B shares" reciting that Fund assets attributable to Class B Shares in specific
shareholder accounts will be utilized to 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.
Expenses which the Fund incurs pursuant to the Distribution Plan are
reviewed quarterly by the Board of Trustees. On an annual basis the Distribution
Plan is reviewed by the Board of Trustees as a whole, and the Trustees who are
not "interested persons" as that term is defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of the Distribution
Plans ("Qualified Trustees"). 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. The
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
shares of the applicable class.
For the fiscal year ended April 30, 1999, the Fund spent $3,018 on
advertising, printing and promotion, and $15,307 on Class B financing, pursuant
to the previous Distribution Plan.
The Trust expects that the Distribution Plan will be used to pay a "service
fee" to persons who provide personal services to prospective and existing Fund
shareholders and to compensate broker-dealers for sales and promotional
services. Shareholders of the Fund will benefit from these services and the
Trust expects to benefit from economies of scale as more shareholders are
attracted to the Fund.
DISTRIBUTOR
On July 1, 1999, 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 $30,000 and will be reimbursed for expenses incurred on
behalf of the Trust. The Advisor is committed to pay all sums, if any, that
exceed the amount allowed under the Fund's 12b-1 Plan.
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ADDITIONAL INFORMATION ON REDEMPTIONS
SUSPENSION OF REDEMPTION PRIVILEGES
The Trust may suspend redemption privileges or postpone the date of payment
for up to seven days, but cannot do so for more than seven days after the
redemption order is received except during any period (1) when the bond markets
are closed, other than customary weekend and holiday closing, or trading on the
Exchange is restricted as determined by the Securities and Exchange Commission
("SEC"), (2) when an emergency exists, as defined by the SEC, which makes it not
reasonably practicable for the Trust to dispose of securities owned by it or not
reasonably practicable to fairly determine the value of its assets, or (3) as
the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN
The Fund may advertise performance in terms of average annual total return
for 1, 5 and 10 year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
P(1 + T)n = 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 results do not take into account charges for optional services
which involve nominal fees (such as wire redemption fees). The Fund's average
annual return for the fiscal year ended April 30, 1999 was (44.83)% for Class A
Shares and (45.87)% for Class B Shares. The Fund's average annual return for the
period May 6, 1997 (inception) through April 30, 1999 was (23.26)% for Class A
Shares and (24.33)% for Class B Shares.
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NONSTANDARDIZED TOTAL RETURN
The Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of the Fund's shares) as of the end of a specified period. These
non-standardized quotations do not include the effect of the applicable sales
charge, or charges for optional services which involve nominal fees, which would
reduce the quoted performance if included. A non-standardized quotation will
always be accompanied by the Fund's "average annual total return" as described
above.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
The Fund may also include in advertisements data comparing performance with
other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to the Pauze Tombstone Common Stock Index(TM), and the performance of
the Index as well as the Fund may be compared to other well-known indices of
market performance including the Standard & Poor's (S&P) 500 Index or the Dow
Jones Industrial Average. The performance of the Pauze Tombstone Common Stock
Index(TM) should not be considered indicative of future performance of the Fund.
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TAX STATUS
TAXATION OF THE FUND
As stated in its Prospectus, the Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Fund will not be liable for federal
income taxes on its taxable net investment income and capital gain net income
that are distributed to shareholders, provided that the Fund distributes at
least 90% of its net investment income and net short-term capital gain for the
taxable year.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); and (b) satisfy certain
diversification requirements at the close of each quarter of the Fund's taxable
year. It is anticipated that the Advisor may be required to adjust the
composition of the Fund's portfolio at the end of each quarter in order to
qualify as a regulated investment company.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its net capital gains for the twelve-month period ending on October
31 of the calendar year and (3) any portion (not taxable to the Fund) of the
respective balance from the preceding calendar year. The Fund intends to make
such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if
the Fund pays the dividends during the following January. To the extent net
investment income of the Fund arises from dividends on domestic common or
preferred stock, some of the Fund's distributions will qualify for the 70%
corporate dividends-received deduction. All Shareholders will be notified
annually regarding the tax status of distributions received from the Fund.
Distributions by the Fund will result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares of the Fund just prior to a distribution. The
price of such shares 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.
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A shareholder of the Fund should be aware that a redemption of shares
(including any exchange into another Portfolio) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of the long term capital gain recognized.
OTHER TAX CONSIDERATIONS
Distributions to shareholders may be subject to additional state, local and
non-U.S. taxes, depending on each shareholder's particular tax situation.
Shareholders subject to tax in certain states may be exempt from state income
tax on distributions made by the Fund to the extent such distributions are
derived from interest on direct obligations of the United States Government.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in shares of the Fund.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian
of the Fund's investments. The Custodian acts as the Fund's depository,
safekeeps its portfolio securities, collects all income and other payments with
respect thereto, disburses funds at the Fund's request and maintains records in
connection with its duties.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103 has been
selected as independent accountants for the Trust for the fiscal year ending
April 30, 2000. Tait, Weller & Baker performs an annual audit of the Fund's
financial statements and provides financial, tax and accounting consulting
services as requested.
FINANCIAL STATEMENTS
The audited financial statements and auditor's report required to be
included with the Statement of Additional Information are hereby incorporated by
reference to the Fund's Annual Report to Shareholders for the fiscal year ended
April 30, 1999. The Fund will provide the Annual Report without charge at
written request or request by telephone.
