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)
ANNUAL REPORT
APRIL 30, 1999
This reporting period has experienced another interesting year for the interest
sensitive markets. From May 1, 1998 through April 30, 1999, the figures were:
================================================================================
3 MO 1YR 2YR 5YR 10YR 30YR
U.S. Treasury Bills Bills Notes Notes Notes Bonds
- --------------------------------------------------------------------------------
Total Return* 4.81% 5.46% 5.11% 6.08% 6.85% 6.22%
================================================================================
*Source: Salomon Brothers Indexes. Includes capital gain (loss) and paid/accrued
interest.
The last fiscal year was one of great volatility in the U.S. Government bond
market. The year can be divided into two halves. The first half, from May
through October, saw the market appreciate in value due to falling interest
rates. This was caused by many factors which influenced the market positively.
Low inflation headed the list of positive factors. As reported by the Federal
Government, inflation was benign with reports showing annualized rates below 2%
for the period. Other factors also played strongly on the market. Economic
crises in Asia, Russia, and South America spawned a "flight to quality", with
investors fleeing to the safe haven of U.S. Treasuries. Additionally, hedge
funds purchased Treasuries through highly-leveraged trades that caused
artificial demand during the late summer and early fall. As a result, the yield
on the benchmark 30 year Treasury bond fell to 4.66% in early October.
The second half of the year was quite different. The perception of inflation
crept into the minds of many investors as commodity prices rose and unemployment
fell to a twenty-seven year low. The crises overseas in Asia and South America
became "old news", stemming the flight to quality. Not insignificantly, hedge
funds, highly leveraged both in U.S. Treasuries and in foreign currencies, had
to "unwind" their positions due to adverse market conditions and margin calls.
This caused them to sell Treasuries which added to the overall pressure on the
market. As a result, the yield on the 30 year Treasury rose to 5.66%, a full 1%
higher than it was just 7 months earlier.
1
<PAGE>
Because much of this volatility was due to artificial conditions which could not
be foreseen, we were not able to take advantage of all the movements of the
market. As a result, the Funds underperformed widely-followed benchmark indexes.
Our commitment to our Shareholders has been and always will be to work
diligently to maximize investor returns. We will continue to strive to do so now
and in the future.
We thank all of our investors for their confidence in our abilities to manage
cash prudently and wisely.
Philip C. Pauze, President
2
<PAGE>
- --------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT TOTAL RETURN BOND FUND(TM)
[GRAPHIC OMITTED]
Comparison of the change in value since inception of a $10,000 investment in the
Pauze' U.S. Government Total Return Bond Fund - No Load Class, Pauze' U.S.
Government Total Return Bond Fund - Class B, Pauze' U.S. Government Total Return
Bond Fund - Class C and the Lehman Government Bond Index.
4/30/99
-------
Pauze' U.S. Government Total Return Bond Fund - No Load Class $12,178
Pauze' U.S. Government Total Return Bond Fund - Class B 10,857
Pauze' U.S. Government Total Return Bond Fund - Class C 9,437
Lehman Government Bond Index 14,251
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS*
1 Year 5 Year Since Inception
------ ------ ---------------
No Load Shares (Inception 1/10/94) (4.83)% 5.25% 3.78%
Class B Shares (Inception 9/3/96) (9.11)% n/a 3.49%
Class C Shares (Inception 5/13/98) (5.63)% n/a (5.82)%
Lehman Government Bond Index 9.85% 7.34% 6.91%
(Since 1/10/94)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND(TM)
[GRAPHIC OMITTED]
Comparison of the change in value since inception of a $10,000 investment in the
Pauze' U.S. Government Intermediate Term Bond Fund - No Load Class, Pauze' U.S.
Government Intermediate Term Bond Fund - Class B and the Lehman General U.S.
Treasury Intermediate Index.
4/30/99
-------
Pauze' U.S. Government Intermediate Term Bond Fund - No Load Class $10,910
Pauze' U.S. Government Intermediate Term Bond Fund - Class B 10,406
Lehman General U.S. Treasury Intermediate Index 12,161
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS*
1 Year Since Inception
------ ---------------
No Load Shares (Inception 10/10/96) 1.13% 3.47%
Class B Shares (Inception 9/3/96) (3.17)% 1.80%
Lehman General U.S. Treasury 8.49% 7.95%
Intermediate Index (Since 9/3/96)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT SHORT TERM BOND FUND(TM)
[GRAPHIC OMITTED]
Comparison of the change in value since inception of a $10,000 investment in the
Pauze' U.S. Government Short Term Bond Fund - No Load Class, Pauze' U.S.
Government Short Term Bond Fund - Class B, Pauze' U.S. Government Short Term
Bond Fund - Class C and the Lehman 1-3 Year Government Index.
4/30/99
-------
Pauze' U.S. Government Short Term Bond Fund - No Load Class $11,009
Pauze' U.S. Government Short Term Bond Fund - Class B 10,157
Pauze' U.S. Government Short Term Bond Fund - Class C 10,698
Lehman 1-3 Year Government Index 11,993
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS*
1 Year Since Inception
------ ---------------
No Load Shares (Inception 9/3/96) 4.79% 3.68%
Class B Shares (Inception 9/3/96) (1.64)% 1.71%
Class C Shares (Inception 11/7/96) 4.01% 2.76%
Lehman 1-3 Government Index (Since 9/3/96) 7.02% 7.29%
- --------------------------------------------------------------------------------
* The data represented herein represents past performance and is not a guarantee
of future performance. The value of your shares may fluctuate and be worth more
or less than their original cost at the time of redemption.
3
<PAGE>
Tait, Weller & Baker
Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
PAUZE' FUNDS
HOUSTON, TEXAS
We have audited the accompanying statements of assets and liabilities of Pauze
U.S. Government Total Return Bond Fund, Pauze' U.S. Government Intermediate Bond
Fund and Pauze' U.S. Government Short-Term Bond Fund, each a series of shares of
Pauze' Funds, including the schedules of investments, as of April 30, 1999, and
the related statements of operations for the year then ended, statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for the of the periods indicated thereon. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Pauze
U.S. Government Total Return Bond Fund, Pauze' U.S. Government Intermediate Bond
Fund and Pauze' U.S. Government Short-Term Bond Fund as of April 30, 1999, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended and the financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
/s/ Tait, Weller & Baker
PHILADELPHIA, PENNSYLVANIA
JUNE 23, 1999
4
<PAGE>
<TABLE>
<CAPTION>
PAUZE' FUNDS
SCHEDULE OF INVESTMENTS
APRIL 30, 1999
- -------------------------------------------------------------------------------------------
Face
Amount Value
----------- -----------
PAUZE' U.S. GOVERNMENT TOTAL RETURN BOND FUND
- ---------------------------------------------
U.S. Government Obligations (100.10%)
<S> <C> <C> <C>
U.S. Treasury Strip, 02/15/22 (Cost $3,157,789) $10,000,000 $ 2,548,620
U.S. Treasury Bill, 05/20/99 (Cost $54,791,569) 54,900,000 54,791,569
U.S. Treasury Bill, 05/06/99 (Cost $195,897) 196,000 195,897
-----------
Total U.S. Government Obligations (Cost $58,145,255) 57,536,086
-----------
Miscellaneous Assets (0.21%)
Firstar Treasury Fund (Cost $119,333) 119,333 119,333
-----------
Total Investments (100.31%) (Cost $58,264,588) $57,655,419
Liabilities in excess of other assets (-0.31%) (179,733)
-----------
Net Assets (100.00%) $57,475,686
===========
PAUZE' U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
- --------------------------------------------------
U.S. Government Obligations (97.44%)
FHLB Discount Corp, 05/03/99 (Cost $9,377,341) $ 9,380,000 $ 9,377,341
-----------
Miscellaneous Assets (2.56%)
Firstar Treasury Fund (Cost $246,103) 246,103 246,103
-----------
Total Investments (Cost $9,623,444) (100.00%) $ 9,623,444
Liabilities in excess of other assets (0.00%) (196)
-----------
Net Assets (100.00%) $ 9,623,248
===========
PAUZE' U.S. GOVERNMENT SHORT TERM BOND FUND
- -------------------------------------------
U.S. Treasury Obligations (64.94%)
U.S. Treasury Note 5.00%, 02/28/01 (Cost $1,399,562) $ 1,400,000 $ 1,398,688
-----------
Miscellaneous Assets (10.49%)
Firstar Treasury Fund (Cost $226,027) 226,027 226,027
-----------
Total Investments (Cost $1,625,589) (75.43%) $ 1,624,715
Other assets less liabilities (24.57%) 529,241
-----------
Net Assets (100.00%) $ 2,153,956
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
PAUZE' FUNDS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999
- -------------------------------------------------------------------------------------------------------------
U.S.
U.S. Government U.S.
Government Intermediate Government
Total Return Term Short Term
Bond Fund Bond Fund Bond Fund
------------ ------------ ------------
<S> <C> <C> <C>
Assets:
Investment in securities, at market
value (cost $58,264,588, $9,623,444
and $1,625,589, respectively) (Note 2) $ 57,655,419 $ 9,623,444 $ 1,624,715
Cash -- 15,853 8,783
Receivables:
Interest 800 1,252 12,451
Fund shares sold 35 921 51,250
Investment sold -- -- 453,351
Due From Administrator -- -- 9,263
Unamortized organizational costs -- 3,475 3,475
------------ ------------ ------------
Total assets 57,656,254 9,644,945 2,163,288
------------ ------------ ------------
Liabilities:
Accounts payable and accrued expenses 145,183 15,636 5,206
Payable fund shares repurchased 4,731 21 4,000
Advisory fees payable 30,654 6,040 126
------------ ------------ ------------
Total liabilities 180,568 21,697 9,332
------------ ------------ ------------
Net Assets $ 57,475,686 $ 9,623,248 $ 2,153,956
============ ============ ============
Net assets:
Paid-in-capital $ 63,863,408 $ 10,001,763 $ 2,154,502
Undistributed net investment income 30,577 -- --
Accumulated net realized gain (loss) from investments (5,809,130) (378,515) 328
Net unrealized depreciation on investments (609,169) -- (874)
------------ ------------ ------------
Net assets applicable to outstanding
capital shares $ 57,475,686 $ 9,623,248 $ 2,153,956
============ ============ ============
No load class:
Net assets $ 56,123,640 $ 8,563,710 $ 2,008,434
============ ============ ============
Shares outstanding, no par value, unlimited
shares authorized 6,507,785 876,310 199,040
============ ============ ============
Net asset value, offering and redemption
price per share $ 8.62 $ 9.77 $ 10.09
============ ============ ============
Class B
Net assets $ 1,285,046 $ 1,059,538 $ 106,090
============ ============ ============
Shares outstanding, no par value, unlimited
shares authorized 136,861 108,037 10,706
============ ============ ============
Net asset value and offering price per share $ 9.39 $ 9.81 $ 9.91
============ ============ ============
Minimum redemption price per share (net asset
value X 96.25%) $ 9.04 $ 9.44 $ 9.54
============ ============ ============
Class C:
Net assets $ 67,000 $ 39,432
============= ============
Shares outstanding, no par value, unlimited
shares authorized 7,451 3,944
============= ============
Net asset value, offering and redemption
price per share $ 8.99 $ 10.00
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
PAUZE' FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1999
- ----------------------------------------------------------------------------------------------------------
U.S.
U.S. Government U.S.
Government Intermediate Government
Total Return Term Short Term
Bond Fund Bond Fund Bond Fund
----------- ----------- -----------
Net investment income:
<S> <C> <C> <C>
Interest income $ 3,707,639 $ 373,782 $ 187,191
----------- ----------- -----------
Expenses:
Investment advisory fees 414,189 38,820 19,205
Administrative fees 193,264 22,733 10,528
Distribution fees- No load class 169,583 17,334 9,190
Distribution fees- Class B 11,514 8,304 730
Distribution fees- Class C 480 -- 890
Accounting service fees 147,725 17,247 7,697
Transfer agent fees 18,235 2,344 1,114
Registration fees 14,533 5,837 3,381
Printing 5,732 962 1,251
Custodian fees 13,591 2,701 2,701
Legal fees 56,139 7,667 3,225
Audit fees 19,466 1,117 614
Trustees' fees and expenses 49,988 5,226 2,589
Amortization of organization expense 1,490 1,482 1,482
Insurance expense 5,966 567 206
Miscellaneous 38,645 2,766 2,795
----------- ----------- -----------
Total expenses 1,160,540 135,107 67,598
----------- ----------- -----------
Net investment income 2,547,099 238,675 119,593
----------- ----------- -----------
Net realized and unrealized gain(loss) from investments:
Net realized gain (loss) on investments (4,518,213) (263,090) 50,479
Net change in unrealized appreciation
(depreciation) of investments (608,816) 10,037 (6,819)
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments (5,127,029) (253,053) 43,660
----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations ($2,579,930) ($ 14,378) $ 163,253
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
PAUZE' FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
U.S. U.S. U.S. U.S.
Government Government Government Government
Total Return Total Return Intermediate Term Intermediate Term
Bond Fund Bond Fund Bond Fund Bond Fund
------------ ------------ ------------ ------------
Year Ended Year Ended Year Ended Year Ended
April 30, 1999 April 30, 1998 April 30, 1999 April 30, 1998
------------ ------------ ------------ ------------
From operations:
<S> <C> <C> <C> <C>
Net investment income 2,547,099 $ 3,234,085 $ 238,675 $ 86,756
Net realized gain (loss) from investments (4,518,213) 7,968,571 (263,090) 81,096
Net change in unrealized appreciation (depreciation)
of investments (608,816) 1,474,810 10,037 22,194
------------ ------------ ------------ ------------
Net increase(decrease) in net assets resulting
from operations (2,579,930) 12,677,466 (14,378) 190,046
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
No load class (2,485,025) (3,277,065) (239,328) (62,517)
Class B (30,106) (13,087) (22,496) (24,241)
Class C (1,391) -- -- (2,408)
Distributions from net realized gain on investments:
No load class (1,264,342) (6,241,068) (102,579) (14,178)
Class B (25,713) (32,719) (12,846) (3,695)
Class C (862) -- -- --
------------ ------------ ------------ ------------
Total distributions to shareholders (3,807,439) (9,563,939) (377,249) (104,631)
------------ ------------ ------------ ------------
Capital Share Transactions - Net (Note 4) (14,766,212) 7,192,638 6,850,578 413,917
------------ ------------ ------------ ------------
Net increase (decrease) in net assets (21,153,581) 10,306,165 6,458,951 499,332
Net assets at beginning of year 78,629,267 68,323,102 3,164,297 2,664,965
------------ ------------ ------------ ------------
Net assets at end of year $ 57,475,686 $ 78,629,267 $ 9,623,248 $ 3,164,297
============ ============ ============ ============
Including undistributed net investment income of: $ 30,577 -- -- $ 79
============ ============ ============ ============
<CAPTION>
U.S. U.S.
Government Government
Short Term Short Term
Bond Fund Bond Fund
------------ ------------
Year Ended Year Ended
April 30, 1999 April 30, 1998
------------ ------------
From operations:
<S> <C> <C>
Net investment income $ 119,593 $ 44,084
Net realized gain (loss) from investments 50,479 2,407
Net change in unrealized appreciation (depreciation)
of investments (6,819) 5,561
------------ ------------
Net increase(decrease) in net assets resulting
from operations 163,253 52,052
------------ ------------
Distributions to shareholders from:
Net investment income:
No load class (123,663) (35,290)
Class B (1,906) (2,258)
Class C (6,535)
Distributions from net realized gain on investments:
No load class (44,247) (5)
Class B (1,238) (1)
Class C (456) (1)
------------ ------------
Total distributions to shareholders (173,918) (44,090)
------------ ------------
Capital Share Transactions - Net (Note 4) 138,097 1,304,260
------------ ------------
Net increase (decrease) in net assets 127,432 1,312,222
Net assets at beginning of year 2,026,524 714,302
------------ ------------
Net assets at end of year $ 2,153,956 $ 2,026,524
============ ============
Including undistributed net investment income of: -- $ 188
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
PAUZE' FUNDS
Financial Highlights
For a share outstanding throughout the periods ended April 30
<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>
NO LOAD CLASS
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
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 (3) 10.00 0.27 (0.16) (0.27) -- -- 9.84
CLASS C
1999 (8) $ 10.00 $ 0.28 $ (0.82) $ (0.28) $ (0.19) -- $ 8.99
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Intermediate Term Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NO LOAD CLASS
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 (4) 10.00 0.18 (0.19) (0.18) (0.09) -- 9.72
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 (3) 10.00 0.18 (0.15) (0.17) (0.12) -- 9.74
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Short Term Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NO LOAD CLASS
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 (5) 10.00 0.14 (0.01) (0.14) (0.01) -- 9.98
CLASS B --
1999 (9) $ 10.00 $ 0.14 $ 0.07 $ (0.18) $ (0.12) -- $ 9.91
1998 (7) ** 9.96 0.13 0.07 (0.13) -- (10.03) --
1997 (3) 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 (6) 10.00 0.09 (0.10) (0.08) -- -- 9.91
- ------------------------------------------------------------------------------------------------------------------------------------
<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>
NO LOAD CLASS
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
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 (3) 1.09 387 2.33 3.82 2.33 3.82 76.45
CLASS C
1999 (8) (5.63)% $ 67 2.43% 2.98% 2.43% 2.98% 1,226.42%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Intermediate Term Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NO LOAD CLASS
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 (4) (0.12) 1,247 2.47 3.23 2.48 3.22 298.88
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 (3) 0.32 1,418 3.18 2.64 3.20 2.62 447.36
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Short Term Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NO LOAD CLASS
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 (5) 1.25 236 3.03 2.58 5.18 0.43 351.63
CLASS B --
1999 (9) 2.11% 106 2.48% 2.40% 2.48% 2.40% 257.68%
1998 (7) ** 1.99 -- 3.56 2.01 3.56 2.01% 47.19
1997 (3) 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 (6) (0.07) 302 3.53 1.74 5.55 (0.28) 255.61
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Year end changed to April 30th.
** Effective December 19, 1997, the sole shareholder liquidated all Class B
shares.
(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 September 3, 1996. All ratios, except total return,
for the period have been annualized.
(4) Commenced operations on October 10, 1996. All ratios, except total return,
for the period have been annualized.
(5) Commenced operations on September 3, 1996. All ratios, except total return,
for the period have been annualized.
(6) Commenced operations on November 7, 1996. All ratios, except total return,
for the period have been annualized.
(7) For the period May 1, 1997 to December 19, 1997. All ratios, except total
return, for the period have been annualized.
(8) Commenced operations on May 13, 1998. All ratios, except total return, for
the period have been annualized.
(9) Commenced operations on September 17, 1998. All ratios, except total
return, for the period have been annualized.
9
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements
April 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
Pauze' Funds (The "TRUST") is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Trust was organized as a Massachusetts business trust on October 15, 1993. There
are presently four series within the Trust: the Pauze' U.S. Government Total
Return Bond Fund (the "TOTAL RETURN FUND"), which commenced operations on
January 10, 1994; the Pauze' U.S. Government Intermediate Term Bond Fund (the
"INTERMEDIATE TERM FUND"), which commenced operations on September 3, 1996; the
Pauze' U.S. Government Short Term Bond Fund (the "SHORT TERM FUND"), which
commenced operations on September 3, 1996; and the Pauze' Tombstone Fund, which
is not a subject of these financial statements. The three series included in
these financial statements are collectively referred to herein as the "FUNDS"
and individually as a "FUND".
Each Fund seeks to provide investors with a high total return (investment income
plus or minus realized and unrealized capital appreciation and depreciation)
consistent with preservation of capital and liquidity.
Effective September 3, 1996, shares of each Fund are issued in classes. No load
shares are sold at net asset value without sales commission or redemption fees.
Class B shares are sold at net asset value and are subject to a contingent
deferred sales charge and a 12b-1 fee. Class C shares are sold and redeemed at
net asset value and are subject to a 12b-1 fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
10
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME AND EXPENSES. Expenses directly attributable to a Fund are charged to
that Fund; other expenses of the Trust are allocated proportionately among each
of the Funds within the Trust in relation to the net assets of each Fund or on
another reasonable basis. Expenses directly attributable to a particular class
are charged directly to such class. In calculating net asset value per share of
each class, investment income, realized and unrealized gains and losses and
expenses other than class specific expenses are allocated daily to each class of
shares based upon the proportion of net assets of each class at the beginning of
each day.
SECURITY VALUATION. All securities (except securities with less than 60 days to
maturity and repurchase agreements) held by a Fund are valued at market value
based on an independent pricing service; and, in the event such service is not
available, at the mean between the most recent bid and ask prices as obtained
from one or more dealers that make markets in the securities. Short-term
investments with maturities of 60 days or less at the time of purchase
ordinarily are valued on the amortized cost basis. This involves valuing an
instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. If the Advisor
determines that amortized cost does not reflect fair value of a security, the
Board may select an alternative method of valuing the security.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME. Investment transactions
are accounted for on the trade date (the date the order to buy or sell is
executed). Securities gains and losses are calculated on the identified cost
basis. Interest income is determined on the basis of coupon interest accrued
daily, adjusted for amortization of premiums, and accretion of discount.
Dividend income is recorded on the ex-dividend date.
REPURCHASE AGREEMENTS. The Trust's policy is for the custodian to receive
delivery of the underlying securities used to collateralize the repurchase
agreements in an amount at least equal to 102% of the resale price. In the event
of default of the obligation to repurchase, a Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation.
Provisions of each agreement require that the market value of the collateral is
sufficient to pay principal and interest; however, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention of
the collateral may be subject to legal proceedings.
FEDERAL INCOME TAXES. It is the intention of each Fund to continue to qualify as
regulated investment companies under Subchapter M of the Internal Revenue Code
and to distribute all of its taxable income to its shareholders. Accordingly, no
federal income tax provision is required.
11
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED ORGANIZATIONAL COSTS. Costs incurred by the Trust in connection with
the organization of each of the Funds have been deferred and are being amortized
using the straight-line method over a five-year period beginning with the
commencement of operations of the Funds. In the event that any of the initial
shares of a Fund are redeemed during the amortization period by any holder
thereof, the redemption proceeds will be reduced by any unamortized organization
expenses in the same proportion as the number of initial shares being redeemed
bears to the number of initial shares outstanding at the time of such
redemption.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded by each Fund on ex-dividend date. The Funds generally
pay dividends monthly and capital gains distributions, if any, at least
annually. The Funds distribute tax basis earnings in accordance with the minimum
distribution requirements of the Internal Revenue Code, which may result in
dividends or distributions in excess of financial statement (book) earnings.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
3. INVESTMENT TRANSACTIONS
PAUZE' U.S. GOVERNMENT TOTAL RETURN BOND FUND
During the year ended April 30, 1999, the cost of purchases and proceeds from
sales/maturities of investments, excluding short-term investments, were
$305,222,879 and $300,174,628, respectively. All purchases and sales were U.S.
Government securities. At April 30, 1999, the unrealized depreciation of
investments for tax purposes was $609,169. Gross unrealized appreciation of
investments aggregated $-0- and gross unrealized depreciation of investments
aggregated $609,169. The cost of investments for federal income tax purposes at
April 30, 1999 was $58,264,588. Accumulated net realized loss on investment
transactions at April 30, 1999 amounted to $5,809,130.
PAUZE' U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
During the year ended April 30, 1999, the cost of purchases and proceeds from
sales/maturities of investments, excluding short-term investments, were
$33,704,568 and $36,496,267, respectively. All purchases and sales were U.S.
Government securities. The cost of investments for Federal income tax purposes
at April 30, 1999 was $9,623,444. Accumulated net realized loss on investment
transactions at April 30, 1999 amounted to $378,515.
12
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- --------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT SHORT TERM BOND FUND
During the year ended April 30, 1999, the cost of purchases and proceeds from
sales/maturities of investments, excluding short term investments, were
$10,013,988 and $10,598,465, respectively. All purchases and sales were U.S.
Government securities. At April 30, 1999, the unrealized depreciation of
investments for tax purposes was $874. Gross unrealized appreciation of
investments aggregated $-0- and gross unrealized depreciation of investments
aggregated $874. The cost of investments for Federal income tax purposes at
April 30, 1999 was $1,625,589. Accumulated net realized gains on investment
transactions at April 30, 1999 amounted to $328.
4. CAPITAL SHARE TRANSACTIONS
The following is a summary of capital share activity for the period indicated:
U.S. GOVERNMENT TOTAL
RETURN BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 1999 APRIL 30, 1998
--------------------------------- ---------------------------------
No load class SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 811,609 $ 7,643,904 21,599,128 $ 218,408,588
Reinvestment of dividends 154,843 1,414,273 762,166 7,358,710
Shares redeemed (2,617,422) (25,041,204) (21,608,748) (218,443,033)
------------- ------------- ------------- -------------
Net increase
(decrease) (1,650,970) ($ 15,983,027) 752,546 $ 7,324,265
============= ============= ============= =============
Class B SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 193,172 $ 2,032,042 19,649 $ 202,254
Reinvestment of dividends 5,584 56,373 4,292 44,826
Shares redeemed (88,776) (944,612) (36,416) (378,707)
------------- ------------- ------------- -------------
Net increase
(decrease) 109,980 $ 1,143,803 (12,475) ($ 131,627)
============= ============= ============= =============
</TABLE>
13
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- ------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
U.S. GOVERNMENT TOTAL
RETURN BOND FUND
YEAR ENDED
APRIL 30, 1999
-----------------------
Class C SHARES AMOUNT
------ ------
Shares Sold 7,215 $70,761
Reinvestment of dividends 236 2,251
Shares redeemed -- --
------ -------
Net increase 7,451 $73,012
====== =======
U.S. GOVERNMENT
INTERMEDIATE
TERM BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 1999 APRIL 30, 1998
----------------------------- -----------------------------
No load class SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 642,136 $ 6,543,518 249,080 $ 2,527,103
Reinvestment of dividends 18,500 185,839 4,098 41,049
Shares redeemed (53,913) (543,229) (111,774) (1,136,503)
----------- ----------- ----------- -----------
Net increase 606,723 $ 6,186,128 141,404 $ 1,431,649
=========== =========== =========== ===========
Class B SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold 67,215 $ 693,855 5,326 $ 51,878
Reinvestment of dividends 3,505 35,341 2,350 23,518
Shares redeemed (6,342) (64,746) (109,587) _(1,093,128)
----------- ----------- ----------- -----------
Net increase
(decrease) 64,378 $ 664,450 (101,911) ($1,017,732)
=========== =========== =========== ===========
</TABLE>
14
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- ------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
U.S. GOVERNMENT
SHORT TERM
BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 1999 APRIL 30, 1998
----------------------------- -----------------------------
No load class SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 697,901 $ 7,114,217 286,828 $ 2,885,235
Reinvestment of dividends 7,493 75,779 1,799 18,035
Shares redeemed (692,061) (7,038,390) (126,558) (1,275,235)
----------- ----------- ----------- -----------
Net increase 13,333 $ 151,606 162,069 $ 1,628,035
=========== =========== =========== ===========
Class B SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold 10,390 $ 103,896 -- $ --
Reinvestment of dividends 316 3,144 -- --
Shares redeemed -- -- (17,736) (177,860)
----------- ----------- ----------- -----------
Net increase
(decrease) 10,706 $ 107,040 (17,736) ($ 177,860)
=========== =========== =========== ===========
Class C SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold -- $ -- -- $ --
Reinvestment of dividends 286 2,863 657 6,537
Shares redeemed (12,223) (123,412) (15,230) (152,452)
----------- ----------- ----------- -----------
Net decrease (11,937) ($ 120,549) (14,573) ($ 145,915)
=========== =========== =========== ===========
</TABLE>
5. TRANSACTIONS WITH THE MANAGER AND AFFILIATES
Pauze', Swanson & Associates Investment Advisors, Inc. d/b/a Pauze' Swanson
Capital Management Co. (the "ADVISOR" or the "MANAGER"), under an amended and
restated Advisory Agreement with the Trust in effect from June 1, 1996 and
subsequently approved through October 31, 1999, furnishes management and
investment advisory services and, subject to the supervision of the Trust's
Board of Trustees, directs the investments of the Trust in accordance with the
individual Fund's investment objectives, policies and limitations.
15
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- --------------------------------------------------------------------------------
5. TRANSACTIONS WITH THE MANAGER AND AFFILIATES (CONTINUED)
This agreement provides for a monthly management fee at the annual rate of 0.60%
of the average daily net assets (1/12 of 0.60% monthly) 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 for the Total Return Fund. For the
Intermediate Term and Short Term Funds, the agreement provides for a monthly
management fee at the annual rate of 0.50% of the average daily net assets (1/12
of 0.50% monthly).
Declaration Service Company serves as the Administrator to the Trust pursuant to
an Administrative Services Agreement with the Trust. As Administrator,
Declaration Service Company is responsible for services such as financial
reporting, compliance monitoring and corporate management. For the Services
provided, the Administrator receives an annual fee of $214,000, payable in equal
installments which are allocated to each series based upon the relative net
assets of each series. The series also pay standard out-of-pocket costs to
Declaration Service Company. The Funds' share of these fees and expenses for the
year ended April 30, 1999 were $193,264, $22,733 and $10,528 for U.S. Government
Total Return Bond Fund, U.S. Government Intermediate Term Bond Fund and U.S.
Government Short Term Bond Fund, respectively.
Declaration Service Company serves as transfer agent and dividend paying agent
of the Trust pursuant to a separate transfer agency and shareholder services
agreement with the Trust. For its services, the Trust currently pays Declaration
Service Company an annual fee of $18 per account or a minimum annual fee of
$24,000 plus standard out-of-pocket expenses. The Funds' share of these fees and
expenses for the year ended April 30, 1999 were $18,235, $2,344 and $1,114 for
U.S. Government Total Return Bond Fund, U.S. Government Intermediate Term Bond
Fund and U.S. Government Short Term Bond Fund, respectively.
Declaration Service Company determines the net asset value per share of each
Fund and provides accounting services to the Fund pursuant to an Accounting
Services Agreement with the Trust. For its services, Declaration Service Company
receives an annual fee of $178,000, payable in equal monthly installments which
are allocated to each series based upon the relative net assets of each series.
The series also pay standard out-of-pocket costs to Declaration Service Company.
The Funds' share of these fees and expenses for the year ended April 30, 1999,
were $147,725, $17,247 and $7,697 for U.S. Government Total Return Bond Fund,
U.S. Government Intermediate Term Bond Fund and U.S.
Government Short Term Bond Fund, respectively.
Declaration Distributors, Inc. an affiliate of Declaration Service Company,
serves as the Trust agent in connection with the distribution of Fund shares.
For the services provided, Declaration Distributors, Inc. receives an annual fee
of $20,000 from the Trust. The
16
<PAGE>
PAUZE' FUNDS
Notes to Financial Statements - (continued)
April 30, 1999
- --------------------------------------------------------------------------------
5. TRANSACTIONS WITH THE MANAGER AND AFFILIATES (CONTINUED)
Bond Funds' share of these expenses for the year ended April 30, 1999 was
$19,339.
For the year ended April 30, 1999, Declaration Service Company and Declaration
Distributors, Inc. earned $384,059 and $19,339, respectively, for the three
series included in these financial statements. On April 30, 1999, the liability
to Declaration Service Company and Declaration Distributors, Inc. was $33,813
and $1,625, respectively.
Independent trustees are each paid an annual fee of $10,500 from the Trust plus
$500 per meeting and out-of-pocket expenses.
An officer of Declaration Service Company and Declaration Distributors Inc. (the
underwriter of the Trust) is a Trustee of the Trust. The officer receives no
compensation for these services. This person resigned as Trustee of the Trust
subsequent to April 30, 1999.
Effective November 18, 1998, new 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 Fund will pay a
12b-1 fee at an annual rate of 0.25% of the Fund's average net assets (1/12 of
0.25% monthly) to the Advisor for its distribution related services and
expenses. With respect to Class B shares and Class C shares, the plan provides
that each Fund will use Fund assets applicable to those shares to pay additional
Rule 12b-1 fees of 0.75% of said assets (1/12 of 0.75% monthly) 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 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. The
previous distribution plans allowed for reimbursement of distribution related
expenses at maximum fee rates equal to the fee rates described above.
6. SUBSEQUENT EVENT
On March 30, 1999, the Board of Trustees approved a resolution to change certain
service providers for the Trust. Effective, July 1, 1999, Champion Fund
ServicesTM, an affiliate of the Manager, will become the Administrator, Fund
Accounting Agent and Transfer Agent to the Trust. Concurrently, B. C. Ziegler
and Company will become the Distributor of the Trust. Such services will be
provided at fees comparable to those previously incurred by the Trust.
17
<PAGE>
PAUZE' FUNDS
Results of Special Meeting of Shareholders on November 18, 1998
(Unaudited)
A special meeting of the shareholders of the Pauze' Funds(tm) was held on
November 18, 1998. Several matters were submitted for shareholder vote.
The first matter voted upon was the approval of new distribution plans pursuant
to Rule 12b-1 under the Investment Company Act of 1940. The plans were approved
for all classes (except Class C of the Pauze' U.S. Government Intermediate Term
Bond Fund(tm), where no shares were outstanding) and the results of the voting
were as follows:
Fund For Against Abstain
- ---- --- ------- -------
Pauze' U.S. Government
Total Return Bond Fund(TM)
No Load 7,109,827 0 0
Class B 124,778 0 0
Class C 4,421 0 0
Pauze' U.S. Government
Intermediate Term Bond Fund(TM)
No Load 722,488 0 0
Class B 69,725 0 0
Class C No Eligible Votes 0 0
Pauze' U.S. Goverment
Short Term Bond Fund(TM)
No Load 566,066 0 0
Class B 10,389 0 0
Class C 15,952 0 0
The next matter voted upon was the ratification of the seleciton of Tait, Weller
& Baker as independent accountants for the Trust for the fiscal year ending
April 30, 1999. The shareholders ratified the selection and the results of the
voting, presented by Fund, were as follows:
Fund For Against Abstain
- ---- --- ------- -------
Pauze' U.S. Government
Total Return Bond Fund(TM) 7,239,026 0 0
Pauze' U.S. Government
Intermediate Term Bond Fund(TM) 792,213 0 0
Pauze' U.S. Goverment
Short Term Bond Fund(TM) 592,407 0 0
18
