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)
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For Information, Shareholder Services and Requests:
14340 Torrey Chase Blvd., Suite 170
Houston, Texas 77014
1-800-327-7170
[LOGO]
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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.
MAY 8, 2000
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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 Fund's past performance is not
necessarily an indication of its future performance.
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Annual Total Returns as of December 31 of each year
[GRAPHIC OMITTED]
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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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[GRAPHIC OMITTED]
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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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[GRAPHIC OMITTED]
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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
Account Closing Fee (does not apply to exchanges) $ 10 $ 10
Exchange Fee None None
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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
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
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
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
(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%.
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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.
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
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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.
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
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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 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,
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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 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
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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:
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
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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.
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.
11
<PAGE>
(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 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.
12
<PAGE>
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 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
13
<PAGE>
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.
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.
14
<PAGE>
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 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
15
<PAGE>
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.
Each Fund may also purchase U. S. government and U. S. government agency
zero-coupon securities. Zero-coupon securities are created by separating the
coupon payments and the principal payment from a traditional bond and selling
them as individual securities. They include securities that have been stripped
of their unmatured interest coupons, as well as the individual interest coupons
from those securities that trade separately. Zero-coupon securities do not make
any periodic interest payments. Instead, all of the interest and principal is
paid when the securities mature. Zero-coupon securities issued by the U. S.
government or by any agency of the U. S. government are direct obligations of
the U. S. government or the agency, and the final maturity value is supported by
the U. S. government or agency security.
Zero-coupon securities are sold and priced at a deep discount to their maturity
value, the degree of discount being a function of the length of maturity and the
interest rate at which they are priced. Zero-coupon securities tend to be more
sensitive to changes in interest rates than other types of U. S. 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.
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.
NON-PRINCIPAL STRATEGIES
Futures Contracts and Options: The Short Term Fund and the Intermediate Term
Fund may invest in
16
<PAGE>
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 Funds. In
addition, the advisor cannot make any assurances that the Year 2000 Issue will
not affect the companies in which the Funds invest or worldwide markets and
economies.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The following condensed financial information 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
- -------------------------------------------------------------------------------------------------------------------------
CLASS B
<S> <C> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------------
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>
18
<PAGE>
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
- -------------------------------------------------------------------------------------------------------------------------
CLASS B
<S> <C> <C> <C> <C> <C> <C> <C>
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
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.
19
<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
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.
MAY 8, 2000
<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 average
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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:
[GRAPHIC OMITTED]
--------------------------------------------------------
Pauze U.S. Government Total Return Bond Fund
Annual Total Returns
1995 14.26%
1996 0.90%
1997 12.90%
1998 3.47%
--------------------------------------------------------
[GRAPHIC OMITTED]
--------------------------------------------------------
Pauze U.S. Government Intermediate Term Bond Fund
Annual Total Returns
1997 4.77%
1998 4.69%
--------------------------------------------------------
[GRAPHIC OMITTED]
--------------------------------------------------------
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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<PAGE>
BY MAIL: You may direct Pauze Funds(TM) in writing to exchange your shares.
The request must be signed exactly as the name appears on the registration.
(Before writing, read "Additional Information about Exchanges.")
ADDITIONAL INFORMATION ABOUT EXCHANGES
(1) All exchanges are subject to the minimum investment requirements and
any other applicable terms set forth in the prospectus for the Fund whose shares
are being acquired.
(2) There is 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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<PAGE>
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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<PAGE>
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.
Each Fund may also purchase U. S. government and U. S. government agency
zero-coupon securities. Zero-coupon securities are created by separating the
coupon payments and the principal
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payment from a traditional bond and selling them as individual securities. They
include securities that have been stripped of their unmatured interest coupons,
as well as the individual interest coupons from those securities that trade
separately. Zero-coupon securities do not make any periodic interest payments.
Instead, all of the interest and principal is paid when the securities mature.
Zero-coupon securities issued by the U. S. government or by an agency of the U.
S. government are direct obligations of the U. S. government or the agency, and
the final maturity value is supported by the U. S. government or agency
security.
Zero-coupon securities are sold and priced at a deep discount to their maturity
value, the degree of discount being a function of the length of maturity and the
interest rate at which they are priced. Zero-coupon securities tend to be more
sensitive to changes in interest rates than other types of U. S. 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.
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.
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
15
<PAGE>
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 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>
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 May 8, 2000. 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 MAY 8, 2000.
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.
(15) Invest in any foreign securities.
4
<PAGE>
(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 in bonds that are "zero coupon" United States
Government securities (which have been stripped of their unmatured interest
coupons and receipts). The Fund will only invest in "zeros" which are issued by
the United States Treasury or United States government agencies, and not those
issued by broker-dealers or banks. The Fund will not invest in Interest Only or
Principal Only ("IOs" or "POs") mortgage-backed securities or derivative
products. Zero coupon securities tend to be more sensitive to changes in
interest rates than other types of United States Government securities. As a
result, a rise or fall in interest rates will have a more significant impact on
the market value of these securities. Although zero coupon securities pay no
interest to holders prior to maturity, interest on these securities is accrued
as income to the Fund and distributed to its shareholders. These distributions
must be made from the Fund's cash assets, or, if necessary, from the proceeds of
sales of portfolio securities.
REPURCHASE AGREEMENTS
Each Fund may invest a portion of its assets in repurchase agreements with
domestic broker-dealers, banks and other financial institutions, provided the
Fund's custodian always has possession of securities serving as collateral or
has evidence of book entry receipt of such securities. In a repurchase
agreement, a fund purchases securities subject to the seller's agreement to
repurchase such securities at a specified time (normally one day) and price. The
repurchase price reflects an agreed-upon interest rate during the time of
investment. All repurchase agreements must be collateralized by United States
Government or government agency securities, the market values of which equal or
exceed 102% of the principal amount of the repurchase obligation. If an
institution enters insolvency proceedings, the resulting delay in liquidation of
securities serving as collateral could cause the Fund some loss if the value of
the securities declines prior to liquidation. To minimize the risk of loss, each
Fund will enter into repurchase agreements only with institutions and dealers
which are considered creditworthy.
5
<PAGE>
INTERMEDIATE TERM FUND AND SHORT TERM FUND USE OF FUTURES CONTRACTS
AND OPTIONS ON FUTURES CONTRACTS
Futures contracts and options may be used for several reasons: to hedge
securities held to effectively reduce the average weighted maturity; to maintain
cash reserves while remaining fully invested; to facilitate trading; to reduce
transaction costs; or to seek higher investment returns when a futures contract
is priced more attractively than the underlying security or index. Neither Fund
may use futures contracts or options transactions to leverage assets.
The Intermediate Term and Short Term Funds may purchase or sell options on
individual securities, and may enter into trading in options on futures
contracts, may purchase put or call options on futures contracts, and may sell
such options in closing transactions.
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.
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
6
<PAGE>
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 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.
7
<PAGE>
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
the Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge it.
A Fund will minimize the risk that it will be unable to close out a futures
contract by only entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Fund are engaged in only for hedging purposes, Pauze Swanson
Capital Management Co., the Funds' Investment Advisor, does not believe that the
Funds are subject to the risks of loss frequently associated with leveraged
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, it had invested in the underlying financial
instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices
8
<PAGE>
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
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
9
<PAGE>
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.
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
10
<PAGE>
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.
11
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS & AGE TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- --------------------
<S> <C> <C>
Philip C. Pauze ** President and President of Pauze, Swanson & Associates
14340 Torrey Chase Blvd. Trustee Investment Advisors, Inc., d/b/a Pauze
Suite 170 Swanson Capital Management Co., an asset
Houston, Texas 77014 management firm specializing in management of
Age: 58 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.
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 December
Age: 47 Officer 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 & Associates
14340 Torrey Chase Secretary Investment Advisors, Inc., since 1996.
Houston, TX 77014 Assistant Vice President of Pauze Swanson
Age: 56 from 1995 to 1996. Administrator of Pauze
Swanson from 1993 to 1995. Vice President of
Champion Fund Services since March 1999.
Paul J. Hilbert Trustee Attorney with the firm of Paul J. Hilbert &
2301 FM 1960 West Associates, Houston, Texas, practicing civil
77068 Houston, TX law since 1975. Legislator, Texas
Age: 50 House of Representatives since 1982.
12
<PAGE>
Gordon M. Anderson Trustee Consultant with the Texas Education Agency,
1806 Elk River Rd. Region 4 Education Service Center, School
Houston, TX 77090 Board and Superintendent Development Program
Age: 63 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 1994
32 Autumn Crescent was Vice President of Worldwide Business
The Woodlands, TX 77381 Planning of the Compaq Computer Corporation.
Age: 58 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 compensation paid to the Trustees of the Trust for the fiscal
year ended April 30, 1999 is set forth below.
13
<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
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
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
14
<PAGE>
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
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
15
<PAGE>
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
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.
16
<PAGE>
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., 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.
17
<PAGE>
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 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.
18
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN INT. TERM SHORT TERM
BOND FUND BOND FUND BOND FUND TOTAL
------------ --------- --------- -----
<S> <C> <C> <C> <C>
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
</TABLE>
The Trust expects that the Distribution Plans will be used to pay a
"service fee" to persons who provide personal services to prospective and
existing Fund shareholders and to compensate broker-dealers for sales and
promotional services. Shareholders of the Funds will benefit from these services
and the Trust expects to benefit from economies of scale as more shareholders
are attracted to the Fund.
DISTRIBUTOR
On 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.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN
A Fund may advertise performance in terms of average annual total return
for 1, 5 and 10 year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (exponential number)
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the
year or period;
19
<PAGE>
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
------ ------ ------ ---------
Pauze U. S. Government Total Return Bond Fund
<S> <C> <C> <C> <C>
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
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.
20
<PAGE>
YIELD
A Fund may also advertise performance in terms of a 30 day yield quotation.
A Fund's "yield" refers to the income generated by an investment in the Fund
over a 30-day (or one month) period (which period will be stated in the
advertisement). Yield is computed by dividing the net investment income per
share earned during the most recent calendar month by the maximum offering price
per share on the last day of such month. This income is then "annualized." That
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each month over a 12-month period and is shown as a
percentage of the investment. For purposes of the yield calculation, interest
income is computed based on the yield to maturity of each debt obligation and
dividend income is computed based upon the stated dividend rate of each security
in the Fund's portfolio and all recurring charges are recognized.
The 30 day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period according to the following formula:
6
YIELD = 2 [ ((A - B)/CD) + 1) - 1]
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 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.
21
<PAGE>
NONSTANDARDIZED TOTAL RETURN
A Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of a Fund's shares) as of the end of a specified period. These non-standardized
quotations do not include the effect of the applicable sales charge, or charges
for optional services which involve nominal fees, which would reduce the quoted
performance if included. A non-standardized quotation will always be accompanied
by the Fund's "average annual total return" as described above.
A Fund may also include in advertisements data comparing performance with
bond or other indices, or with other mutual funds (as reported in non-related
investment media, published editorial comments and performance rankings compiled
by independent organizations and publications that monitor the performance of
mutual funds). For example, a Fund may compare its performance to rankings
prepared by Lipper Analytical Services, Inc. ("Lipper"), a widely recognized
independent service which monitors the performance of mutual funds, to
Morningstar's Mutual Fund Values, to Moody's Bond Survey Bond Index, or to the
Consumer Price Index. Performance information and rankings as reported in
Changing Times, Business Week, Institutional Investor, the Wall Street Journal,
Mutual Fund Forecaster, No-Load Investor, Money Magazine, Forbes, Fortune and
Barrons magazine may also be used in comparing performance of a Fund.
TAX STATUS
TAXATION OF THE FUNDS -- IN GENERAL
As stated in its prospectus, each Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, each Fund will not be liable for federal
income taxes on its taxable net investment income and capital gain net income
that are distributed to shareholders, provided that the Fund distributes at
least 90% of its net investment income and net short-term capital gain for the
taxable year.
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.
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The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its net capital gains for the twelve-month period ending on October
31 of the calendar year and (3) any portion (not taxable to the Fund) of the
respective balance from the preceding calendar year. The Funds intend to make
such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE FUNDS' INVESTMENTS
For federal income tax purposes, debt securities purchased by the Funds may
be treated as having original issue discount. Original issue discount represents
interest for federal income tax purposes and can generally be defined as the
excess of the stated redemption price at maturity of a debt obligation over the
issue price. Original issue discount is treated for federal income tax purposes
as earned by the Fund, whether or not any income is actually received, and
therefore, is subject to the distribution requirements of the Code. Generally,
the amount of original issue discount is determined on the basis of a constant
yield to maturity which takes into account the compounding of accrued interest.
Under Section 1286 of the Code, an investment in a stripped bond or stripped
coupon will result in original issue discount.
Debt securities may be purchased by a Fund at a discount which exceeds the
original issue price plus previously accrued original issue discount remaining
on the securities, if any, at the time the Fund purchases the securities. This
additional discount represents market discount for income tax purposes. In the
case of any debt security issued after July 18, 1984, having a fixed maturity
date of more than one year from the date of issue and having market discount,
the gain realized on disposition will be treated as interest income for purposes
of the 90% test to the extent it does not exceed the accrued market discount on
the security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis.
A Fund may be required to capitalize, rather than deduct currently, part or
all of any direct interest expense incurred to purchase or carry any debt
security having market discount unless the Fund makes the election to include
market discount currently. Because a Fund must take into account the original
issue discount for purposes of satisfying various requirements for qualifying as
a regulated investment company under Subchapter M of the Code, it will be more
difficult for the Fund to make the distributions to maintain such status and to
avoid the 4% excise tax described above. To the extent that a Fund holds
zero-coupon or deferred interest bonds in its portfolio or bonds paying interest
in the form of additional debt obligations, the Fund would recognize income
currently even though the Fund received no cash payment of interest, and would
need to raise cash to satisfy the obligations to distribute such income to
shareholders from sales of portfolio securities.
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.
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All Shareholders will be notified annually regarding the tax status of
distributions received from a Fund.
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if a
Fund pays the dividends during the following January. Since none of the net
investment income of the Fund is expected to arise from dividends on domestic
common or preferred stock, none of the Funds' distributions will qualify for the
70% corporate dividends-received deduction.
Distributions by a Fund will result in a reduction in the fair market value
of the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of a Fund just prior to a distribution. The price of such shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing the Fund's shares just prior to a distribution may
receive a return of investment upon distribution which will nevertheless be
taxable to them.
A shareholder of a Fund should be aware that a redemption of shares
(including any exchange into another Portfolio) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of a
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of the long term capital gain recognized.
TAX IDENTIFICATION NUMBER
The Trust is required by Federal law to withhold and remit to the United
States Treasury a portion of the dividends, capital gains distributions and
proceeds of redemptions paid to any shareholder who fails to furnish the Trust
with a correct taxpayer identification number, who underreports dividend or
interest income or who fails to provide certification of tax identification
number. In order to avoid this withholding requirement, you must certify on your
application, or on a separate W-9 Form supplied by the Transfer Agent, that your
taxpayer identification number is correct and that you are not currently subject
to backup withholding or you are exempt from backup withholding. For
individuals, your taxpayer identification number is your social security number.
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Instructions to exchange or transfer shares held in established accounts
will be refused until the certification has been provided. In addition, the Fund
assesses a $50 administrative fee if the taxpayer identification number is not
provided by year end.
OTHER TAX CONSIDERATIONS
Distributions to shareholders may be subject to additional state, local and
non-U.S. taxes, depending on each shareholder's particular tax situation.
Shareholders subject to tax in certain states may be exempt from state income
tax on distributions made by the Fund to the extent such distributions are
derived from interest on direct obligations of the United States Government.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in shares of a Fund.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian
of the Funds' investments. The Custodian acts as the Funds' depository, safe
keeps their portfolio securities, collects all income and other payments with
respect thereto, disburse funds at the Funds' request and maintains records in
connection with its duties.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103 has been
selected as independent accountants for the Trust for the fiscal year ending
April 30, 2000. Tait, Weller & Baker performs an annual audit of each Fund's
financial statements and provides financial, tax and accounting consulting
services as requested.
FINANCIAL STATEMENTS
The Trust was established on October 15, 1993 and commenced offering shares of
the Total Return Fund in January 1994. In addition, the Trust commenced offering
Class B and C shares of the Total Return Fund and No-load, Class B and Class C
shares of the Intermediate Term Fund and Short Term Fund in August 1996. The
audited financial statements and auditor's report required with the Statement of
Additional Information 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.
