SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 16 X
(Check appropriate box or boxes)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 16 X
PAUZE FUNDS - File Nos. 33-71562 and 811-8148
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(Exact Name of Registrant as Specified in Charter)
14340 Torrey Chase Blvd., Ste. 170, Houston, Texas 77014
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (281) 444-6012
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Philip C. Pauze, President, Pauze Funds,
14340 Torrey Chase Blvd. Ste. 170, Houston, Texas 77014
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(Name and Address of Agent for Service)
With Copy To:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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PROSPECTUS
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.
_________________________, 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
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 debt
securities and repurchase agreements backed by the U.S. government. U.S.
government debt securities may be issued by the U. S. government, or by an
agency of the U. S. government, and include zero-coupon securities. 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 the U.S. government, 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, and include zero-coupon securities. 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 the U.S. government, 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, and include zero-coupon securities. 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. 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.
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 [Bar charts for 1997, 1998
and 1999 - to be supplied]
Each Fund's year-to-date return as of June 30, 2000 was as follows:
Total Return Bond Fund - Class B _____%
Intermediate Term Bond Fund - Class B _____%
Short Term Bond Fund - Class B _____%
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 12/31/99:
1 Year Since Inception
Total Return Bond Fund - Class B _____% _____%
Lehman Government Bond Index _____% _____%
Intermediate Term Bond Fund - Class B _____% _____%
Lehman U.S. Treas. Intermediate Index _____% _____%
Short Term Bond Fund - Class B _____% _____%
Lehman 1-3 Government Index _____% _____%
*September 3, 1996
Update: 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.
Update: 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.
Update: 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
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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 _____% _____%
Total Fund Operating Expenses _____% _____%
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
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 _____% _____%
Total Fund Operating Expenses _____% _____%
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 _____% _____%
Total Fund Operating Expenses _____% _____%
EXAMPLE:
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The example below is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, 5% annual total return, reinvested dividends and
distributions, constant operating expenses, and sale of all shares at the end of
each time period. Although your actual expenses may be different, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Total Return Fund
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Class B
if you sold your shares
at the end of the period _____ _____ _____ _____
if you stayed in the Fund _____ _____ _____ _____
Class C _____ _____ _____ _____
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Intermediate Term Fund
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Class B
if you sold your shares
at the end of the period _____ _____ _____ _____
if you stayed in the Fund _____ _____ _____ _____
Class C _____ _____ _____ _____
Short Term Fund
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Class B
if you sold your shares
at the end of the period _____ _____ _____ _____
if you stayed in the Fund _____ _____ _____ _____
Class C _____ _____ _____ _____
(1) The maximum contingent deferred sales charge (CDSC) as set forth in the
table applies to redemptions of shares within two years of purchase. The CDSC
decreases over the period of seven years, to zero, and the Class B shares
convert to no-load shares at that time. See "Alternative Purchase Plans." (2)
Class B shares convert to no-load shares which pay 12b-1 fees of 0.25%, not
1.00%.
HOW TO PURCHASE SHARES
The minimum initial investment is $1,000. The minimum subsequent investment
is $50. The minimum initial investment for persons enrolled in an automatic
investment plan is $100 and the minimum subsequent investment pursuant to such a
plan is $30 per month per account.
You may purchase shares through a registered representative of a
participating dealer or a participating bank ("Representative") by placing an
order for Fund shares with your Representative, and arranging for your payment.
If you are investing in a Fund for the first time, you will need to set up an
account. Your Representative will help you fill out and submit an application (a
copy of which accompanies this Prospectus).
Shares of a Fund are purchased at a price equal to their net asset value
per share next determined after receipt of an order. When you place an order for
a Fund's shares, you must specify which class of shares you wish to purchase.
See "Alternative Purchase Plans."
All purchase orders received by the Funds' distributor prior to the close
of regular trading on the 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.
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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 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 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
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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 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
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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, 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
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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 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.
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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 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
10
<PAGE>
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.
(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
11
<PAGE>
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. He has managed the Total Return Fund
since commencement of operations in January 1994 and the Short Term Fund since
January 1998.
Mr. Pauze has specialized in managing portfolios of United States
government securities for trusts, small institutions, and retirement plans since
1985. Mr. Philip Pauze assisted the California Funeral Directors Association in
establishing the California Master Trust (the "CMT") and has been its financial
consultant since inception. CMT's investment performance has been highly rated
by independent evaluators. In addition to the CMT, Mr. Philip Pauze serves as
the financial consultant to the government bond portfolio of the Pennsylvania
Funeral Trust, to the American Funeral Trust, a nationwide funeral trust, and to
the California and Pennsylvania Funeral Directors Association's Retirement
Plans.
Since October 1998, Mr. Stephen P. Pauze, Assistant Vice President of the
advisor, has been responsible for the day-to-day management of the Intermediate
Term Fund portfolio. Mr. Stephen Pauze has a degree in Financial Planning and
served as broker-dealer wholesaler and an account executive for the advisor in
the Mid-Central and Southeast Regions of the United States from June 1997 to
October 1998. From April 1996 to June 1997, Mr. Stephen Pauze was a supervisor
at Roadway Express, Inc.
The advisor furnishes an investment program for the Funds, determines,
subject to the overall supervision and review of the Board of Trustees of the
Trust, what investments should be purchased, sold and held, and makes changes on
behalf of the Trust in the investments of the Funds. For these services, the
advisor received fees for the fiscal year ended April 30, 2000, as a percentage
of net assets, as follows: [Update: 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.
12
<PAGE>
There is an annual charge for each retirement plan fund account with
respect to which a service provider acts as custodian. If this charge is not
paid separately prior to the last business day of a calendar year or prior to a
total redemption, it will be deducted from the shareholder's account.
Application forms and brochures describing these plans and services can be
obtained by calling 1-800-327-7170.
HOW SHARES ARE VALUED
The price of your shares is based on the applicable Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
Each Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
Requests to purchase, exchange and sell shares are processed at the NAV
next calculated after we receive your order in proper form.
DISTRIBUTIONS AND TAXES
As a shareholder of a Fund, you are entitled to your share of the Fund's
distributed net income and any net gains realized on its investments. Dividend
and capital gains distributions will have tax consequences you should know
about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income as DIVIDENDS to its shareholders at the end of each month. Short-term
capital gains are distributed at the end of the calendar year and are included
in net investment income. Each Fund realizes long-term capital gains whenever it
sells securities held for more than one year for a higher price than it paid for
them. Each Fund intends to distribute substantially all of its net realized
long-term capital gains, if any, at the end of the calendar year as CAPITAL GAIN
DISTRIBUTIONS. Each Fund expects that its distributions will consist primarily
of dividends.
Before they are distributed, net long-term capital gains are included in
the value of each share. After they are distributed, the value of each share
drops by the per-share amount of the distribution. If you reinvest the
distribution, the total value of your account will not change.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the applicable Fund, unless:
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<PAGE>
o you request the Fund in writing or by phone to pay dividend and/or
capital gain distributions to you in cash, or
o you direct the Fund to invest your distributions in any publicly
available Pauze Fund(TM) for which you have previously opened an
account.
If your distribution check is returned as undeliverable, or not cashed
after 180 days, we will reinvest the check into your account at the then-current
net asset value and make future distributions in the form of additional shares.
TAXES
Distributions are subject to federal income tax and also may be subject to
state and local taxes. Each January, you will receive a tax statement showing
the kinds and total amount of all distributions you received during the previous
year. You must report distributions on your tax returns, even if they are
reinvested in additional shares.
Under Federal law, the income derived from obligations issued by the United
States government and certain of its agencies and instrumentalities is exempt
from state income taxes. All states that tax personal income permit mutual funds
to pass through this tax exemption to shareholders provided applicable
diversification/threshold limits and reporting requirements are satisfied.
Buying a dividend creates a liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you
sell shares for more than their cost, the difference is a capital gain. Your
gain may be either short term (for shares held for one year or less) or long
term (for shares held for more than one year).
IMPORTANT: This is a brief summary of certain federal tax rules that apply
to the Fund. Tax matters are highly individual and complex, and you should
consult a qualified tax advisor about your personal situation.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS
PRINCIPAL STRATEGIES
United States Treasury securities are backed by the full faith and credit
of the United States government. These securities differ only in their interest
rates, maturities, timing of interest payments, and 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
14
<PAGE>
Federal Housing Administration or Farmers' Home Administration or guaranteed by
the Veterans' Administration. Each 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 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.
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
15
<PAGE>
nor that the strategies employed by the advisor to take advantage of changes in
the interest rate environment will be successful, and thus there is no assurance
that a Fund will achieve its investment objective.
NON-PRINCIPAL STRATEGIES
Futures Contracts and Options: Each Fund may invest in futures contracts and
option contracts on U.S. government debt securities for hedging purposes only.
Futures contracts and options contracts pose additional risks. See the Statement
of Additional Information for a description of the risks.
Investment Objective: The investment objective of each Fund is not fundamental,
and may be changed by the Board of Trustees without shareholder approval. Any
such change may result in a Fund having an investment objective different from
what the shareholder considered appropriate at the time of investment in the
Fund.
Lending of Portfolio Securities: Each Fund may lend securities to broker-dealers
or institutional investors for their use in connection with short sales,
arbitrages and other securities transactions. A Fund will not lend portfolio
securities unless the loan is secured by collateral (consisting of any
combination of cash and United States government securities) in an amount at
least equal (on a daily mark-to-market basis) to the current market value of the
securities loaned. In the event of a bankruptcy or breach of agreement by the
borrower of the securities, the Fund could experience delays and costs in
recovering the securities loaned. A Fund will not enter into securities lending
agreements unless its custodian bank/lending agent will fully indemnify the Fund
against loss due to borrower default. A Fund may not lend securities with an
aggregate market value of more than one-third of the Fund's total net assets.
When-Issued and Delayed Delivery Securities: Each Fund may purchase debt
obligations on a "when-issued" basis or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement period, but 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.
FINANCIAL HIGHLIGHTS
The following condensed financial information has been audited by
___________________, the Funds' independent accountants. The information should
be read in conjunction with the audit report and financial statements included
in the 2000 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.
[to be supplied]
16
<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
-------------------
-------------------------
-------------------------------
LEGAL COUNSEL
Brown, Cummins & Brown
3500 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
17
<PAGE>
PAUZE FUNDS(TM)
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated by reference into this
Prospectus, contains detailed information on Fund policies and operation.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of the Funds' latest
semi-annual or annual fiscal year end.
Call the Funds at 800-327-7170 to request free copies of the SAI and the
Funds' annual and semi-annual reports, to request other information about the
Funds and to make shareholder inquiries.
You may 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
18
<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.
______________, 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
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 the U.S. government. U.S.
government debt securities may be issued by the U. S. government, or by an
agency of the U. S. government, and include zero-coupon securities. 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 the U.S. government, 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, and include zero-coupon securities. 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 the U.S. government, 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, and include zero-coupon securities. 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. 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.
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
2
<PAGE>
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: [Bar Charts for 1997, 1998
and 1999 - To be supplied.]
Each Fund's year-to-date return as of June 30, 2000 was as follows:
Total Return Bond Fund _____%
Intermediate Term Bond Fund _____%
Short Term Bond Fund _____%
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING 12/31/98:
1 Year Since Inception
------------------------------
Total Return Bond Fund - Class B _____% _____%
Lehman Government Bond Index _____% _____%
Intermediate Term Bond Fund - Class B _____% _____%
Lehman U.S. Treas. Intermediate Index _____% _____%
Short Term Bond Fund - Class B _____% _____%
Lehman 1-3 Government Index _____% _____%
*January 10, 1994 **October 10, 1996 ***September 3, 1996
Update: 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.
Update: 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.
Update: 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
3
<PAGE>
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
Total Annual Fund ____% ____% ____%
Operating Expenses
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 _____ _____ _____
3 YEARS _____ _____ _____
5 YEARS _____ _____ _____
10 YEARS _____ _____ _____
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.
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
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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.
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
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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
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,
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<PAGE>
providing written confirmations, and tape recording conversations); and if the
Funds or the transfer agent do not employ reasonable procedures, they may be
liable for losses due to unauthorized or fraudulent transactions.
SPECIAL REDEMPTION ARRANGEMENTS
Special arrangements may be made by institutional investors, or on behalf
of accounts established by brokers, advisers, banks or similar institutions, to
have redemption proceeds transferred by wire to pre-established accounts upon
telephone instructions. For further information call the Funds at
1-800-327-7170.
SIGNATURE GUARANTEE
Redemptions in excess of $50,000 currently require a signature guarantee. A
signature guarantee is required for all redemptions, regardless of the amount
involved, when proceeds are to be paid to someone other than the registered
owner of the shares to be redeemed, or if proceeds are to be mailed to an
address other than the registered address of record. A signature guarantee
verifies the authenticity of your signature and the guarantor must be an
eligible guarantor. In order to be eligible, the guarantor must be a participant
in a STAMP program (a Securities Transfer Agents Medallion Program). You may
call the Funds at 1-800-327-7170 to determine whether the guarantor is eligible.
REDEMPTION PROCEEDS MAY BE SENT TO YOU:
BY MAIL: If your redemption check is mailed, it is usually mailed within 48
hours of receipt of the redemption request; however, the Funds may hold
redemption proceeds for up to seven days. If the shares to be redeemed were
purchased by check, the redemption proceeds will not be mailed until the
purchase check has cleared, which may take up to seven days from the purchase
date. You may avoid this requirement by investing by bank wire (Federal funds).
Please notify the Fund promptly in writing of any change of address.
BY WIRE: You may authorize the Funds to transmit redemption proceeds by
wire provided you send written instructions with a signature guarantee at the
time of redemption. Proceeds from your redemption will usually be transmitted on
the first business day following the redemption. However, the Funds may hold
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.
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<PAGE>
(3) Each Fund may redeem existing accounts and refuse a potential account
the privilege of having an account in the Fund if the Fund reasonably
determines that the failure to do so would have a material adverse
consequence to the Fund and its shareholders.
(4) Excessive short term trading has an adverse impact on effective
portfolio management as well as upon Fund expenses. The Funds may
refuse investments from shareholders who engage in short term trading,
including exchanges into a Fund.
ACCOUNT CLOSING FEE
In order to reduce Fund expenses, an account closing fee of $10 will be
assessed to shareholders who redeem all shares in their Fund account and direct
that redemption proceeds be directed to them by mail or wire. The charge is
payable directly to the transfer agent which, in turn, will reduce its charges
to the Fund by an equal amount. The account closing fee does not apply to
exchanges between Funds.
The purpose of the charge is to allocate to redeeming shareholders a more
equitable portion of the transfer agent's fee, including the cost of tax
reporting, which is based upon the number of shareholder accounts. When a
shareholder closes an account, the Fund must continue to carry the account on
its books, maintain the account records and complete year-end tax reporting.
With no assets, the account cannot pay its own expenses and imposes an unfair
burden on remaining shareholders.
SMALL ACCOUNTS
Fund accounts which fall, for any reason other than market fluctuations,
below $1,000 at any time during a month will be subject to a small account
charge of $5 for that month which is deducted the next business day. The charge
is payable directly to the transfer agent which, in turn, will reduce its
charges to the Fund by an equal amount. The purpose of the charge is to allocate
the cost of maintaining shareholder accounts more equitably among shareholders.
Active automatic investment plan, UGMA/UTMA, and retirement plan accounts
administered by the Fund's administrator or its agents or affiliates will not be
subject to the small account charge.
In order to reduce expenses, each Fund may redeem all of the shares in any
shareholder account, other than an active automatic investment plan, UGMA/UTMA
and retirement plan account, if, for a period of more than three months, the
account has a net value of $500 or less and the reduction in value is not due to
market action. If the Fund elects to close such accounts, it will notify
shareholders whose accounts are below the minimum of its intention to do so, and
will provide those shareholders with an opportunity to increase their accounts
by investing a sufficient amount to bring their accounts up to the minimum
amount within ninety (90) days of the notice. No account closing fee will be
charged to investors whose accounts are closed under the mandatory redemption
provision.
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MANAGEMENT OF THE FUNDS
Pauze, Swanson & Associates Investment Advisors Inc. d/b/a Pauze Swanson
Capital Management Co.(TM), 14340 Torrey Chase Blvd., Suite 170, Houston, Texas
77014, the Funds' advisor, is a Texas corporation which was registered with the
Securities and Exchange Commission as an investment advisor in December 1993.
Mr. Philip C. Pauze, President and controlling shareholder of the advisor, is
primarily responsible for the day-to-day management of the Total Return and
Short Term Fund's portfolio. He has managed the Total Return Fund since
commencement of operations in January 1994 and the Short Term Fund since January
1998.
Mr. Pauze has specialized in managing portfolios of United States
government securities for trusts, small institutions, and retirement plans since
1985. Mr. Philip Pauze assisted the California Funeral Directors Association in
establishing the California Master Trust (the "CMT") and has been its financial
consultant since inception. CMT's investment performance has been highly rated
by independent evaluators. In addition to the CMT, Mr. Philip Pauze serves as
the financial consultant to the government bond portfolio of the Pennsylvania
Funeral Trust, to the American Funeral Trust, a nationwide funeral trust, and to
the California and Pennsylvania Funeral Directors Association's Retirement
Plans.
Since October 1998, Mr. Stephen P. Pauze, Assistant Vice President of the
advisor, has been responsible for the day-to-day management of the Intermediate
Term Fund's portfolio. Mr. Stephen Pauze has a degree in Financial Planning and
served as broker-dealer wholesaler and an account executive for the advisor in
the Mid-Central and Southeast Regions of the United States from June 1997 to
October 1998. From April 1996 to June 1997, Mr. Stephen Pauze was a supervisor
at Roadway Express, Inc.
The advisor furnishes an investment program for the Funds, determines,
subject to the overall supervision and review of the Board of Trustees of the
Trust, what investments should be purchased, sold and held, and makes changes on
behalf of the Trust in the investments of the Funds. For these services, the
advisor received fees for the fiscal year ended April 30, 2000, as a percentage
of net assets, as follows: [Update: 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.
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HOW SHARES ARE VALUED
The price of your shares is based on the applicable Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
Each Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
Requests to purchase, exchange and sell shares are processed at the NAV
next calculated after we receive your order in proper form.
DISTRIBUTIONS AND TAXES
As a shareholder of a Fund, you are entitled to your share of the Fund's
distributed net income and any net gains realized on its investments. Dividend
and capital gains distributions will have tax consequences you should know
about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income as DIVIDENDS to its shareholders at the end of each month. Short-term
capital gains are distributed at the end of the calendar year and are included
in net investment income. Each Fund realizes long-term capital gains whenever it
sells securities held for more than one year for a higher price than it paid for
them. Each Fund intends to distribute substantially all of its net realized
long-term capital gains, if any, at the end of the calendar year as CAPITAL GAIN
DISTRIBUTIONS. Each Fund expects that its distributions will consist primarily
of dividends.
Before they are distributed, net long-term capital gains are included in
the value of each share. After they are distributed, the value of each share
drops by the per-share amount of the distribution. If you reinvest the
distribution, the total value of your account will not change.
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.
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If your distribution check is returned as undeliverable, or not cashed
after 180 days, we will reinvest the check into your account at the then-current
net asset value and make future distributions in the form of additional shares.
TAXES
Distributions are subject to federal income tax and also may be subject to
state and local taxes. Each January, you will receive a tax statement showing
the kinds and total amount of all distributions you received during the previous
year. You must report distributions on your tax returns, even if they are
reinvested in additional shares.
Under Federal law, the income derived from obligations issued by the United
States government and certain of its agencies and instrumentalities is exempt
from state income taxes. All states that tax personal income permit mutual funds
to pass through this tax exemption to shareholders provided applicable
diversification/threshold limits and reporting requirements are satisfied.
Buying a dividend creates a liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you
sell shares for more than their cost, the difference is a capital gain. Your
gain may be either short term (for shares held for one year or less) or long
term (for shares held for more than one year).
IMPORTANT: This is a brief summary of certain federal tax rules that apply
to the Fund. Tax matters are highly individual and complex, and you should
consult a qualified tax advisor about your personal situation.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RISKS
PRINCIPAL STRATEGIES
United States Treasury securities are backed by the full faith and credit
of the United States government. These securities differ only in their interest
rates, maturities, timing of interest payments, and 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. Each 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
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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 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.
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.
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NON-PRINCIPAL STRATEGIES
Futures Contracts and Options: Each Fund may invest in futures contracts and
option contracts on U.S. government debt securities for hedging purposes only.
Futures contracts and options contracts pose additional risks. See the Statement
of Additional Information for a description of the risks.
Investment Objective: The investment objective of each Fund is not fundamental,
and may be changed by the Board of Trustees without shareholder approval. Any
such change may result in a Fund having an investment objective different from
what the shareholder considered appropriate at the time of investment in the
Fund.
Lending of Portfolio Securities: Each Fund may lend securities to broker-dealers
or institutional investors for their use in connection with short sales,
arbitrages and other securities transactions. A Fund will not lend portfolio
securities unless the loan is secured by collateral (consisting of any
combination of cash and United States government securities) in an amount at
least equal (on a daily mark-to-market basis) to the current market value of the
securities loaned. In the event of a bankruptcy or breach of agreement by the
borrower of the securities, the Fund could experience delays and costs in
recovering the securities loaned. A Fund will not enter into securities lending
agreements unless its custodian bank/lending agent will fully indemnify the Fund
against loss due to borrower default. A Fund may not lend securities with an
aggregate market value of more than one-third of the Fund's total net assets.
When-Issued and Delayed Delivery Securities: Each Fund may purchase debt
obligations on a "when-issued" basis or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement period, but 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.
FINANCIAL HIGHLIGHTS
The following condensed financial information has been audited by
___________________, the Funds' independent accountants. The information should
be read in conjunction with the audit report and financial statements included
in the 2000 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.
[to be supplied]
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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
-------------
-----------------
-------------------
LEGAL COUNSEL
Brown, Cummins & Brown
3500 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
<PAGE>
PAUZE FUNDS(TM)
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated by reference into this
Prospectus, contains detailed information on Fund policies and operation.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of the 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
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STATEMENT OF ADDITIONAL INFORMATION
PAUZE FUNDS
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
This Statement of Additional Information ("SAI") is not a Prospectus. It
should be read in conjunction with the Prospectus of the Funds dated
____________, 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, 2000 ("Annual Report"). A free copy of the
Prospectus and Annual Report can be obtained by writing the Funds at 14340
Torrey Chase, Suite 170, Houston, TX 77014-1024 or by calling the Funds at (800)
327-7170.
The date of this Statement of Additional Information is ________, 2000.
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................
INVESTMENT OBJECTIVES AND POLICIES..........................................
PORTFOLIO TURNOVER..........................................................
PORTFOLIO TRANSACTIONS......................................................
MANAGEMENT OF THE TRUST.....................................................
PRINCIPAL HOLDERS OF SECURITIES..............................................
INVESTMENT ADVISORY SERVICES.................................................
ADMINISTRATOR SERVICES.......................................................
TRANSFER AGENCY AND OTHER SERVICES...........................................
12b-1 PLAN OF DISTRIBUTION...................................................
ADDITIONAL INFORMATION ON REDEMPTIONS........................................
CALCULATION OF PERFORMANCE DATA..............................................
TAX STATUS...................................................................
CUSTODIAN....................................................................
INDEPENDENT ACCOUNTANTS......................................................
FINANCIAL STATEMENTS.........................................................
<PAGE>
GENERAL INFORMATION
Pauze Funds (the "Trust") is an open-end management investment company and
is a voluntary association of the type known as a "business trust" organized on
October 15, 1993 under the laws of the Commonwealth of Massachusetts. The Board
of Trustees of the Trust has the power to create additional series, or divide
existing series into two or more classes, at any time, without a vote of
shareholders of the Trust. In addition to the three series referred to in this
Statement of Additional Information, one other series (the Pauze Tombstone Fund)
is authorized. Each series offered by this Prospectus is authorized to issue
four classes of shares. Each series referred to in this Statement of Additional
Information represents a separate diversified portfolio of securities
(collectively referred to herein as the "Portfolios" or "Funds" and individually
as a "Portfolio" or "Fund").
The assets received by the Trust from the issue or sale of shares of each
Portfolio, and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are allocated to the Portfolio. They constitute the
underlying assets of the Portfolio, are required to be segregated on the books
of accounts, and are to be charged with the expenses with respect to the
Portfolio. In the event additional portfolios are created, any general expenses
of the Trust, not readily identifiable as belonging to the Portfolio, shall be
allocated by or under the direction of the Board of Trustees (the "Trustees") in
such manner as the Trustees determine to be fair and equitable. Shares represent
a proportionate interest in the Portfolio. Shares of each Portfolio have been
divided into classes with respect to which the Trustees have adopted allocation
plans regarding expenses specifically attributable to a particular class of
shares. Subject to such an allocation, all shares are entitled to such dividends
and distributions, out of the income belonging to the Portfolio, as are declared
by the Trustees. Upon liquidation of the Trust, shareholders of the Portfolio
are entitled to share pro rata, adjusted for expenses attributable to a
particular class of shares, in the net assets belonging to the Portfolio
available for distribution.
Under the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required; however, the Trustees may call meetings to take action
on matters which require shareholder vote and other matters which Trustees
determine shareholder vote is necessary or desirable. Whether appointed by prior
Trustees or elected by shareholders, an "Independent" Trustee serves as Trustee
of the Trust for a period of six years. However, the Trustees' terms are
staggered so that the terms of at least 25% of the Board of Trustees will expire
every three years. A Trustee whose term is expiring may be re-elected. Thus,
shareholder meetings will ordinarily be held only once every three years unless
otherwise required by the Investment Company Act of 1940 (the "1940 Act").
On any matter submitted to shareholders, the holder of each share is
entitled to one vote per share (with proportionate voting for fractional shares)
irrespective of the relative net asset values of each Portfolio's shares. On
matters affecting an individual Portfolio, a separate vote of shareholders of
the Portfolio is required. On matters affecting an individual class of shares, a
separate vote of shareholders of the class is required.
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.
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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).
(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.
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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.
(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
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<PAGE>
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.
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
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
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<PAGE>
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.
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
6
<PAGE>
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 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
7
<PAGE>
or delayed delivery basis, the Funds will restrict cash, which may be invested
in repurchase obligations or liquid securities. When purchasing a stock index
futures contract, the amount of restricted cash or liquid securities, when added
to the amount deposited with the broker as margin, will be at least equal to the
market value of the futures contract and not less than the market price at which
the futures contract was established. When selling an uncovered call option, the
amount of restricted cash or liquid securities, when added to the amount
deposited with the broker as margin, will be at least equal to the value of
securities underlying the call option and not less than the strike price of the
call option. When purchasing securities on a when-issued or delayed delivery
basis, the amount of restricted cash or liquid securities will be at least equal
to the Fund's when-issued or delayed delivery commitments.
The restricted cash or liquid securities will either be identified as being
restricted in the Fund's accounting records or physically segregated in a
separate account at the Trust's custodian. For the purpose of determining the
adequacy of the liquid securities which have been restricted, the securities
will be valued at market or fair value. If the market or fair value of such
securities declines, additional cash or liquid securities will be restricted on
a daily basis so that the value of the restricted cash or liquid securities,
when added to the amount deposited with the broker as margin, equals the amount
of such commitments by a Fund.
Fund assets need not be segregated if the Fund "covers" the futures
contract or call option sold. For example, the Fund could cover a futures or
forward contract which it has sold short by owning the securities or currency
underlying the contract. The Fund may also cover this position by holding a call
option permitting the Fund to purchase the same futures or forward contract at a
price no higher than the price at which the sell position was established.
A Fund could cover a call option which it has sold by holding the same
security underlying the call option. A Fund may also cover by holding a separate
call option of the same security or stock index with a strike price no higher
than the strike price of the call option sold by the Fund. The Fund could cover
a call option which it has sold on a futures contract by entering into a long
position in the same futures contract at a price no higher than the strike price
of the call option or by owning the securities or currency underlying the
futures contract. The Fund could also cover a call option which it has sold by
holding a separate call option permitting it to purchase the same futures
contract at a price no higher than the strike price of the call option sold by
the Fund.
BORROWING
Each Fund may borrow from a bank up to 33 1/3% of its total assets (reduced
by the amount of all liabilities and indebtedness other than such borrowings) as
a temporary measure for extraordinary purposes. To the extent that a Fund
borrows money, the Fund will be leveraged; at such times, the Fund may
appreciate or depreciate in value more rapidly than its benchmark index. Each
Fund will repay any money borrowed in excess of 33 1/3% of the value of its
total assets prior to purchasing additional portfolio securities.
PORTFOLIO TURNOVER
Pauze Funds' Investment Advisor buys and sells securities for the Fund to
accomplish its investment objectives. The Funds' investment policies may lead to
frequent changes in investments, particularly in periods of rapidly fluctuating
interest rates. The Funds' investments may also be traded to take advantage of
perceived short-term disparities in market values or yields among securities of
comparable quality and maturity.
A change in the securities held by a Fund is known as "portfolio turnover."
Portfolio turnover rates are set forth in the "Financial Highlights" portion of
the prospectus. High portfolio turnover in any given year indicates a
substantial amount of short-term trading, which will result in payment by the
Fund from capital of above-average amounts of markups to dealers and could
result in the payment by shareholders of above-average amounts of taxes on
realized investment gain. Any short-term gain realized on securities will be
taxed to shareholders as ordinary income. See "Tax Status."
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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, 1998
through April 30, 2000.
MANAGEMENT OF THE TRUST
The business and affairs of the Funds are managed by the Trust's Board of
Trustees. The Trustees establish policies, as well as review and approve
contracts and their continuance. The Trustees also elect the officers of the
Trust The Trustees and Officers of the Trust, and their principal occupations
during the past five years are set forth below, along with their business
address, 14340 Torrey Chase Blvd., Houston, Texas 77014. [Update]
<TABLE>
<CAPTION>
NAME, ADDRESS & AGE TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- --------------------
<S> <C> <C>
Philip C. Pauze ** President and President of Pauze, Swanson & Associates
14340 Torrey Chase Blvd. Trustee Investment Advisors, Inc., d/b/a Pauze
Suite 170 Swanson Capital Management Co., an asset
Houston, Texas 77014 management firm specializing in
Year of Birth: 1941 management of fixed income portfolios
since April 1993. Owner of Philip
C. Pauze & Associates, a management consulting
firm since April 1993. Vice President and
Registered Representative with Shearson Lehman
Brothers from 1988 to 1993. Financial
Consultant to California Master Trust since
1986.
Lois Juarez** to be supplied
14340 Torrey Chase, Suite 170 Treasurer,
Houston, TX 77014-1024 Chief
Year of Birth: 19__ Financial
Officer
Patricia S. Dobson Secretary and to be supplied
14340 Torrey Chase, Suite 170 Trustee
Houston, TX 77014-1024
Year of Birth: 1943
Paul J. Hilbert Trustee Attorney with the firm of Paul J. Hilbert &
2301 FM 1960 West Associates, Houston, Texas, practicing civil
Houston, TX 77068 law since 1975. Legislator, Texas House of
Year of Birth: 1949 Representatives since 1982.
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Gordon Anderson Trustee Consultant with the Texas Education
1806 Elk River Rd. Agency, Region 4 Education Service Center,
Houston, TX 77090 School Board and Superintendent
Year of Birth: 1935 Development Program since March 1998. President,
RAJ Development Corporation: investor, developer
and home builder from 1997 to 1998. Retired
(July 1997) Superintendent of Spring Independent
School District, Houston, Texas.
Wayne F. Collins Trustee Retired. From September 1991 to February
32 Autumn Crescent 1994 was Vice President of Worldwide
The Woodlands, TX 77381 Business Planning of the Compaq Computer
Year of Birth: 1941 Corporation. Served Compaq Computer Corporation
as Vice President of Materials Operations from
September 1988 to September 1991; Vice President,
Materials and Resources from April 1985 to
September 1991; Vice President, Corporate
Resources from June 1983 to September 1988.
Robert J. Pierce Trustee Richard Pierce Funeral Service since 1967,
1791 #2 Silverado Trail serving in such capacities as President and
Napa, CA 94558 General Manager. In addition, in June 1997,
Year of Birth: 1945 became Vice President (Western Division) and
Chief Operating Officer (Northern California
Region) of Stewart Enterprises, Inc.
</TABLE>
** This Trustee may be deemed an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
[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, 2000 is set forth below.
AGGREGATE COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX) TOTAL COMPENSATION
---- ---------------------- ------------------
Philip C. Pauze $0 $0
Patricia S. Dobson $0 $0
Paul J. Hilbert $_____ $_____
Wayne F. Collins $_____ $_____
Gordon Anderson $_____ $_____
Robert J. Pierce $_____ $_____
PRINCIPAL HOLDERS OF SECURITIES
update: Other than indicated below, as of __________, 2000, the Officers
and Trustees of the Trust, as a group, owned less than 1% of the outstanding
shares of the Pauze Funds. The Trust is aware of the following persons who owned
of record, or beneficially, more than 5% of the outstanding shares of the Pauze
Funds at ___________, 2000:
Class Name & Address of Owner % Owned Type of Ownership
- ----- ----------------------- ------- -----------------
Pauze U.S. Government Total Return Fund
---------------------------------------
No Load Donaldson Lufkin Jenrette ___% Record
Sec. Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
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No Load Mechanics Bank of Richmond, TTEE ___% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806
No Load Pinnacle Management & Trust Co. ___% Record
American Funeral Plan / TX
5599 San Felipe, Suite 300
Houston, TX 77056
Class B SEI Trust Company ___% Record
FBO Whitehurst Sullivan
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company ___% Record
FBO Whitehurst Loyd
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company ___% Record
FBO Hadley Funeral Chapel
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company ___% Record
FBO Whitehurst Stephens & Bean
One Freedom Valley Drive
Oaks, PA 19456
Class B Donaldson Lufkin Jenrette ___% Record
FBO Robert & Sandra Earthman
P.O. Box 2052
Jersey City, NJ 07303
Class C Firstar Bank NA, Custodian FBO ___% Record
Theodore F. Mallory, III IRA
P.O. Box 778
Fayetteville, GA 30214
Class C Star Bank NA, Custodian FBO ___% Record
Alice Mallory IRA
P.O. Box 778
Fayetteville, GA 30214
Pauze U.S. Government Intermediate Term Bond Fund
-------------------------------------------------
No Load Donaldson Lufkin Jenrette ___% Record
Sec. Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
11
<PAGE>
No Load Saxon & Co. ___% Record
FBO PA Funeral
P.O. Box 7780
Philadelphia, PA 19182
No Load Mechanics Bank of Richmond TTEE ___% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806-1921
No Load Pinnacle Management & Trust Co. ___% Record
American Funeral Plan / TX
5599 San Felipe, Suite 300
Houston, TX 77056
No Load Strafe & Company ___% Record
F/A/O Cooper Agency
P.O. Box 160
Westerville, OH 43086
No Load Norwest Bank TTEE ___% Record
Coker Funeral Home
P.O. Box 1533
Minneapolis, MN 55480
No Load Angelus Rosedale Endownment ___% Beneficial
1831 W. Washington
Los Angeles, CA 90007
Class B SEI Trust Company ___% Record
FBO Whitehurst Sullivan
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company ___% Record
FBO Whitehurst Loyd
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company ___% Record
FBO Hadley Funeral Chapel
One Freedom Valley Drive
Oaks, PA 19456
Class B SEI Trust Company ___% Record
FBO Whitehurst Stephens & Bean
One Freedom Valley Drive
Oaks, PA 19456
12
<PAGE>
Class B Jim L. Cooper ___% Beneficial
210 W. Walnut
Tecumseh, OK 74873
Class B Donaldson Lufkin Jenrette ___% Record
Sec. Corp.
P.O. Box 2052
Jersey City, NJ 07303
Pauze U.S. Government Short Term Bond Fund
------------------------------------------
No Load Mechanics Bank of Richmond TTEE ___% Record
FBO California Master Trust
3170 Hilltop Mall Road
Richmond, CA 94806
No Load Pinnacle Management & Trust Co. ___% Record
American Funeral Plan / TX
5599 San Felipe, Suite 300
Houston, TX 77056
No Load Strafe & Company ___% Record
F/A/O Cooper Agency
P.O. Box 160
Westerville, OH 43086
No Load Norwest Bank TTEE ___% Record
Coker Funeral Home
P.O. Box 1533
Minneapolis, MN 55480
Class C SEI Trust Company ___% Record
FBO Whitehurst Sullivan
One Freedom Valley Drive
Oaks, PA 19456
Class C SEI Trust Company ___% Record
FBO Whitehurst Loyd
One Freedom Valley Drive
Oaks, PA 19456
Class C SEI Trust Company ___% Record
FBO Hadley Funeral Chapel
One Freedom Valley Drive
Oaks, PA 19456
Class C SEI Trust Company ___% Record
FBO Whitehurst Stephens & Bean
One Freedom Valley Drive
Oaks, PA 19456
13
<PAGE>
[As of ___________, 2000, the California Master Trust may be deemed to
control each Fund and the Trust as a result of its beneficial ownership of Fund
shares. As the controlling shareholder, it would control the outcome of any
proposal submitted to the shareholders for approval, including changes to each
Fund's fundamental policies or the terms of the management agreement with the
Fund's adviser.]
INVESTMENT ADVISORY SERVICES
Pauze, Swanson & Associates Investment Advisors, Inc., dba Pauze Swanson
Capital Management Co., an investment management firm (the "Advisor"), pursuant
to an Advisory Agreement provides investment advisory and management services to
the Trust. It will compensate all personnel, officers and trustees of the Trust
if such persons are employees of the Advisor or its affiliates. The Trust pays
the expense of printing and mailing prospectuses and sales materials used for
promotional purposes.
The Advisory Agreement was approved by the Board of Trustees of the Trust
(including a majority of the "disinterested Trustees") and by vote of a majority
of the outstanding voting securities of the Total Return Fund in May 1996. The
terms of the votes approving the Advisory Agreement provide that it will
continue until October 31, 1997, and from year to year thereafter as long as it
is approved at least annually both (i) by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act of 1940 [the "Act"]) or by the Board of Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees who are not parties to the Advisory Agreement
or "interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement may be
terminated on 60 days' written notice by either party and will terminate
automatically if it is assigned. The Advisory Agreement was approved with
respect to the Intermediate Term Fund and the Short Term Fund during March 1996.
The Advisory Agreement with the Trust provides for each Fund to pay the
Advisor an annual management fee equal to a percentage of the Fund's average net
assets (1/12 of the applicable percentage monthly) as follows: Total Return Fund
0.60% on the first $100 million, 0.50% on the next $150 million, 0.45% on the
next $250 million and 0.40% on net assets in excess of $500 million;
Intermediate Term Fund, 0.50%; and Short Term Fund, 0.50%.
For the fiscal years ended April 30, 1998, 1999 and 2000 the Trust, on
behalf of the Total Return Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $442,281, $_______ and $______, respectively.
For the fiscal years ended April 30, 1998, 1999 and 2000 the Trust, on
behalf of the Intermediate Term Fund, paid the Advisor fees (net of expenses
paid by the Advisor or fee waivers) of $13,686, $______ and $______,
respectively.
For the fiscal years ended April 30, 1998, 1999 and 2000, the Trust, on
behalf of the Short Term Fund, paid the Advisor fees (net of expenses paid by
the Advisor or fee waivers) of $7,608, $______ and $______, respectively.
The Trust and the Adviser have each adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act of 1940. The Codes restrict the personal
investing activities of all employees of the Adviser. The Code requires that
absent prior approval of the Compliance Officer, no Access Person shall purchase
or sell, directly or indirectly, any security in which he or she has, or by
reason of such transaction acquires, any direct or indirect beneficial ownership
and which he or she knows or should have known at the time of such purchase or
sale that such security: (a) is being considered for purchase or sale by the
Fund; or (b) is being purchased or sold by the Fund. In addition, any Access
Person (other than a Disinterested Trustee) shall be prohibited from buying or
selling security for seven days both before and after he or she purchases or
sells the same security for the Fund. No Access Person (other than a
Disinterested Trustee) shall acquire any security in an Initial Public Offering
or in a private placement unless such person shall have obtained the prior
approval of the Compliance Officer. In the case
14
<PAGE>
of a private placement, such Access Person shall be required to disclose the
investment if he or she plays a part in the Fund's subsequent consideration of
an investment in the issuer. The restrictions and prohibitions apply to most
securities transactions by employees of the Adviser, with limited exceptions for
some securities (such as U.S. government securities and mutual funds).
THE ADMINISTRATOR
Fund Services Inc., ("FSI") dba Champion Fund Services, 14340 Torrey Chase
Blvd., Suite 170 Houston, Texas 77014, under an Administration Agreement with
the Trust dated 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. Fund Services, Inc. assumed responsibilities as Administrator
effective July 1, 1999.
Under the Administration Agreement, the Administrator, subject to the
overall supervision and review of the Board of Trustees of the Trust, FSI
supervises parties providing services to the Trust, provides the Trust with
office space, facilities and business equipment, and provides the services of
executive and clerical personnel for administering the affairs of the Trust.
The Administration Agreement provides for the Trust to pay the
Administrator an annual fee of $145,000, which is allocated among all of the
funds of the Trust pro rata based on their respective net assets. FSI also
provides transfer agency, dividend disbursing and accounting services to the
Funds for which it receives separate compensation.
[update re transfer agent and fund accountant.]
12B-1 PLAN OF DISTRIBUTION
A separate plan of distribution has been adopted under Rule 12b-1 of the
Investment Company Act of 1940 for each Fund, with separate provisions for each
class of shares. Each plan provides that the applicable Fund may engage in any
activity related to the distribution of its shares. These activities may
include, among others: (a) payments to securities dealers and others that are
engaged in the sale of shares, or that may be advising shareholders regarding
the purchase, sale or retention of shares; (b) payments to securities dealers
and others that hold shares for shareholders in omnibus accounts or as
shareholders of record or provide shareholder support or administrative services
to the Fund and its shareholders; (c) expenses of maintaining personnel who
engage in or support distribution of shares or who render shareholders support
services not otherwise provided by the Trust's transfer agent; (d) costs of
preparing, printing and distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than existing
shareholders; and (e) costs of formulating and implementing marketing and
promotional activities. Payments to a securities dealer or other entity
generally will be based on a percentage of the value of Fund shares held by
clients of the entity.
Expenses which the Fund incurs pursuant to the Distribution Plans are
reviewed quarterly by the Board of Trustees. On an annual basis the Distribution
Plans are reviewed by the Board of Trustees as a whole, and the Trustees who are
not "interested persons" as that term is defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of the Distribution
Plans ("Qualified Trustees"). Any amendment that materially increases the amount
of expenditures permitted under the Distribution Plan must be approved by a
majority of the outstanding voting securities of the applicable class. A
Distribution Plan may be terminated at any time as to any class by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
voting securities of the applicable class.
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, 2000
15
<PAGE>
TOTAL RETURN INT. TERM SHORT TERM
BOND FUND BOND FUND BOND FUND TOTAL
Advertising, Printing Promotion $_____ $_____ $_____ $_____
Administrative Service Fees $_____ $_____ $_____ $_____
Class B Shares Financing $_____ $_____ $_____ $_____
Compensation to Dealers $_____ $_____ $_____ $_____
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 Fund's 12b-1 Plan.
ADDITIONAL INFORMATION ON REDEMPTIONS
Suspension of Redemption Privileges: the Trust may suspend redemption
privileges or postpone the date of payment for up to seven days, but cannot do
so for more than seven days after the redemption order is received except during
any period (1) when the bond markets are closed, other than customary weekend
and holiday closings, or trading on the Exchange is restricted as determined by
the Securities and Exchange Commission ("SEC"), (2) when an emergency exists, as
defined by the SEC, which makes it not reasonably practicable for the Trust to
dispose of securities owned by it or not reasonably practicable to fairly
determine the value of its assets, or (3) as the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN
A Fund may advertise performance in terms of average annual total return
for 1, 5 and 10 year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (exponential number)
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the
year or period;
The calculation assumes all charges are deducted from the initial $1,000
payment and assumes all dividends and distributions by the Fund are reinvested
at the price stated in the prospectus on the reinvestment dates during the
period, and includes all recurring fees that are charged to all shareholder
accounts. The calculation assumes the deduction of the maximum contingent sales
charge (for Class B shares). The results do not take into account charges for
optional services which involve nominal fees (such as wire redemption fees).
16
<PAGE>
The total return for the Total Return Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 2000 was ______% and _____%,
respectively.
The total return for the Intermediate Term Fund No-load shares and Class B
shares for the Fiscal year ended April 30, 2000 was ____% and ____%,
respectively.
The total return for the Short Term Fund No-load shares, Class B shares,
and Class C shares for the Fiscal year ended April 30, 2000 was ____%,_____%,
and ____%, respectively.
YIELD
A Fund may also advertise performance in terms of a 30 day yield quotation.
A Fund's "yield" refers to the income generated by an investment in the Fund
over a 30-day (or one month) period (which period will be stated in the
advertisement). Yield is computed by dividing the net investment income per
share earned during the most recent calendar month by the maximum offering price
per share on the last day of such month. This income is then "annualized." That
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each month over a 12-month period and is shown as a
percentage of the investment. For purposes of the yield calculation, interest
income is computed based on the yield to maturity of each debt obligation and
dividend income is computed based upon the stated dividend rate of each security
in the Fund's portfolio and all recurring charges are recognized.
The 30 day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period according to the following formula:
6
YIELD = 2 [ (((A - B)/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 and Class B shares
for the 30 days ending April 30, 2000 was ____% and ____%, respectively.
The Intermediate Term Fund's 30-day yield for No-load shares and Class B
shares for the 30 days ending April 30, 2000 was ___% and ___%, respectively.
The Short Term Fund's 30-day yield for No-load shares and Class C shares
for the 30 days ending April 30, 2000 was ___% and ___%, respectively.
NONSTANDARDIZED TOTAL RETURN
A Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return
17
<PAGE>
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.
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.
18
<PAGE>
Debt securities may be purchased by a Fund at a discount which exceeds the
original issue price plus previously accrued original issue discount remaining
on the securities, if any, at the time the Fund purchases the securities. This
additional discount represents market discount for income tax purposes. In the
case of any debt security issued after July 18, 1984, having a fixed maturity
date of more than one year from the date of issue and having market discount,
the gain realized on disposition will be treated as interest income for purposes
of the 90% test to the extent it does not exceed the accrued market discount on
the security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis.
A Fund may be required to capitalize, rather than deduct currently, part or
all of any direct interest expense incurred to purchase or carry any debt
security having market discount unless the Fund makes the election to include
market discount currently. Because a Fund must take into account the original
issue discount for purposes of satisfying various requirements for qualifying as
a regulated investment company under Subchapter M of the Code, it will be more
difficult for the Fund to make the distributions to maintain such status and to
avoid the 4% excise tax described above. To the extent that a Fund holds
zero-coupon or deferred interest bonds in its portfolio or bonds paying interest
in the form of additional debt obligations, the Fund would recognize income
currently even though the Fund received no cash payment of interest, and would
need to raise cash to satisfy the obligations to distribute such income to
shareholders from sales of portfolio securities.
A Fund may purchase debt securities at a premium (i.e., at a purchase price
in excess of face amount). The premium may be amortized if the Fund so elects.
The amortized premium on taxable securities is allowed as a deduction, and, for
securities issued after September 27, 1985, must be amortized under an economic
accrual method.
All Shareholders will be notified annually regarding the tax status of
distributions received from a Fund.
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if a
Fund pays the dividends during the following January. Since none of the net
investment income of the Fund is expected to arise from dividends on domestic
common or preferred stock, none of the Funds' distributions will qualify for the
70% corporate dividends-received deduction.
Distributions by a Fund will result in a reduction in the fair market value
of the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of a Fund just prior to a distribution. The price of such shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing the Fund's shares just prior to a distribution may
receive a return of investment upon distribution which will nevertheless be
taxable to them.
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.
19
<PAGE>
TAX IDENTIFICATION NUMBER
The Trust is required by Federal law to withhold and remit to the United
States Treasury a portion of the dividends, capital gains distributions and
proceeds of redemptions paid to any shareholder who fails to furnish the Trust
with a correct taxpayer identification number, who underreports dividend or
interest income or who fails to provide certification of tax identification
number. In order to avoid this withholding requirement, you must certify on your
application, or on a separate W-9 Form supplied by the Transfer Agent, that your
taxpayer identification number is correct and that you are not currently subject
to backup withholding or you are exempt from backup withholding. For
individuals, your taxpayer identification number is your social security number.
Instructions to exchange or transfer shares held in established accounts
will be refused until the certification has been provided. In addition, the Fund
assesses a $50 administrative fee if the taxpayer identification number is not
provided by year end.
OTHER TAX CONSIDERATIONS
Distributions to shareholders may be subject to additional state, local and
non-U.S. taxes, depending on each shareholder's particular tax situation.
Shareholders subject to tax in certain states may be exempt from state income
tax on distributions made by the Fund to the extent such distributions are
derived from interest on direct obligations of the United States Government.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in shares of a Fund.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian
of the Funds' investments. The Custodian acts as the Funds' depository, safe
keeps their portfolio securities, collects all income and other payments with
respect thereto, disburse funds at the Funds' request and maintains records in
connection with its duties.
INDEPENDENT ACCOUNTANTS
____________________________________________ has been selected as
independent accountants for the Trust for the fiscal year ending April 30, 2000.
___________________ 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 to be included in
the Statement of Additional Information will be incorporated by reference to the
Fund's Annual Report to Shareholders for the period ended April 30, 2000 by
subsequent amendment. The Funds will provide the Annual Report without charge at
written request or request by telephone.
20
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. For the Pauze Funds
Exhibits
(a) Articles of Incorporation
(i) Declaration of Trust, Amended and Restated Master Trust
Agreement, dated February 9, 1996 (incorporated by reference
to Post-Effective Amendment #5 filed February 15, 1996).
(ii) Amendment No. 1 to Amended and Restated Master Trust
Agreement, dated April 9, 1996 (incorporated by reference to
Post-Effective Amendment #6 filed May 2, 1996).
(iii)Amendment No. 2 to Amended and Restated Master Trust
Agreement, dated January 30, 1997 (incorporated by reference
to Post-Effective Amendment #9 filed February 5, 1997).
(iv) Amendment No. 3 to Amended and Restated Master Trust
Agreement, dated April 30, 1997 (incorporated by reference
to Post-Effective Amendment #10 filed May 6, 1997).
(b) By-Laws - By-laws of Registrant (incorporated by reference to
Post-Effective Amendment #13 filed September 1, 1998).
(c) Instruments Defining Rights of Society Holders - None.
(d) Investment Advisory Contracts
(i) Amended and Restated Advisory Agreement between Registrant
and Pauze, Swanson & Associates Investment Advisors, Inc.,
dated June 1, 1996, for the Pauze U.S. Government Total
Return Bond Fund, Pauze U.S. Government Intermediate Term
Bond Fund and Pauze U.S. Government Short Term Bond Fund
(incorporated by reference to Post-Effective Amendment #15
filed August 31, 1999).
(ii) Advisory Agreement between Registrant and Pauze, Swanson &
Associates Investment Advisors, Inc., dated February 28,
1997, covering Pauze Tombstone Fund (incorporated by
reference to Post-Effective Amendment #10 filed May 6,
1997).
(e) Underwriting Contracts
<PAGE>
(i) Distribution Agreement among Registrant, the Advisor and the
Underwriter (incorporated by reference to Post-Effective
Amendment #14 filed July 2, 1999).
(ii) Form of Selling Agreement is filed herewith.
(f) Bonus or Profit Sharing -None.
(g) Custodian Agreements
(i) Custodian Agreement between Registrant and Firstar Bank,
N.A. dated August 1, 1996 (incorporated by reference to
Post-Effective Amendment #7 filed July 31, 1996).
(ii) Revised Appendix A to Custodian Agreement between Registrant
and Firstar Bank N.A. (incorporated by reference to
Post-Effective Amendment #12 filed November 26, 1997).
(h) Other Material Contracts - None.
(i) Legal Opinion
(i) Opinion of Counsel with respect to U.S. Government Total
Return Bond Fund, U.S. Government Intermediate Term Bond
Fund, and U.S. Government Short Term Bond Fund (incorporated
by reference to Post-Effective Amendment #14 filed July 2,
1999).
(ii) Consent of Counsel with respect to U.S. Government Total
Return Bond Fund, U.S. Government Intermediate Term Bond
Fund, and U.S. Government Short Term Bond Fund is filed
herewith.
(j) Other Opinions - Consent of Independent Accountants (incorporated
by reference to Post-Effective Amendment #15 filed August 31,
1999).
(k) Omitted Financial Statements-Financial Statements omitted from
Item 23 - None.
(l) Initial Capital Agreements-Letter of Initial Stockholder
(incorporated by reference to Post-Effective Amendment #13 filed
September 1, 1998).
(m) Rule 12b-1 Plan
(i) 12b-1 Plan for Pauze U.S. Government Total Return Bond Fund,
(incorporated by reference to Post-Effective Amendment #14
filed July 2, 1999).
(ii) 12b-1 Plan for Pauze U.S. Government Intermediate Term Bond
Fund (incorporated by reference to Post-Effective Amendment
#14 filed July 2, 1999).
(iii)12b-1 Plan for Pauze U.S. Government Short Term Bond Fund
(incorporated by reference to Post-Effective Amendment #14
filed July 2, 1999).
(iv) Form of Service Agreement is filed herewith.
(n) Rule 18f-3 Plan - Amended and restated plan entered into by
Registrant pursuant to Rule 18f-3 (incorporated by reference to
Post-Effective Amendment #10 filed May 6, 1997).
(o) Reserved.
(p) Code of Ethics. The Code of Ethics of the Registrant and the
Adviser are filed herewith.
(q) Powersof Attorney for the Trust, the Trustees and Officers
(incorporated by reference to Post-Effective Amendment #15 filed
August 31, 1999).
ITEM 24. Persons Controlled by or Under Common Control with the Fund.
Information pertaining to persons controlled by or under common
control with Registrant is incorporated by reference to the Statement
of Additional Information of the Pauze U.S. Government Total Return
Bond Fund, Pauze U.S. Government Short Term Bond Fund and the Pauze
U.S. Government Intermediate Term Bond Fund contained in Part B of the
Registration Statement at the section entitled "Principal Holders of
Securities."
ITEM 25. Indemnification
(a) Under Article VI of the Registrant's Master Trust Agreement, each
of its Trustees and officers or person serving in such capacity
with another entity at the request of the Registrant (a "Covered
Person") shall be indemnified (from the assets of the Sub-Trust
or Sub-Trusts in question) against all liabilities, including,
but not limited to, amounts paid in satisfaction of judgments, in
compromises or as fines or penalties, and expenses, including
reasonable legal and accounting fees, incurred by the Covered
Person in
<PAGE>
connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal before any court or
administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, except with respect to
any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief
that such covered Person's action was in or not opposed to the
best interests of the Trust or (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Persons's
office (either and both of the conduct described in (i) and (ii)
being referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is not entitled to
indemnification may be made by (i) a final decision on the merits
by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling conduct, or (iii) a
reasonable determination, based upon a review of the facts, that
the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of the majority of a quorum of Trustees who are
neither "interested persons" of the Trust as defined in Section
1(a)(19) of the 1940 Act nor parties to the proceeding, or (b) as
independent legal counsel in a written opinion.
(b) The Registrant may maintain a standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy, if maintained, would provide coverage to the
Registrant, its Trustees and officers, and could cover its
Advisor, among others. Coverage under the policy would include
losses by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
ITEM 26. Business and Other Connections of the Investment Advisor
Philip C. Pauze
Current Affiliations:
PAUZE, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
President and Member of the Board of Directors:
10/21/93 to Present
<PAGE>
PAUZE FUNDS(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
President, Portfolio Manager, and Member Board of Directors:
November 1, 1993 to Present.
B.C. ZIEGLER AND COMPANY
215 North Main Street
West Bend, WI 53095
Broker/Dealer Branch Officer Manager: July, 1999 to Present
Licensed Registered Representative: July, 1999 to Present
Patricia S. Dobson
Current Affiliations:
PAUZE, SWANSON & ASSOCIATES INVESTMENT ADVISORS, INC.(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
Vice President: December 1996 to Present
Corporate Secretary and Member of the Board of Directors:
May 19, 1997 to Present
Assistant Vice President: October 1995 to December 1996
PAUZE FUNDS(TM)
14340 Torrey Chase, Suite 170 Houston, TX 77014
Assistant Secretary: June 13, 1997 to Present
B.C. ZIEGLER AND COMPANY
215 North Main Street
West Bend, WI 53095
Licensed Registered Representative: July, 1999 to Present
ITEM 27. Principal Underwriters
(a) B.C. Ziegler acts as distributor for Firstar Funds and Principal
Preservation Portfolios, Inc.
(b) Information with respect to each director and officer of B.C.
Ziegler and Co. is incorporated by reference to Schedule A of
Form BD filed by it under the Securities and Exchange Act of 1934
(File No. 8-94).
<PAGE>
ITEM 28. Location of Accounts and Records
All accounts and records maintained by the Registrant are kept at the
Underwriter's office located at 215 North Main Street, West Bend, WI
53095; the Adviser's office located at 14340 Torrey Chase Blvd., Suite
170 Houston, TX 77014-1024.
All accounts and records maintained by Firstar Bank N.A., custodian
for Registrant, are maintained at 425 Walnut Street, Cincinnati, Ohio
45202.
ITEM 29. Management Services-None
ITEM 30. Undertakings
Registrant undertakes to call a meeting of shareholders for purposes
of voting upon the question of removal of one or more Trustees when
requested in writing to do so by the holders of at least 10% of the
Trust's outstanding shares, and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Houston, state of Texas,
on the 17th day of May, 2000.
PAUZE FUNDS
By: /s/ Philip C. Pauze
--------------------------------
Philip C. Pauze, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
- ---------------------------------
Gordon M. Anderson, Trustee*
- ---------------------------------
Wayne F. Collins, Trustee*
Date: May 17, 2000
- --------------------------------- --------------------
Paul J. Hilbert, Trustee*
*By: /s/ Philip C. Pauze
- --------------------------------- ---------------------
Robert J. Pierce, Trustee* Philip C. Pauze,
Attorney-in-Fact
/s/ Patricia S. Dobson Date: May 17, 2000
- --------------------------------- --------------------
Patricia S. Dobson, Trustee and Secretary
/s/ Philip C. Pauze Date: May 17, 2000
- --------------------------------- --------------------
Philip C. Pauze, Trustee and President
/s/ Lois Juarez Date: May 17, 2000
- --------------------------------- --------------------
Lois Juarez, Treasurer and Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Page
1. Form of Selling Agreement........................................EX-99.23.e
2. Consent of Counsel...............................................EX-99.23.i
3. Form of Service Agreement........................................EX-99.23.m
4. Code of Ethics...................................................EX-99.23.p
SALES AGREEMENT WITH B.C. ZIEGLER AND COMPANY
This Agreement is entered into between the financial institution executing
this Agreement ("Financial Institution") and B.C. Ziegler and Company ("BCZ")
with respect to the Pauze Funds(TM) (the "Trust"), which may be offered in one
or more series (the "Funds") and classes (the "Classes") of shares ("Shares"),
for which BCZ serves as Distributor of shares of beneficial interest or capital
stock. The Trusts or Classes to which this Agreement applies are any current and
future Trusts or Classes issued by the Trust.
1. Status of Financial Institution as "Bank" or Registered Broker-Dealer.
----------------------------------------------------------------------
The Financial Institution represents and warrants to BCZ that:
(a) It is either a "bank" as that term is defined in Section 3(a)(6)
of the Securities Exchange Act of 1934 ("Exchange Act") or a
broker-dealer registered with the Securities and Exchange
Commission.
(b) If the Financial Institution is a "bank", it is a duly organized
and validly existing bank in good standing under the laws of the
jurisdiction in which it is organized. The Financial Institution
agrees to give written notice to BCZ promptly in the event that
it shall cease to be a ""bank""as defined in Section(a)(6) of the
Exchange Act. In that event, this Agreement shall be
automatically terminated upon such written notice.
(c) If the Financial Institution is a registered broker-dealer, it is
a member of the NASD and it agrees to abide by all of the rules
and regulations of the NASD including, without limitation, the
NASD Rules of Fair Practice. The Financial Institution agrees to
notify BCZ immediately in the event of (1) its expulsion or
suspension from the NASD, or (2) its being found to have violated
any applicable federal or state law, rule or regulation arising
out of its activities as a broker-dealer or in connection with
this Agreement, or which may otherwise affect in any material way
its ability to act in accordance with the terms of this
Agreement. The Financial Institution's expulsion from the NASD
will automatically terminate this Agreement immediately without
notice. Suspension of the Financial Institution from the NASD for
violation of any applicable federal or state law, rule or
regulation will terminate this Agreement effective immediately
upon NASD's written notice of termination to the Financial
Institution.
2. Financial Institution Act as Agent for its Customers.
-----------------------------------------------------
The parties agree that in each transaction in the Shares of the Trust: (a)
the Financial Institution is acting as agent for the customer; (b) each
transaction is initiated solely upon the order of the customer; (c) as between
the Financial Institution and its customer, the customer will have full
beneficial ownership of all Shares of the Trust to which this Agreement applies;
(d) each transaction shall be for the account of the customer and not for the
Financial Institution's account; and (e) each transaction shall be without
recourse to the Financial Institution provided that the Financial Institution
acts in accordance with the terms of this Agreement. The financial Institution
shall not have any authority in any transaction to act as BCZ's agent or as
agent for the Trust.
3. Execution of Orders for Purchase and Redemption of Shares.
----------------------------------------------------------
(a) All orders for the purchase of any Shares shall be executed at
the then current public offering price per share (i.e., the net
asset value per share plus the applicable sales load, if any) and
all orders for the redemption of any Share shall be executed at
the net asset value per share, plus any applicable contingent
deferred sales charge or redemption charge, in each case as
described in the prospectus of the Trust or Class. BCZ and the
<PAGE>
Trust reserve the right to reject any purchase request at their
sole discretion. If required by law, each transaction shall be
confirmed in writing on a fully disclosed basis and, if confirmed
by BCZ, a copy of each confirmation shall be sent simultaneously
to the Financial Institution if the Financial Institution so
requests.
(b) The procedures relating to all orders and the handling of them
will be subject to the terms of the prospectus of each Trust or
Class and BCZ's written instructions to the Financial Institution
from time to time.
(c) Payments for Shares shall be made as specified in the applicable
Trust or Class prospectus. If payment for any purchase order is
not received in accordance with the terms of the applicable Trust
or Class prospectus, BCZ reserves the right without notice, to
cancel the sale and to hold the Financial Institution responsible
for any loss sustained as a result thereof.
(d) The Financial Institution agrees to provide such security as is
necessary to prevent any unauthorized use of the Fund's
recordkeeping system, accessed via any computer hardware or
software provided to the Financial Institution by BCZ.
4. Fees Payable to the Financial Institution from Sales Loads.
-----------------------------------------------------------
(a) On each order accepted by BCZ, in exchange for the performance of
sales and/or administrative services, the Financial Institution
will be entitled to receive from the amount paid by the Financial
Institution's customer the applicable percentage of the sales
load, if any, as established by BCZ. The sales loads for any
Trust or Class shall be those set forth in its prospectus. The
portion of the sales load payable to the Financial Institution
may be changed at any time at BCZ's sole discretion upon thirty
(30) days' written notice to the Financial Institution and the
Trust.
(b) Transactions may be settled by the Financial Institution: (1) by
payment of the full purchase price to BCZ less an amount equal to
the Financial Institution's applicable percentage of the sales
load, or (2) by payment of the full purchase price to BCZ, in
which case BCZ shall pay to the Financial Institution, not less
frequently than monthly, the aggregate fees due it on orders
received and settled.
5. Payment of Rule 12b-1 Fees to the Financial Institution.
--------------------------------------------------------
Subject to and in accordance with the terms of each Trust or Class
prospectus and the Rule 12b-1 Plan, if any, duly adopted, by any Fund or Class
pursuant to Rule 12b-1 under the Investment Company Act of 1940, BCZ may notify
the investment advisor to the Fund to pay fees for sales and/or distribution
services to certain financial institutions (such as banks and securities
dealers).
6. Delivery of Prospectuses to Customers.
--------------------------------------
The Financial Institution will deliver or cause to be delivered to each
customer, at or prior to the time of any purchase of Shares, a copy of the
prospectus of the Trust or Class. The Financial Institution shall not make any
representations concerning any Shares other than those contained in the
prospectus of the Trust or Class or in any promotional materials or sales
literature furnished to the financial Institution by BCZ or the Trust or Class.
7. Indemnification
---------------
(a) The Financial Institution shall indemnify and hold harmless BCZ,
the Trust, the transfer agents of the Trust, and their respective
subsidiaries, affiliates,
<PAGE>
officers, directors, agents and employees from all direct or
indirect liabilities, losses or costs (including attorneys fees)
arising from, related to or otherwise connected with: (1) any
breach by the Financial Institution of any provision of this
Agreement; or (2) any actions or omissions of BCZ, the Trust, the
transfer agents of the Trust, and their subsidiaries, affiliates,
officers, directors, agents and employees in reliance upon any
oral, written or computer or electronically transmitted
instructions believed to be genuine and to have been given by or
on behalf of the Financial Institution.
(b) BCZ shall indemnify and hold harmless the Financial Institution
and its subsidiary affiliates, officers, directors, agents and
employees from and against any and all direct or indirect
liabilities, losses or costs (including attorneys fees) arising
from, related to or otherwise connected with: (1) any breach by
BCZ of any provision of this Agreement; or (2) any alleged untrue
statement of a material fact contained in the Trust's
Registration Statement or Prospectuses, or as a result of or
based upon any alleged omission to state a material fact required
to be stated, or necessary to make the statements not misleading.
(c) The agreement of the parties in this Paragraph to indemnify each
other is conditioned upon the party entitled to indemnification
(Indemnified Party) giving notice to the party required to
provide indemnification (Indemnifying Party) promptly after the
summons or other first legal process for any claim as to which
indemnity may be sought is served on the Indemnified Party. The
Indemnified Party shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting from
it, provided that counsel for the Indemnifying Party who shall
conduct the defense of such claim or litigation shall be approved
by the Indemnified Party (which approval shall not unreasonably
be withheld), and that the Indemnified Party may participate in
such defense at its expense. No Indemnifying Party, in the
defense of any such claim or litigation, shall, without the
consent of the Indemnified Party, consent to entry of any
judgement or enter into any settlement that does not include as
an unconditional term given by the claimant or plaintiff to the
Indemnified Party of a release from all liability in respect to
such claim or litigation.
(d) The provisions of this Paragraph 7 shall survive the termination
of this Agreement.
8. Customer Names Proprietary to the Financial Institution.
--------------------------------------------------------
(a) The names of the Financial Institution's customers are and shall
remain the Financial Institution's sole property and shall not be
used by BCZ or its affiliates for any purpose except the
performance of its duties and responsibilities under this
Agreement and except for servicing and informational mailings
relating to the Trust. Notwithstanding the foregoing, this
Paragraph 8 shall not prohibit BCZ or any of its affiliates from
utilizing the names of the Financial Institution's customers for
any purpose if the names are obtained in any manner other than
from the Financial Institutions pursuant to this Agreement.
(b) Neither party shall use the names of the other party in any
manner without the other party's written consent, except as
required by any applicable federal or state law, rule or
regulation, and except pursuant to any mutually agreed upon
promotional programs.
<PAGE>
(c) The provisions of this Paragraph 8 shall survive the termination
of this Agreement.
9. Solicitation of Proxies.
------------------------
The Financial Institution agrees not to solicit or cause to be solicited
directly, or indirectly, at any time in the future, any proxies from the
shareholders of the Trust in opposition to proxies solicited by management of
the Trust, unless a court of competent jurisdiction shall have determined that
the conduct of a majority of the Board of Directors of the Trust constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties. The provisions of this Paragraph 9 shall survive the term of this
Agreement.
10. Certification of Customers' Taxpayer Identification Numbers.
------------------------------------------------------------
The Financial Institution agrees to obtain any taxpayer identification
number certification from its customers required under Section 3406 of the
Internal Revenue code, and any applicable Treasury regulations, and to provide
BCZ or its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
11. Notices.
--------
Except as otherwise specifically provided in the Agreement, all notices
required or permitted to be given pursuant to this Agreement shall be in writing
and delivered by personal delivery or by postage prepaid, registered or
certified United States first class mail, return receipt requested, or by telex,
telegram or similar means of same day delivery (with a confirming copy by mail
as provided herein). Unless otherwise notified in wiring, all notices to BCZ
shall be given or sent to BCZ at its offices located at 215 N. Main St., West
Bend, WI 53095, and all notices to the Financial Institution shall be given or
sent to it at its address shown below.
12. Termination and Amendments.
---------------------------
(a) This Agreement shall become effective in this form as of the date
set forth below and may be terminated at any time by either party
upon thirty (30) days' prior notice to the other party. This
Agreement supersedes any prior sales agreement between the
parties.
(b) This Agreement may be amended by BCZ from time to time by the
following procedures. BCZ will mail a copy of the amendment to
the Financial Institution's address, as shown below. If the
Financial Institution does not object to the amendment within
thirty (30) days after its receipt, the amendment will become
part of the Agreement. The Financial Institution's objection must
be in writing and be received by BCZ within such thirty (30)
days.
13. Governing Law.
--------------
This Agreement shall be construed in accordance with the laws of the State
of Wisconsin.
<PAGE>
B. C. Ziegler and Company ___________________________________
215 N. Main Street Financial Institution
West Bend WI 53095
___________________________________
By: __________________________________ Address
Robert J. Tuszynski
Managing Director ___________________________________
City State Zip Code
Dated:_____________________________
By:________________________________
Authorized Signature
___________________________________
Title
___________________________________
Print Name or Type Title
LYNCH, BREWER, HOFFMAN & SANDS, LLP LETTERHEAD
May 17, 2000
Pauze Funds
14340 Torrey Chase Boulevard, Suite 170
Houston, T 77014
Ladies and Gentlemen:
We hereby consent to the incorporation by reference of out opinion dated
July 2, 1999, which was attached as Exhibit Number 2 to Post Effective Amendment
Number 14 to the Registration Statement on Form N-1A filed by Pauze Funds, a
Massachusetts business trust, in Post Effective Amendment Number 16 to such
Registration Statement.
Very truly yours,
/s/ LYNCH, BREWER, HOFFMAN, & SANDS, LLP
LYNCH, BREWER, HOFFMAN, & SANDS, LLP
AGREEMENT WITH PAUZE FUNDS(TM)
By this agreement, dated ____________, 19___ (the "Agreement"), Pauze
Funds(TM), a Massachusetts business trust with its principal offices located at
14340 Torrey Chase Blvd., Suite 170, Houston, Texas 77014 (the "Trust"), Pauze
Swanson Capital Management Co., with its principal office located at 14340
Torrey Chase Blvd., Suite 170,, Houston, Texas 77014 ( the "Advisor") and
______________________________________________, with its principal offices
located at ________________________________, ("Service Provider"), hereby
covenant, warrant and agree as follows:
1. The Trust is an open-end management investment company registered
under the Investment Company Act of 1940 (the "Act"). The Trust
operates as a series company as defined by Rule 18f-2 under the Act
and is authorized to create and has created various sub-trusts (the
"Funds"). The Trust is further authorized to issue shares of
beneficial interest in the Funds ("Shares"). Pursuant to Rule 12b-1
under the Act, each Fund has adopted a plan of distribution ( each a
"Distribution Plan" and collectively, the "Distribution Plans")
pursuant to which the Funds may utilize a portion of their assets to
engage in any activities related to the distribution of their Shares,
including, but not limited to, the following:
a. payments, including incentive compensation, to securities dealers
or other financial intermediaries, financial institutions,
investment advisors and others that are engaged in the sale of
Shares, or that may be advising shareholders of the Trust
regarding the purchase, sale or retention of Shares;
b. payments including incentive compensation, to securities dealers
or other financial intermediaries, financial institutions,
investment advisors and others that hold Shares for shareholders
in omnibus accounts or as shareholders of record or provide
shareholder support or administrative services to the Fund and
its shareholders;
c. expenses of maintaining personnel (including personnel of
organizations with which the Trust has entered into agreements
related to this Plan) who engage in or support distribution of
Shares or who render shareholder support services not otherwise
provided by the Trust's transfer agent, including, but not
limited to, allocated overhead, office space and equipment,
telephone facilities and expenses, answering routine inquiries
regarding the Trust, processing shareholder transactions, and
providing such other shareholder services as the Trust may
reasonably request;
d. costs of preparing, printing and distributing prospectuses and
statements of additional information and reports of the Fund for
recipients other than existing shareholders of the Fund;
<PAGE>
e. costs of formulating and implementing marketing and promotional
activities, including, but not limited to, sales seminars, direct
mail promotions and television, radio, newspaper, magazine and
other mass media advertising;
f. costs of preparing, printing and distributing sales literature;
g. costs of obtaining such information, analyses and reports with
respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and
h. costs of implementing and operating the Plans.
2. Pursuant to the terms of this Agreement, Service Provider agrees, upon
request of the Trust, to undertake from time to time distribution
efforts to promote the sale of Shares, including without limitation
any of the activities set forth in paragraph 1 above. Service Provider
warrants to the Trust that in fulfilling its obligations herein,
Service Provider will not solicit, offer, promote, or sell Shares of
any Fund to its clients or to third parties unless Service Provider is
first properly registered as a broker/dealer and has signed a separate
written agreement with the Distributor to sell Shares (a "Selling
Group Agreement"). It is expressly understood and agreed by each party
that this Agreement is not a Selling Agreement.
3. As compensation for providing the services set forth in paragraph 2
above, the Advisor agrees to pay to Service Provider, subject to the
limitations as hereinafter set forth, Monthly Compensation based on
the following formula:
(Monthly Average Assets x .0025) / 12 = Monthly Compensation
Monthly Average Assets means the total closing daily value of assets
invested in a Fund of the Trust for each day of the month, averaged
over that month, by Shareholders for whom Service Provider provides
the services set forth in Paragraph 2 above.
4. The Advisor agrees to provide, upon request and at its sole expense
and discretion, current copies of the Trust's prospectuses and sales
and marketing literature to Service Provider for use by Service
Provider in the discharge of its obligations as heretofore described.
Service Provider agrees to comply with the provisions contained in all
applicable securities laws governing the distribution of Prospectuses
to persons to whom it offers Shares of the Trust. Service Provider
further agrees to deliver, upon the request of the Trust, copies of
any amended Prospectuses to purchasers whose Shares it is holding in
omnibus accounts or as shareholder of record and to deliver to such
persons materials of the Trust. The Trust will conduct its business in
accordance with the procedures set forth in, and the requirements of,
the Prospectuses, including the prompt execution of orders for the
purchase and redemption of Shares and the servicing of shareholder
accounts.
2
<PAGE>
5. This Agreement will automatically terminate with respect to any
Distribution Plan in the event of its assignment or upon a failure by
the Trust's Board of Trustees to continue to approve the Distribution
Plan. This Agreement may be terminated by any of the parties, without
penalty, upon thirty (30) days' prior written notice to the other
parties. This Agreement may also be terminated as to any Fund at any
time without penalty by the vote of a majority of the members of the
Board of Trustees of the Trust who are not "interested persons" and
who have no direct or indirect financial interest in the Plans or in
any agreement relating to such Plan, including this Agreement, or by a
vote of a majority of the outstanding voting securities of the Fund on
thirty days' written notice.
6. This Agreement shall remain in full force and effect for a period of
one year from the date first noted above and from year to year
thereafter, subject to annual approval by the Board of Trustees and of
the trustees who are not "interested persons" (as such term is defined
in the Investment Company Act of 1940) of the Trust and have no direct
or indirect financial interest in the operation of the Plans or in any
agreements related to the Plans.
7. The parties acknowledge and agree that Service Provider is acting as
an independent contractor, and nothing contained in this Agreement
shall be construed in such a manner that Service Provider shall be
considered an agent or employee of the Trust or the Advisor. The
parties to this Agreement expressly state and affirm that Service
Provider is not an agent or employee of the Trust or Advisor.
8. The parties expressly acknowledge and agree that any obligation of the
Trust arising from this Agreement shall not be binding upon any of the
Trustees, Shareholders, nominees, officers, agents, or employees of
the Trust, personally, but shall bind only the assets of the Trust.
9. Notwithstanding anything to the contrary herein, Service Provider will
indemnify the Trust, the Advisor, underwriter, transfer agent and
custodian of the Trust, and their respective officers, directors,
trustees, partners, employees and agents, and hold them harmless from
any claims or assertions relating to the lawfulness of Service
Provider's participation in this Agreement and the transactions
contemplated hereby or relating to any activities or omissions of any
persons or entities affiliated with Service Provider's company which
are performed in connection with the discharge of its responsibilities
under this Agreement. If any such claims are asserted, the indemnified
parties shall have the right to engage in their own defense, including
the selection and engagement of legal counsel of their choosing, and
all costs of such defense shall be borne by Service Provider.
10. The Trust shall have full authority to take such action as it may deem
advisable in respect to all matters pertaining to the offering of
Shares, including the right in its discretion, without notice, to
suspend sales or withdraw the offering of Shares entirely. The Trust
will promptly notify Service Provider of any such actions.
3
<PAGE>
11. Service Provider will (i) maintain all records required by law
relating to transactions in Shares and, upon request by the Trust,
promptly make such records available as the Trust may reasonably
request in connection with its operations; and (ii) promptly notify
the Trust if Service Provider experiences any difficulty in
maintaining the records described in the foregoing clause in accurate
and complete manner. In addition, Service Provider and the Trust will
establish appropriate procedures and reporting forms and schedules to
enable the parties hereto to identify all accounts opened and
maintained by Service Provider's customers.
12. This Agreement as set forth herein constitutes the entire agreement
and under-standing of the parties as to the subject matter hereof, and
supersedes all previous discussions and agreements between the parties
as to the matters herein addressed. No party shall be bound by any
representation with respect to the subject matter of this Agreement
other than as expressly set forth herein. This Agreement may be
amended or modified only by a writing signed by all parities hereto.
13. This Agreement shall be governed and construed in accordance with the
laws of the State of Texas, except that any conflict of law rule of
that jurisdiction that may require reference to the laws of some other
jurisdiction shall be disregarded.
14. If any provision of this Agreement is or may be held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless survive and continue in full
force and effect without impairment.
4
<PAGE>
15. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
to be effective as of the date first noted above.
PAUZE SWANSON CAPTIAL PAUZE FUNDS(TM)
MANAGEMENT CO.
___________________________ ______________________________
By: _______________________ By:___________________________
Its _______________________ Its: _________________________
___________________________
By: _______________________
Its: ______________________
5
PAUZE FUNDS
-----------
AMENDED AND RESTATED
--------------------
CODE OF ETHICS
--------------
Adopted March 24, 2000
The following amended Code of Ethics (the "Code") is adopted by Pauze Funds
(the "Fund"), pursuant to Rule 270.17j-1 under the Investment Company Act of
1940 (the "Rule"). It is the purpose of the Code to prohibit persons affiliated
with the Fund and with the investment adviser to any Fund series from engaging
in securities transactions for their personal accounts when such transactions
are likely to conflict with the Fund's investment program for any series of
shares that the Fund may offer from time to time.
The following is a statement of general fiduciary principles that govern
personal investment activities by Fund personnel. These principles are: 1) the
duty, at all times, to place the interests of shareholders first; 2) the
requirement that all personal securities transactions be conducted consistent
with the Code of Ethics and in such a manner as to avoid any actual or potential
conflict of interest or any abuse of an individual's position of trust and
responsibility; and 3) the fundamental standard that investment company
personnel should not take inappropriate advantage of their positions.
A. RULE 17J-1. Paragraph A of the Rule is incorporated herein and states
generally as follows:
No affiliated person of a registered investment company, or affiliated
person of an investment adviser of a registered investment company shall, in
connection with the purchase or sale, directly or indirectly, by such person of
a security held or to be acquired, as defined in this section, by such
investment company:
1. Employ any device, scheme or artifice to defraud such investment
company;
2. Make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading;
3. Engage in any act, practice or course of business which operates or
would operate as a fraud or deceit upon any such investment company; or
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4. Engage in any manipulative practice with respect to such investment
company.
B. CODE. This Code is adopted pursuant to paragraph C of the Rule in order
to prevent the occurrence of the practices prohibited by the Rule, as set forth
in paragraph A of this Code.
C. DEFINITIONS. As used in this Code:
1. "Security held or to be acquired" by the Fund means any security,
as defined in Rule 17j-1,1 which, within the most recent 15 days, i) is or has
been held by the Fund, or ii) is being or has been considered by the Fund or by
the investment adviser to a Fund series for the purchase by the Fund for the
series.
A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
2. "Adviser" means (i) any investment adviser to a Fund series and
(ii) as long as Pauze Swanson & Associates Investment Advisors, Inc. acts as
investment adviser to a Fund series, Fund Services, Inc. dba Champion Fund
Services.
3. "Access Person" means the Trustees and officers of the Fund, and
directors, officers and employees of any Adviser."
4. "Beneficial Ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Access Person has or acquires.2
5. "Compliance Officer" means Patricia Dobson, or in her absence or in
the case of a pre-clearance request by or compliance procedures related to
Patricia Dobson, the Compliance Officer shall be Philip Pauze.
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1 "Security shall have the meaning set forth in Section 2(a)(36) of the
Investment Company Act, except that it shall not include shares of registered
open-end investment companies, securities issued by the Government of the United
States, short term debt securities which are "government securities" within the
meaning of Section 2(a)(16) of the Investment Company Act, bankers' acceptances,
bank certificates of deposit, commercial paper, and such other money market
instruments as designated by the board. For purposes of this Code of Ethics, the
term "Security" shall include instruments related to but not the same as
securities held or to be acquired by the Fund; for example, futures contracts,
commodities contracts and convertible securities.
2 See Appendix A for a definition of "beneficial ownership."
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6. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act.
7. "Disinterested Trustee" means a Trustee of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act.
8. "Purchase or sale of a security" includes the purchase or sale of
instruments related to, but not the same as, securities held or to be acquired
by the Fund.
D. PROHIBITED PURCHASES AND SALES.
1. Absent prior approval of the Compliance Officer, no Access Person
shall purchase or sell, directly or indirectly, any security in which he or she
has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership and which he or she knows or should have known at the time
of such purchase or sale that such security:
a) is being considered for purchase or sale by the Fund; or
b) is being purchased or sold by the Fund.
2. Notwithstanding paragraph D(1), in the case of any Fund series
which replicates a particular securities index ("Index Fund") a Disinterested
Trustee may purchase or sell any of the securities comprising the relevant
index, without prior approval, provided (a) such Disinterested Trustee has no
information concerning any significant purchase or redemption activities
anticipated by the Index Fund, and (b) the purchase or sale is not prohibited by
paragraph D(1) with respect to another series of the Fund. "Significant purchase
or redemption activity" shall mean combined purchases and redemptions within any
5 trading day period resulting in a change in a series' net assets of 10% or
more.
3. No Access Person (other than a Disinterested Trustee) shall acquire
any security in an Initial Public Offering or in a private placement unless such
person shall have obtained the prior approval of the Compliance Officer. An
Initial Public Offering is a new security issue. If the acquisition is
authorized, the
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Compliance Officer shall retain a record of the authorization and the rationale
supporting the authorization. In the case of a private placement, such Access
Person shall be required to disclose the investment if he or she plays a part in
the Fund's subsequent consideration of an investment in the issuer. In such
circumstance, the Fund's decision to purchase the issuer's securities shall be
subject to an independent review by a person with no personal interest in the
issuer.
4. Any Access Person (other than a Disinterested Trustee) shall be
prohibited from buying or selling security for seven days both before and after
he or she purchases or sells the same security for the Fund. Any profits
realized on trades within the proscribed periods shall be required to be paid
over to the Fund.
5. No Access Person (other than a Disinterested Trustee) shall serve
as a director or trustee on the board of directors or trustees of a publicly
traded company, unless he or she shall first obtain the approval of the Fund's
Board of Trustees after a determination by the Board of Trustees that the board
service of the Access Person is consistent with the best interests of the Fund
and its shareholders.
6. No Access Persons (other than a Disinterested Trustee) shall accept
for himself or for any other person anything, including gratuities having a
total value in excess of one hundred dollars ($100.00) per year from any person
or representative of a person where such payment is in relation to the business
of the Fund. A gift of any kind is a gratuity.
7. All Access Persons (other than a Disinterested Trustee) shall
instruct their securities brokers that when any such broker executes a
securities transaction on behalf of such Access Person, the broker is to send a
copy of the trade confirmation directly to the Fund to the attention of the
Compliance Officer (See Section E, below) and shall also send a copy of every
Account Statement sent to the Access Person to the Compliance Officer.
8. The Compliance Officer shall regularly review the securities
purchases and sales of Access Persons after pre-clearance has been granted, the
times when the purchases and sales take place as compared to the times of any
purchases and sales of the same securities by the Fund and, in connection with
the procedure, the Compliance Officer shall analyze all such trades to determine
if there may be a pattern or patterns to such trades.
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E. PRIOR CLEARANCE OF TRANSACTIONS:
1. Any transaction in a security by an Access Person (other than a
Disinterested Trustee) except for a transaction exempted under paragraph E(2)
hereof, shall be made only with the prior approval of the Compliance Officer.
The determination whether to grant such approval shall be based upon such
factors as the Compliance Officer shall deem appropriate and in the best
interests of the Fund and its shareholders, including the following: i) the
transaction is unlikely to affect the price of the security (e.g., a highly
institutional market); ii) the transaction involves a security which is not
"held or to be acquired" by the Fund; iii) the transaction is otherwise not
related economically to the securities to be purchased, sold or held by the
Fund; or iv) the transaction is otherwise consistent with paragraph A of this
Code (purchases or sales made pursuant to subparagraphs (i)-(vii) of paragraph
E(2) shall be deemed to be in compliance with this Code).
In determining whether to grant advance clearance for a particular
transaction, all relevant factors, including whether an Access Person requesting
advance clearance has made a mere recommendation to the Fund or is the decision
maker regarding purchase and sales of securities by the Fund, shall be
considered.
Any pre-clearance given under this paragraph E(1) shall remain
effective for a period of 7 days.
2. EXCEPTIONS TO THE PRIOR APPROVAL REQUIREMENT - The prior approval
provisions of paragraph E of this Code shall not apply to: i) Purchases or sales
effected in any account over which the Access Person has no direct or indirect
influence or control; ii) Purchases or sales of securities which are not
eligible for purchase or sale by the Fund; iii) Purchases or sales which are
non-volitional on the part of either the Access Person or the Fund; iv)
Purchases effected upon the exercise of rights issued by an issuer PRO RATA to
all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired; v) Purchases or
sales which receive the prior approval of the Compliance Officer because they
are only remotely potentially harmful to the Fund, because they would be very
unlikely to affect a highly institutional market, or because they clearly are
not related economically to the securities to be purchased, sold or held by
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the Fund; vi) Purchases or sales of securities issued or guaranteed by the
United States Government, its agencies and instrumentalities.
F. DESIGNATED COMPLIANCE OFFICER. The Compliance Officer for the Fund shall
be the reviewing person. The Compliance Officer may designate one or more
employees of the Fund to perform any functions relating to this Code of Ethics
under his or her supervision.
An Adviser shall provide to the Fund and the Compliance Officer a list
of all Access Persons who are employees, officers or directors thereof, and
shall periodically update such list.
G. PROCEDURES WITH REGARD TO DISSEMINATION OF INFORMATION.
1. Neither an Adviser, nor the Fund, nor any Access Person shall
disclose to any Disinterested Trustee of the Fund information regarding the
consideration or decision to purchase or sell a particular security when it is
contemplated that such action will be taken within the next 7 days, or
information regarding the purchase or sale of a particular security occurring
within the previous 7 days, unless such information is; i) requested in writing
by a Disinterested Trustee of the Fund; or ii) given because it is determined
that the Disinterested Trustee should have such information so that he may
effectively carry out his or her duties; or iii) given so that the Adviser may
carry out its respective duties to the Fund.
2. If any information covered by paragraph G(1) is given to a
disinterested Trustee, such disinterested Trustee shall be advised at that time
that he and any other Fund Trustee receiving such information will be considered
subject to the provisions of paragraph D hereof with respect to any security
included in such information.
3. Neither an Adviser, nor an Access Person, nor the Fund shall
disclose to any Disinterested Trustee of the Fund or any third party information
regarding any significant purchase or redemption activity anticipated by an
Index Fund.
H. REPORTING.
1. Every Access Person shall report to the Compliance Officer the
information described in paragraph H(2) below of this Code with respect to
transactions in any security in which such Access Person
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has, or by reason of such transaction acquires or sells, any direct or indirect
beneficial ownership in the security; provided that the report may contain a
statement that the report shall not be construed as an admission by the person
making the report that he or she has any direct or indirect beneficial interest
in the security to which the report relates.
2. Every report shall be made not later than 10 days after the end of
the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information: i) the date of
transaction, the title, the interest rate and maturity date (if applicable) and
the number of shares or the principal amount of security involved; ii) the
nature of the transaction (i.e., purchase, sale or any other type of acquisition
or disposition); iii) the price at which the transaction was effected; iv) the
name of the broker, dealer or bank with or through whom the transaction was
effected; and v) the date the report is submitted. The report shall also
identify any trading account Beneficially Owned by the Access Person during the
quarter with a broker, dealer or bank and the date the account was established.
3. Notwithstanding 1 and 2 above, no person shall be required to make
a report:
a) With respect to transactions effected for any account over
which such person does not have any direct or indirect influence and control.
b) If such person is a Disinterested Trustee of the Fund,
unless such Trustee, at the time of that transaction, knew or, in the ordinary
course of fulfilling his or her official duties as a Trustee of the Fund, should
have known that, during the 7 day period immediately preceding or following the
date of the transaction in a security by the Trustee i) in the case of a series
that is not an Index Fund, such security is or was purchased or sold, or such
purchase or sale is or was being considered, by the series, or ii) in the case
of an Index Fund, such security is owned by the Index Fund and the Index Fund is
or was anticipating significant redemption or purchase activity.
c) With respect to transactions effected in open-end mutual
fund accounts.
d) With respect to transactions in U.S. Government or agency
obligations or bank certificates of deposit.
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4. Any Access Person whose securities transactions are fully disclosed
to the Compliance Officer, through duplicate confirmations or otherwise, need
not make any other reports pursuant to this Code of Ethics unless requested to
do so by the Compliance Officer.
5. Unless otherwise stated, no report shall be construed as an
admission by the person making such report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
6. Each Compliance Officer shall provide periodic reports to the Board
of Trustees regarding the operation of this Code of Ethics, and shall
specifically report to the Board of Trustees any violation or apparent violation
thereof.
7. Each Access Person who is required to make the reports provided for
by the Section H shall be informed of his or her duty to file such reports.
8. a) Within ten (10) days of becoming an Access Person, or at the
time that a person becomes an Access Person, each Access Person must certify
that he or she has read and understands this Code and recognizes that he or she
is subject to it, and must disclose the following information as of the date the
person became an Access Person i) the title, number of shares and principal
amount of each Security Beneficially Owned when the person became an Access
Person, ii) the name of any broker/dealer with whom the person maintained an
account when the person became an Access Person, and iii) the date the report is
submitted.
b) All Access Persons are required to certify annually that
they have read and understand this Code of Ethics and understand that they are
subject to it. All Access Persons are required to certify annually that they
have complied with the requirements of the Code of Ethics and they have
disclosed all personal securities transactions required to be disclosed pursuant
to the Code of Ethics. In addition, each Access Person shall annually provide
the following information (as of a date no more than 30 days before the report
is submitted): i) the title, number of shares and principal amount of each
Security Beneficially Owned by the person, ii) the name of any broker, dealer or
bank with whom the person maintains an
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account in which any Securities are held for the direct or indirect benefit of
the person, and iii) the date the report is submitted.
c) The provisions of this paragraph H(8) shall not apply to
Disinterested Trustees.
I. SANCTIONS
Upon discovering a violation of this Code, the Fund's Board of
Trustees may impose such significant remedial action (defined in Section J
below) as it deems appropriate.
J. ANNUAL REPORTING
Fund Management shall submit an annual report to the Board of Trustees
that:
1. Summarizes existing procedures concerning personal investing and
any changes made in the procedures made during the past year; and
2. Identifies any violations requiring significant remedial action
during the past year; and
3. Identifies any recommended changes in existing restrictions or
procedures based on the Fund's experience under its Code of Ethics, evolving
industry practices or developments in applicable laws or regulations.
4. Certifies that each Adviser and the Fund have each adopted
procedures reasonably necessary to prevent Access Persons from violating this
Code of Ethics.
"Significant Remedial action" shall mean any action that has a
pecuniary effect on an individual, such as termination, supervision or
demotion or the requirement that a trade be reversed or the profits
therefrom disgorged. It also includes nonpecuniary action that might
affect a person's promotion opportunities such as reassignment,
suspension with pay and formal censure.
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APPENDIX A
DEFINITION OF "BENEFICIAL OWNERSHIP"
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A person has beneficial ownership of an account when the securities in the
account are held:
i) in his or her name;
ii) in his or her spouse's name;
iii) in the name of his or her minor children;
iv) in the name of any relative living in his or her home;
v) in his name as trustee for himself or herself or for his or her
parents, grandparents, children, grandchildren, spouse, stepchildren
or stepparents;
vi) in a trust in which he or she has a beneficial interest or is the
settlor with a power to revoke;
vii) by another person and he or she has a contract or an understanding
with such person that the securities held in that person's name are
for his or her benefit;
viii) in the form of a right to acquisition of such security through the
exercise or warrants, options, rights or conversation rights;
ix) by a partnership of which he or she is a member;
x) by a corporation which he or she uses as a personal trading medium;
xi) by a holding company which he or she controls; or
xii) in any other relationship in which a person would have beneficial
ownership under Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall apply
to all securities which an Access Person has or acquires. For
example, an Access Person with investment discretion over an
investment account is considered to beneficially own the securities
held in that account and, therefore, transactions in the account are
attributable to the Access Person for purposes of this Code.
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Calendar Quarter:
Year:
QUARTERLY SECURITIES TRANSACTIONS REPORT
Persons subject to the Code of Ethics must report ALL securities
transactions (including exempt transactions and transactions involving
affiliated mutual funds) executed during the reporting period. The report must
be returned to the Compliance Officer, regardless of whether any securities
transactions occurred, before the tenth (10th) day after the close of the
calendar quarter. Please note that this Report covers all securities which you
Beneficially Owned.
|_| I have executed no securities transactions during the quarter.
|_| The following is a complete list of my securities transactions:
<TABLE>
<CAPTION>
=====================================================================================================================
# OF SHARES OR
TRANSACTION PURCHASE, SALE, PRINCIPAL AMOUNT
SECURITY* DATE OR OTHER OF SECURITY UNIT PRICE EXECUTING BROKER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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=====================================================================================================================
</TABLE>
*Provide interest rate and maturity date if applicable
|_| I have not opened a brokerage account during the quarter.
|_| The following is a complete list of all brokerage accounts I opened during
the quarter:
<TABLE>
<CAPTION>
============================================================================================================================
NAME OF BROKER, DEALER OR BANK: ACCOUNT NAME: DATE ESTABLISHED:
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<S> <C> <C>
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============================================================================================================================
</TABLE>
I certify that I have read and understand the Code of Ethics and that I
have complied with the requirements of the Code of Ethics, including disclosure
of all securities transactions that require disclosure.
Printed Name: Signature:
----------------------- -----------------------------
Filing Date:
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THIS REPORT SHALL NOT BE CONSTRUED AS AN ADMISSION THAT THE REPORTING PERSON HAS
ANY DIRECT OR INDIRECT BENEFICIAL OWNERSHIP IN ANY SECURITY TO WHICH THIS REPORT
RELATES.