PAUZE FUNDS(TM)
Pauze U.S. Government Total Return Bond Fund(TM)
Pauze U.S. Government Intermediate Term Bond Fund(TM)
Pauze U.S. Government Short Term Bond Fund(TM)
ANNUAL REPORT
APRIL 30, 2000
This reporting period has experienced another interesting year for the interest
sensitive markets. From May 1, 1999 through April 30, 2000, the figures were:
===========================================================================
3 MO 1YR 2YR 5YR 10YR 30YR
U.S. Treasury Bills Bills Notes Notes Notes Bonds
---------------------------------------------------------------------------
Total Return* 5.09% 4.58% 2.62% 0.10% (2.50)% (1.12)%
===========================================================================
* Source: Salomon Brothers Indexes. Includes capital gain (loss) and
paid/accrued interest.
The last fiscal year was one of exceptional volatility in the U.S. Government
bond market. The year can be divided into two periods. The first period, from
May 1999 through December 1999, saw the market decline in value as interest
rates rose. The price of a long term U.S. Government bond declined about 8%
during this period as interest rates rose from 5.5% to 6.6%. This was caused by
many factors which influenced the market. The fear of higher inflation was the
leading cause as investors eyed declining unemployment and a more robust
economy. The Federal Reserve Board raised short term rates 75 basis points
during the term validating inflation worries. Long term interest rates topped
out in January 2000 at 6.75%. All funds were primarily invested in shorter term
maturities during this period. The result was that all funds avoided the large
decline in value experienced by funds which had invested in bonds of longer term
maturities.
The second period of our fiscal year commenced in January 2000. With long term
U.S. Government bond rates at 6.75%, fears of inflation abated as benign reports
of inflation were released by the Government. Investor confidence in bonds
returned and the market rallied with yields falling from 6.75% to 6.2%. The drop
in yield caused the price of bonds to regain some of the losses experienced
during the first period of the fiscal year. The Federal Reserve continued to
raise short term rates during this period resulting in an "inverted yield curve"
in which short term rates are higher than long term rates. By April 30, 2000,
the rate on Fed Funds stood at 6.5%. After the precipitous decline in bonds
during 1999, we remained cautious at the beginning of 2000 remaining invested in
shorter term maturities. As a result, all funds tended to underperform their
peer groups during this period.
The Federal Reserve is committed to keeping inflation in check. We feel that
this policy is and has been good for both the U.S. economy and interest
sensitive markets and our Funds are positioned to take advantage of such a
policy.
Our commitment to our Shareholders has been and always will be to work
diligently to maximize investor returns. We will continue to strive to do so now
and in the future.
We thank all of our investors for their confidence in our abilities to manage
cash prudently and wisely.
Philip C. Pauze, President
<PAGE>
--------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT TOTAL RETURN BOND FUND
[GRAPHIC OMITTED]
Comparison of the change in value since inception of a $10,000 investment in the
Pauze' U.S. Government Total Return Bond Fund - No Load Class, Pauze' U.S.
Government Total Return Bond Fund - Class B, Pauze' U.S. Government Total Return
Bond Fund - Class C and the Lehman Government Bond Index.
4/30/00
-------
Pauze' U.S. Government Total Return Bond Fund - No Load Class $11,862
Pauze' U.S. Government Total Return Bond Fund - Class B 10,898
Pauze' U.S. Government Total Return Bond Fund - Class C 9,118
Lehman Government Bond Index 14,118
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS*
1 Year 5 Year Since Inception
------ ------ ---------------
No Load Shares (Inception 1/10/94) (2.63)% 3.72% 2.74%
Class B Shares (Inception 9/3/96) (6.72)% n/a 1.63%
Class C Shares (Inception 5/13/98) (3.38)% n/a (4.58)%
Lehman Government Bond Index 1.99% 6.82% 5.62%
(Since 1/10/94)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
[GRAPHIC OMITTED]
Comparison of the change in value since inception of a $10,000 investment in the
Pauze' U.S. Government Intermediate Term Bond Fund - No Load Class, Pauze' U.S.
Government Intermediate Term Bond Fund - Class B and the Lehman General U.S.
Treasury Intermediate Index.
4/30/00
-------
Pauze' U.S. Government Intermediate Term Bond Fund - No Load Class $10,826
Pauze' U.S. Government Intermediate Term Bond Fund - Class B 10,623
Lehman General U.S. Treasury Intermediate Index 12,365
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS*
1 Year Since Inception
------ ---------------
No Load Shares (Inception 10/10/96) (0.77)% 2.26%
Class B Shares (Inception 9/3/96) (5.25)% 0.86%
Lehman General U.S. Treasury 2.23% 5.97%
Intermediate Index (Since 9/3/96)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PAUZE' U.S. GOVERNMENT SHORT TERM BOND FUND
[GRAPHIC OMITTED]
Comparison of the change in value since inception of a $10,000 investment in the
Pauze' U.S. Government Short Term Bond Fund - No Load Class, Pauze' U.S.
Government Short Term Bond Fund - Class B, Pauze' U.S. Government Short Term
Bond Fund - Class C and the Lehman 1-3 Year Government Index.
4/30/00
-------
Pauze' U.S. Government Short Term Bond Fund - No Load Class $10,954
Pauze' U.S. Government Short Term Bond Fund - Class B 10,346
Pauze' U.S. Government Short Term Bond Fund - Class C 10,575
Lehman 1-3 Year Government Index 12,262
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS*
1 Year Since Inception
------ ---------------
No Load Shares (Inception 9/3/96) (0.52)% 2.52%
Class B Shares (Inception 9/3/96) (5.01)% 0.11%
Class C Shares (Inception 11/7/96) (1.14)% 1.62%
Lehman 1-3 Government Index (Since 9/3/96) 3.58% 5.73%
--------------------------------------------------------------------------------
* The data represented herein represents past performance and is not a guarantee
of future performance. The value of your shares may fluctuate and be worth more
or less than their original cost at the time of redemption.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
PAUZE FUNDS
HOUSTON, TEXAS
We have audited the accompanying statements of assets and liabilities of Pauze
U.S. Government Total Return Bond Fund, Pauze U.S. Government Intermediate Term
Bond Fund and Pauze U.S. Government Short Term Bond Fund, each a series of
shares of Pauze Funds, including the schedules of investments, as of April 30,
2000, and the related statements of operations for the year then ended,
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated thereon.
These financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 2000, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Pauze
U.S. Government Total Return Bond Fund, Pauze U.S. Government Intermediate Term
Bond Fund and Pauze U.S. Government Short Term Bond Fund as of April 30, 2000,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended and the financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
PHILADELPHIA, PENNSYLVANIA
MAY 25, 2000
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
SCHEDULE OF INVESTMENTS APRIL 30, 2000
=======================================================================================================
Principal
or Shares Value
------------ ------------
PAUZE U.S. GOVERNMENT TOTAL RETURN BOND FUND
--------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 100.21%
FHLB Discount Note, 5.80%, 05/02/00 $ 33,580,000 $ 33,578,647
FHLM Discount Note, 5.84%, 05/05/00 182,000 181,882
FNMA Discount Note, 5.80%, 05/03/00 26,750,000 26,742,612
------------
Total U.S. Government Agency Obligations (Cost $60,503,141) 60,503,141
------------
TOTAL INVESTMENTS (COST $60,503,141) - 100.21% 60,503,141
Other assets and liabilities, net - (0.21%) (127,142)
------------
NET ASSETS - 100.00% $ 60,375,999
============
PAUZE U.S. GOVERNMENT INTERMEDIATE TERM BOND FUND
-------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 99.31%
U.S. Treasury Note, 6.50%, 2/15/10 $ 3,000,000 $ 3,060,469
FHLB Discount Note, 5.80%, 5/2/00 2,920,000 2,919,882
FHLMC Discount Note, 5.84%, 5/5/00 226,000 225,853
------------
Total U.S. Government and Agency Obligations (Cost $6,259,845) 6,206,204
------------
OTHER INVESTMENTS - 0.30%
Firstar Treasury Fund (Cost $18,556) 18,556 18,556
------------
TOTAL INVESTMENTS (COST $6,278,401) - 99.61% 6,224,760
Other assets and liabilities, net - 0.39% 24,411
------------
NET ASSETS - 100.00% $ 6,249,171
============
PAUZE U.S. GOVERNMENT SHORT TERM BOND FUND
------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 97.51%
U.S. Treasury Note, 5.50%, 03/31/03 (Cost $2,692,964) $ 2,750,000 $ 2,669,648
------------
OTHER INVESTMENTS - 2.27%
Firstar Treasury Fund (Cost $62,090) 62,090 62,090
------------
TOTAL INVESTMENTS (COST $2,755,054) - 99.78% 2,731,738
Other assets and liabilities, net - .22% 5,928
------------
NET ASSETS - 100.00% $ 2,737,666
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2000
===============================================================================================
U.S.
U.S. GOVERNMENT U.S.
GOVERNMENT INTERMEDIATE GOVERNMENT
TOTAL RETURN TERM SHORT TERM
BOND FUND BOND FUND BOND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Assets:
Investments, at value (cost $60,503,141
$6,278,401 and $2,755,054 respectively) $ 60,503,141 $ 6,224,760 $ 2,731,738
Receivables:
Investment sold 33,582,933 2,920,255 --
Interest 164 40,962 12,985
Organizational costs -- 2,001 2,001
------------ ------------ ------------
Total assets 94,086,238 9,187,978 2,746,724
------------ ------------ ------------
Liabilities:
Investments purchased 33,574,590 2,919,529 --
Accounts payable and accrued expenses 105,526 16,600 7,892
Advisory fees payable 30,123 2,678 1,166
------------ ------------ ------------
Total liabilities 33,710,239 2,938,807 9,058
------------ ------------ ------------
NET ASSETS $ 60,375,999 $ 6,249,171 $ 2,737,666
============ ============ ============
Net assets consist of:
Paid-in-capital $ 70,798,307 $ 6,885,153 $ 2,801,584
Undistributed net investment income -- 834 1,484
Accumulated net realized loss on investments (10,422,308) (583,175) (42,086)
Net unrealized depreciation of investments -- (53,641) (23,316)
------------ ------------ ------------
Net assets applicable to outstanding
capital shares $ 60,375,999 $ 6,249,171 $ 2,737,666
============ ============ ============
NO LOAD CLASS:
Net assets $ 58,281,197 $ 5,280,728 $ 1,915,373
============ ============ ============
Shares outstanding 7,216,551 562,891 195,744
============ ============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 8.08 $ 9.38 $ 9.79
============ ============ ============
CLASS B:
Net assets $ 1,226,097 $ 968,443 $ 104,263
============ ============ ============
Shares outstanding 138,775 102,866 10,855
============ ============ ============
NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 8.84 $ 9.41 $ 9.61
============ ============ ============
Minimum redemption price per share (Net asset
value X 96.25%) $ 8.51 $ 9.06 $ 9.25
============ ============ ============
CLASS C:
Net assets $ 868,705 $ 718,030
============ ============
Shares outstanding 102,857 73,829
============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 8.45 $ 9.73
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2000
===================================================================================================
U.S.
U.S. GOVERNMENT U.S.
GOVERNMENT INTERMEDIATE GOVERNMENT
TOTAL RETURN TERM SHORT TERM
BOND FUND BOND FUND BOND FUND
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Interest income $ 3,243,204 $ 364,300 $ 101,867
----------- ----------- -----------
Expenses:
Investment advisory fees 356,940 33,298 9,169
Distribution fees- No load class 144,896 14,089 3,854
Distribution fees- Class B 12,712 10,239 1,054
Distribution fees- Class C 2,674 -- 1,925
Administrative fees 131,466 17,498 3,728
Accounting service fees 112,371 14,944 3,185
Transfer agent fees 70,079 9,080 2,093
Distributor fee 24,235 3,104 690
Registration fees 9,108 7,468 8,568
Custodian fees 15,336 5,125 4,728
Professional fees 72,456 14,857 6,583
Trustees' fees and expenses 62,598 9,116 1,820
Amortization of organization expense -- 1,474 1,474
Miscellaneous 12,811 5,995 4,841
----------- ----------- -----------
Total expenses 1,027,682 146,287 53,712
----------- ----------- -----------
NET INVESTMENT INCOME 2,215,522 218,013 48,155
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments:
Net realized loss on investments (4,613,178) (204,660) (42,414)
Net change in unrealized appreciation
(depreciation) of investments 609,169 (53,641) (22,442)
----------- ----------- -----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (4,004,009) (258,301) (64,856)
----------- ----------- -----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($1,788,487) ($ 40,288) ($ 16,701)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
STATEMENT OF CHANGES IN NET ASSETS
===================================================================================================================================
U.S. GOVERNMENT U.S. GOVERNMENT U.S. GOVERNMENT
TOTAL RETURN BOND FUND INTERMEDIATE TERM BOND FUND SHORT TERM BOND FUND
=========================== =========================== ===========================
Year Ended April 30, Year Ended April 30, Year Ended April 30,
--------------------------- --------------------------- ---------------------------
2000 1999 2000 1999 2000 1999
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income $ 2,215,522 $ 2,547,099 $ 218,013 $ 238,675 $ 48,155 $ 119,593
Net realized gain (loss) on investments (4,613,178) (4,518,213) (204,660) (263,090) (42,414) 50,479
Net change in unrealized appreciation
(depreciation) of investments 609,169 (608,816) (53,641) 10,037 (22,442) (6,819)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from operations (1,788,487) (2,579,930) (40,288) (14,378) (16,701) 163,253
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
No load class (2,208,967) (2,485,025) (193,989) (239,328) (40,705) (123,663)
Class B (32,603) (30,106) (24,672) (22,496) (1,747) (1,906)
Class C (8,517) (1,391) -- -- (5,693) (2,408)
Net realized gains:
No load class -- (1,264,342) -- (102,579) -- (44,247)
Class B -- (25,713) -- (12,846) -- (1,238)
Class C -- (862) -- -- -- (456)
------------ ------------ ------------ ------------ ------------ ------------
Total distributions to shareholders (2,250,087) (3,807,439) (218,661) (377,249) (48,145) (173,918)
------------ ------------ ------------ ------------ ------------ ------------
From net capital share transactions
- (Note 4) 6,938,887 (14,766,212) (3,115,128) 6,850,578 648,556 138,097
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets 2,900,313 (21,153,581) (3,374,077) 6,458,951 583,710 127,432
Net assets at beginning of year 57,475,686 78,629,267 9,623,248 3,164,297 2,153,956 2,026,524
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 60,375,999 $ 57,475,686 $ 6,249,171 $ 9,623,248 $ 2,737,666 $ 2,153,956
============ ============ ============ ============ ============ ============
Including undistributed net investment
income of: -- $ 30,577 $ 834 -- $ 1,484 --
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS
===================================================================================================================================
For a capital share outstanding throughout each period indicated:
U.S. GOVERNMENT TOTAL RETURN BOND FUND
-------------------------------------------------------------------------------------
NO LOAD CLASS B
---------------------------------------------------- ------------------------------
Year Ended April 30, Year Ended April 30,
---------------------------------------------------- ------------------------------
2000 1999 1998 1997 1996 2000 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.62 $ 9.60 $ 9.17 $ 9.54 $ 9.37 $ 9.39 $ 10.41 $ 9.84
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.32 0.35 0.43 0.45 0.44 0.27 0.27 0.36
Net realized and unrealized gain (loss)
on investments (0.54) (0.79) 1.27 (0.37) 0.31 (0.58) (0.83) 1.40
Dividends from net investment income (0.32) (0.35) (0.44) (0.45) (0.44) (0.24) (0.27) (0.36)
Distributions from capital gains -- (0.19) (0.83) -- (0.14) -- (0.19) (0.83)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 8.08 $ 8.62 $ 9.60 $ 9.17 $ 9.54 $ 8.84 $ 9.39 $ 10.41
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN -2.63% -4.83% 18.91% 0.80% 8.08% -3.41% -5.57% 18.16%
Ratios to Average Net Assets (a)
Net investment income 3.74% 3.73% 4.41% 4.75% 4.74% 2.99% 2.98% 3.41%
Total expenses 1.71% 1.68% 1.65% 1.40% 1.23% 2.46% 2.43% 2.66%
Net assets, end of period (000's) $ 58,281 $ 56,124 $ 78,350 $ 67,936 $ 71,294 $ 1,226 $ 1,285 $ 280
Turnover Ratio 4365% 1226% 252% 202% 228% 4365% 1226% 252%
U.S. GOVERNMENT TOTAL RETURN BOND FUND
----------------------------------
CLASS B CLASS C
---------- ----------------------
9/3/96* to 5/1/99 to 5/13/98* to
4/30/97 04/30/00 4/30/99
-------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 8.99 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income 0.27 0.23 0.28
Net realized and unrealized gain (loss)
on investments (0.16) (0.53) (0.82)
Dividends from net investment income (0.27) (0.24) (0.28)
Distributions from capital gains -- -- (0.19)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84 $ 8.45 $ 8.99
======== ======== ========
TOTAL RETURN 1.09% -3.38% -5.63%
Ratios to Average Net Assets (a)
Net investment income 3.82% 2.99% 2.98%
Total expenses 2.33% 2.46% 2.43%
Net assets, end of period (000's) $ 387 $ 869 $ 67
Turnover Ratio 76% 4365% 1226%
</TABLE>
----------------------------
* Commencement of operations.
(a) Ratios are annualized for periods of less than one year, except for the
total return ratio.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS
===================================================================================================================================
For a capital share outstanding throughout each period indicated:
U.S. GOVERNMENT INTERMEDIATE BOND FUND
------------------------------------------------------------------------------------
NO LOAD CLASS B
---------------------------------------- ----------------------------------------
Year Ended April 30, 10/10/96* Year Ended April 30, 09/03/96*
----------------------------- to ----------------------------- to
2000 1999 1998 4/30/97 2000 1999 1998 4/30/97
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.77 $ 10.10 $ 9.72 $ 10.00 $ 9.81 $ 10.12 $ 9.74 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.32 0.33 0.34 0.18 0.23 0.25 0.26 0.18
Net realized and unrealized gain (loss)
on investments (0.39) (0.21) 0.43 (0.19) (0.40) (0.19) 0.43 (0.15)
Dividends from net investment income (0.32) (0.33) (0.34) (0.18) (0.23) (0.25) (0.26) (0.17)
Distributions from capital gains -- (0.12) (0.05) (0.09) -- (0.12) (0.05) (0.12)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.38 $ 9.77 $ 10.10 $ 9.72 $ 9.41 $ 9.81 $ 10.12 $ 9.74
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN -0.77% 1.13% 8.01% -0.12% -1.72% 0.58% 7.13% 0.32%
Ratios of Average Net Assets (a)
Net investment income 3.39% 3.15% 3.51% 3.23% 2.64% 2.40% 2.55% 2.64%
Total expenses (before waivers) 2.08% 1.66% 2.17% 2.48% 2.83% 2.41% 2.96% 3.20%
Waivers (b) 0.00% 0.00% 0.00% -0.01% 0.00% 0.00% 0.00% -0.02%
Net expenses 2.08% 1.66% 2.17% 2.47% 2.83% 2.41% 2.96% 3.18%
Net assets, end of period (000's) $ 5,281 $ 8,564 $ 2,722 $ 1,247 $ 968 $ 1,060 $ 442 $ 1,418
Turnover Ratio 2255% 711% 260% 299% 2255% 711% 260% 447%
</TABLE>
---------------------------
* Commencement of operations.
(a) Ratios are annualized for periods of less than one year, except for the
total return ratio.
(b) Expenses waived reflect reductions to total expenses and would, similarly,
decrease the net investment income ratio for the period had such reductions
not occurred.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAUZE FUNDS
FINANCIAL HIGHLIGHTS
====================================================================================================================================
For a capital share outstanding throughout each period indicated:
U.S. GOVERNMENT SHORT TERM BOND FUND
NO LOAD CLASS B
----------------------------------------- ----------------------------------------
Year Ended 4/30 9/3/96 * Year Ended 4/30 9/3/96*
----------------------------- to ----------------------------- to
2000 1999 1998 04/30/97 2000 1999 # 1998 # 04/30/97
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.09 $ 10.06 $ 9.98 $ 10.00 $ 9.91 $ 10.00 $ 9.96 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.25 0.29 0.29 0.14 0.16 0.14 0.13 0.13
Net realized and unrealized gain (loss)
on investments (0.30) 0.19 0.08 (0.01) (0.30) 0.07 0.07 (0.03)
Dividends from net investment income (0.25) (0.33) (0.29) (0.14) (0.16) (0.18) (0.13) (0.13)
Distributions from capital gains -- (0.12) -- (0.01) -- (0.12) -- (0.01)
Liquidations from Capital -- -- -- -- -- -- (10.03) --
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 10.09 $ 10.06 $ 9.98 $ 9.61 $ 9.91 $ 0.00 $ 9.96
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN -0.52% 4.79% 3.76% 1.25% -1.40% 2.11% 1.99% 1.05%
Ratios to Average Net Assets (a)
Net investment income 2.75% 3.15% 3.18% 2.58% 2.00% 2.40% 2.01% 1.96%
Total expenses (before waivers) 2.80% 1.73% 2.60% 5.18% 3.55% 2.48% 3.56% 6.01%
Waivers (b) 0.00% 0.00% -0.18% -2.15% 0.00% 0.00% 0.00% -2.16%
Net expenses 2.80% 1.73% 2.42% 3.03% 3.55% 2.48% 3.56% 3.85%
Net assets, end of period (000's) $ 1,915 $ 2,008 $ 1,868 $ 236 $ 104 $ 106 -- $ 177
Turnover Ratio 1265% 258% 47% 352% 1265% 258% 47% 396%
U.S. GOVERNMENT SHORT TERM BOND FUND
CLASS C
-----------------------------------------
Year Ended 4/30 11/7/96 *
----------------------------- to
2000 1999 1998 04/30/97
------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.98 $ 9.91 $ 10.00
------- ------- ------- -------
Income from investment operations:
Net investment income 0.16 0.22 0.22 0.09
Net realized and unrealized gain (loss)
on investments (0.27) 0.18 0.07 (0.10)
Dividends from net investment income (0.16) (0.26) (0.22) (0.08)
Distributions from capital gains -- (0.12) -- --
Liquidations from Capital -- -- -- --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 10.00 $ 9.98 $ 9.91
======= ======= ======= =======
TOTAL RETURN -1.14% 4.01% 2.93% -0.07%
Ratios to Average Net Assets (a)
Net investment income 2.00% 2.40% 2.22% 1.74%
Total expenses (before waivers) 3.55% 2.48% 3.49% 5.55%
Waivers (b) 0.00% 0.00% -0.23% -2.02%
Net expenses 3.55% 2.48% 3.26% 3.53%
Net assets, end of period (000's) $ 718 $ 39 $ 158 $ 302
Turnover Ratio 1265% 258% 47% 256%
</TABLE>
-------------------------------
* Commencement of operations.
# Class B discontinued operations from December 20, 1997 through September
16, 1998.
(a) Ratios are annualized for periods of less than one year, except for the
total return ratio.
(b) Expenses waived reflect reductions to total expenses and would, similarly,
decrease the net investment income ratio for the period had such reductions
not occurred.
See accompanying notes to financial statements.
<PAGE>
PAUZE FUNDS
Notes to Financial Statements April 30, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION
Pauze Funds (the "Trust") is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Trust was organized as a Massachusetts business trust on October 15, 1993. There
are presently three series within the Trust: the Pauze U.S. Government Total
Return Bond Fund (the "Total Return Fund"), which commenced operations on
January 10, 1994; the Pauze U.S. Government Intermediate Term Bond Fund (the
"Intermediate Term Fund"), which commenced operations on September 3, 1996; and
the Pauze U.S. Government Short Term Bond Fund (the "Short Term Fund"), which
commenced operations on September 3, 1996. The three series included in these
financial statements are collectively referred to herein as the "Funds" and
individually as a "Fund".
Each Fund seeks to provide investors with a high total return (investment income
plus or minus realized and unrealized capital appreciation and depreciation)
consistent with preservation of capital and liquidity.
Shares of each Fund are issued in classes. No load shares and Class C shares are
sold and redeemed at net asset value without sales commission or redemption
fees. Class B shares are sold at net asset value and are subject to a maximum
3.75% contingent deferred sales charge on redemptions made within seven years of
purchase.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
SECURITY VALUATION. Fund securities (except securities with less than 60 days to
maturity and repurchase agreements) are valued at market prices based on an
independent pricing service, or, in the event such service is not available, at
the mean between the most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Short-term investments with
maturities of 60 days or less at the time of purchase are valued on the
amortized cost basis. If the Advisor determines that amortized cost does not
reflect fair value of a security, the Board may select an alternative method of
valuing the security.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Investment transactions are
accounted for on the trade date. Realized gains and losses from security
transactions are determined on the identified cost basis. Interest income is
recorded on the basis of coupon interest accrued daily adjusted for amortization
of premiums and accretion of discount.
REPURCHASE AGREEMENTS. The Trust's policy is for the custodian to hold, as
collateral for the repurchase agreement, underlying securities with a value of
at least 102% of the repurchase price. In the event of default or bankruptcy by
the other party a Fund has a right to the collateral, which may be subject to
legal proceedings, for satisfaction of the obligation.
<PAGE>
PAUZE FUNDS
Notes to Financial Statements April 30, 2000
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORGANIZATIONAL COSTS. Organizational costs incurred by the Trust were
capitalized and are being amortized ratably over a five-year period from
commencement of operations of the Fund. If the initial shares of a Fund are
redeemed during the amortization period, the redemption proceeds will be reduced
by any unamortized organization expenses.
INCOME AND EXPENSES. Each Fund bears expenses incurred specifically on its
behalf plus an allocation of its share of Trust level expenses. Trust expenses
are allocated based on the relative net assets of each Fund or on another
reasonable basis. Class specific expenses are charged directly to such class. In
calculating net asset value per share of each class, investment income, realized
and unrealized gains and losses and expenses other than class specific expenses
are allocated to each class of shares based on the relative net assets of each
class.
FEDERAL INCOME TAXES. Each Fund intends to continue to qualify as regulated
investment companies under Subchapter M of the Internal Revenue Code and to
distribute all of its taxable income to its shareholders. Accordingly, no
federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on ex-dividend date. The Funds generally pay dividends
monthly and capital gain distributions, if any, at least annually. The Funds
distribute tax basis earnings in accordance with the distribution requirements
of the Internal Revenue Code, which may result in dividends or distributions in
excess of financial statement (book) earnings. Income dividends and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Capital loss carryforwards
may be utilized to offset future capital gains, if any.
3. INVESTMENT TRANSACTIONS
TOTAL RETURN FUND
For the year ended April 30, 2000, the cost of purchases and proceeds from
sales/maturities of investments, excluding short-term investments, were
$1,062,704,710 and $1,061,370,488, respectively. All purchases and sales were
U.S. Government and Agency Obligations. At April 30, 2000, there was no
unrealized appreciation (depreciation) of investments and the cost of
investments for federal income tax purposes was $60,503,141.
At April 30, 2000, the Fund had capital loss carryforwards for federal income
tax purposes of $6,640,535, which expire through the year 2008. Tax rules
require that losses of $3,781,773 realized after October 31, 1999 are deemed to
have occurred on May 1, 2000.
INTERMEDIATE TERM FUND
For the year ended April 30, 2000, the cost of purchases and proceeds from
sales/maturities of investments, excluding short-term investments, were
$129,392,854 and $126,083,607, respectively. All purchases and sales were U.S.
Government and Agency Obligations. At April 30, 2000, the gross and net
unrealized depreciation of investments for tax purposes was $87,091, and the
cost of investments for Federal income tax purposes was $6,311,851.
At April 30, 2000, the Fund had capital loss carryforwards for federal income
tax purposes of $466,186, which expire through the year 2008. Tax rules require
that losses of $84,581 realized after October 31, 1999 are deemed to have
occurred on May 1, 2000.
<PAGE>
PAUZE FUNDS
Notes to Financial Statements April 30, 2000
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS (CONTINUED)
SHORT TERM FUND
For the year ended April 30, 2000, the cost of purchases and proceeds from
sales/maturities of investments, excluding short-term investments, were
$21,656,232 and $20,327,180, respectively. All purchases and sales were U.S.
Government and Agency Obligations. At April 30, 2000, the gross and net
unrealized depreciation of investments for tax purposes was $25,322 and the cost
of investments for Federal income tax purposes was $2,757,060.
At April 30, 2000, the Fund had capital loss carryforwards for federal income
tax purposes of $12,010, which expire through the year 2008. Tax rules require
that losses of $28,399 realized after October 31, 1999 are deemed to have
occurred on May 1, 2000.
4. CAPITAL SHARE TRANSACTIONS
Each class of shares in each Fund has an unlimited number of no par value shares
authorized. The following is a summary of capital share activity for the period
indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 2000 APRIL 30, 1999
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
TOTAL RETURN FUND
-----------------
<S> <C> <C> <C> <C>
NO LOAD CLASS
Shares sold 979,738 $ 8,403,649 811,609 $ 7,643,904
Shares reinvested 173,062 1,455,327 154,843 1,414,273
Shares redeemed (444,034) (3,775,616) (2,617,422) (25,041,204)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) 708,766 $ 6,083,360 (1,650,970) $(15,983,027)
============ ============ ============ ============
CLASS B
Shares sold 396 $ 3,711 193,172 $ 2,032,042
Shares reinvested 3,535 32,603 5,584 56,373
Shares redeemed (2,017) (18,650) (88,776) (944,612)
------------ ------------ ------------ ------------
NET INCREASE 1,914 $ 17,664 109,980 $ 1,143,803
============ ============ ============ ============
CLASS C
Shares sold 96,708 $ 849,376 7,215 $ 70,761
Shares reinvested 979 8,517 236 2,251
Shares redeemed (2,281) (20,030) -- --
------------ ------------ ------------ ------------
NET INCREASE 95,406 $ 837,863 7,451 $ 73,012
============ ============ ============ ============
</TABLE>
<PAGE>
PAUZE FUNDS
Notes to Financial Statements April 30, 2000
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 2000 APRIL 30, 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
INTERMEDIATE TERM FUND
----------------------
<S> <C> <C> <C> <C>
NO LOAD CLASS
Shares sold 175,896 $ 1,676,523 642,136 $ 6,543,518
Shares reinvested 13,572 129,712 18,500 185,839
Shares redeemed (502,888) (4,871,802) (53,913) (543,229)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) (313,420) $(3,065,567) 606,723 $ 6,186,128
=========== =========== =========== ===========
CLASS B
Shares sold 831 $ 7,962 67,215 $ 693,855
Shares reinvested 2,333 22,433 3,505 35,341
Shares redeemed (8,335) (79,956) (6,342) (64,746)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) (5,171) $ (49,561) 64,378 $ 664,450
=========== =========== =========== ===========
SHORT TERM
----------
NO LOAD CLASS
Shares sold 64,974 $ 646,269 697,901 $ 7,114,217
Shares reinvested 3,790 37,602 7,493 75,779
Shares redeemed (72,059) (725,133) (692,061) (7,038,390)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) (3,295) $ (41,262) 13,333 $ 151,606
=========== =========== =========== ===========
CLASS B
Shares sold 64 $ 658 10,390 $ 103,896
Shares reinvested 149 1,456 316 3,144
Shares redeemed (64) (623) -- --
----------- ----------- ----------- -----------
NET INCREASE 149 $ 1,491 10,706 $ 107,040
=========== =========== =========== ===========
CLASS C
Shares sold 71,216 $ 701,650 -- $ --
Shares reinvested 580 5,692 286 2,863
Shares redeemed (1,910) (19,015) (12,223) (123,412)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) 69,886 $ 688,327 (11,937) $ (120,549)
=========== =========== =========== ===========
</TABLE>
5. TRANSACTIONS WITH THE ADVISOR AND AFFILIATES
Pauze, Swanson & Associates Investment Advisors, Inc. d/b/a Pauze Swanson
Capital Management Co. (the "Advisor"), under an Advisory Agreement with the
Trust in effect through October 31, 2000, furnishes management and investment
advisory services and, subject to the supervision of the Trust's Board of
Trustees, directs the investments of the Trust in accordance with the individual
Fund's investment objectives, policies and limitations.
<PAGE>
PAUZE FUNDS
Notes to Financial Statements April 30, 2000
--------------------------------------------------------------------------------
5. TRANSACTIONS WITH THE ADVISOR AND AFFILIATES (CONTINUED)
Total Return Fund pays a monthly management fee at the annual rate of 0.60% of
the average daily net assets 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 and Short Term Fund each pay a monthly
management fee at the annual rate of 0.50% of the average daily net assets.
Effective July 1, 1999, Champion Fund Services ("Champion"), an affiliate of the
Advisor, became the Administrator, Fund Accounting Agent and Transfer Agent for
the Trust under two year contracts. The annual fees for the contracts of
$145,000, $125,000 and $90,000 (plus a maximum of $21 per shareholder account),
respectively, and standard out-of-pocket expenses, are paid monthly and
allocated to the Funds in the Trust based on each Fund's relative net assets.
The Administrator is responsible for financial reporting, compliance monitoring
and corporate management. The Fund Accounting Agent determines the net asset
value per share of each Fund and provides accounting services to the Trust. The
Transfer Agent provides shareholder services and is the dividend paying agent of
the Trust. The fees to Champion for the year ended April 30, 2000 were:
Total Return Intermediate Term Short Term
------------ ----------------- ----------
Administrative fees $ 103,984 $ 12,871 $ 2,785
Accounting service fees 89,513 11,096 2,401
Transfer agency fees 64,920 8,272 1,932
Such services were provided by another service company in May and June and the
Funds' combined fees for that period were $64,468.
B. C. Ziegler and Company ("Distributor"), a broker-dealer for which trustees
and officers of the Trust act as registered representatives, became the Trust
agent in connection with the distribution of Fund shares effective July 1, 1999.
For the services provided, the Distributor receives an annual fee of $30,000
from the Trust. The Funds' share of this expense for the year ended April 30,
2000 was $24,756. Such services were provided by another Distributor in May and
June for fees of $3,273.
Independent trustees each receive an annual fee of $11,000 from the Trust plus
$500 per meeting and out-of-pocket expenses. Certain employees of the Advisor
and Champion are trustees and officers of the Trust but receive no compensation
from the Trust.
The Trust has adopted a plan of distribution under Rule 12b-1 of the Investment
Company Act of 1940 for each Fund, with separate provisions for each class of
shares. The Advisor, for its distribution related services and expenses,
receives a 12b-1 fee at an annual rate of 0.25% of each Fund's average net
assets. Additionally, the Advisor receives a 12b-1 annual fee of 0.75% of the
average net assets of Class B shares as compensation for fees the Advisor paid
to broker-dealers. Class C shares pay an annual 12b-1 fee of 0.75% of their
average net assets directly to broker-dealers. All fees are paid monthly. Under
the plans, the Advisor bears all distribution expenses of the Funds in excess of
the 12b-1 fees, however, the fees received by the Advisor for any class of
shares during any year may be more or less than its distribution related costs.
