<PAGE>
As filed with the Securities and Exchange Commission on January 8, 2001
Securities Act registration no. 333-
Investment Company Act file no. 811-10261
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
________________________________________________________________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.
________________________________________________________________________________
PEARL MUTUAL FUNDS
(Registrant)
on behalf of its series:
Pearl Total Return Fund
Pearl Aggressive Growth Fund
2610 Park Avenue
P.O. Box 209
Muscatine, Iowa 52761
Telephone number 319/264-8000
________________________________________________________________________________
Janet R. Van Alsburg Stacy H. Winick
2610 Park Avenue Bell, Boyd & Lloyd LLC
P.O. Box 209 70 West Madison Street, #3300
Muscatine, Iowa 52761 Chicago, Illinois 60602
(Agents for service)
________________________________________________________________________________
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement
________________________________________________________________________________
<PAGE>
Pearl Mutual Funds
Pearl Total Return Fund
Pearl Aggressive Growth Fund
Pearl Total Return Fund
Fund Objective - Pearl Total Return Fund seeks long-term total return.
Investment Strategy - Pearl Total Return Fund is a fund of funds that invests in
shares of other investment companies, including mutual funds and closed-end
funds ("portfolio funds"). The Fund:
. invests primarily (80% or more) in portfolio funds that invest
mostly in equity securities or whose objective is growth or
capital appreciation, except when in Management's judgment a lower
percentage is justified by high risks affecting stock markets;
. also invests in money market, bond, and other fixed-income
portfolio funds; and
. often takes defensive positions intended to help preserve capital.
Pearl Aggressive Growth Fund
Fund Objective - Pearl Aggressive Growth Fund seeks long-term aggressive growth
of capital.
Investment Strategy - Pearl Aggressive Growth Fund is a fund of funds that
invests in shares of other investment companies, including mutual funds and
closed-end funds. The Fund:
. stays fully invested (95% or more) in portfolio funds that invest
mostly in equity securities or whose objective is growth or
capital appreciation;
. invests in money market funds only to meet cash flow needs; and
. almost never takes a defensive position.
Each Fund expects that nearly all of its investments in mutual funds (open-end
funds) will be made without paying any sales load, but each Fund has the ability
to pay a sales load of not more than 2% in connection with an investment in an
open-end fund. Each Fund may also pay a commission of not more than 2% to invest
in a closed-end fund (although neither Fund has yet invested in closed-end
funds).
Each Fund's investment adviser and manager is Pearl Management Company (referred
to in this prospectus as "Management" or the "Manager").
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
____________, 2001
<PAGE>
TABLE OF CONTENTS
Page
----
At a Glance................................................................ 1
Investment Objectives............................................. 1
Investment Strategy............................................... 1
Principal Investment Risks........................................ 2
Performance....................................................... 3
Fees and Expenses................................................. 4
How the Funds Invest....................................................... 5
Investment Objective and Strategies............................... 5
Portfolio Funds and Other Investments in which the Funds Invest... 7
Principal Investment Risks........................................ 8
Managing Risks.................................................... 9
Management of the Funds.................................................... 10
The Investment Manager............................................ 10
Portfolio Transactions............................................ 11
How to Buy and Sell Fund Shares............................................ 12
How to Buy Shares................................................. 12
How to Sell Shares................................................ 12
Net Asset Value............................................................ 14
Dividends, Capital Gains, and Taxes........................................ 15
Financial Highlights....................................................... 17
ii
<PAGE>
At a Glance
Investment Objectives
Pearl Total Return Fund seeks long-term total return.
Pearl Aggressive Growth Fund seeks long-term aggressive growth of capital.
There is no assurance that a Fund will achieve its investment objective.
Investment Strategy
Each Fund is a fund of funds that invests in shares of other registered
investment companies, including mutual funds and closed-end funds. The
investment companies in which the Funds may invest are referred to as "portfolio
funds" throughout this prospectus. Pearl Total Return Fund is referred to as
"Total Return Fund" and Pearl Aggressive Growth Fund is referred to as
"Aggressive Growth Fund." Each Fund may invest up to 25% of its total assets in
any one portfolio fund.
Total Return Fund seeks to achieve its objective by investing most of its net
assets (80% or more) in equity portfolio funds that invest mostly in common
stocks and other equity securities or whose objective is growth or capital
appreciation. However, Total Return Fund may invest less than 80% of its net
assets in equity portfolio funds when Management believes there are high risks
affecting stock markets. Because Total Return Fund seeks to limit risk and
preserve capital, it often takes a partial defensive position. Under those
circumstances, Management will invest part of the Fund's net assets (often up to
20%) in money market, bond, and other fixed-income portfolio funds. The Fund may
take a larger defensive position (up to 100% of net assets) when Management
believes there are high risks affecting stock markets. When the Fund takes a
temporary defensive position, the Fund might not be able to meet its investment
objective. Management determines the Fund's allocation among the various types
of authorized investments.
Aggressive Growth Fund seeks to achieve its objective by being fully invested
(meaning 95% or more of the Fund's net assets) in equity portfolio funds that
invest mostly in common stocks and other equity securities or whose objective is
growth or capital appreciation. The Fund invests in money market funds only to
meet its cash flow needs. Aggressive Growth Fund almost never takes a defensive
position, although it has the ability to do so if Management determines that
extreme circumstances exist. Management intends that any defensive position
would be rare and temporary. The Fund might not be able to meet its investment
objective during any period in which it takes a temporary defensive position.
Management determines the Fund's allocation among the various types of
authorized investments.
Each Fund invests only in:
. mutual fund shares that the Fund can buy no-load (with no applicable
sales charge or redemption fee);
. "low-load" mutual fund shares that the Fund can buy with a sales
charge or redemption fee that together do not exceed 2% of the
purchase price (however, each Fund expects that substantially all of
its investments in mutual funds will be on a no-load basis);
<PAGE>
. closed-end fund shares with a sales commission or sales load that does
not exceed 2% of the purchase price (although neither Fund has yet
invested in closed-end funds); and
. cash and cash equivalents.
Each Fund also is authorized to invest in U.S. government securities and
short-term, interest-bearing securities. However, neither Fund has yet done so
and neither Fund has any present intention to do so. Each Fund is a fund of
funds, investing only in various kinds of portfolio funds (including money
market funds) except for cash and cash equivalents.
Principal Investment Risks
All investments involve risk. Even though the Funds invest in many portfolio
funds, that investment strategy cannot eliminate investment risk.
Securities Markets In General - As with any investment whose performance is tied
to the securities markets, the value of your investment in a Fund will
fluctuate, which means that you could lose money.
Stock Markets - The same factors that affect stock market performance generally
affect portfolio stock funds. Political and economic news can influence
marketwide trends; the outcome may be positive or negative, short-term or
long-term. Any type of stock can temporarily fall out of favor with the market.
The values of certain types of stocks, such as small-cap stocks and
international stocks, may fluctuate more widely than others. Because Aggressive
Growth Fund stays fully invested and almost never takes a defensive position,
the impact of stock market changes on Aggressive Growth Fund is expected to be
even greater than the impact on Total Return Fund.
Bond Markets - Bond prices generally fall when interest rates rise. Portfolio
bond funds that focus on bonds with longer maturities tend to be more sensitive
to this risk. Portfolio performance also could be affected if bonds held by
portfolio funds go into default. Some bonds may be paid off ("called")
substantially earlier or later than expected, forcing a portfolio fund to
reinvest at what may be an undesirable time. The Funds (particularly Total
Return Fund) will be affected by these risks to the extent of their investments
in portfolio funds investing in bonds. Aggressive Growth Fund does not invest in
bond funds, but the equity portfolio funds in which it invests may hold some
bonds.
Characteristics of Portfolio Funds - the Funds may invest in portfolio funds
that have any or all of these characteristics:
. A portfolio fund may be non-diversified, meaning that the portfolio
fund may take larger positions in its stocks than can diversified
funds. The performance of each of these larger holdings may have a
greater impact on a portfolio fund's performance, resulting in greater
volatility.
. A portfolio fund may concentrate its investments within one industry
or market sector. The share value of that portfolio fund may be
subject to greater market fluctuations than an investment in a fund
that invests in a broader range of securities.
. A portfolio fund may invest in foreign securities. These investments
may be subject to additional risks not typically associated with U.S.
securities, such as changes in currency rates and political
developments. These risks are greater for securities issued by
companies in emerging markets countries.
2
<PAGE>
. A portfolio fund may invest in high yield, high risk "junk bonds".
These investments may be subject to additional risks such as increased
possibility of default, illiquidity of the security, and changes in
value based on public perception of the issuer. Aggressive Growth Fund
does not invest in bond funds, but the equity portfolio funds in which
it invests may hold some bonds.
Portfolio Management of Portfolio Funds - Management has no control over the
managers or investment decisions of the portfolio funds. However, decisions made
by the portfolio funds' managers will have a significant effect on a Fund's
performance.
Performance
This chart and table illustrate Total Return Fund's annual total returns for
each of the past 10 years and a comparison of returns of Total Return Fund, the
All Equity Funds Average (Lipper), the All Long-Term Taxable Funds Average
(Lipper), the MSCI World Index, the Value Line (Geometric) Index, and the
Wilshire 5000 Index for the 1-, 5-, and 10-year periods ended December 31, 1999.
This information helps you assess the variability of the Fund's returns over the
past 10 years and the potential risks.
No performance information is presented for Aggressive Growth Fund because it
has not been in operation prior to the date of this prospectus.
Total Return Fund's Total Return for Years ended 12/31/99*
[GRAPH]
1990 -3.98%
1991 24.72%
1992 7.80%
1993 13.27%
1994 -3.19%
1995 21.13%
1996 14.19%
1997 14.75%
1998 4.60%
1999 26.99%
During the period shown in the bar chart, the highest return for a quarter was
16.51% during the quarter ended 12/31/99 and the lowest return for a quarter was
-12.50% during the quarter ended 9/30/98.
The Fund's past performance is not an indication of future performance.
3
<PAGE>
Average Annual Total Returns for Years ended 12/31/99*
1 Year 5 Years 10 Years
------ ------- --------
Total Return Fund 26.99% 16.09% 11.55%
All Equity Funds Average (Lipper) 33.44% 20.74% 14.36%
All Long-Term Taxable Funds Average 23.33% 16.54% 12.14%
(Lipper)
MSCI World Index 24.93% 19.76% 11.42%
Value Line (Geometric) Index -1.40% 9.21% 5.23%
Wilshire 5000 Index 23.56% 27.06% 17.58%
* From July 1, 1972 through the date of this prospectus, the Fund's shares
were not registered under the Securities Act of 1933 and sales of Fund
shares were made only on a private basis. The Fund began offering its
shares to the public pursuant to an effective registration statement on the
date of this prospectus. The MSCI World Index is an unmanaged index that is
market-capitalization weighted and is generally representative of the
performance of the global (including U.S. and international) market for
common stocks. The Value Line (Geometric) Index is an unmanaged index that
equally weights all publicly-traded U.S. common stocks and is generally
representative of the performance of the average U.S. common stock. The
Wilshire 5000 index is an unmanaged index that is market-capitalization
weighted and includes all publicly-traded U.S. common stocks, and is
generally representative of the performance of the average dollar invested
in U.S. common stocks. Pearl Total Return Fund's holdings are not identical
to the All Equity Funds Average (Lipper), the All Long-Term Taxable Funds
Average (Lipper), the MSCI World Index, the Value Line (Geometric) Index,
the Wilshire 5000 Index, or any other market index. Therefore, the
performance of the Fund will not mirror the returns of any particular
index. All returns reflect reinvested dividends except those of Value Line
(Geometric) Index.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
Shareholder Transaction Expenses
Fees paid directly from your investment:
Maximum sales charge (load) imposed on purchases* None
Maximum deferred sales charge (load)* None
Redemption fee * None
Exchange fee None
* The Funds do not directly impose any sales load or redemption fee, which
means you pay no sales charges. You also pay no 12b-1 fees. Some of the
portfolio funds in which the Funds invest may impose those charges.
4
<PAGE>
Annual Fund Operating Expenses
Expenses that are deducted from Fund assets:
<TABLE>
<CAPTION>
Pearl Pearl
Total Return Fund Aggressive Growth Fund
<S> <C> <C>
Management fees .63% .65%
Administrative fees .20% .21%
Distribution (12b-1) fees* None None
Other expenses** .13% .13%
---- ----
Total annual fund operating expenses .96% .99%
Expense reimbursement*** .02% .03%
---- ----
Net expenses .94% .96%
</TABLE>
* Although the Funds do not directly impose any 12b-1 fee, some of the
portfolio funds in which the Funds invest may impose 12b-1 fees.
** For Aggressive Growth Fund, "Other expenses" is estimated based on expenses
the Fund expects to incur during its initial partial fiscal year ending
12/31/01. The Funds pay Management fees at the same rates. The difference
in the rate of Management fee shown in the table is because of different
assumptions about the amount of assets of each Fund.
*** Pearl Management Company, the Funds' Manager, has contractually undertaken
to reimburse each Fund for all ordinary operating expenses (including
management and administrative fees) exceeding the following expense ratios:
0.96% of a Fund's average net assets up to $30 million; 0.90% in excess of
$30 million up to $100 million; and 0.78% in excess of $100 million. When
the Manager has reimbursed a Fund for expenses in excess of these limits,
the Manager may recover the reimbursed amounts in any later year(s), to the
extent this can be done without exceeding the expense limits. After
reimbursement, "Management and administrative fees" will be .83% and .86%,
and "Other expenses" will be .11% and .10% for Total Return Fund and
Aggressive Growth Fund, respectively. A reimbursement lowers the expense
ratio and increases overall return to investors.
Example
This example is intended to help you compare the cost of investing in the Funds
with the costs of investing in other mutual funds. It assumes a $10,000
investment in a Fund for each of these time periods, that you redeem your shares
at the end of the periods, a 5% return (before expenses) each year, reinvestment
of dividends and distributions, and that operating expenses remain constant at
the level shown above, without reimbursement of expenses by the Manager./1/ Your
actual costs may be higher or lower.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total Return Fund $ 97 $ 304 $ 528 $ 1,172
Aggressive Growth Fund $ 100 $ 314 - -
/1/ Giving effect to the Manager's agreement to limit the Fund's expenses, the
estimated cost of investing in the Funds would be:
---------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
---------------------------------------------------------------------------
Total Return Fund $ 96 $ 300 $ 520 $ 1,155
---------------------------------------------------------------------------
Aggressive Growth Fund $ 98 $ 306 - -
---------------------------------------------------------------------------
How the Funds Invest
Investment Objective and Strategies
Each Fund is a fund of funds that seeks to achieve its investment objective by
investing in shares of portfolio funds. Each Fund may invest up to 25% of its
total assets in any one portfolio fund.
5
<PAGE>
Each Fund's investments are limited to:
. shares of mutual funds (open-end funds) that the Fund can buy no-load
(with no applicable sales charge or redemption fee);
. shares of "low-load" mutual funds (open-end funds) that the Fund can
buy with a sales load or redemption fee that together do not exceed 2%
of the purchase price (however, each Fund expects that substantially
all of its investments in mutual funds will be on a no-load basis);
. closed-end fund shares with a sales commission or sales load that does
not exceed 2% of the purchase price (although neither Fund has yet
invested in closed-end funds); and
. cash and cash equivalents.
Each Fund also is authorized to invest in U.S. government securities and
short-term, interest-bearing securities. However, neither Fund has yet done so
and neither Fund has any present intention to do so. Each Fund is a fund of
funds, investing in various kinds of portfolio funds (including money market
funds) except for cash and cash equivalents.
Each Fund has its own investment objective and strategies designed to meet
different investment goals. Each Fund's investment objective is fundamental,
meaning that it cannot be changed without shareholder approval.
Total Return Fund
The investment objective of Total Return Fund is long-term total return.
Total Return Fund seeks to achieve its objective by investing most of its net
assets (80% or more) in equity portfolio funds that invest mostly in common
stocks and other equity securities or whose objective is growth or capital
appreciation. However, Total Return Fund may invest less than 80% of its net
assets in equity portfolio funds when Management believes there are high risks
affecting stock markets. Because Total Return Fund seeks to limit risks and
preserve capital, it often takes a partial defensive position. Under those
circumstances, Management will invest part of the Fund's net assets (often up to
20%) in money market, bond, and other fixed income portfolio funds. The Fund may
take a larger defensive position (up to 100% of net assets) when Management
believes there are high risks affecting stock markets. When the Fund takes a
temporary defensive position, the Fund might not be able to meet its investment
objective. Management determines the Fund's allocation among the various types
of authorized investments.
Under normal market conditions, Total Return Fund holds equity portfolio funds
with value, growth, or blend investment styles. There is no limit on the
investment styles of the portfolio funds in which Total Return Fund invests. The
allocation among portfolio funds using those investment styles may vary greatly
depending upon Management's assessment of the stock markets. In addition, the
Fund may hold greater or lesser positions in portfolio bond, income, and money
market funds based on Management's overall assessment of market conditions and
movements.
As of November 9, 2000, Total Return Fund's investment portfolio included 12
portfolio funds.
6
<PAGE>
Total Return Fund measures its performance primarily against the All Equity
Funds Average (Lipper) and the All Long-Term Taxable Funds Average (Lipper) on a
long-term risk-adjusted total return basis. Total Return Fund also compares its
risk-adjusted total return with the MSCI World Index, Value Line (Geometric)
Index, and Wilshire 5000 Index. Risk-adjusted total return compares total return
and standard deviation (volatility). The Fund determines risk-adjusted total
return by using a conventional measure called the Sharpe ratio. The Sharpe ratio
is a ratio of the reward (total return in excess of the 90-day Treasury bill
return) to the volatility risk (standard deviation). A high Sharpe ratio is
desirable.
Sharpe Ratios for Years Ended 12/31/99:
--------------------------------------
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years
------ ------- -------
--------------------------------------------------------------------------------
Total Return Fund 1.77 0.74 1.06
--------------------------------------------------------------------------------
All Equity Funds Average (Lipper) 1.53 0.74 1.00
--------------------------------------------------------------------------------
All Long-Term Taxable Funds Average (Lipper) 1.38 0.77 1.09
--------------------------------------------------------------------------------
MSCI World Index 1.39 1.01 1.14
--------------------------------------------------------------------------------
Value Line (Geometric) Index -0.47 -0.02 0.31
--------------------------------------------------------------------------------
Wilshire 5000 Index 1.13 1.09 1.43
--------------------------------------------------------------------------------
All returns reflect reinvested dividends except those of Value Line (Geometric)
Index.
Aggressive Growth Fund
The investment objective of Aggressive Growth Fund is long-term aggressive
growth of capital. Aggressive Growth Fund seeks to achieve this objective by
being fully invested (meaning 95% or more) in equity portfolio funds that invest
mostly in common stocks and other equity securities or whose objective is growth
or capital appreciation. Aggressive Growth Fund invests in money market
portfolio funds only to meet its cash flow needs. Aggressive Growth Fund almost
never takes a defensive position, although it has the ability to do so if
Management determines that extreme circumstances exist. The Fund might not be
able to meet its investment objective during any period in which it takes a
temporary defensive position. Management intends that any defensive position
would be rare and temporary. Like Total Return Fund, Management determines the
Fund's allocation among the various types of authorized investments.
Under normal market conditions, Aggressive Growth Fund holds portfolio funds
with value, growth, or blend investment styles. There is no limit on the
investment styles of the portfolio funds in which Aggressive Growth Fund
invests. The allocation among portfolio funds using those investment styles may
vary greatly depending upon Management's assessment of the stock markets.
The Fund measures its performance primarily against the All Equity Funds Average
(Lipper) on a long-term total return basis (without adjusting for risk or
volatility). As secondary performance measures, the Fund uses the MSCI World
Index, Standard & Poor's 500 Index, Value Line (Geometric) Index, and Wilshire
5000 Index.
Portfolio Funds and Other Investments in which the Funds Invest
In selecting categories of portfolio funds for each Fund, the portfolio managers
consider many factors, such as (i) perceived opportunities and risks in the U.S.
and world stock markets; (ii) monetary, investor sentiment, momentum,
fundamental, business cycle, and market cycle conditions; and (iii) recent
performance and momentum of various categories of portfolio funds.
7
<PAGE>
In selecting specific portfolio funds for each Fund, the portfolio managers
consider many factors (in addition to those summarized in the preceding
paragraph), such as (i) management experience and continuity; (ii) performance
history, momentum, volatility, and comparative return and risk data; (iii) asset
size; (iv) expense ratio; (v) investment style (such as value, growth, or
blend); (vi) market capitalization and diversification of portfolio; and (vii)
whether a Fund can invest in the portfolio fund on a no-load or low-load basis.
The weight given to each of the above factors may vary greatly from time to time
depending upon Management's analysis and judgment. In comparison to Total Return
Fund, Aggressive Growth Fund (i) expects to seek a higher total return and to
have a higher degree of risk and volatility in its portfolio; (ii) is likely to
invest a greater portion of its assets in portfolio funds with an
aggressive-growth style; and (iii) is likely to give more weight to recent
performance and momentum of specific portfolio funds and various categories of
portfolio funds. Aggressive Growth Fund believes that this higher degree of risk
provides the opportunity for greater growth of capital, although there is no
guarantee of the success of this kind of investing. Total Return Fund (i)
expects to have less volatility in its portfolio than Aggressive Growth Fund,
(ii) is likely to invest in less aggressive equity funds (or invest a smaller
part of its assets in aggressive growth funds) and (iii) is likely to give less
weight to recent short-term performance and momentum in selecting investments.
Principal Investment Risks
When you invest in a mutual fund, you are exposed to certain risks. These
include the risk that you may receive little or no return on your investment.
Investments that provide higher potential reward also have greater risk.
Likewise, investments with lower potential reward have lower risk. Before
investing in one of the Funds, you should carefully consider the risks
associated with that particular Fund. You should consider an investment in a
Fund a long-term investment.
Securities Markets In General - As with any investment whose performance is tied
to these markets, the value of your investment in a Fund will fluctuate, which
means that you could lose money.
Stock Markets - The same factors that affect stock market performance generally
affect portfolio stock funds. Political and economic news can influence
marketwide trends; the outcome may be positive or negative, short term or long
term. Any type of stock can temporarily fall out of favor with the market. The
values of certain types of stocks, such as small-cap stocks and international
stocks, may fluctuate more widely than others. Because Aggressive Growth Fund
stays fully invested and almost never takes a defensive position, the impact of
stock market changes on Aggressive Growth Fund is expected to be even greater
than the impact on Total Return Fund.
Bond Markets -Bond prices generally fall when interest rates rise. Portfolio
bond funds that focus on bonds with longer maturities tend to be more sensitive
to this risk. Portfolio performance also could be affected if bonds held by
portfolio funds go into default. Some bonds may be paid off ("called")
substantially earlier or later than expected, forcing a portfolio fund to
reinvest at what may be an undesirable time. The Funds (particularly Total
Return Fund) will be affected by these risks to the extent of their investments
in portfolio funds investing in bonds. Aggressive Growth Fund does not invest in
bond funds, but the equity portfolio funds in which it invests may hold some
bonds.
8
<PAGE>
Characteristics of Portfolio Funds - the Funds may invest in portfolio funds
that have any or all of these characteristics:
. A portfolio fund may be non-diversified, meaning that the
portfolio fund may take larger positions in its stocks than
can diversified funds. The performance of each of these larger
holdings may have a greater impact on a portfolio fund's
performance, resulting in greater volatility.
. A portfolio fund may concentrate its investments within one
industry or market sector. The share value of that portfolio
fund may be subject to greater market fluctuations than an
investment in a fund that invests in a broader range of
securities.
. A portfolio fund may invest in foreign securities. These
investments may be subject to additional risks not typically
associated with U.S. securities, such as changes in currency
rates and political developments. These risks are greater for
securities issued by companies in emerging market countries.
. A portfolio fund may invest in high-yield, high-risk "junk
bonds". These investments may be subject to additional risks
such as increased possibility of default, illiquidity of the
security, and changes in value based on public perception of
the issuer. Aggressive Growth Fund does not invest in bond
funds, but the equity portfolio funds in which it invests may
hold some bonds.
Portfolio Management of Portfolio Funds - Management has no control over the
managers or investment decisions of the portfolio funds. However, decisions made
by the portfolio funds' managers will have a substantial effect on the Funds'
performance. In addition, investment decisions by the managers of the portfolio
funds are made independently of the Funds. At any time, one portfolio fund may
be purchasing shares of a company whose shares are being sold by another
portfolio fund. As a result, the Funds could incur indirectly certain
transaction costs without accomplishing any investment purpose.
Direct Investment in Portfolio Funds - You could invest directly in most
portfolio funds. By investing in portfolio funds indirectly through the Funds,
you bear not only your proportionate share of the expenses of the Funds but
also, indirectly, similar expenses (including operating costs and investment
management fees) of the portfolio funds. You may indirectly bear expenses paid
by portfolio funds related to the distribution of those funds' shares. As a
result of the Funds' policies of investing in portfolio funds, you may receive
taxable capital gains distributions to a greater extent than would be the case
if you invested directly in the portfolio funds. See "Dividends, Capital Gains,
and Taxes."
Managing Risks
--------------
Management uses various techniques and practices to seek to reduce the Fund's
exposure to risk.
Investment Limitations
Each Fund has adopted this investment limitation that cannot be changed without
shareholder approval and is designed to limit risk:
. No Fund may invest more than 25% of its total assets in any
one portfolio fund. This restriction does not apply when a
Fund reinvests distributions from a portfolio fund in shares
of that portfolio fund.
9
<PAGE>
In addition, in accordance with Section 12(d)(1)(F)(i) of the Investment Company
Act of 1940, a Fund (and all of its affiliated persons, including Pearl
Management Company) will not acquire more than 3% of the total outstanding stock
of any portfolio fund, unless otherwise permitted to do so pursuant to
permission granted by the SEC.
Defensive Investment Strategies
The Funds' portfolio managers may use these strategies if they believe a
defensive position is advisable:
. Total Return Fund may invest up to 100% of its net assets in
portfolio funds selected primarily for defensive purposes,
such as money market, bond, and other fixed-income funds.
However, these defensive investments will not exceed 20% of
Total Return Fund's net assets unless in Management's judgment
a higher percentage is justified by high risks affecting stock
markets.
. Aggressive Growth Fund almost never takes a defensive
position, although it has the ability to do so if Management
determines that extreme circumstances exist. Management
intends that any defensive position would be rare and
temporary. In that highly unusual situation, Aggressive Growth
Fund may invest up to 100% of its total assets in portfolio
funds selected primarily for defensive purposes, such as money
market, bond, and other fixed-income funds.
Management of the Funds
The Investment Manager
----------------------
On __________, 2001, Mutual Selection Fund, an Iowa corporation, was reorganized
into a new series of Pearl Mutual Funds (the "Trust"). The new series was
designated Pearl Total Return Fund, as described in this prospectus. The Funds
are managed by Pearl Management Company (previously Mutual Selection Management
Company) (referred to as "Management" or "Manager" throughout this prospectus),
2610 Park Avenue, Muscatine, Iowa 52761. The Manager chooses the portfolio funds
in which the Funds invest and handles the Fund's business affairs under the
direction of the Trust's Board of Trustees.
Throughout this prospectus, "Pearl Total Return Fund" or "Total Return Fund"
refers to Pearl Total Return Fund, as a series of the Trust, and to its
predecessor corporation.
The Manager's Investment Committee, including the four Executive Officers named
below, manages each Fund's portfolio. Committee members share day-to-day
responsibility for portfolio management.
Portfolio Managers and Executive Officers
David M. Stanley is Chairman, President, and a Trustee of Pearl Mutual Funds. He
held similar positions with the Trust's predecessor since 1972. Mr. Stanley also
is Chairman, President, and a Director of the Manager. Through 1995, Mr. Stanley
was Chairman and a Director of Stanley, Lande & Hunter (and its predecessor), a
professional corporation of attorneys. He received a BA and a JD from the
University of Iowa.
Kevin J. Burns is Vice President and Research Director of the Trust. He held
similar positions with the Trust's predecessor since January 1998 and January
1996, respectively. Mr. Burns also is Vice President and Research Director of
the Manager. Prior to 1996, he was engaged in fund raising and investment
management for Operation Mobilization, a Christian charitable organization. His
degrees include an MA
10
<PAGE>
in Finance and Investment from the University of Exeter, Exeter, England. He is
a Chartered Mutual Fund Counselor.
Janet R. Van Alsburg is Vice President, Secretary, and Treasurer of Pearl Mutual
Funds. She held similar positions with the Trust's predecessor since 1998. Mrs.
Van Alsburg also is Vice President, Secretary, and Treasurer of the Manager.
Prior thereto, she was employed by the Manager in various capacities since 1995.
She received a BA in General Business Administration from Michigan State
University.
Jean M. Pantel is Assistant Secretary and Assistant Treasurer of Pearl Mutual
Funds. She held similar positions with the Trust's predecessor since March 2000.
Ms. Pantel also is Assistant Secretary and Assistant Treasurer of the Manager.
Prior thereto, she was employed by the Manager in various capacities since 1996.
She received a BA in Accounting from Northeast Missouri State College.
Management Fees
For investment management and administrative services provided to each Fund, the
Manager receives fees, accrued daily and payable monthly based on net assets as
of the beginning of the month, at these annual rates:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Investment Administrative Total Fees
Net Assets Management Services (Annual Rate)
----------
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First $30 million 0.65% 0.21% 0.86%
----------------------------------------------------------------------------------------------------------------------
In excess of $30 million to $100 million 0.58% 0.19% 0.77%
----------------------------------------------------------------------------------------------------------------------
In excess of $100 million 0.40% 0.13% 0.53%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Manager has contractually agreed to reimburse each Fund for all ordinary
operating expenses (including management and administrative fees) exceeding the
following expense ratios: 0.96% of a Fund's average net assets up to $30
million; 0.90% in excess of $30 million up to $100 million; and 0.78% in excess
of $100 million. When the Manager has reimbursed a Fund for expenses in excess
of these limits, the Manager may recover the reimbursed amounts in any later
year(s), to the extent this can be done without exceeding the expense limits.
For the fiscal year ended December 31, 1999, the Manager earned $398,575 for
services provided to Total Return Fund.
Portfolio Transactions
----------------------
Management places orders for the purchase and sale of portfolio securities for a
Fund's account directly with the investment companies in which the Funds invest
or with broker-dealers, selected by Management.
Each Fund is actively managed and has no restrictions on portfolio turnover.
Each Fund's rate of portfolio turnover may be greater than that of other mutual
funds. A 100% annual portfolio turnover rate would be achieved if each security
in a Fund's portfolio were replaced once during the year. There is no limit on,
and Management cannot control, the portfolio turnover rate of portfolio funds.
Aggressive Growth Fund is likely to have a higher portfolio turnover rate than
Total Return Fund.
11
<PAGE>
How to Buy and Sell Fund Shares
How to Buy Shares
-----------------
Shares of each Fund are sold without a sales charge at the next price calculated
after receipt of an order in proper form by the Fund. The price is equal to the
net asset value (NAV) per share. Your initial investment in a Fund ordinarily
must be at least $1,000. However, each Fund reserves the right, in its sole
discretion, to waive the minimum initial investment amount for certain
investors. There is no investment minimum for subsequent investments.
How to Open an Account
A new investor must be a U.S. resident with a social security or tax
identification number. You can open a new account and make an initial investment
in a Fund by sending a check and a completed account application form to the
Fund (or to Pearl Mutual Funds), 2610 Park Avenue, PO Box 209, Muscatine, Iowa
52761. Checks should be made payable to the Fund in which you are investing.
Third party checks ordinarily will not be accepted except for properly endorsed
IRA rollover checks.
How to Add to an Existing Account
You can add to an existing account by making a check payable to the Fund in
which you are investing. Write your account number on the check. Mail the check
to the address above.
General Policies for Buying Fund Shares
These policies apply any time you buy shares of a Fund:
. All purchases must be made in U.S. dollars, and checks must be
drawn on U.S. banks. The Funds ordinarily do not accept
third-party checks, except for properly endorsed IRA rollover
checks. The Funds do not accept cash, traveler's checks,
credit cards, or credit card checks.
. If payment for your check does not clear, the Fund will cancel
your purchase and you will be liable for any losses or fees
the Fund incurs.
. Each Fund reserves the right to reject any specific request to
buy shares. A Fund may refuse a purchase if Management
believes it could interfere with the Fund's operations or
administration or would not be in the best interests of the
Fund's shareholders. The Funds do not permit frequent
exchanges and have adopted policies to discourage this
practice. The Funds intend to encourage investment, rather
than trading, in the Funds' shares.
How to Sell Shares
------------------
How to Sell Shares
You may sell (redeem) your Fund shares back to the Fund on each day the Funds
are open for business. You may sell shares by mailing a letter of instruction to
the Fund (or to Pearl Mutual Funds), 2610 Park Avenue, PO Box 209, Muscatine,
Iowa 52761 or by faxing it to 319-264-3363. The letter of instruction must
include your name, signatures of all persons required to sign for transactions,
the Fund name and account number, and the dollar amount of shares or the number
of shares you want to sell.
12
<PAGE>
Exchange Privilege
Shares of the Funds may be exchanged for each other. You may request an exchange
by sending or faxing a letter of instruction to the address or number above. The
Funds do not permit frequent exchanges and have adopted policies to discourage
this practice. The Funds intend to encourage investment, rather than trading, in
the Funds' shares.
. Generally, you will be permitted to make up to two round-trip
exchanges during any 12-month period. A round trip is an
exchange out of one Fund into the other Fund, and then back
again.
. You may exchange between accounts that are registered in the
same name(s), address, and taxpayer identification number.
. Shares of the Fund you are exchanging into must be available
for sale in your state.
. If you are opening a new account by exchange, your exchange
must be at least $1,000.
. The Funds may temporarily or permanently terminate the
exchange plan privilege of any investor who in Management's
judgment makes excessive use of the plan. Excessive trading
can hurt Fund performance and shareholders.
. Each Fund may refuse exchange purchases by anyone if
Management believes the purchase would not be in the best
interests of the Fund's shareholders.
. Exchanges may result in tax consequences for you.
. The Funds may terminate or modify the exchange plan at any
time, but will try to give prior notice whenever reasonably
possible.
General Policies for Selling Fund Shares
These policies apply any time you sell shares of a Fund:
. Normally, the Fund will mail your share proceeds within seven
days after receiving your request to sell.
. Checks are made payable to the shareholder(s) of record,
unless otherwise requested in writing with all registered
account owners' signatures guaranteed.
. If you recently bought your shares, the proceeds of your sale
may be held until your funds for the purchase have been
received (which may take up to 15 days).
. The Fund may suspend accepting sales of shares or postpone
payment dates on days when the New York Stock Exchange (the
"NYSE") is closed, when trading on the NYSE is restricted, or
as permitted by the SEC.
. If a check representing sale proceeds or a dividend or capital
gains distribution is returned "undeliverable" or remains
uncashed for six months, the Fund may (but is not required to)
cancel the check and reinvest the proceeds in the Fund issuing
the check, at the NAV calculated on the date of cancellation.
. If the value of your account with a Fund falls below $1,000
because you sold shares, the Fund reserves the right to close
your account and send the proceeds to you. The Fund
13
<PAGE>
will process the sale of your shares at the NAV calculated on
the day your account is closed.
Signature Guarantees
In some cases, you will need to have the signature on your redemption request
guaranteed. A signature guarantee is designed to protect you and the Funds from
fraud. It is required in each of these situations:
. You request any change in your current account registration.
. You want to sell more than $50,000 in shares.
. You want the check mailed to an address other than the address
on your account registration.
. Your address of record was changed within the past 90 days.
. You want the check made payable to someone other than the
account owner(s).
. Your name has changed by marriage, divorce or otherwise.
Signature guarantees can be obtained from a commercial bank, broker-dealer,
credit union (if authorized under state law), or securities exchange or
association. A notary public cannot provide a signature guarantee.
Net Asset Value
The Funds are open for business each day the New York Stock Exchange ("NYSE") is
open. The offering price (the price to buy one share) and the redemption price
(the price to sell one share) are a Fund's NAV calculated at the next Closing
Time after the Fund receives your purchase or redemption order. Closing Time is
the time of the close of regular session trading on the NYSE, which is usually
3:00 p.m. Central time.
A Fund must receive both your purchase money and your application by Closing
Time for you to receive that day's price. Likewise, a Fund must receive your
request to sell shares by Closing Time for you to receive that day's price.
Each Fund's NAV is the value of a single share of the Fund. The NAV is computed
by adding the value of the Fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Shares of the portfolio funds are valued at their respective net asset values.
The portfolio funds generally value securities in their portfolios for which
market quotations are readily available at the current market values of those
securities (generally the last reported sale price) and all other securities and
assets at fair value pursuant to methods established in good faith by the board
of directors or trustees of the portfolio fund.
If market quotations of portfolio funds are not readily available, or a
quotation is determined not to represent a fair value, Management will use a
method that the Fund's Trustees believe accurately reflects a fair value.
14
<PAGE>
Each day, newspapers and other reporting services may publish the share prices
of mutual funds at the close of business on the previous day. When and if the
Funds' prices are reported in newspapers, the Funds' prices generally will be
reported one day behind most other mutual funds. This is because as noted above,
each Fund uses the NAV of its portfolio funds to calculate the Fund's NAV, and
this information is typically received and calculated after the publishing
deadlines of reporting services. As described above, each Fund still calculates
its share price (NAV) daily, and this is the price at which you may buy and sell
shares each day.
Dividends, Capital Gains, and Taxes
Total Return Fund, like its predecessor, and Aggressive Growth Fund both intend
to qualify as regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"). In any year in which a Fund qualifies as a
regulated investment company, the Fund will not be subject to federal income tax
provided it distributes income and capital gains in the manner required by the
Code.
Income other than net capital gains received by a Fund from its portfolio funds
(including dividends and distributions of short-term capital gains) will be
distributed by the Fund (after deductions for expenses) and will be taxable to
you as ordinary income. Because each Fund is actively managed and may realize
taxable net short-term capital gains by selling shares of a portfolio fund in
its portfolio with unrealized portfolio appreciation, investing in a Fund rather
than directly in the portfolio fund may result in increased tax liability to you
since each Fund must distribute its gains in accordance with the Code.
Distributions of net capital gains received by a Fund from its portfolio funds,
plus net long-term capital gains realized by a Fund from the purchase and sale
of portfolio fund shares or other securities held by a Fund for more than one
year, will be distributed by the Fund and will be taxable to you as long-term
capital gains (even if you have held Fund shares for one year or less). If a
shareholder who has received a capital gains distribution suffers a loss on the
sale of his or her shares not more than six months after purchase, the loss will
be treated as a long-term capital loss to the extent of the capital gains
distribution received. Long-term capital gains, including distributions of net
capital gains, are currently subject to a maximum federal tax rate of 20%, which
rate is less than the maximum rate imposed on other types of taxable income. The
maximum long term capital gains rate will decrease from 20% to 18% for capital
assets that have been held for more than five years and whose holding periods
begin after December 31, 2000. Capital gains also may be advantageous since,
unlike ordinary income, they may be offset by capital losses.
For purposes of determining the character of income received by a Fund when a
portfolio fund distributes net capital gains to a Fund, the Fund will treat the
distribution as long-term capital gain, even if the Fund has held shares of the
portfolio fund for one year or less. Any loss incurred by a Fund on the sale of
that portfolio fund's shares held for six months or less, however, will be
treated as a long-term capital loss to the extent of the net capital gain
distribution.
The tax treatment of distributions from a Fund is the same whether the
distributions are received in additional shares or in cash. Shareholders
receiving distributions in the form of additional shares will have an initial
cost basis for federal income tax purposes in each share received, equal to the
net asset value of a share of a Fund on the reinvestment date.
A Fund may invest in portfolio funds with capital loss carryforwards. If such a
portfolio fund realizes capital gains, it will be able to offset the gains to
the extent of its loss carryforwards in determining the amount of capital gains
which must be distributed to shareholders.
15
<PAGE>
Redemptions of shares of the Funds are taxable events on which you may realize a
gain or loss. An exchange of a Fund's shares for shares of the other Fund will
be treated as a sale of such shares and any gain on the transaction may be
subject to federal income tax.
Each year the Fund will notify you of the tax status of your dividends and
distributions made during the year. Depending upon your residence for tax
purposes, distributions may also be subject to state and local taxes, including
withholding taxes. You should consult your own tax advisor regarding the tax
consequences of ownership of shares of a Fund in your particular circumstances.
Each Fund will distribute investment company taxable income and any net realized
capital gains at least annually.
All dividends and distributions will be reinvested automatically at net asset
value in additional shares of the Fund making the distribution, unless you
notify the Fund in writing of your election to receive distributions in cash.
16
<PAGE>
FOR MORE INFORMATION
Additional information about the Funds is included in the Statement of
Additional Information ("SAI"), which is incorporated by reference (is legally
considered part of this prospectus). Additional information about Total Return
Fund's investments is available in its annual, semi-annual, and quarterly
reports to shareholders. In a Fund's annual report, you will find a discussion
of the market conditions and investment strategies that significantly affected
the Fund's performance during the last fiscal year.
To obtain additional information, please call 800-334-8920. Text-only versions
of the Funds' documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet website at www.sec.gov. You may obtain
copies of the Funds' documents by visiting the SEC's Public Reference Room in
Washington, D.C. Call the SEC at 202-942-8090 for information about the Public
Reference Room's operations. You may also obtain copies of the Funds' documents
by sending your request and a duplicating fee to the SEC's Public Reference
Section, 450 5th Street, N.W., Washington, D.C. 20549-0102, or by e-mail request
at [email protected].
------------------
811-10261
17
<PAGE>
PEARL MUTUAL FUNDS
STATEMENT OF
ADDITIONAL INFORMATION
___________, 2001
2610 Park Avenue
Muscatine, Iowa 52761
1-800-334-8920
PEARL TOTAL RETURN FUND
PEARL AGGRESSIVE GROWTH FUND
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
Pearl Total Return Fund and Pearl Aggressive Growth Fund (each, a "Fund," and
together, the "Funds") dated the date of this SAI and any supplement to the
prospectus. You can obtain a copy of the prospectus at no charge by writing or
telephoning us at the address or telephone number shown above.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies.................................... 2
Investment Techniques and Risks....................................... 2
Investment Restrictions............................................... 17
Performance Information............................................... 18
Investment Manager.................................................... 23
The Trust............................................................. 25
Trustees and Officers................................................. 26
Purchasing and Redeeming Shares....................................... 28
Additional Tax Information............................................ 29
Portfolio Transactions................................................ 30
Code of Ethics........................................................ 30
Custodian............................................................. 30
Independent Auditors.................................................. 31
Financial Statements.................................................. 31
</TABLE>
1
<PAGE>
Pearl Total Return Fund ("Total Return Fund") and Pearl Aggressive
Growth Fund ("Aggressive Growth Fund") are each a series of Pearl Mutual Funds
(the "Trust"), and each Fund is an open-end, management investment company.
The discussion below supplements the description in the prospectus of
each Fund's investment objective, policies, and restrictions.
On _______________, 2001, Mutual Selection Fund, an Iowa corporation,
was reorganized into a new series of Pearl Mutual Funds (the "Trust.") The new
series was designated Pearl Total Return Fund. Throughout this document,
reference to "Pearl Total Return Fund" or "Total Return Fund" refers to Pearl
Total Return Fund, as a series of the Trust, and to its predecessor corporation.
Pearl Mutual Funds' name was changed from Mutual Selection Trust on September
11, 2000.
Investment Objectives and Policies
Total Return Fund seeks long-term total return. Aggressive Growth Fund
seeks long-term aggressive growth of capital. The Funds are not designed for
investors seeking primarily income rather than capital appreciation. The Funds
are not, alone or together, a balanced investment program, and there can be no
assurance that either of the Funds will achieve its investment objective.
The Funds use the techniques and invest in investment companies that
invest in the types of securities described below and in the prospectus.
Investment Techniques and Risks
Each Fund is a fund of funds that invests in shares of other registered
investment companies including mutual funds and closed-end funds. The investment
companies in which the Funds may invest are referred to as "portfolio funds"
throughout this statement of additional information.
Foreign Securities
A portfolio fund may invest up to 100% of its assets in securities of
foreign issuers, which may entail a greater degree of risk than does investment
in securities of domestic issuers. Investors should understand and consider
carefully the risks involved in foreign investing. Investing in foreign
securities, positions in which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts involve risks and
opportunities not typically associated with investing in U.S. securities. These
considerations include: fluctuations in exchange rates of foreign currencies;
possible imposition of exchange control regulation or currency restrictions that
would prevent cash from being brought back to the United States; less public
information with respect to issuers of securities; less governmental supervision
of stock exchanges, securities brokers, and issuers of securities; lack of
uniform accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of
2
<PAGE>
companies in developing as well as developed countries; and sometimes less
advantageous legal, operational, and financial protections applicable to foreign
subcustodial arrangements. In addition, the costs of investing in foreign
securities are usually higher than the costs of investing in U.S. securities.
There is the possibility of expropriation or confiscatory taxation,
seizure or nationalization of foreign bank deposits or other assets,
establishment of exchange controls, the adoption of foreign government
restrictions, or other adverse political, social, or diplomatic developments
that could affect investment in these nations. Legal remedies available to
investors in certain foreign countries may be more limited than those available
with respect to investments in the United States or in other foreign countries.
The laws of some foreign countries may limit a portfolio fund's ability to
invest in securities of certain issuers located in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth or gross national product, inflation rate,
capital reinvestment, resource self-sufficiency, and balance of payment
positions.
A portfolio fund's (and accordingly the Funds') investment performance
is affected by the strength or weakness of the U.S. dollar against the
currencies of the foreign markets in which its securities trade or in which they
are denominated. For example, if the dollar falls in value relative to the
Japanese yen, the dollar value of a yen-denominated stock held by a portfolio
fund will rise even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value of the
yen-denominated stock will fall. A portfolio fund may seek to protect itself
against the adverse effects of currency exchange rate fluctuations by entering
into currency-forward, futures, or options contracts. Hedging transactions will
not, however, always be fully effective in protecting against adverse exchange
rate fluctuations and involve transaction costs and risks. (See discussion of
transaction hedging and portfolio hedging under "Currency Exchange
Transactions.")
Investments by a portfolio fund in emerging markets securities include
special risks in addition to those generally associated with foreign investing.
Many investments in emerging markets can be considered speculative, and the
value of those investments can be more volatile than in more developed foreign
markets. Emerging markets also have different clearance and settlement
procedures, and delays in settlement could result in temporary periods when a
portion of the assets is uninvested and no return is earned thereon. The
inability to make intended security purchases due to settlement problems could
cause a portfolio fund to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result either
in losses to a portfolio fund (and accordingly the Funds) due to subsequent
declines in the value of those securities or possible liability to the
purchaser. Many emerging markets have experienced substantial rates of inflation
for many years, which has had and may continue to have adverse effects on the
economies and securities markets of certain emerging market countries. In an
attempt to control inflation, certain emerging market countries have imposed
wage and price controls. Emerging market governmental issuers are among the
largest debtors to commercial banks, foreign governments, international
financial organizations and other financial institutions. Debt obligations of
emerging market countries may involve a high degree of risk, and may be in
default or present the risk of default. Certain emerging market
3
<PAGE>
governmental issuers have not been able or have been unwilling to make payments
of interest or principal on debt obligations as those payments have come due.
Income received by a portfolio fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by a portfolio fund will
reduce the net income of the portfolio fund available for distribution to the
Funds.
Currency Exchange Transactions
The Funds may invest in portfolio funds that enter into currency
exchange transactions. A currency exchange transaction may be conducted either
on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through a forward currency exchange
contract ("forward contract"). A forward contract is an agreement to purchase or
sell a specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are usually
entered into with banks, foreign exchange dealers or broker-dealers, are not
exchange-traded, and are usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a portfolio fund may invest, and serve as hedges against
possible variations in the exchange rate between these currencies. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
payables or receivables of a fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward contract
with respect to a portfolio security position denominated or quoted in a
particular currency. A portfolio fund may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating actual
or anticipated positions in securities denominated in that currency.
If a portfolio fund enters into a forward contract hedging an
anticipated purchase of portfolio securities, assets of that portfolio fund
having a value at least as great as the portfolio fund's commitment under such
forward contract will be segregated on the books of the portfolio fund while the
contract is outstanding.
At the maturity of a forward contract to deliver a particular currency,
a portfolio fund may either sell the portfolio security related to such contract
and make delivery of the currency, or it may retain the security and either
acquire the currency on the spot market or terminate its contractual obligation
to deliver the currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity date the same
amount of the currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a portfolio fund to purchase additional currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of currency that the portfolio fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the
4
<PAGE>
currency. Conversely, it may be necessary to sell on the spot market some of the
currency received upon the sale of the portfolio security if its market value
exceeds the amount of currency that the portfolio fund is obligated to deliver.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a portfolio fund to hedge against a devaluation that
is so generally anticipated that the portfolio fund is not able to contract to
sell the currency at a price above the devaluation level it anticipates. The
cost to a portfolio fund of engaging in currency exchange transactions varies
with such factors as the currency involved, the length of the contract period,
and prevailing market conditions. Since currency exchange transactions are
usually conducted on a principal basis, no fees or commissions are involved.
Calculation of Net Asset Value
Foreign securities in which the portfolio funds may invest may be
listed primarily on foreign stock exchanges that may trade on days, and at
times, when the New York Stock Exchange is not open for business. Accordingly,
the net asset value of a portfolio fund (and correspondingly a Fund) may be
significantly affected by such trading on days when neither Pearl Management
Company, the Funds' investment adviser and manager ("Management" or the
"Manager"), nor the Funds' shareholders have access to the portfolio funds and
the Funds.
Options and Futures
A portfolio fund may purchase and write both call options and put
options on securities and on indexes, and enter into interest rate and index
futures contracts, and may purchase or sell options on such futures contracts
("futures options") in order to provide additional revenue, or to hedge against
changes in security prices or interest rates. A portfolio fund may also use
other types of options, futures contracts, and futures options currently traded
or subsequently developed and traded, provided that the portfolio fund's board
determines that their use is consistent with the portfolio fund's investment
objective.
Options. An option on a security (or index) is a contract that gives
-------
the purchaser (holder) of the option, in return for a premium, the right to buy
from (call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.
5
<PAGE>
A portfolio fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a security, the
option is "covered" if a portfolio fund owns the security underlying the call or
has an absolute and immediate right to acquire that security without additional
consideration (or, if additional consideration is required, assets having a
value at least equal to that amount are segregated on the books of the portfolio
fund) upon conversion or exchange of other securities held in its portfolio.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a portfolio fund desires.
A put or call option purchased by a portfolio fund is an asset of that
portfolio fund, valued initially at the premium paid for the option. The premium
received for an option written by a portfolio fund is recorded as a deferred
credit. The value of an option purchased or written is marked-to-market daily
and is valued at the closing price on the exchange on which it is traded or, if
not traded on an exchange or no closing price is available, at the mean between
the last bid and asked prices.
OTC Derivatives. A portfolio fund may buy and sell over-the-counter
---------------
("OTC") derivatives. Unlike exchange-traded derivatives, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of OTC derivatives (derivatives not traded on exchanges)
generally are established through negotiation with the other party to the
contract. While this type of arrangement allows a portfolio fund greater
flexibility to tailor an instrument to its needs, OTC derivatives generally
involve greater credit risk than exchange-traded derivatives, which are
guaranteed by the clearing organization of the exchanges where they are traded.
See "Illiquid and Restricted Securities" below for more information on the risks
associated with investing in OTC derivatives.
Risks Associated with Options. There are several risks associated with
-----------------------------
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when, and
how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when a
portfolio fund seeks to close out an option position. If a portfolio fund were
unable to close out an option that it had purchased on a security, it would have
to exercise the option in order to realize any profit or the option would expire
and become worthless. If a portfolio fund were unable to close out a covered
call option that it had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a covered call
option on a security, a portfolio fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise
6
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price of the call. As the writer of a covered call option on a foreign currency,
a portfolio fund foregoes, during the option's life, the opportunity to profit
from currency appreciation.
If trading were suspended in an option purchased or written by one of
the portfolio funds, that portfolio fund would not able to close out the option.
If restrictions on exercise were imposed, the portfolio fund might be unable to
exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts. A portfolio fund
--------------------------------------------------
may use interest rate futures contracts and index futures contracts. An interest
rate or index futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instrument or
the cash value of an index /1/ at a specified price and time. A public market
-
exists in futures contracts covering a number of indexes (including, but not
limited to: the Standard & Poor's 500 Index; the Value Line Composite Index; the
Russell 2000 Index; and the New York Stock Exchange Composite Index) as well as
financial instruments (including, but not limited to: U.S. Treasury bonds; U.S.
Treasury notes; Eurodollar certificates of deposit; and foreign currencies).
Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and may be traded
by portfolio funds.
A portfolio fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
A portfolio fund might use futures contracts to hedge against
fluctuations in the general level of stock prices, anticipated changes in
interest rates, or currency fluctuations that might adversely affect either the
value of a portfolio fund's securities or the price of the securities that a
portfolio fund intends to purchase. A portfolio fund's hedging may include sales
of futures contracts as an offset against the effect of expected declines in
stock prices or currency exchange rates or increases in interest rates and
purchases of futures contracts as an offset against the effect of expected
increases in stock prices or currency exchange rates or declines in interest
rates. Although other techniques could be used to reduce a portfolio fund's
exposure to stock price, interest rate, and currency fluctuations, a portfolio
fund may be able to hedge its exposure more effectively and perhaps at a lower
cost by using futures contracts and futures options.
__________________________
/1/ A futures contract on an index is an agreement pursuant to which two
- parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of
those securities is made.
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The success of any hedging technique depends on the ability of a
portfolio fund's investment adviser correctly to predict changes in the level
and direction of stock prices, interest rates, currency exchange rates, and
other factors. Should those predictions be incorrect, a portfolio fund's return
might have been better had hedging not been attempted. However, in the absence
of the ability to hedge, the investment adviser might have taken portfolio
actions in anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a portfolio
fund, that portfolio fund is required to deposit with its custodian or broker a
specified amount of cash or U.S. government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is generally set by the exchange on which the contract is traded.
However, the margin requirement may be modified during the term of the contract,
and the portfolio fund's broker may require margin deposits in excess of the
minimum required by the exchange. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract, which is
returned to the portfolio fund upon termination of the contract, assuming all
contractual obligations have been satisfied. The portfolio funds expect to earn
interest income on their initial margin deposits. A futures contract held by a
portfolio fund is valued daily at the official settlement price of the exchange
on which it is traded. Each day the portfolio fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking-to-market." Variation margin paid or received
by a portfolio fund does not represent a borrowing or loan by the portfolio fund
but is instead settlement between that portfolio fund and the broker of the
amount one would owe the other if the futures contract had expired at the close
of the previous day. In computing daily net asset value ("NAV"), the portfolio
funds will mark-to-market their open futures positions.
The portfolio funds are also required to deposit and maintain margin
with respect to put and call options on futures contracts they write. Such
margin deposits will vary depending on the nature of the underlying futures
contract (and the related initial margin requirements), the current market value
of the option, and other futures positions held by the portfolio funds.
Although some futures contracts call for making or taking delivery of
the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the portfolio funds realize
a capital gain, or if it is more, the portfolio funds realize a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the portfolio fund engaging in the transaction realizes a capital gain,
or if it is less, the portfolio fund realizes a capital loss. The transaction
costs must also be included in these calculations.
Risks Associated with Futures. There are several risks associated with
-----------------------------
the use of futures contracts and futures options as hedging techniques. A
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. There can be no guarantee that there
will be a correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. In addition, there are significant
differences
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between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given hedge not to achieve its
objectives. The degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures, futures options,
and the related securities, including technical influences in futures and
futures options trading and differences between a portfolio fund's investments
being hedged and the securities underlying the standard contracts available for
trading. For example, in the case of index futures contracts, the composition of
the index, including the issuers and the weighting of each issue, may differ
from the composition of a portfolio fund's portfolio, and, in the case of
interest rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may differ from
the financial instruments held in a portfolio fund's portfolio. A decision as to
whether, when, and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain 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 the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time
when a portfolio fund seeks to close out a futures or futures option position.
The portfolio fund would be exposed to possible loss on the position during the
interval of inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
Swap Agreements. A swap agreement is generally individually negotiated
---------------
and structured to include exposure to one or more of a variety of different
types of investments or market factors. Depending on its structure, a swap
agreement may increase or decrease a portfolio fund's exposure to changes in the
value of an index of securities in which the portfolio fund might invest, the
value of a particular security or group of securities, or foreign currency
values. Swap agreements can take many different forms and are known by a variety
of names.
A swap agreement tends to shift a portfolio fund's investment exposure
from one type of investment to another. For example, if a portfolio fund agrees
to exchange payments in dollars at a fixed rate for payments in a foreign
currency the amount of which is determined by movements of a foreign securities
index, the swap agreement would tend to increase that portfolio fund's
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<PAGE>
exposure to foreign stock market movements and foreign currencies. Depending on
how it is used, a swap agreement may increase or decrease the overall volatility
of a portfolio fund's investments and its net asset value, which accordingly may
increase or decrease the overall volatility of a Fund's investments and its net
asset value.
The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine the
amounts of payments due to and from a portfolio fund. If a swap agreement calls
for payments by a portfolio fund, that portfolio fund must be prepared to make
such payments when due. If the counterparty's creditworthiness declines, the
value of a swap agreement would be likely to decline, potentially resulting in a
loss.
A portfolio fund will segregate assets to cover its current obligations
under a swap agreement. If a portfolio fund enters into a swap agreement on a
net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of that portfolio fund's accumulated obligations under the swap
agreement over the accumulated amount the portfolio fund is entitled to receive
under the agreement. If a portfolio fund enters into a swap agreement on other
than a net basis, it will segregate assets with a value equal to the full amount
of that portfolio fund's accumulated obligations under the agreement.
Short Sales and Short Sales Against the Box
A portfolio fund may sell securities short. In a short sale, a
portfolio fund sells stocks that it does not own and makes delivery with
securities "borrowed" from a broker. The portfolio fund borrows the securities
sold short from a broker-dealer through which the short sale is executed, and
the broker-dealer delivers the securities, on behalf of the portfolio fund, to
the purchaser of the securities. The broker-dealer is entitled to retain the
proceeds from the short sale until the portfolio fund delivers to the
broker-dealer the securities sold short. In addition, the portfolio fund is
required to pay to the broker-dealer the amount of any dividends paid on shares
sold short. Finally, to secure its obligation to deliver to the broker-dealer
the securities sold short, the portfolio fund must deposit and continuously
maintain in a separate account with its custodian an amount of cash or U.S.
Government securities equal to the difference between (1) the market value of
the securities sold short at the time they were sold short and (2) the value of
the collateral deposited with the broker in connection with the short sale (not
including the proceeds from the short sale). The portfolio fund is said to have
a short position in the securities sold until it delivers to the broker-dealer
the securities sold, at which time the portfolio fund receives the proceeds of
the sale. Because the portfolio fund ordinarily will want to continue to hold
securities in its portfolio that are sold short, the portfolio fund will
normally close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities sold short,
rather than by delivering portfolio securities.
A portfolio fund may make short sales "against the box" if, at all
times when a short position is open, the portfolio fund owns an equal amount of
the securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and equal
in amount to, the securities sold short.
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<PAGE>
Short sales may protect a portfolio fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with respect
to the portfolio securities should be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in the
portfolio securities should be wholly or partially offset by a corresponding
loss in the short position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to the amount the
portfolio fund owns, either directly or indirectly, and, in the case where the
portfolio fund owns convertible securities, changes in the conversion premium.
The portfolio funds will incur transaction costs in connection with short sales.
In addition to enabling the portfolio funds to hedge against market
risk, short sales may afford a portfolio fund an opportunity to earn additional
current income to the extent the portfolio fund is able to enter into
arrangements with broker-dealers through which the short sales are executed to
receive income with respect to the proceeds of the short sales during the period
the portfolio fund's short positions remain open.
The Internal Revenue Code imposes constructive sale treatment for
federal income tax purposes on certain hedging strategies with respect to
appreciated securities. Under these rules taxpayers will recognize gain, but not
loss, with respect to securities if they enter into short sales, or "offsetting
notional principal contracts" (as defined by the Act) with respect to the same
or substantially identical property, or futures or forward contracts to
determine the source of substantially identical property or if they enter into
such transactions and then acquire the same or substantially identical property.
The Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales.
Debt Securities
A portfolio fund may invest in debt securities, including lower-rated
securities (i.e., securities rated BB or lower by Standard & Poor's Corporation
("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly
called "junk bonds"), and securities that are not rated. There may be no
restrictions as to the ratings of debt securities acquired by a portfolio fund
or the portion of a portfolio fund's assets that may be invested in debt
securities in a particular ratings category.
Securities rated BBB or Baa are considered to be medium grade and to
have speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, the junk bond
market may be
11
<PAGE>
severely disrupted, and issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and a portfolio fund may have greater difficulty selling
its portfolio securities. See "Purchasing and Redeeming Shares - Net Asset
Value." The market value of these securities and their liquidity may be affected
by adverse publicity and investor perceptions.
The debt securities held by a portfolio fund may have redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the portfolio fund would have to replace the security with a lower
yielding security, resulting in a decreased return for the investors in the
portfolio fund, including a Fund. Conversely, a high yield, high risk security's
value will decrease in a rising interest rate market, as will the value of the
portfolio fund's assets.
Special tax considerations are associated with investing in debt securities
structured as zero coupon or pay-in-kind securities. A portfolio fund will
report the interest on these securities as income even though it receives no
cash interest until the security's maturity or payment date.
Credit ratings evaluate the safety of principal and interest payments, not
the market value risk of debt securities. Rating agencies may fail to change the
credit ratings in a timely manner to reflect subsequent events. To the extent
that a portfolio fund invests in medium and lower-quality debt securities, the
achievement of a portfolio fund's investment objective may be more dependent on
the portfolio fund's own credit analysis than is the case for higher quality
bonds. A more complete description of the characteristics of bonds in each
ratings category is included in the appendix to this statement of additional
information.
Warrants
A portfolio fund may invest in warrants. Warrants are options to purchase
equity securities at specific prices valid for a specified period of time. The
prices do not necessarily move in parallel to the prices of the underlying
securities. Warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer. If a warrant is not exercised
within the specified time period, it becomes worthless and the portfolio fund
loses the purchase price and the right to purchase the underlying security.
Leverage
A portfolio fund may borrow on an unsecured basis from banks to increase
its holdings of portfolio securities. Under the 1940 Act, the fund is required
to maintain continuous asset coverage of 300% with respect to such borrowings
and to sell (within three days) sufficient portfolio holdings in order to
restore coverage if it should decline to less than 300% due to market
fluctuation or otherwise. That sale must occur even if disadvantageous from an
investment point of view. Leveraging aggregates the effect of any increase or
decrease in the
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<PAGE>
value of portfolio securities on the portfolio fund's net asset value. In
addition, money borrowed is subject to interest costs (which may include
commitment fees and the cost of maintaining minimum average balances) which may
or may not exceed the interest and option premiums received from the securities
purchased with borrowed funds.
Master Demand Notes
A portfolio fund (particularly a money market fund) may invest up to 100%
of its assets in master demand notes. These are unsecured obligations of U.S.
corporations redeemable upon notice that permit investment by a mutual fund of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the mutual fund and the issuing corporation. Because master demand notes
are direct arrangements between the mutual fund and the issuing corporation,
there is no secondary market for the notes. The notes are, however, redeemable
at face value plus accrued interest at any time.
Asset-Backed Securities
A portfolio fund may invest in mortgage pass-through securities, which are
securities representing interests in pools of mortgage loans secured by
residential or commercial real property in which payments of both interest and
principal on the securities are generally made monthly, in effect passing
through monthly payments made by individual borrowers on mortgage loans which
underlie the securities (net of fees paid to the issuer or guarantor of the
securities). Early repayment of principal on some mortgage-related securities
(arising from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a portfolio fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to prepayment has been purchased at a
premium, the value of the premium would be lost in the event of prepayment.
Like other fixed-income securities, when interest rates rise, the value of
a mortgage-related security generally will decline. However, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other fixed income securities.
A portfolio fund may invest in collateralized mortgage obligations
("CMOs"), which are hybrid mortgage-related instruments. Similar to a bond,
interest and pre-paid principal on a CMO are paid, in most cases, semiannually.
CMOs are collateralized by portfolios of mortgage pass-through securities and
are structured into multiple classes with different stated maturities. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired.
Other mortgage-related securities in which a portfolio fund may invest
include other securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans on real property, such as
CMO residuals or stripped mortgage-backed securities, and may be structured in
classes with rights to receive varying proportions of principal
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and interest. In addition, a portfolio fund may invest in other asset-backed
securities that have been offered to investors or will be offered to investors
in the future.
Several types of asset-backed securities have already been offered to
investors, including certificates for automobile receivables, which represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interest in the
vehicles securing the contracts.
Illiquid and Restricted Securities
A portfolio fund may invest up to 15% of its net assets in illiquid
securities. An illiquid security generally is one that cannot be sold in the
ordinary course of business within seven days at substantially the value
assigned to it in calculations of a portfolio fund's net asset value. Repurchase
agreements maturing in more than seven days, OTC derivatives, and restricted
securities are generally illiquid; other types of investments may also be
illiquid from time to time. If, through the appreciation of illiquid securities
or the depreciation of liquid securities, a portfolio fund should be in a
position where more than 15% of the value of its net assets are invested in
illiquid assets, that portfolio fund will take appropriate steps to protect
liquidity. Illiquid securities are priced at a fair value determined in good
faith by the board of directors or trustees of the portfolio fund or its
delegate. A portfolio fund may be unable to realize a favorable price upon sale
of the securities, or in some cases may not be able to sell the securities.
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933 (the "1933 Act"). Where registration is
required, a portfolio fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the portfolio fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the portfolio fund might obtain a
less favorable price than prevailed when it decided to sell. Restricted
securities will be priced at a fair value as determined in good faith by the
board of the portfolio fund.
Notwithstanding the above, a portfolio fund may purchase securities that
have been privately placed but that are eligible for purchase and sale under
Rule 144A under the 1933 Act. That rule permits certain qualified institutional
buyers, such as the portfolio funds, to trade in privately placed securities
that have not been registered for sale under the 1933 Act. The portfolio fund's
investment adviser, under the supervision of the board of trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to a portfolio fund's restriction of investing no more than 15% of its
assets in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of a portfolio fund's assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.
The 1940 Act provides that a mutual fund whose shares are purchased by a
Fund is obliged to redeem shares held by a Fund only in an amount up to 1% of
the portfolio fund's outstanding securities during any period of less than 30
days. Accordingly, shares held by a
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Fund in excess of 1% of a portfolio fund's outstanding securities would, if the
Fund had not made the election described in this paragraph, be considered
illiquid securities that, together with other such securities, may not exceed
15% of that Fund's net assets. However, since each Fund has elected to reserve
the right to pay redemption requests by a distribution in kind of securities
from its portfolio, instead of cash, these positions may be treated as liquid.
Under certain circumstances a portfolio fund may determine to make payment of a
redemption by a Fund (wholly or in part) by a distribution in kind of securities
from its portfolio, instead of cash. As a result, a Fund may hold securities
distributed by a portfolio fund until such time as Management determines it
appropriate to dispose of the securities. That disposition will impose
additional costs on the Fund.
Repurchase Agreements
Repurchase agreements are transactions in which a portfolio fund purchases
a security from a bank or recognized securities dealer and simultaneously
commits to resell that security to the bank or dealer at an agreed-upon price,
date, and market rate of interest unrelated to the coupon rate or maturity of
the purchased security. Repurchase agreements involve certain risks, such as
default by, or insolvency of, the other party to the repurchase agreement. A
portfolio fund's right to liquidate its collateral in the event of a default
could involve certain costs, losses or delays. To the extent that the proceeds
from any sale upon a default in the obligation to repurchase were less than the
repurchase price, the portfolio fund would suffer a loss. If the financial
institution which is party to the repurchase agreement petitions for bankruptcy
or otherwise becomes subject to bankruptcy or other liquidation proceedings,
there may be restrictions on a portfolio fund's ability to sell the collateral
and the portfolio fund could suffer a loss.
When-Issued and Delayed Delivery Securities; Reverse Repurchase Agreements
A portfolio fund may purchase securities on a when-issued or delayed
delivery basis. Although the payment and interest terms of these securities are
established at the time the portfolio fund enters into the commitment, the
securities may be delivered and paid for a month or more after the date of
purchase, when their value may have changed. A portfolio fund generally makes
such commitments only with the intention of actually acquiring the securities,
but may sell the securities before the settlement date if the portfolio fund's
investment adviser deems it advisable for investment reasons. A portfolio fund
may utilize spot and forward foreign currency exchange transactions to reduce
the risk inherent in fluctuations in the exchange rate between one currency and
another when securities are purchased or sold on a when-issued or delayed
delivery basis.
A portfolio fund may enter into reverse repurchase agreements with banks
and securities dealers. A reverse repurchase agreement is a repurchase agreement
in which the portfolio fund is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed-upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks and transaction
costs.
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At the time a portfolio fund enters into a binding obligation to purchase
securities on a when-issued basis or enters into a reverse repurchase agreement,
assets of the portfolio fund having a value at least as great as the purchase
price of the securities to be purchased will be segregated on the books of the
portfolio fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as any borrowing by
a portfolio fund, may increase fluctuation of a portfolio fund's net asset value
(and accordingly a Fund's net asset value).
Loans of Portfolio Securities
A portfolio fund may lend its portfolio securities as long as: (1) the loan
is continuously secured by collateral consisting of U.S. Government securities
or cash or cash equivalents maintained on a daily mark-to-market basis in an
amount at least equal to the current market value of the securities loaned; (2)
the portfolio fund may at any time call the loan and obtain the securities
loaned; (3) the portfolio fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of the securities
loaned will not at any time exceed one-third of the total assets of the
portfolio fund. Lending portfolio securities involves risk of delay in the
recovery of the loaned securities and, in some cases, the loss of rights in the
collateral if the borrower fails.
Industry Concentration
A portfolio fund may concentrate its investments within one industry. The
value of the shares of such a portfolio fund may be subject to greater market
fluctuation than an investment in a fund that invests in a broader range of
securities.
Temporary Strategies
Each Fund and each portfolio fund has the flexibility to respond promptly
to changes in market and economic conditions. In the interest of preserving
shareholders' capital, the Funds' or the portfolio funds' investment advisers
may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to a defensive strategy, each Fund or a
portfolio fund temporarily may hold cash (U.S. dollars, foreign currencies,
multinational currency units) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U.S. issuers, and most or
all of a Fund's and a portfolio fund's investments may be made in the United
States and denominated in U.S. dollars. It is impossible to predict whether,
when, or for how long a Fund or a portfolio fund might employ defensive
strategies. However, Aggressive Growth Fund almost never takes a defensive
position, as stated in the Prospectus.
In addition, pending investment of proceeds from new sales of portfolio
fund shares or to meet ordinary daily cash needs, a Fund or a portfolio fund
temporarily may hold cash (U.S. dollars, foreign currencies, or multinational
currency units) and may invest any portion of its assets in money market
instruments.
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Portfolio Turnover
Although the Funds and the portfolio funds do not purchase securities with
a view to rapid turnover, there are no limitations on the length of time that
portfolio securities must be held. Portfolio turnover can occur for many reasons
such as general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. A high rate of portfolio
turnover, if it should occur, would result in increased transaction expenses
which must be borne by each portfolio fund. High portfolio turnover may also
result in the realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting from such
gains will be considered ordinary income for federal income tax purposes.
Investment Restrictions
In pursuing its investment objective each of Total Return Fund and
Aggressive Growth Fund will not:
1. With respect to 75% of its total assets, invest more than 5%
(valued at time of investment) in securities of any one issuer, except in
U.S. government securities and securities of other investment companies.
2. Invest more than 25% of its total assets (valued at time of
investment) in securities of any one portfolio fund. However, this
restriction does not apply when the Fund reinvests dividends and
distributions from a portfolio fund in shares of that portfolio fund.
3. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises, including
real estate investment trusts, which invest in real estate or interests in
real estate.
4. Make loans.
5. Sell securities short or maintain a short position.
6. Invest in puts, calls, straddles, spreads, or combinations
thereof.
7. Purchase and sell commodities or commodity contracts.
8. Underwrite the distribution of securities of other issuers.
9. Issue any senior security except to the extent permitted under
the Investment Company Act of 1940.
10. Borrow money except (a) from banks for temporary or emergency
purposes in amounts not exceeding 33% of the value of the Fund's assets at
the time of borrowing, and (b) for temporary purposes in an amount not
exceeding 5% of the value of the Fund's total assets at the time of the
borrowing.
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11. Invest in issuers for the purpose of management or the exercise
of control.
The above restrictions for each Fund and each Fund's investment objective
are "fundamental," which means that they cannot be changed without the approval
of the lesser of (i) 67% of each Fund's shares present at a meeting if more than
50% of the shares outstanding are present or (ii) more than 50% of each Fund's
outstanding shares.
A portfolio fund may, but need not, have the same investment policies as a
Fund. In addition, although each of the Funds may from time to time invest in
shares of the same portfolio funds, the percentage of each Fund's assets so
invested may vary and the Fund's portfolio managers will determine that the
investments are consistent with the investment objectives and policies of each
Fund.
Performance Information
From time to time the Funds may quote total return figures. "Total Return"
for a period is the percentage change in value during the period of an
investment in shares of a Fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(1+T)/n/
Where: P = the amount of an assumed initial investment in shares of a
Fund
T = average annual total return
n = number of years from initial investment to the end of the
period
ERV = ending redeemable value of shares held at the end of the
period
For example, the Total Return and Average Total Return on a $1,000
investment in Total Return Fund for the following periods ended December 31,
1999 were:
<TABLE>
<CAPTION>
TOTAL RETURN FUND
----------------- Average Annual
Total Return Total Return
------------ --------------
<S> <C> <C>
1 year................................................ 26.99% 26.99%
5 years............................................... 110.83% 16.09%
10 years.............................................. 198.46% 11.55%
Life of Fund (inception 7/01/72)...................... 507.45% 6.78%
</TABLE>
The Funds may also quote after-tax total returns and tax efficiency. After-
tax returns show the Funds' annualized after-tax total returns for the time
period specified. After-tax returns with redemptions show the Funds' annualized
after-tax total return for the time period specified
18
<PAGE>
plus the tax effects of selling your shares of the Funds at the end of the
period. To determine these figures, all income, short-term capital gain
distributions, and long-term capital gain distributions are assumed to have been
taxed at the actual historical federal maximum tax rate. Those maximum tax rates
are applied to distributions prior to reinvestment and the after-tax portion is
assumed to have been reinvested in the Funds. State and local taxes are ignored.
Tax Efficiency is derived by dividing after-tax returns by pretax returns.
The highest possible score would be 100%, which would apply to a Fund that had
no taxable distributions. Because many interrelated factors affect tax
efficiency, it is difficult to predict tax efficiency.
Actual after-tax returns depend on a shareholder's tax situation and may
differ from those shown. After-tax returns reflect past tax effects and are not
predictive of future tax effects.
As of December 31, 1999, the After-Tax Average Annual Total Return on a
$1,000 investment in Total Return Fund for the following periods were:
<TABLE>
<CAPTION>
TOTAL RETURN FUND
-----------------
After-tax With
After-tax Redemption
--------- --------------
<S> <C> <C>
1 Year................................................ 23.44% 20.17%
5 Years............................................... 13.08% 12.26%
10 Years.............................................. 9.43% 8.92%
TOTAL RETURN FUND'S TAX EFFICIENCY
----------------------------------
1 Year................................................ 86.85%
5 Years............................................... 76.63%
10 Years.............................................. 73.70%
</TABLE>
The Funds impose no sales charges and pay no distribution expenses.
Performance figures quoted by the Funds are not necessarily indicative of future
results. Each Fund's performance is a function of conditions in the securities
markets, portfolio management, and operating expenses. Although information
about past performance is useful in reviewing a Fund's performance and in
providing some basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using different
reinvestment assumptions or time periods.
The Funds also measure their performance on a long-term risk-adjusted total
return basis. Risk-adjusted total return compares total return and standard
deviation (volatility). The Funds may also use statistics to indicate volatility
or risk. The premise of each of these measures is that greater volatility
connotes greater risk undertaken in achieving performance. The Funds may quote
the following measures of volatility:
19
<PAGE>
Beta. Beta is the volatility of a fund's total return relative to the
----
movements of a benchmark index. A beta greater than one indicates volatility
greater than the index, and a beta of less than one indicates a volatility less
than the index.
R-squared. R-squared reflects the percentage of a fund's price movements
---------
that are explained by movements in the benchmark index. An R-squared of 1.00
indicates that all movements of a fund's price are completely explained by
movements in the index. Generally, a higher R-squared will indicate a more
reliable beta figure.
Alpha. Alpha is a measure used to discuss a fund's relative performance.
-----
Alpha measures the actual return of a fund compared to the expected return of a
fund given its risk (as measured by beta). The expected return of a fund is
based on how historical movements of the benchmark index and historical
performance of a fund compare to the benchmark index. The expected return is
computed by multiplying the advance or decline in a market represented by a
fund's beta. A positive alpha quantifies the value that a fund manager has added
and a negative alpha quantifies the value that a fund manager has lost.
Standard deviation. Standard deviation quantifies the volatility in the
------------------
returns of a Fund by measuring the amount of variation in the group of returns
that make up a Fund's average return. Standard deviation is generally calculated
over a three or five year period using monthly returns and modified to present
an annualized standard deviation.
Sharpe ratio. A Fund's Sharpe ratio quantifies its total return in excess
------------
of the return of a guaranteed investment (90-day U.S. treasury bills), relative
to its volatility as measured by its standard deviation. The higher a Fund's
Sharpe ratio, the better a Fund's returns have been relative to the amount of
investment risk it has taken.
Beta and R-squared are calculated by performing a least squares linear
regression using three years of monthly total return figures for each portfolio
and benchmark combination. Alpha is calculated by taking the difference between
the average monthly portfolio return and the beta-adjusted average monthly
benchmark return. The result of this calculation is then geometrically
annualized.
Other measures of volatility and relative performance may be used as
appropriate. All such measures will fluctuate and do not represent future
results.
The Funds may note their mention or recognition in newsletters, newspapers,
magazines, or other media. Portfolio managers and other members of the Manager's
Investment Committee may make presentations at conferences or trade shows,
appear on television or radio programs, or conduct or participate in telephone
conference calls, and the Funds may announce those presentations, appearances,
or calls to some or all shareholders, or to potential investors in the Funds.
Biographical and other information about a Fund's portfolio managers or the
Investment Committee, including information about awards received by that
portfolio manager or mentions of the manager or committee in the media, may also
be described or quoted in Fund advertisements or sales literature.
20
<PAGE>
In advertising and sales literature, each Fund's performance may be
compared with those of market indexes and other mutual funds. In addition to the
performance information described above, a Fund might use comparative
performance as computed in a ranking or rating determined by Lipper, Inc., an
independent service that monitors the performance of over 1,000 mutual funds;
Morningstar, Incorporated; or another service. The tax consequences of
investments may not be reflected in these comparisons.
The following are some benchmark indexes utilized by the Funds: the MSCI
World Index, the Value Line (Geometric) Index, and the Wilshire 5000 Index.
Comparisons may also be made to yields on certificates of deposit, treasury
instruments, or money market instruments. The comparisons to the MSCI World
Index, the Value Line (Geometric) Index, and the Wilshire 5000 Index, and
Aggressive Growth Fund's comparison to the Standard & Poor's 500 Index, show how
a Fund's total return compared to the record of a broad average of common stock
prices and a narrower set of major industrial companies, respectively. Each Fund
has the ability to invest in portfolio funds not included in any of these
indexes, and its investment portfolio may or may not be similar in composition
to the indexes. All indexes are unmanaged and include reinvested dividends
(other than the Value Line (Geometric) Index), but do not include the effect of
paying brokerage commissions and other costs of investing.
The Funds may also compare their performance to the performance of groups
of mutual funds, including Lipper Averages and Indexes. Each Lipper Average is
the mean return of all mutual funds tracked by Lipper, Inc. in that category,
which may include the Fund making the comparison. Lipper Indexes measure the
performance of the largest funds tracked by Lipper in a designated category.
Ibbotson Associates of Chicago, Illinois (Ibbotson) and others provide
historical returns of the capital markets in the United States. A Fund may
compare its performance to the long-term performance of the U.S. capital markets
in order to demonstrate general long-term risk versus reward investment
scenarios. Performance comparisons could also include the value of a
hypothetical investment in common stocks, long-term bonds, or treasuries. A Fund
may discuss the performance of financial markets and indexes over various time
periods.
The capital markets tracked by Ibbotson are common stocks, small-
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indexes. For common stocks the Standard & Poor's 500 Index is used. For small-
capitalization stocks, return is based on the return achieved by Dimensional
Fund Advisors (DFA) Small Company Fund. This fund is a market-value-weighted
index of the ninth and tenth deciles of the New York Stock Exchange (NYSE), plus
stocks listed on the American Stock Exchange (AMEX) and over-the-counter (OTC)
with the same or less capitalization as the upper bound of the NYSE ninth
decile.
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index which includes nearly
all Aaa- and Aa-rated bonds. Returns on intermediate-term government bonds are
based on a one-bond portfolio
21
<PAGE>
constructed each year, containing a bond which is the shortest noncallable bond
available with a maturity not less than 5 years. This bond is held for the
calendar year and returns are recorded. Returns on long-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond that
meets several criteria, including having a term of approximately 20 years. The
bond is held for the calendar year and returns are recorded. Returns on U.S.
Treasury Bills are based on a one-bill portfolio constructed each month,
containing the shortest-term bill having not less than one month to maturity.
The total return on the bill is the month-end price divided by the previous
month-end price, minus one. Data up to 1976 is from the U.S. Government Bond
file at the University of Chicago's Center for Research in Security Prices; the
Wall Street Journal is the source thereafter. Inflation rates are based on the
CPI.
Other widely used indexes that the Funds may use for comparison purposes
include the Lehman Bond Index, the Lehman Aggregate Bond Index, The Lehman GNMA
Single Family Index, the Lehman Government/Corporate Bond Index, the Salomon
Brothers Long-Term High Yield Index, the Salomon Brothers Non-Government Bond
Index, the Salomon Brothers Non-U.S. Government Bond Index, the Salomon Brothers
World Government Bond Index, and the J.P. Morgan Government Bond Index. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment-grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. Government
securities, and mortgage-backed securities. The J.P. Morgan Government Bond
Index generally represents the performance of government bonds issued by various
countries including the United States. The foregoing bond indexes are unmanaged
indexes of securities that do not reflect reinvestment of capital gains or take
investment costs into consideration, as these items are not applicable to
indexes.
The Funds may also discuss in advertising the relative performance of
various types of investment instruments, such as stocks, Treasury securities,
and bonds, over various time periods and covering various holding periods. Such
comparisons may compare these investment categories to each other or to changes
in the CPI.
A Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In this program, the investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While this strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares had been purchased at those intervals. In evaluating
such a plan, investors should consider their ability to continue purchasing
shares through periods of low price levels.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about the Fund. These editorials or
articles may include quotations of performance from other sources such as Lipper
or Morningstar. Sources for Fund performance information and articles about the
Funds may include the following: Barron's; Business Week; Consumer Digest;
22
<PAGE>
Consumer Reports; The Des Moines Register; Financial World; Forbes; Fortune;
Fund Action; Investor's Business Daily; Kiplinger's Personal Finance Magazine;
Money; Mutual Fund Values; Morningstar Publications; Muscatine Journal;
Newsweek; The New York Times; Pearl City Progress; Personal Investing News;
Personal Investor; Success; USA Today; U.S. News and World Report; The Wall
Street Journal; Wiesenberger Investment Companies Services; Working Woman;
Worth; and Your Money.
When comparing yield, total return, and investment risk of shares of a
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Funds. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of a
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses, and number of outstanding shares.
Fluctuating market conditions, purchases and sales of underlying funds, sales
and redemptions of shares of beneficial interest, and changes in operating
expenses are all examples of items that can increase or decrease a Fund's
performance.
Investment Manager
Pearl Management Company, 2610 Park Avenue, P.O. Box 209, Muscatine, IA
52761, serves as the investment adviser and manager for the Funds. The Funds are
its only clients that pay for its services. As of the date of this SAI, the
Manager has approximately $58 million under management, all consisting of Total
Return Fund. Pearl Management Company is an Iowa corporation, whose shareholders
are Capital Formation Council, Free Enterprise Advocates, Public Interest
Committee, and Taxpayer Rights Associations, each an Iowa nonprofit corporation
and public interest organization. Each shareholder has been in existence for
more than 15 years and has engaged in and supported advocacy on public policy
issues. None of them has any shareholders or beneficial owners. David M. Stanley
and Jean Leu Stanley, his wife, may be deemed to control the Manager because he
serves as President and Director and she serves as Vice-President and Director,
of each of the four shareholders of the Manager. All of these affiliated persons
of the Fund are affiliated persons of the Manager:
Name Position(s) Held with the Trust and the Manager
---- -----------------------------------------------
Kevin J. Burns Vice-President, Research Director, Assistant Secretary,
and Assistant Treasurer of the Trust and the Manager;
Director of the Manager
Jean Pantel Assistant Secretary and Assistant Treasurer of the Trust
and of the Manager
23
<PAGE>
Name Position(s) Held with the Trust and the Manager
---- -----------------------------------------------
David M. Stanley Chairman, President, and Trustee of the Trust and
Chairman, President, and Director of the Manager
Janet R. Van Alsburg Vice-President, Secretary and Treasurer of the Trust and
the Manager; Director of the Manager
The Manager furnishes continuing investment supervision to the Funds
under an Investment Management Agreement (the "Agreement") and is responsible
for overall management of the Funds' business affairs. It furnishes office
space, equipment, and personnel to the Funds; assumes substantially all expenses
for bookkeeping; and assumes the expenses of printing and distributing the
Funds' prospectus and reports to prospective investors. The Agreement will
continue in effect as to each Fund through October 31, 2002, and thereafter from
year to year so long as its continuance as to each Fund is approved at least
annually by (i) the Board of Trustees of the Trust or by the holders of a
majority of that Fund's outstanding voting securities as defined by the
Investment Company Act of 1940 and (ii) a majority of the members of the Trust's
Board of Trustees who are not otherwise affiliated with the Trust or the
Manager, cast in person at a meeting called for that purpose. Any amendment to
the Agreement must be approved in the same manner. The Agreement may be
terminated as to a Fund without penalty by the vote of the board of trustees of
the Trust or the shareholders of that Fund (by a majority as defined in the 1940
Act) on sixty days' written notice to the Manager or by the Manager on one
year's notice to the Fund, and will terminate automatically in the event of its
assignment. The fees payable by a Fund under the Agreement are the obligation
only of that Fund and impose no liability on the other Funds.
The advisory and management fees the Funds pay to the Manager are
accrued daily and payable monthly based on net assets as of the beginning of the
month, at the annual rates shown below:
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $30 million 0.65%
More than $30 million to $100 million 0.58%
In excess of $100 million 0.40%
The Manager has contractually agreed to reimburse each Fund for all
ordinary operating expenses (including management and administrative fees)
exceeding the following expense ratios: 0.96% of a Fund's average annual net
assets up to and including $30 million, 0.90% of a Fund's average annual net
assets in excess of $30 million and up to $100 million, and 0.78% of a Fund's
average annual net assets in excess of $100 million. When the Manager has
reimbursed a Fund for expenses in excess of these limits, the Manager may
recover the reimbursed amounts in any later year(s), to the extent this can be
done without exceeding the expense limits.
24
<PAGE>
The advisory fees paid to the Manager by Total Return Fund for the
fiscal years ended December 31, 1999, 1998, and 1997 were as follows:
1999 1998 1997
Total Return Fund $398,575 $379,769 $318,196
The Manager also provides administrative and transfer agency services
to the Trust pursuant to an administrative services and transfer agency
agreement for which the Manager receives a fee. The Funds pay the cost of
custodial, audit, and legal services, and membership in trade organizations.
They also pay other expenses such as the cost of maintaining the registration of
their shares under federal law, complying with state securities laws, proxy
solicitations, printing and distributing notices and copies of the prospectus
and shareholder reports furnished to existing shareholders, taxes, insurance
premiums, and the fees of Trustees not affiliated with the Manager. The Manager
bears all sales and promotional expenses, including the cost of prospectuses and
other materials used for sales and promotional purposes.
The administrative fees the Funds pay to the Manager are accrued daily
and payable monthly based on net assets as of the beginning of the month, at the
annual rates shown below:
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $30 million 0.21%
More than $30 million to $100 million 0.19%
In excess of $100 million 0.13%
The Trust
The Trust is a Massachusetts business trust organized under an Amended
and Restated Declaration of Trust dated September 11, 2000 (the "Declaration of
Trust"). The Declaration of Trust may be amended by a vote of either the Trust's
shareholders or its Trustees. The Trust may issue an unlimited number of shares,
in one or more series as the Board of Trustees may authorize. Any series of
shares may be further divided, without shareholder approval, into two or more
classes of shares having such preferences or special or relative rights or
privileges as the Trustees may determine. The shares of the Funds are not
currently divided into classes. Total Return Fund and Aggressive Growth Fund are
the only series of the Trust currently being offered. The Board of Trustees may
authorize the issuance of additional series if deemed advisable, each with its
own investment objective, policies, and restrictions. All shares issued will be
fully paid and non-assessable and will have no preemptive or conversion rights.
Under Massachusetts law, the shareholders of the Trust may, under
certain circumstances believed to be remote, be held personally liable for the
Trust's obligations. However, the Declaration of Trust disclaims liability of
shareholders and the Trust's Trustees and Officers for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or contract entered into or executed by the Trust or the
Board of Trustees. The Declaration of Trust provides for indemnification out of
the assets of the Trust of all losses
25
<PAGE>
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 remote, since it is limited to circumstances in
which the disclaimer is inoperative and the Trust itself is unable to meet its
obligations.
On any matter submitted to a vote of shareholders, shares are voted in
the aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the Board of Trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on that matter. All shares of the Trust are
voted together in the election of Trustees.
Trustees and Officers
The Board of Trustees has overall responsibility for the Trust's and
the Funds' affairs. The Trustees and Officers of the Trust, dates of birth,
addresses, and principal business activities during the past five years are:
<TABLE>
<CAPTION>
Name, Date of Birth and Position(s) Held with Principal Occupation(s) During Past Five Years
Addresses the Trust
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John W. Axel, 6/10/41 Trustee Owner and Chief Executive Officer, Iowa Companies, Inc.
2007 Circle Drive (holding company) since Dec. 1994; President,
Muscatine, IA 52761 Environmental Service Inc. (waste hauling) since Dec.
1994; prior thereto, Vice President and Chief Financial
Officer, HON Industries (office furniture).
Jeffrey R. Boeyink, 11/27/62 Trustee Executive Vice President, Iowans for Tax Relief, Tax
303 Woodcreek Lane Education Foundation, and Tax Education Support
Muscatine, IA 52761 Organization (non-profit public interest organizations).
Kevin J. Burns, 12/17/69 Vice-President, Research Vice-President since Jan. 1998, Research Director since
2610 Park Avenue, PO Box 209, Director, Asst. Jan. 1996, Asst. Secretary and Asst. Treasurer since Jan.
Muscatine, IA 52761 Secretary, and Asst. 1998, Pearl Management Company; prior to 1996 he was
Treasurer engaged in fund raising and investment management for
Operation Mobilization (a Christian charitable
organization).
Douglas B. Coder, 2/18/36 Trustee Owner, Coder Co. (business brokerage); owner, DBC Realty
8711 East Pinnacle Peak Rd. (investments); Chairman, Catalyst International
Scottsdale, AZ 85255 (software).
Dr. David N. DeJong, 6/4/63 Trustee Associate Professor of Economics, University of
4144 Saline Street Pittsburgh.
Pittsburgh, PA 15217
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name, Date of Birth and Position(s) Held with Principal Occupation(s) During Past Five Years
Addresses the Trust
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David L. Evans, 6/26/41 Trustee Business consultant, Evanwood Corp. (consulting) since
32500 El Diente Court Jan. 1992; prior thereto, Chief Financial Officer, Netbeam,
Evergeen, CO 80439 Inc. (Internet access) Oct. 1999 to Nov. 2000; and Chief Financial
Officer, Rocky Mountain Internet (Internet services) from June 1997
to August 1998.
Jean Pantel, 9/4/49 Asst. Secretary and Asst. Secretary and Asst. Treasurer, Pearl Management
2610 Park Avenue, PO Box 209, Asst. Treasurer Company since March 2000; prior thereto, employee,
Muscatine, IA 52761 Pearl Management Company, since Aug. 1996; and
Accounting Manager, Thatcher Tubes (plastics) from Aug.
1971 to Aug. 1996.
David M. Stanley,* 9/9/28 Chairman, President, and Chairman, President, and Director, Pearl Management
2610 Park Avenue, PO Box 209, Trustee Company.
Muscatine, IA 52761
Janet R. Van Alsburg, 8/14/45 Vice-President, Vice-President since Jan. 1998 and Secretary and
2610 Park Avenue, PO Box 209, Secretary, and Treasurer Treasurer since Aug. 1998, Pearl Management Company;
Muscatine, IA 52761 prior thereto, assistant officer of Pearl Management
Company since July 1995.
Robert W. Toborg, 5/29/17 Trustee Retired. Prior thereto, Director, Central State Bank
815 Sunrise Circle until Jan. 1999.
Muscatine, IA 52761
</TABLE>
------------------------------------
* Mr. Stanley is a Trustee who is an interested person (as defined in
the Investment Company Act of 1940) of the Trust and the Manager.
As of November 30, 2000, the Trustees and officers of the Trust as
a group owned beneficially less than 1% of the outstanding shares of Total
Return Fund.
At October 5, 2000, the following entities owned beneficially 5%
or more of shares of Total Return Fund:
Name/Address Percentage Ownership
New Hope Foundation 28.77%
2610 Park Avenue
Muscatine, IA 52761
Public Interest Institute 8.15%
2610 Park Avenue
Muscatine, IA 52761
Tax Education Support Organization 49.77%
2610 Park Avenue
27
<PAGE>
Muscatine, IA 52761
During 1999 the Funds paid fees aggregating $25,200 to Board members
who were not affiliated with the Manager. The following table sets forth the
total compensation paid by the Trust during the fiscal year ended December 31,
1999 to each of the Trustees of the Trust:
Compensation from
Name of Trustee Total Return Fund
------------------------- -----------------------------
John W. Axel $4,000
Jeffrey R. Boeyink $4,000
Douglas B. Coder $4,000
Dr. David N. DeJong $4,000
David L. Evans $5,200
David M. Stanley 0
Robert W. Toborg $4,000
The Officers and Trustees affiliated with the Manager serve without any
compensation from the Trust.
Purchasing and Redeeming Shares
Purchases and redemptions are discussed in the Funds' prospectus under
the heading "How to Buy and Sell Fund Shares." All of that information is
incorporated herein by reference.
Net Asset Value
Share purchase and redemption orders will be priced at a Fund's NAV per
share next computed after these orders are received and accepted by the Trust.
Each Fund's NAV is determined only on days on which the New York Stock Exchange
("NYSE") is open for trading. The NYSE is regularly closed on Saturdays and
Sundays and on New Year's Day, the third Monday in January, the third Monday in
February, Good Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving, and Christmas. If one of those holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the following Monday,
respectively.
Computation of NAV (and the sale and redemption of Fund shares) may be
suspended or postponed during any period when (a) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission, or that
exchange is closed for other than customary weekend and holiday closings, (b)
the Commission has by order permitted such suspension, or (c) an emergency, as
determined by the Commission, exists making disposal of portfolio securities or
valuation of the net assets of the Funds not reasonably practicable.
28
<PAGE>
For a description of the methods used to determine the share price, see
"Net Asset Value" in the prospectus.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 pursuant to which it is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the NAV of a Fund during any 90-day
period for any one shareholder. Redemptions in excess of the above amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of securities. If a redemption is made in kind, the redeeming shareholder
would bear any transaction costs incurred in selling the securities received.
Additional Tax Information
The prospectus describes generally the tax treatment of distributions
by the Funds. This section of the SAI includes additional information concerning
federal taxes.
Total Return Fund has qualified and each Fund intends to qualify
annually for the special tax treatment afforded a "regulated investment company"
under Subchapter M of the Internal Revenue Code so that it does not pay federal
taxes on income and capital gains distributed to shareholders. To so qualify a
Fund must, among other things, (i) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, or foreign
currency, or certain other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in stock, securities, or currencies; and (ii) diversify its holdings
so that at the end of each quarter of its taxable year the following two
conditions are met: (a) at least 50% of the value of the Fund's total assets is
represented by cash, U.S. Government securities, securities of other regulated
investment companies, and other securities (for this purpose such other
securities will qualify only if the Fund's investment is limited in respect to
any issuer to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer) and (b) not more than 25% of the
value of the Fund's assets is invested in securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies) or two or more issuers which the Fund controls and which are engaged
in the same, similar or related trade or businesses.
A Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
29
<PAGE>
A Fund is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that the number is correct and that
the shareholder is not subject to backup withholding.
Portfolio Transactions
The Manager is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' portfolio business and negotiation
of commissions, if any, paid on these transactions.
The Funds will arrange to be included within a class of investors
entitled not to pay sales charges by purchasing load fund shares under letters
of intent, rights of accumulation, cumulative purchase privileges, and other
quantity discount programs.
Each Fund may purchase shares of portfolio funds which charge a
redemption fee (not exceeding 2%). A redemption fee is a fee imposed by a
portfolio fund upon shareholders (such as a Fund) redeeming shares of the fund
within a certain period of time. The fee is payable to the portfolio fund.
Accordingly, if a Fund were to invest in a portfolio fund and, as a result of
redeeming shares in such portfolio fund, incur a redemption fee, the redeeming
Fund would bear the redemption fee. The Funds will not invest in shares of a
mutual fund that is sold with a contingent deferred sales load exceeding 2%.
During the last three fiscal years, Total Return Fund incurred no brokerage
commissions.
Code of Ethics
The 1940 Act and rules thereunder require that the Trust and the
Manager establish standards and procedures for the detection and prevention of
certain conflicts of interest, including activities by which persons having
knowledge of the investments and investment intentions of the Funds might take
advantage of that knowledge for their own benefit. The Trust and the Manager
have adopted a Code of Ethics to meet those concerns and legal requirements.
Although the Code does not prohibit employees who have knowledge of the
investments and investment intentions of the Funds from engaging in personal
securities investing, it does regulate such personal securities investing by
these employees as a part of the effort by the Trust and the Manager to detect
and prevent conflicts of interest.
Custodian
First National Bank of Muscatine ("FNBM"), 300 East Second Street,
Muscatine, Iowa 52761, is the custodian for the Funds. It is responsible for
holding all securities and cash of the Funds, receiving and paying for
securities purchased, delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering expenses of the
Funds, and performing other administrative duties, all as directed by authorized
persons of the Funds. FNBM does not exercise any supervisory function in such
matters as purchase and sale of portfolio securities, payment of dividends, or
payment of expenses of the Funds. The Funds
30
<PAGE>
have authorized FNBM to deposit certain portfolio securities of the Funds in
central depository systems as permitted under federal law.
Independent Auditors
[Name of auditor], [address], audits and reports on the Funds' annual
financial statements, reviews certain regulatory reports and the Funds' tax
returns, and performs other professional accounting, auditing, tax, and advisory
services when engaged to do so by the Funds.
Financial Statements
31
<PAGE>
Appendix - Description of Bond Ratings
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Manager believes that the quality of debt
securities in which the Funds invest should be continuously reviewed. A rating
is not a recommendation to purchase, sell, or hold a security, because it does
not take into account market value or suitability for a particular investor.
When a security has received a rating from more than one service, each rating
should be evaluated independently. Ratings are based on current information
furnished by the issuer or obtained by the ratings services from other sources
which they consider reliable. Ratings may be changed, suspended, or withdrawn as
a result of changes in or unavailability of information, or for other reasons.
The following is a description of the characteristics of ratings used
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
Moody's Ratings
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of the bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. The bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
<PAGE>
B--Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds rated Ca represent obligations which are speculative in a
high degree. The bonds are often in default or have other marked shortcomings.
S&P Ratings
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal
and interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
<PAGE>
PART C OTHER INFORMATION
Item 23. Exhibits
--------
(a)(1) Amended and Restated Declaration of Trust dated September 11, 2000
(a)(2) Establishment and Designation of Series of Shares of Beneficial
Interest
(b) Bylaws of the Registrant
(c) The Registrant does not issue share certificates
(d) Investment Management Agreement between the Registrant and Pearl
Management Company*
(e) None
(f) None
(g) Custodial Agreement between the Registrant and First National Bank of
Muscatine*
(h) Administrative Services Agreement between the Registrant and Pearl
Management Company*
(i)(1) Opinion and consent of Bell, Boyd & Lloyd LLC*
(i)(2) Opinion and consent of Bingham Dana LLP*
(j)(1) Consent of Independent Accountants*
(k) None
(l) Subscription Agreement between the Registrant and Pearl Management
Company*
(m) None
(n) None
(p)(1) Form of Pearl Mutual Funds and Pearl Management Company Code of
Ethics and Policy and Procedures to Prevent Misuse of Inside
Information
(p)(2) Form of Pearl Mutual Funds Code of Ethics for Outside Trustees
____________________
* To be filed by amendment.
C-1
<PAGE>
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with, the
Registrant within the meaning of this item. The information in the prospectus
under the caption "Management of the Funds" and in the Statement of Additional
Information under the caption "Investment Manager" and "Trustees and Officers"
is incorporated by reference.
Item 25. Indemnification
---------------
Article XII of the Declaration of Trust of Registrant (exhibit 1 to this
Registration Statement, which is incorporated herein by reference) provides that
Registrant shall provide certain indemnification of its trustees and officers.
In accordance with Section 17(h) of the Investment Company Act, that provision
shall not protect any person against any liability to the Registrant or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, negligence or reckless disregard of the duties involved
in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant, its trustees and officers, Pearl Management Company
("PMC") (the investment manager to Registrant) and certain affiliated persons of
PMC and affiliated persons of such persons are insured under a policy of
insurance maintained by Registrant, PMC and those affiliates, within the limits
and subject to the limitations of the policy, against certain expenses in
connection with the defense of actions, suits or proceedings, and certain
liabilities that might be imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been such
trustees, directors or officers. The policy expressly excludes coverage for any
trustee or officer whose personal dishonesty, fraudulent breach of trust, lack
of good faith, or intention to deceive or defraud has been finally adjudicated
or may be established or who willfully fails to act prudently.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
The information in the prospectus under the caption "Management of the
Funds" is incorporated by reference. For a description of other business,
profession, vocation or employment of a substantial nature in which any officer
or director of PMC has engaged within the last 2 fiscal years for his or her own
account or in the capacity of director, officer, employee, partner or trustee,
see the information under the caption "Trustees and Officers" in the statement
of additional information.
Item 27. Principal Underwriters
----------------------
None
C-2
<PAGE>
Item 28. Location of Accounts and Records
--------------------------------
David M. Stanley, President
Mutual Selection Management Company
2610 Park Avenue
Muscatine, IA 52761
Item 29. Management Services
-------------------
None
Item 30. Undertakings
------------
Not applicable
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Muscatine, Iowa on January 5, 2001.
PEARL MUTUAL FUNDS
By /s/ David M. Stanley
--------------------------------
David M. Stanley, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ John W. Axel Trustee )
-------------------------- )
John W. Axel )
)
/s/ Jeffrey R. Boeyink Trustee )
-------------------------- )
Jeffrey R. Boeyink )
)
/s/ Douglas B. Coder Trustee )
-------------------------- )
Douglas B. Coder )
)
/s/ Dr. David N. DeJong Trustee )
-------------------------- )
Dr. David N. DeJong )
)
/s/ David L. Evans Trustee )
-------------------------- )
David L. Evans ) January 5, 2001
)
/s/ David M. Stanley Trustee )
-------------------------- )
David M. Stanley Chairman and President )
(principal executive officer) )
)
/s/ Robert W. Toborg Trustee )
-------------------------- )
Robert W. Toborg )
)
/s/ Janet R. Van Alsburg Vice-President )
-------------------------- )
Janet R. Van Alsburg Secretary and Treasurer )
(principal accounting officer )
<PAGE>
Exhibits Being Filed with This Amendment
----------------------------------------
Exhibit
Number Exhibit
------ -------
(a)(1) Amended and Restated Declaration of Trust dated September 11, 2000
(a)(2) Establishment and Designation of Series of Shares of Beneficial
Interest
(b) Bylaws of the Registrant
(p)(1) Form of Pearl Mutual Funds and Pearl Management Company Code of Ethics
and Policy and Procedures to Prevent Misuse of Inside Information
(p)(2) Form of Pearl Mutual Funds Code of Ethics for Outside Trustees
