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Exhibit (p)(1)
PEARL MUTUAL FUNDS
AND
PEARL MANAGEMENT COMPANY
Code of Ethics
and
Policy and Procedures to Prevent
Misuse of Inside Information
(Effective _______, 2001)
The policy of Pearl Management Company ("PMC") is to avoid any conflict of
interest, or the appearance of any conflict of interest, between the interests
of Pearl Mutual Funds (the "Trust") and its shareholders and PMC's officers,
employees, directors and each person directly or indirectly owning, controlling,
or persons holding or with power to vote 5% or more of the outstanding voting
securities of PMC.
The Investment Company Act and rules require that PMC 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 Trust might take advantage of that knowledge for
their own benefit. The Code has been adopted by the Trust and PMC to meet those
concerns and legal requirements.
This Code also contains procedures designed to prevent the misuse of inside
information by PMC or its personnel. The business of PMC depends on investor
confidence in the fairness and integrity of the securities markets. Insider
trading poses a significant threat to that confidence. Trading securities while
in possession of inside information or improperly communicating that information
to others may expose you to stringent penalties. Criminal sanctions may include
a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and
Exchange Commission can recover the profits gained or losses avoided, a penalty
of up to three times the illicit windfall and an order permanently barring you
from the securities industry. Finally, you may be sued by investors seeking to
recover damages for insider trading violations.
The Code is drafted broadly; it will be applied and interpreted in a similar
manner. You may legitimately be uncertain about the application of the Code in
a particular circumstance. Often, a single question can forestall disciplinary
action or complex legal problems. You should direct any questions relating to
this policy to David M. Stanley, PMC's Chairman, President and Director, or
Stacy H. Winick, counsel to the Trust. You also must notify the President
immediately if you have any reason to believe that a violation of the policy has
occurred or is about to occur.
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I. INVESTMENT COMPANY ACT PROHIBITIONS
The Investment Company Act and rules make it illegal for any person covered by
the Code, directly or indirectly, in connection with the purchase or sale of a
security held or to be acquired by the Trust to:
a. employ any device, scheme, or artifice to defraud the Trust;
b. make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light
of circumstances under which they are made, not misleading or in any
way mislead the Trust regarding a material fact;
c. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Trust; or
d. engage in any manipulative practice with respect to the Trust.
The restrictions on Personal Securities Transactions contained in this Code are
intended to help PMC monitor for compliance with these prohibitions.
II. DEFINITIONS
When used in this Code, the following terms have the meanings described below:
A. Personal Securities Transaction. The Code regulates Personal Securities
--------------------------------
Transactions as a part of the effort by the Trust and PMC to detect and
prevent conduct that might violate the general prohibitions outlined above.
A Personal Securities Transaction is a transaction in a security in which
the person subject to this Code has a beneficial interest.
1. Security. Security is defined very broadly, and means any note,
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stock, bond, debenture, investment contract, limited partnership
interest, and includes shares of a closed-end fund and any right to
acquire any security (an option or warrant, for example).
2. Beneficial interest. You have a beneficial interest in a security in
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which you have, directly or indirectly, the opportunity to profit or
share in any profit derived from a transaction in the security, or in
which you have an indirect interest, including beneficial ownership by
your spouse or minor children or other dependents living in your
household, or your share of securities held by a partnership of which
you are a general partner. Technically, the rules under section 16 of
the Securities Exchange Act of 1934 will be applied to determine if
you have a beneficial interest in a
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security (even if the security would not be within the scope of
section 16). Examples of beneficial interest are attached as Appendix
A.
B. Inside Information. Inside information is information that is both
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material and non-public that was (i) acquired in violation of a duty to
keep the information confidential, or (ii) misappropriated. For example,
if an officer of an issuer breaches his duty to the issuer and conveys
information that should have been kept confidential, that information is
"inside information," even if you learn it third- or fourth-hand. In
contrast, a conclusion drawn by a securities analyst from publicly-
available information is not inside information, even if the analyst's
conclusion is both material and non-public.
Deciding whether information that is material and non-public is "inside"
information is often difficult. For that reason, PMC's policies are
triggered by the possession of material, non-public information, whether or
not the information is "inside" information that will result in a trading
restriction.
1. Material Information. Information is "material" when there is a
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substantial likelihood that a reasonable investor would consider it
important in making his or her investment decisions. Generally, this
is information whose disclosure will have a substantial effect on the
price of a company's securities. No simple "bright line" test exists
to determine when information is material; assessments of materiality
involve a highly fact-specific inquiry. For this reason, you should
direct any questions about whether information is material to the
President.
Material information often relates to a company's results and
operations including, for example, dividend changes, earnings results,
changes in previously released earnings estimates, significant merger
or acquisition proposals or agreements, major litigation, liquidation
problems, and extraordinary management developments.
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material. Similarly,
prepublication information regarding reports in the financial press
also may be deemed material. For example, the Supreme Court upheld
the criminal convictions of insider trading defendants who capitalized
on prepublication information about The Wall Street Journal's Heard on
the Street column.
2. Non-Public Information. Information is "public" when it has been
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disseminated broadly to investors in the marketplace. Tangible
evidence of such dissemination is the best indication that the
information is public. For example, information is public after it
has become available to the
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general public through a public filing with the SEC or some other
governmental agency, the Dow Jones "tape" or The Wall Street Journal
or some other publication of general circulation, and after sufficient
time has passed so that the information has been disseminated widely.
C. Investment Personnel. The restrictions on Personal Securities Transactions
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and some of the compliance procedures contained in this Code differentiate among
groups of people based on their positions and responsibilities with PMC.
Investment Personnel (individually, an "Investment Person") are those who make,
or participate in making, investment decisions or recommendations for the Trust,
or who, because of their positions with the Trust or PMC, can be expected to
have more information about the portfolio transactions of the Trust. Investment
Personnel are:
. each member of the Investment Committee of PMC;
. each research director working for the Trust/PMC;
. support staff working directly with the Investment Committee and/or
research directors;
. each officer of the Trust employed by PMC;
. each director or officer of PMC; and
. employees of PMC who work on fund accounting matters.
D. Access Personnel. Access Personnel are all employees of PMC who are not
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Investment Personnel described above.
III. RESTRICTIONS
Every person subject to the Code shall comply with the following restrictions:
A. No Insider Trading. No person subject to the Code may engage in any
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transaction in a security (either a Personal Securities Transaction or a
transaction for the Trust), while in possession of inside information.
If you think that you might have material, non-public information, you
should take the following steps:
1. Report the information and proposed trade immediately to the
President.
2. Do not purchase or sell the securities on behalf of yourself or others
until PMC has made a determination as to the need for trading
restrictions.
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3. Do not communicate the information inside or outside PMC, other than
to the President.
4. After the President has reviewed the issue, PMC will determine whether
the information is material and non-public and, if so, whether any
trading restrictions apply and what action, if any, the firm should
take.
Trading during a tender offer represents a particular concern in the
law of insider trading. Each person subject to this Code should
exercise particular caution any time they become aware of non-public
information relating to a tender offer.
Consult with the President before taking any action.
B. No Communication of Material Non-Public Information. No person subject to
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the Code may communicate material, non-public information to others in
violation of the law. Conversations containing such information, if
appropriate at all, should be conducted in private (for example, not by
cellular telephone, to avoid potential interception).
Access to files containing material, non-public information and computer
files containing such information should be restricted, including by
maintenance of such materials in locked cabinets, or through the use of
passwords or other security devices for electronic data.
C. No Transactions with The Trust. No Investment Person or Access Person
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shall knowingly sell to or purchase from the Trust any security or other
property, except that shares of a portfolio of the Trust may be purchased
from and redeemed by the Trust.
D. No Conflicting Transactions. No Investment Person or Access Person shall
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engage in a Personal Securities Transaction in a security (other than a security
of an open-end investment company) which the person knows or has reason to
believe is being purchased or sold or considered for purchase or sale by the
Trust, until the Trust's transactions have been completed or consideration of
such transactions has been abandoned. A security will be treated as "under
consideration" if the Investment Committee anticipates purchasing or selling the
security within 14 calendar days or if it is on the Investment Committee's
"approved list." Each Affiliate is required to maintain the most recent version
of the "approved list."
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E. Initial Public Offerings. No Investment Person or Access Person shall
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acquire any security in an initial public offering, except (i) with the
prior consent of the President based on a determination that the
acquisition does not conflict with the Code or its underlying policies, or
the interests of PMC or the Trust, and (ii) in circumstances in which the
opportunity to acquire the security has been made available to the person
for reasons other than the person's relationship with PMC or the Trust.
Such circumstances might include, for example:
. an opportunity to acquire securities of an insurance company
converting from a mutual ownership structure to a stockholder
ownership structure, if the person's ownership of an insurance
policy issued by that company conveys that opportunity;
. an opportunity resulting from the person's pre-existing ownership
of an interest in the IPO company or an investor in the IPO
company; or
. an opportunity made available to the person's spouse, in
circumstances permitting the President reasonably to determine
that the opportunity is not being made available indirectly
because of the person's relationship with PMC or the Trust (for
example, because of the spouse's employment).
F. Private Placements. No Investment Person or Access Person shall acquire any
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security in a private placement without the express written prior approval
of the President. In deciding whether that approval should be granted, each
of those persons will consider whether the investment opportunity should be
reserved for the Trust, and whether the opportunity has been offered
because of the person's relationship with PMC or the Trust. An Investment
Person who has been authorized to acquire a security in a private placement
must disclose that investment if he or she later participates in
consideration of an investment in that issuer for the Trust's account. Any
investment decision for the Trust relating to that security must be made by
other Investment Personnel.
G. Short-Term Trading. No Investment Person may profit from the purchase and
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sale, or sale and purchase, of the same (or equivalent) securities within
60 days. Any profit so realized will be returned to PMC and then donated to
a charitable organization selected by PMC. However, such prohibition shall
not apply to any option or futures contract on a broadly traded index, or
to any transaction which has received the prior approval of the President.
H. High-Risk Trading Activities. Certain high-risk trading activities, if used
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in the management of an affiliate's personal trading portfolio, are risky
not only because of the nature of the securities transactions themselves,
but also because of the potential that action necessary to close out the
transactions may become
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prohibited during the duration of the transactions. Examples of such
activities include short sales of common stock and trading in derivative
instruments. If PMC becomes aware of material, non-public information about
the issuer of the underlying securities, PMC personnel may find themselves
"frozen" in a position in a derivative security. PMC will not bear any
losses in personal accounts as a result of implementation of this policy.
I. Gifts. No Investment Person or Access Person may accept any gift or other
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thing of more than a $100 value from any person or entity that does
business with or on behalf of PMC or the Trust, or seeks to do business
with or on behalf of PMC or the Trust. Gifts in excess of this value must
either be returned to the donor or paid for by the recipient. It is not the
intent of the Code to prohibit the everyday courtesies of business life.
Therefore, excluded from this prohibition are an occasional meal or ticket
to a theater, entertainment, or sporting event that is an incidental part
of a meeting that has a clear business purpose.
J. Service as a Director. No Investment Person or Access Person may serve as a
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member of the board of directors or trustees of any business organization,
other than a civic or charitable organization, without the prior written
approval of the President based on a determination that the board service
would not be inconsistent with the interests of PMC or the Trust. If an
Investment Person is serving as a board member, that Investment Person
shall not participate in making investment decisions relating to the
securities of the company on whose board he or she sits.
No Investment Person or Access Person may purchase or sell, for his or her
own account or for others, including investment companies managed by PMC,
securities of any public company of which a PMC Investment Person or Access
Person is a director or trustee, except that the person who is the director
or the trustee of the public company may purchase and sell securities of
that company with express prior approval of the President.
IV. COMPLIANCE PROCEDURES
A. Execution of Personal Securities Transactions through Disclosed Brokerage
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Accounts; Duplicate Confirmations. All Personal Securities Transactions
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must be conducted through brokerage or other accounts that have been
identified to the President. Each such brokerage or other account must be
set up to deliver duplicate copies of all confirmations and statements to
the President. No exceptions will be made to this policy. All Investment
Personnel and Access Persons shall cooperate in all aspects with the
President and/or his designee in securing confirmations and statements in a
timely manner.
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B. Preclearance. Except as provided below, all Personal Securities
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Transactions must be cleared in advance by the President. Personal
Securities Transactions by the Treasurer must be approved by President.
Personal Securities Transactions by the President must be approved by the
Treasurer. If the proposed trade is not executed within two business days
after preclearance, the preclearance will expire and the request must be
made again.
Transactions in the following securities are exempt from the preclearance
requirement:
1. securities listed as exempt in Section V;
2. municipal securities;
3. straight debt securities;
4. securities of companies with aggregate market capitalizations of
greater than $10 billion;
5. listed index options and futures; and
6. transactions in an account (including an investment advisory account,
trust account or other account) of such person (either alone or with
others) over which a person other than the Investment Person or Access
Person (including an investment adviser or trustee) exercises
investment discretion if:
. the Investment Person or Access Person does not know of the
proposed transaction until after the transaction has been
executed;
. the Investment Person or Access Person has previously identified
the account to the Compliance Officer and has affirmed to the
Compliance Officer that (in some if not all cases) he or she does
not know of proposed transactions in that account until after
they are executed.
This exclusion from the preclearance requirement is based upon the
employee not having knowledge of any transaction until after that
transaction is executed. Therefore, notwithstanding this general
exclusion, if the Investment Person or Access Person becomes aware of
any transaction in such investment advisory account before it is
executed, the Investment Person must seek preclearance of that
transaction before it is executed.
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C. Blackout Periods.
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1. Investment Personnel. No Personal Securities Transaction of an
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Investment Person will be cleared (as provided in B., above) if the
Trust (1) has a conflicting order pending or (2) is actively
considering a purchase or sale of the same security. A conflicting
order is any order for the same security, or an option on or warrant
for that security, that has not been fully executed. A purchase or
sale of a security is being "actively considered" (a) when a
recommendation to purchase or sell has been made for the Trust and is
pending, or, (b) with respect to the person making the recommendation,
when that person is seriously considering making the recommendation
within 14 calendar days, or, (c) the security is on the "approved
list."
Absent extraordinary circumstances, a Personal Securities Transaction
for an Investment Person will not be approved until the sixth business
day after completion of any transaction for the Trust.
2. Access Personnel. No Personal Securities Transaction of an Access
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Person may be executed on a day during which the Trust has a pending
order in the same security until that order is fully executed or
withdrawn.
D. Disclosure of Personal Holdings. Each Investment Person and Access Person
--------------------------------
shall disclose his or her personal securities holdings (not including
shares of open-end investment companies (mutual funds), direct obligations
of the U.S. government (U.S. treasury bills, notes and bonds) and money
market instruments, including bank certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements) no later than ten
days after commencement of employment with PMC, and annually thereafter as
of December 31 of each year. Annual reports shall be delivered to the
Compliance Officer no later than January 30 of the following year. The
initial holdings and annual holdings reports shall contain the following
information:
. title, interest rate and maturity date (if applicable), number of shares
and the principal amount of each security held beneficially;
. the name of any broker, dealer or bank with or through which the
Investment Person maintains an account; and
. the date the report is submitted.
E. Dealing with Certificated Securities. The receipt of certificated
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securities must be reported as described in F., below. Any subsequent
transaction in such securities must be conducted through a disclosed
brokerage account for which the Compliance Officer receives duplicate
confirmations and account statements. No
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person subject to the Code shall request withdrawal of securities from such
a brokerage account in certificated form.
F. Reporting Personal Securities Transactions.
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1. Each Investment Person and Access Person shall (i) identify to PMC
each brokerage or other account in which the Access Person has a
beneficial interest and (ii) instruct the broker or custodian to
deliver to the Compliance Officer duplicate confirmations of all
transactions and duplicate monthly statements.
2. Each Investment Person and Access Person shall report all Personal
Securities Transactions during a month to the Compliance Officer no
later than ten days after the end of the month.
Monthly transaction reports shall include the following information:
For each transaction:
. the date of the transaction;
. title, interest rate and maturity date (if applicable), number of
shares and the principal amount of each security involved;
. the nature of the transaction (i.e., purchase, sale, gift, or
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other type of acquisition or disposition);
. the price at which the transaction was effected;
. the name of the broker, dealer or bank with or through which the
transaction was effected; and
. the date the report is submitted.
In addition, for each account established during the month in which
securities are held for the benefit of an Investment Person or Access
Person, the monthly report shall include:
. the name of the broker, dealer or bank with whom the account was
established;
. the date the account was established; and
. the date the report is submitted.
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3. Reports relating to the Personal Securities Transactions of the
President shall be delivered to the Treasurer.
G. Form of Reports. Reports of Personal Securities Transactions may be in any
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form (including copies of confirmations or monthly statements) but must
include the information required by Section IV(F)(2).
Any Personal Securities Transaction of an Investment Person or Access
Person which for any reason does not appear in the trading or brokerage
records described above (for example, the receipt of certificated
securities by gift or inheritance) shall be reported as required by Section
IV(F)(2).
H. Monitoring of Transactions. PMC's President or his designee will monitor
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the trading patterns of Investment Personnel and Access Personnel, the
trading of the Trust, and trading for PMC's own account (if any) for
compliance with this Code, including the provisions intended to prevent the
misuse of inside information. The trading of the President will be
monitored by the Treasurer.
I. Educational Efforts. The President shall provide, on a regular basis, an
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education program to familiarize persons subject to the Code with the
provisions of the Code and to answer questions regarding the Code. The
President shall also be available to answer questions regarding the Code
and to resolve issues of whether information is inside information and to
determine what action, if any, should be taken.
J. Certification of Compliance. Each Investment Person and Access Person is
----------------------------
required to certify annually that (i) he or she has read and understands
the Code, (ii) recognizes that he or she is subject to the Code, and (iii)
he or she has disclosed or reported all Personal Securities Transactions
required to be disclosed or reported under the Code. PMC's President shall
annually distribute a copy of the Code and request certification by all
covered persons and shall be responsible for ensuring that all personnel
comply with the certification requirement.
Each Investment Person and Access Person who has not engaged in any
Personal Securities Transaction during the preceding year for which a
report was required to be filed pursuant to the Code shall include a
certification to that effect in his or her annual certification.
K. Report to The Trust's Board. The officers of the Trust shall prepare an
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annual report to the board of the Trust that:
1. summarizes existing procedures concerning personal investing and any
changes in those procedures during the past year;
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2. describes issues that arose during the previous year under the Code or
procedures concerning personal investing, including but not limited to
information about material violations of the Code and sanctions
imposed;
3. certifies to the board that the Trust has adopted procedures
reasonably necessary to prevent its Investment Persons and Access
Persons from violating the Code; and
4. identifies any recommended changes in existing restrictions or
procedures based upon experience under the Code, evolving industry
practices, or developments in applicable laws or regulations.
L. Reporting to PMC's Management. The President or his designee shall report
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the following to the management of PMC:
1. Special Reports. The President or designee shall report the existence
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of a potential violation of this Code to management of PMC promptly
providing full details, which may include (1) the name of particular
securities involved, if any; (2) the date(s) the President learned of
the potential violation and began investigating; (3) the accounts and
individuals involved; (4) actions taken as a result of the
investigation, if any; and (5) recommendations for further action.
2. Regular Reports. On an as-needed or periodic basis, the President
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shall report to the management of PMC as it may request, which may
include some or all of the following:
i. a summary of existing procedures of the Code;
ii. a summary of changes in procedures made in the last year;
iii. full details of any investigation since the last report (either
internal or by a regulatory agency) of any suspected insider
trading, the results of the investigation and a description of
any changes in procedures prompted by an such investigation;
iv. an evaluation of the current procedures and a description of
anticipated changes in procedures; and
v. a description of PMC's continuing educational program regarding
insider trading, including the dates of such programs since the
last report to management.
V. EXEMPT TRANSACTIONS
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The provisions of this Code are intended to restrict the personal investment
activities of persons subject to the Code only to the extent necessary to
accomplish the purposes of the Code. Therefore, the preclearance, blackout and
reporting provisions of this Code shall not apply to the following Personal
Securities Transactions:
A. Purchases or sales effected in any account over which the persons subject
to this Code have no direct or indirect influence or control;
B. Purchases or sales of:
1. securities that are direct obligations of the U.S. government (that
is, U.S. treasury bills, notes and bonds);
2. shares of open-end investment companies (mutual funds), including but
not limited to shares of any of the Trust's portfolios; and
3. bank certificates of deposit, banker's acceptances, repurchase
agreements or commercial paper.
C. Purchases that are part of an automatic dividend reinvestment plan;
D. Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of securities to the extent such rights were
acquired from such issuer, and sales of such rights so acquired; and
E. Purchases or sales that receive the prior approval of the President because
they are not inconsistent with this Code or the provisions of Rule 17j-1(a)
under the Investment Company Act of 1940. A copy of Rule 17j-1 is attached
as Appendix B.
VI. ENFORCEMENT OF THE CODE AND CONSEQUENCES FOR FAILURE TO COMPLY
The President or his designee shall be responsible for promptly investigating
all reports of possible violations of the provisions of this Code.
Compliance with this Code of Ethics is a condition of employment by PMC and
retention of positions with the Trust. Taking into consideration all relevant
circumstances, PMC will determine what action is appropriate for any breach of
the provisions of the Code. Possible actions include letters of sanction,
suspension or termination of employment, or removal from office.
Reports filed pursuant to the Code will be maintained in confidence but will be
reviewed by PMC to verify compliance with the Code. Additional information may
be required to clarify the nature of particular transactions.
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VII. RETENTION OF RECORDS
PMC's President or designee shall maintain the records listed below for a period
of five years at PMC's principal place of business in an easily accessible
place:
A. a list of all persons subject to the Code during the period;
B. receipts signed by all persons subject to the Code acknowledging receipt of
copies of the Code and acknowledging that they are subject to it;
C. a copy of each code of ethics that has been in effect at any time during
the period;
K. a copy of each report filed pursuant to the Code and a record of any known
violation and action taken as a result thereof during the period; and
L. records evidencing prior approval of, and the rationale supporting, an
acquisition by an Investment Person or Access Person of securities in a
private placement.
Adopted: __________, 2001
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Appendix A
Examples of Beneficial Interest
For purposes of the Code, you will be deemed to have a beneficial interest
in a security if you have the opportunity, directly or indirectly, to profit or
share in any profit derived from a transaction in the security. Examples of
beneficial ownership under this definition include:
. securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or broker, or
by a relative, executor or administrator) or that you have pledged to another
(as security for a loan, for example);
. securities held by a trust of which you are a beneficiary (except that, if
your interest is a remainder interest and you do not have or participate in
investment control of trust assets, you will not be deemed to have a
beneficial interest in securities held by the trust);
. securities held by you as trustee or co-trustee, where either you or any
member of your immediate family (i.e., spouse, children or descendants,
stepchildren, parents and their ancestors, and stepparents, in each case
treating a legal adoption as blood relationship) has a beneficial interest
(using these rules) in the trust.
. securities held by a trust of which you are the settlor, if you have the
power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
. securities held by any partnership in which you are a general partner, to the
extent of your interest in partnership capital or profits;
. securities held by a personal holding company controlled by you alone or
jointly with others;
. securities held by (i) your spouse, unless legally separated, or you and your
spouse jointly, or (ii) your minor children or any immediate family member of
you or your spouse (including an adult relative), directly or through a
trust, who is sharing your home, even if the securities were not received
from you and the income from the securities is not actually used for the
maintenance of your household; or
. securities you have the right to acquire (for example, through the exercise
of a derivative security), even if the right is not presently exercisable, or
securities as to which, through any other type of arrangement, you obtain
benefits substantially equivalent to those of ownership.
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Appendix A
You will not be deemed to have beneficial ownership of securities in the
following situations:
. securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over the
partnership's portfolio; and
. securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you have no
right to revoke the gift.
These examples are not exclusive. There are other circumstances in which you
may be deemed to have a beneficial interest in a security. Any questions about
whether you have a beneficial interest should be directed to the President.
<PAGE>
Appendix B
(S) 270.17j-1 Personal investment activities of investment company personnel.
(a) Definitions. For purposes of this section:
(1) Access Person means:
(i) Any director, officer, general partner or Advisory Person of a
Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily engaged in a business
or businesses other than advising Funds or other advisory
clients, the term Access Person means any director, officer,
general partner or Advisory Person of the investment adviser
who, with respect to any Fund, makes any recommendation,
participates in the determination of which recommendation
will be made, or whose principal function or duties relate
to the determination of which recommendation will be made,
or who, in connection with his or her duties, obtains any
information concerning recommendations on Covered Securities
being made by the investment adviser to any Fund.
(B) An investment adviser is "primarily engaged in a business or
businesses other than advising Funds or other advisory
clients" if, for each of its most recent three fiscal years
or for the period of time since its organization, whichever
is less, the investment adviser derived, on an
unconsolidated basis, more than 50 percent of its total
sales and revenues and more than 50 percent of its income
(or loss), before income taxes and extraordinary items, from
the other business or businesses.
(ii) Any director, officer or general partner of a principal
underwriter who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or
sale of Covered Securities by the Fund for which the principal
underwriter acts, or whose functions or duties in the ordinary
course of business relate to the making of any recommendation to
the Fund regarding the purchase or sale of Covered Securities.
(2) Advisory Person of a Fund or of a Fund's investment adviser means:
(i) Any employee of the Fund or investment adviser (or of any company
in a control relationship to the Fund or investment adviser) who,
in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or
sale of Covered Securities by a Fund, or whose functions relate
to the making of any recommendations with respect to the
purchases or sales; and
(ii) Any natural person in a control relationship to the Fund or
investment adviser who obtains information concerning
recommendations made to the Fund with regard to the purchase or
sale of Covered Securities by the Fund.
(3) Control has the same meaning as in section 2(a)(9) of the Act [15
U.S.C. 80a-2(a)(9)].
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Appendix B
(4) Covered Security means a security as defined in section 2(a)(36) of
the Act [15 U.S.C. 80a-2(a)(36)], except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt
instruments, including repurchase agreements; and
(iii) Shares issued by open-end Funds.
(5) Fund means an investment company registered under the Investment
Company Act.
(6) An Initial Public Offering means an offering of securities
registered under the Securities Act of 1933 [15 U.S.C. 77a], the
issuer of which, immediately before the registration, was not
subject to the reporting requirements of sections 13 or 15(d) of
the Securities Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)].
(7) Investment Personnel of a Fund or of a Fund's investment adviser
means:
(i) Any employee of the Fund or investment adviser (or of any
company in a control relationship to the Fund or
investment adviser) who, in connection with his or her
regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of
securities by the Fund.
(ii) Any natural person who controls the Fund or investment
adviser and who obtains information concerning
recommendations made to the Fund regarding the purchase or
sale of securities by the Fund.
(8) A Limited Offering means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to section
4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to
rule 504, rule 505, or rule 506 [17 CFR 230.504, 230.505, or
230.506] under the Securities Act of 1933.
(9) Purchase or sale of a Covered Security includes, among other
things, the writing of an option to purchase or sell a Covered
Security.
(10) Security Held or to be Acquired by a Fund means:
(i) Any Covered Security which, within the most recent 15
days:
(A) Is or has been held by the Fund; or
(B) Is being or has been considered by the Fund or its
investment adviser for purchase by the Fund; and
(ii) Any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered Security
described in paragraph (a)(10)(i) of this section.
(b) Unlawful Actions. It is unlawful for any affiliated person of or principal
underwriter for a Fund, or any affiliated person of an investment adviser
of or principal underwriter for a Fund, in
B-2
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Appendix B
connection with the purchase or sale, directly or indirectly, by the person
of a Security Held or to be Acquired by the Fund:
(1) To employ any device, scheme or artifice to defraud the Fund;
(2) To make any untrue statement of a material fact to the Fund or omit to
state a material fact necessary in order to make the statements made
to the Fund, in light of the circumstances under which they are made,
not misleading;
(3) To engage in any act, practice or course of business that operates or
would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the Fund.
(c) Code of Ethics.
(1) Adoption and Approval of Code of Ethics.
(i) Every Fund (other than a money market fund or a Fund that does
not invest in Covered Securities) and each investment adviser
of and principal underwriter for the Fund, must adopt a written
code of ethics containing provisions reasonably necessary to
prevent its Access Persons from engaging in any conduct
prohibited by paragraph (b) of this section.
(ii) The board of directors of a Fund, including a majority of
directors who are not interested persons, must approve the code
of ethics of the Fund, the code of ethics of each investment
adviser and principal underwriter of the Fund, and any material
changes to these codes. The board must base its approval of a
code and any material changes to the code on a determination
that the code contains provisions reasonably necessary to
prevent Access Persons from engaging in any conduct prohibited
by paragraph (b) of this section. Before approving a code of a
Fund, investment adviser or principal underwriter or any
amendment to the code, the board of directors must receive a
certification from the Fund, investment adviser or principal
underwriter that it has adopted procedures reasonably necessary
to prevent Access Persons from violating the investment
adviser's or principal underwriter's code of ethics. The Fund's
board must approve the code of an investment adviser or
principal underwriter before initially retaining the services
of the investment adviser or principal underwriter. The Fund's
board must approve a material change to a code no later than
six months after adoption of the material change.
(iii) If a Fund is a unit investment trust, the Fund's principal
underwriter or depositor must approve the Fund's code of
ethics, as required by paragraph (c)(1)(ii) of this section. If
the Fund has more than one principal underwriter or depositor,
the principal underwriters and depositors may designate, in
writing, which principal underwriter or depositor must conduct
the approval required by paragraph (c)(1)(ii) of this section,
if they obtain written consent from the designated principal
underwriter or depositor.
(2) Administration of Code of Ethics.
(i) The Fund, investment adviser and principal underwriter must use
reasonable diligence and institute procedures reasonably
necessary to prevent violations of its code of ethics.
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Appendix B
(ii) No less frequently than annually, every Fund (other than a unit
investment trust) and its investment advisers and principal
underwriters must furnish to the Fund's board of directors, and
the board of directors must consider, a written report that:
(A) Describes any issues arising under the code of ethics or
procedures since the last report to the board of
directors, including, but not limited to, information
about material violations of the code or procedures and
sanctions imposed in response to the material violations;
and
(B) Certifies that the Fund, investment adviser or principal
underwriter, as applicable, has adopted procedures
reasonably necessary to prevent Access Persons from
violating the code.
(3) Exception for Principal Underwriters. The requirements of paragraphs
(c)(1) and (c)(2) of this section do not apply to any principal
underwriter unless:
(i) The principal underwriter is an affiliated person of the Fund or
of the Fund's investment adviser; or
(ii) An officer, director or general partner of the principal
underwriter serves as an officer, director or general partner of
the Fund or of the Fund's investment adviser.
(d) Reporting Requirements of Access Persons.
(1) Reports Required. Unless excepted by paragraph (d)(2) of this section,
every Access Person of a Fund (other than a money market fund or a
Fund that does not invest in Covered Securities) and every Access
Person of an investment adviser of or principal underwriter for the
Fund, must report to that Fund, investment adviser or principal
underwriter:
(i) Initial Holdings Reports. No later than 10 days after the person
becomes an Access Person, the following information:
(A) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership when the person became an
Access Person;
(B) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access
Person as of the date the person became an Access Person;
and
(C) The date that the report is submitted by the Access Person.
(ii) Quarterly Transaction Reports. No later than 10 days after the
end of a calendar quarter, the following information:
(A) With respect to any transaction during the quarter in a
Covered Security in which the Access Person had any direct
or indirect beneficial ownership:
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<PAGE>
Appendix B
(1) The date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
(2) The nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(3) The price of the Covered Security at which the
transaction was effected;
(4) The name of the broker, dealer or bank with or through
which the transaction was effected; and
(5) The date that the report is submitted by the Access
Person.
(B) With respect to any account established by the Access Person
in which any securities were held during the quarter for the
direct or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the
Access Person established the account;
(2) The date the account was established; and
(3) The date that the report is submitted by the Access
Person.
(iii) Annual Holdings Reports. Annually, the following information
(which information must be current as of a date no more than 30
days before the report is submitted):
(A) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership;
(B) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held
for the direct or indirect benefit of the Access Person; and
(C) The date that the report is submitted by the Access Person.
(2) Exceptions from Reporting Requirements.
(i) A person need not make a report under paragraph (d)(1) of this
section with respect to transactions effected for, and Covered
Securities held in, any account over which the person has no
direct or indirect influence or control.
(ii) A director of a Fund who is not an "interested person" of the
Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C.
80a-2(a)(19)], and who would be required to make a report solely
by reason of being a Fund director, need not make:
(A) An initial holdings report under paragraph (d)(1)(i) of this
section and an annual holdings report under paragraph
(d)(1)(iii) of this section; and
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<PAGE>
Appendix B
(B) A quarterly transaction report under paragraph
(d)(1)(ii) of this section, unless the director knew
or, in the ordinary course of fulfilling his or her
official duties as a Fund director, should have known
that during the 15-day period immediately before or
after the director's transaction in a Covered Security,
the Fund purchased or sold the Covered Security, or the
Fund or its investment adviser considered purchasing or
selling the Covered Security.
(iii) An Access Person to a Fund's principal underwriter need not
make a report to the principal underwriter under paragraph
(d)(1) of this section if:
(A) The principal underwriter is not an affiliated person
of the Fund (unless the Fund is a unit investment
trust) or any investment adviser of the Fund; and
(B) The principal underwriter has no officer, director or
general partner who serves as an officer, director or
general partner of the Fund or of any investment
adviser of the Fund.
(iv) An Access Person to an investment adviser need not make a
quarterly transaction report to the investment adviser under
paragraph (d)(1)(ii) of this section if all the information
in the report would duplicate information required to be
recorded under (S)(S) 275.204-2(a)(12) or 275.204-2(a)(13)
of this chapter.
(v) An Access Person need not make a quarterly transaction
report under paragraph (d)(1)(ii) of this section if the
report would duplicate information contained in broker trade
confirmations or account statements received by the Fund,
investment adviser or principal underwriter with respect to
the Access Person in the time period required by paragraph
(d)(1)(ii), if all of the information required by that
paragraph is contained in the broker trade confirmations or
account statements, or in the records of the Fund,
investment adviser or principal underwriter.
(3) Review of Reports. Each Fund, investment adviser and principal
underwriter to which reports are required to be made by paragraph
(d)(1) of this section must institute procedures by which appropriate
management or compliance personnel review these reports.
(4) Notification of Reporting Obligation. Each Fund, investment adviser
and principal underwriter to which reports are required to be made by
paragraph (d)(1) of this section must identify all Access Persons who
are required to make these reports and must inform those Access
Persons of their reporting obligation.
(5) Beneficial Ownership. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be under (S)
240.16a-1(a)(2) of this chapter in determining whether a person is the
beneficial owner of a security for purposes of section 16 of the
Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and
regulations thereunder. Any report required by paragraph (d) of this
section may contain a statement that the report will not be construed
as an admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which the
report relates.
(e) Pre-approval of Investments in IPOs and Limited Offerings. Investment
Personnel of a Fund or its investment adviser must obtain approval from the
Fund or the Fund's investment adviser before
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<PAGE>
Appendix B
directly or indirectly acquiring beneficial ownership in any securities in
an Initial Public Offering or in a Limited Offering.
(f) Recordkeeping Requirements.
(1) Each Fund, investment adviser and principal underwriter that is
required to adopt a code of ethics or to which reports are required to
be made by Access Persons must, at its principal place of business,
maintain records in the manner and to the extent set out in this
paragraph (f), and must make these records available to the Commission
or any representative of the Commission at any time and from time to
time for reasonable periodic, special or other examination:
(A) A copy of each code of ethics for the organization that is in
effect, or at any time within the past five years was in effect,
must be maintained in an easily accessible place;
(B) A record of any violation of the code of ethics, and of any
action taken as a result of the violation, must be maintained in
an easily accessible place for at least five years after the end
of the fiscal year in which the violation occurs;
(C) A copy of each report made by an Access Person as required by
this section, including any information provided in lieu of the
reports under paragraph (d)(2)(v) of this section, must be
maintained for at least five years after the end of the fiscal
year in which the report is made or the information is provided,
the first two years in an easily accessible place;
(D) A record of all persons, currently or within the past five years,
who are or were required to make reports under paragraph (d) of
this section, or who are or were responsible for reviewing these
reports, must be maintained in an easily accessible place; and
(E) A copy of each report required by paragraph (c)(2)(ii) of this
section must be maintained for at least five years after the end
of the fiscal year in which it is made, the first two years in an
easily accessible place.
(2) A Fund or investment adviser must maintain a record of any decision,
and the reasons supporting the decision, to approve the acquisition by
Investment Personnel of securities under paragraph (e), for at least
five years after the end of the fiscal year in which the approval is
granted.
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<PAGE>
ATTACHMENT A
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
Code of Ethics. Pearl Mutual Funds ("the Trust") and Pearl Management
Company ("PMC") have adopted a written Code of Ethics and Policy and Procedures
to Prevent Misuse of Inside Information (the "Code") to avoid potential
conflicts of interest by PMC and the Trust and to govern the use and handling of
material non-public information. A copy of the Code is attached to this
acknowledgement. As a condition of your continued employment with PMC or the
Trust, and the retention of your position, if any, as an officer of the Trust,
you are required to read, understand and abide by the Code.
Compliance Program. The Code requires that all personnel furnish to PMC's
President the names and addresses of any firm with which you have any investment
account. You are also required to furnish to PMC's President copies of your
monthly or quarterly account statements, or other documents, showing all
purchases or sales of securities in any such account, or which are effected by
you or for your benefit, or the benefit of any member of your household.
Additionally, you are required to furnish a report of your personal securities
holdings within ten days of commencement of your employment with PMC and
annually thereafter. These requirements apply to any investment account, such
as an account at a brokerage house, trust account at a bank, custodial account
or similar types of accounts.
PMC's compliance program also requires that you report any contact with any
securities issuer, government or its personnel, or others, that, in the usual
course of business, might involve material non-public financial information.
Only Investment Personnel are permitted to make such contacts. The Code
requires that you bring to the attention of the President any information you
receive from any source which might be material non-public information.
Any questions concerning the Code should be directed to PMC's President.
--------------------------------------------------------------------------------
I affirm that I have read and understand the Code of Ethics and Policy and
Procedures to Prevent Misuse of Inside Information ("Code"). I agree to the
terms and conditions set forth in the Code.
_______________________________ ________________________
Signature Date
<PAGE>
ATTACHMENT B
ANNUAL AFFIRMATION OF COMPLIANCE
I affirm that:
1. I have again read and, during the past year to the best of my
knowledge, have complied with the Code of Ethics and Policy and
Procedures to Prevent Misuse of Inside Information ("Code").
2. I have provided to PMC's President the names and addresses of each
investment account that I have with any firm, including, but not
limited to, broker-dealers, banks and others. (List of known accounts
attached.)
3. I have provided to PMC's President copies of account statements or
other reports showing each and every transaction in any security in
which I have a beneficial interest, as defined in the Code, during the
most recently ended calendar year
or
During the most recent calendar year there were no transactions in any
security in which I had a beneficial interest required to be reported
pursuant to the Code.
4. I have provided to the President a report of my personal securities
holdings as of the end of the most recent calendar year, including all
required information for each security in which I have any direct or
indirect beneficial ownership.
_______________________________ ________________________
Signature Date
