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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10261
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Pearl Mutual Funds
(Exact name of registrant as specified in charter)
2610 Park Avenue
P.O. Box 209
Muscatine, Iowa 52761
(Address of principal executive offices) (Zip Code)
Robert H. Solt Stacy H. Winick
2610 Park Avenue Bell, Boyd & Lloyd PLLC
P.O. Box 209 1615 L Street, N.W., Suite 1200
Muscatine, Iowa 52761 Washington, DC 20036
(Name and address of agents for service)
Registrant's telephone number, including area code: (563) 288-2773
Date of fiscal year end: December 31
Date of reporting period: June 30, 2003
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Item 1. Reports to Shareholders.
Pearl Mutual Funds
Semi-Annual Report
June 30, 2003
[GRAPHIC APPEARS HERE]
IMPORTANT NEWS SEE PAGE 1
www.pearlfunds.com [LOGO OF PEARL FUNDS]
2610 Park Avenue PO Box 209 Muscatine IA 52761
866-747-9030 (toll-free) or 563-288-2773
Fax: 563-288-4101
E-mail: info@pearlfunds.com
Pearl Mutual Funds
2003 Semi-Annual Report
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Page
IMPORTANT NEWS................................................................ 1
Performance Review........................................................ 2 - 3
Investment Strategy....................................................... 3 - 5
Pearl Total Return Fund Overview.......................................... 6 - 8
Pearl Aggressive Growth Fund Overview.................................... 9 - 11
General Information..................................................... 12 - 13
Pearl Total Return Fund Financial Statements............................ 14 - 16
Pearl Aggressive Growth Fund Financial Statements....................... 17 - 19
Notes to Financial Statements........................................... 20 - 21
Pearl Total Return Fund Financial Highlights................................. 22
Pearl Aggressive Growth Fund Financial Highlights............................ 23
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Pearl Mutual Funds [LOGO OF PEARL FUNDS]
2610 Park Avenue
PO Box 209
Muscatine IA 52761
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E-mail: info@pearlfunds.com
Chairman & President IMPORTANT NEWS! August 13, 2003
David M. Stanley
Executive Vice . For the 3 1/2 years through June 30, 2003, Pearl
President Total Return Fund was up 5.09%, while most stock
Robert H. Solt indexes had big losses, including: Wilshire 5000 down
29.12%, MSCI World down 35.71%, Value Line
Vice President of (Geometric) down 30.61%, All Equity Funds Average
Investment Management (Lipper) down 26.04%, All Long-Term Taxable Funds
Kevin J. Burns Average (Lipper) down 14.51%, and S&P 500 down
30.27%. These 3 1/2 years included the 3-year bear
Trustees market (2000-2002) and a strong rally in the first
John W. Axel half of 2003.
Jeffrey R. Boeyink
Douglas B. Coder . Pearl Total Return Fund strongly outperformed all 5
Dr. David N. Dejong of its comparison indexes during the last 3 and 5
David L. Evans years, both in total return and risk-adjusted total
Robert H. Solt return.
David M. Stanley
. During its first 2 years through June 30, 2003, Pearl
Staff Aggressive Growth Fund nearly broke even (down 0.23%)
Karen M. Brookhart while all 5 of its comparison indexes had big losses:
Peggy A. Cherrier Wilshire 5000 down 15.56%, MSCI World down 17.23%,
Karen J. Grell Value Line (Geometric) down 25.21%, All Equity Funds
Christopher A. Hoffman Average (Lipper) down 16.19%, and S&P 500 down
Renata R. Lamar 17.78%.
. Pearl Total Return Fund gained 12.42% during the
first six months of 2003 - in line with its
comparison indexes.
. Pearl Aggressive Growth Fund was up 19.90% in the
first half of 2003 - strongly outperforming all 5 of
its comparison indexes.
. On August 12, 2003, these year-to-date gains had
grown to 15.47% for Total Return Fund and 26.50% for
Aggressive Growth Fund.
. Both Pearl Funds are no-load - no sales charge,
commission, or redemption fee. Both Funds have one of
the lowest expense ratios (annual rates 0.96% and
0.98%) for all funds of their type (independent fund
of funds). In 2003 to date, both Funds continued to
make all their investments on a no-load basis.
Please consider all information in this report and in the
Prospectus. Past performance does not guarantee future results.
Figures above are not annualized.
Thank you for your confidence in Pearl Mutual Funds.
You are invited to visit our Website at www.pearlfunds.com.
Please call, write, fax, or e-mail us. We are here to help you.
Sincerely,
YOUR INVESTMENT MANAGEMENT TEAM:
/s/ Kevin J. Burns /s/ Robert H. Solt /s/ David M. Stanley
Kevin J. Burns Robert H. Solt David M. Stanley
1
Pearl Mutual Funds
Performance Review as of June 30, 2003
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First Half 2003 Performance. Total Return of Pearl Total Return Fund, Pearl
Aggressive Growth Fund, and each Fund's Comparison Indexes:*
- ------------------------------------------- -------------------------------------------
For six months ended 6-30-03: For six months ended 6-30-03:
- ------------------------------------------- -------------------------------------------
Pearl Total Return Fund + 12.42% Pearl Aggressive Growth Fund + 19.90%
- ------------------------------------------- -------------------------------------------
Wilshire 5000 Index + 12.91% Wilshire 5000 Index + 12.91%
- ------------------------------------------- -------------------------------------------
MSCI World Index + 11.12% MSCI World Index + 11.12%
- ------------------------------------------- -------------------------------------------
Value Line (Geometric) Index + 13.31% Value Line (Geometric) Index + 13.31%
- ------------------------------------------- -------------------------------------------
All Equity Funds Average (Lipper) + 12.85% Standard & Poor's 500 Index + 11.76%
- ------------------------------------------- -------------------------------------------
All Long-Term Taxable Funds Avg. + 11.25% All Equity Funds Average (Lipper) + 12.85%
- ------------------------------------------- -------------------------------------------
* Not annualized. All total returns include dividends reinvested, except
Value Line Index. The total returns do not reflect the deduction of taxes
that a shareholder would pay on fund dividends or on redemption of fund
shares. Likewise, the total returns on indexes do not reflect the deduction
of taxes that an investor in stocks would pay on dividends or on sale of
stocks. See Page 12 for a description of each index.
We are pleased that Pearl Aggressive Growth Fund strongly outperformed all 5 of
its comparison indexes during the first half of the year. The more conservative
Pearl Total Return Fund outperformed by a narrow margin the average (+ 12.29%)
of its 5 benchmark indexes. See each index's total return above. Past
performance does not predict future performance.
First Half Performance Factors. We believe Pearl Total Return Fund's and Pearl
Aggressive Growth Fund's comparative performance and total return during the
first six months of 2003 were affected by many factors, including each Fund's
investment strategy and decisions by the Funds' Manager, Pearl Management
Company. These factors include:
. U.S. and global stock markets recovered strongly during the first six
months of 2003. Most stocks struggled in the first three months of the
year. However, stock markets rose sharply in the second quarter;
investors appeared to be encouraged by the winding down of the war in
Iraq along with some signs of a recovering economy.
. In a reversal from the previous 3 years, growth-style funds as a whole
outperformed most value-style funds by a small margin.
Smaller-capitalization stocks continued to perform better than larger
companies. Overall, international stocks also improved and performed
similarly to U.S. stocks during the first half of 2003, and had the same
pattern of significantly better performance from smaller companies. U.S.
high-yield bonds as a group were also up strongly. We believe these
trends had a mixed effect on Pearl Total Return Fund and significantly
aided the total return of Pearl Aggressive Growth Fund.
. During the first six months of 2003, a majority of Total Return Fund's
mutual fund investments were in relatively conservative funds with
below-average risk records, a value emphasis, and a focus on small-cap
and mid-cap stocks. This Fund also continued to hold two bond funds. We
believe these decisions reduced risk and had a mixed effect on the Fund's
comparative performance - small caps helped significantly while the value
style slightly underperformed. The Fund also maintained its significant
investment in international equity funds. As in 2002, international funds
investing in smaller companies performed better overall than
international funds with a larger company focus, which helped this Fund.
2
. Aggressive Growth Fund was more growth-oriented in its fund holdings than
Total Return Fund and had an even greater small-cap emphasis, both of
which helped its performance. Aggressive Growth Fund continued its
significant investment in international equity funds and they were also
positive contributors to the Fund's outperformance.
. Both Funds did not pay any sales charge or redemption fee. Both Funds
made all their investments on a no-load basis. See "No-Load Investing"
below. This helped both Funds control costs and helped their performance.
. Pearl Management Company, the Funds' Manager, continues to use and
develop a proprietary method of compiling and evaluating data on a large
number of mutual funds and on the global stock markets. We believe this
helps Pearl Management Company's allocation decisions and selection of
mutual funds.
Investment Strategy
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Pearl Total Return Fund is a fund of funds that seeks long-term total return by
being primarily invested (80% or more of net assets) in equity mutual funds,
except when Pearl Management Company believes a lower percentage is justified by
high risks affecting stock markets. This Fund seeks to limit shareholders' risk
by holding a modest defensive position at times and by selecting some mutual
funds that we believe have relatively lower volatility.
Pearl Aggressive Growth Fund is a fund of funds that seeks long-term aggressive
growth of capital by being fully invested (95% or more) in equity mutual funds.
"Equity mutual funds" means funds whose objective is growth or capital
appreciation, including funds that invest in U.S. or foreign securities or both.
No-Load Investing. Both Funds are completely no-load - no sales charge, no
redemption fee, no distribution fee (12b-1 fee). However, some of the mutual
funds in which the Funds may invest may impose a 12b-1 fee. The Funds can invest
only in no-load (no sales charge and no redemption fee), low-load (2% or lower),
or load-waived (no-load due to large purchases) mutual funds. The Funds also can
invest in closed-end funds but have not yet done so. Both Funds seek to avoid
sales charges completely.
Pearl Aggressive Growth Fund has never paid any sales charge or redemption fee.
All of its investments to date were made on a no-load basis.
Pearl Total Return Fund has not paid any sales charge or redemption fee since
1998. All of its investments in the years 1999 through 2003 to date were made on
a no-load basis.
The Funds' investments in many mutual funds are generally large enough to take
advantage of sales load waivers on large purchases. Thus, both Funds are able to
select no-load investments from a very wide range of funds -- even though many
of those funds would require a typical investor to pay a sales charge.
3
Another potential benefit to Pearl Funds shareholders is that both Funds are
able to purchase shares of some mutual funds that are closed to new investors.
At June 30, 2003, Pearl Total Return Fund held three funds (comprising 25% of
its total assets) that are no longer open to new investors. Pearl Aggressive
Growth Fund held four funds that are closed to new investors (comprising 42% of
its total assets) at June 30, 2003.
Current Investments. At June 30, 2003, 89.0% of Pearl Total Return Fund's total
assets were invested in a diversified group of equity mutual funds, 8.2% in a
high-yield bond fund, 1.4% in a high-quality bond fund, and 1.4% in cash. This
Fund was 89-93% invested in equity funds throughout the first half of 2003.
At June 30, 2003, 99.5% of Pearl Aggressive Growth Fund's total assets were
invested in a diversified group of equity mutual funds, with only 0.5% in cash.
In keeping with its investment strategy, this Fund has been fully invested in
equity funds at all times.
Mid-year investments of both Funds are listed in the attached financial
statements. Portfolio investments are subject to change.
We still believe there are many risks in the U.S. stock market, including
continued overvaluation of many stocks, uncertainty about the strength of an
economic recovery in the U.S. and the world, timing and strength of a corporate
earnings recovery, possible further terrorist attacks, and potential panic by
disillusioned investors if recent market gains don't hold. After the strong
recent market rally, we believe stocks are more vulnerable to a correction.
However, we believe the strong reductions of interest rates over the past 2 1/2
years are very positive for stocks, and the recent tax relief law should also
provide some support for the market.
Although always difficult to judge, on balance we believe the reward/risk ratio
is slightly negative for the near term but more positive longer-term. We also
believe the near-term outlook continues to favor small-to-mid-cap stock funds,
although their relative attractiveness has lessened as their outperformance has
continued.
Compared to the U.S., we believe valuations still look favorable for
international markets as a whole. Economic difficulty is also a concern outside
the U.S., but we believe international stocks overall (including those in
emerging markets), especially international small-cap and mid-cap stocks, still
appear to offer a slightly better reward/risk ratio than U.S. stocks.
Weighing these factors, Pearl Total Return Fund remains mostly invested in
equity mutual funds but slightly increased its defensive position in late June
and July. At July 31, 2003, 86.7% of this Fund's total assets were invested in
equity mutual funds. A majority of this Fund's investments are still in equity
funds that emphasize value and that we believe are relatively conservative, and
in equity funds that hold mostly small-to-mid-cap stocks rather than large-caps.
This Fund continues its significant investment in international stock funds.
4
Pearl Aggressive Growth Fund continues to be fully invested (95% or more) in
equity mutual funds but has slightly increased its cash position to 3.7% and
reduced its equity funds position to 96.3% of total assets at July 31, 2003. In
comparison with Total Return Fund, Aggressive Growth Fund's portfolio as a whole
is more volatile, includes more growth-oriented funds, has an even greater
emphasis on small-to-mid-cap stocks, and also continues a significant investment
in international stock funds.
A more precise way to measure each Fund's asset allocation is its investment
portfolio asset breakdown, which counts each Fund's indirect investments through
the mutual funds held in its portfolio, using recent information on the
portfolio assets of those mutual funds. Based on the Funds' portfolio holdings
at June 30, 2003, each Fund's investment portfolio asset breakdown was:
Total Return Fund Aggressive Growth Fund
----------------- ----------------------
(as a percentage of total assets)
Total Stocks 79.2% 95.2%
U.S. Stocks 41.9% 53.6%
Foreign Stocks 37.3% 41.6%
Bonds 12.1% 0.4%
Cash 8.7% 4.4%
For example, at June 30, 2003, Pearl Total Return Fund's direct cash position
was 1.4%, but the percentage increases to 8.7% when the varying amounts of cash
held by the mutual funds in the Fund's portfolio are added. Each Fund's asset
allocation and portfolio holdings vary with changes in investments.
We diligently seek to select the best mutual funds in view of changing market
conditions. With this goal in mind, both Funds have made several portfolio
changes during 2003 to date. Taking into account the opportunities and the
risks, we believe each Fund's current portfolio mix is appropriate for the
current market environment. However, portfolio holdings are subject to change.
Top 5 Mutual Fund Holdings at June 30, 2003 (as a percentage of total assets):
Pearl Total Return Fund: Pearl Aggressive Growth Fund:
First Eagle Overseas, Class I 21.12% Dreyfus Premier Emerging Mkts.,
William Blair International Class A 16.40%
Growth, Class I 11.26% Wasatch Micro Cap 14.26%
N/I Numeric Small Cap Value 10.21% Oakmark Global, Class I 13.88%
Oakmark Select, Class I 9.01% Bogle Small Cap Growth,
Institutional 12.82%
Pioneer High Yield A 8.17% Driehaus International
Discovery 12.06%
Both Funds are actively managed and may change investments at any time. Each
Fund's portfolio holdings may be different by the time you read this report.
5
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Pearl Total Return Fund
- --------------------------------------------------------------------------------
10-Year Performance. Pearl Total Return Fund's 10-year performance record is
summarized in this graph:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PEARL TOTAL RETURN FUND AND ITS COMPARISON INDEXES *
(as of 6-30 each year) (with dividends reinvested, except for Value Line Index)
[GRAPH APPEARS HERE]
Pearl All Long-Term
Total Wilshire MSCI Value All Equity Taxable Funds
Return 5000 World Line (Geometric) Funds Average Average
Fund Index Index Index (Lipper) (Lipper)
1993 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
1994 $ 10,187 $ 10,119 $ 11,024 $ 9,878 $ 10,360 $ 10,230
1995 $ 11,365 $ 12,620 $ 12,200 $ 11,179 $ 12,328 $ 11,969
1996 $ 13,364 $ 15,929 $ 14,450 $ 12,731 $ 15,082 $ 13,922
1997 $ 16,029 $ 20,600 $ 17,668 $ 15,088 $ 18,054 $ 16,219
1998 $ 18,000 $ 26,545 $ 20,677 $ 17,130 $ 20,728 $ 18,388
1999 $ 18,705 $ 31,745 $ 23,917 $ 16,737 $ 23,564 $ 20,286
2000 $ 21,232 $ 34,768 $ 26,832 $ 14,656 $ 28,584 $ 23,516
2001 $ 23,104 $ 29,434 $ 21,385 $ 14,372 $ 24,822 $ 21,759
2002 $ 22,940 $ 24,542 $ 18,131 $ 11,656 $ 21,029 $ 19,492
2003 $ 22,763 $ 24,854 $ 17,703 $ 10,748 $ 20,804 $ 19,829
Past performance does not predict future performance
* The total returns in this report, including the graph and tables, do not
reflect the deduction of taxes that a shareholder would pay on fund dividends
or on redemption of fund shares. Likewise, the total returns on indexes do
not reflect the deduction of taxes that an investor in stocks would pay on
dividends or on sale of stocks.
PEARL TOTAL RETURN FUND'S average annual total return was + 8.57% during the
last 10 years and + 4.81% over the last 5 years. The value of an investment in
Total Return Fund grew 128% during the last 10 years and grew 26% during the
last 5 years. We believe these are good rates of total return in view of the
market conditions during these years, and we seek to continue improving them.
Performance of Pearl Total Return Fund and Comparison Indexes through 6-30-03:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Average Annual Total Returns for years
ended 6-30-03 with dividends reinvested
(except for Value Line Index): 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------
Pearl Total Return Fund - 0.77% + 2.35% + 4.81% + 8.57%
- ------------------------------------------------------------------------------------
Wilshire 5000 Index + 1.27% - 10.59% - 1.31% + 9.53%
- ------------------------------------------------------------------------------------
MSCI World Index - 2.36% - 12.95% - 3.06% + 5.88%
- ------------------------------------------------------------------------------------
Value Line (Geometric) Index - 7.79% - 9.82% - 8.90% + 0.72%
- ------------------------------------------------------------------------------------
All Equity Funds Average (Lipper) - 1.07% - 10.05% - 0.30% + 7.60%
- ------------------------------------------------------------------------------------
All Long-Term Taxable Funds Average (Lipper) + 1.73% - 5.53% + 1.21% + 7.09%
- ------------------------------------------------------------------------------------
See Page 12 for a description of each index.
6
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Pearl Total Return Fund
- --------------------------------------------------------------------------------
Risk-Adjusted Total Return. Pearl Total Return Fund seeks to outperform its 5
benchmark indexes on a long-term risk-adjusted total return basis. Two factors
should be considered together in assessing a mutual fund's performance: its
total return and its risk. Therefore, we measure your Fund's total return in
relation to the risk (volatility) it incurred, and then we compare this
risk-adjusted return with the Fund's 5 comparison indexes.
Standard deviation is the conventional statistical measure used to determine the
volatility (variability) -- and therefore the risk -- of a mutual fund or an
index. The higher the standard deviation, the greater the volatility risk. A low
standard deviation is desirable.
Standard Deviations of Pearl Total Return Fund and Comparison Indexes through
6-30-03:
- -----------------------------------------------------------------------------
Annualized Standard Deviations: 1 year 3 years 5 years
- -----------------------------------------------------------------------------
Pearl Total Return Fund 19.56% 16.05% 15.68%
- -----------------------------------------------------------------------------
Wilshire 5000 Index 28.26% 20.10% 20.76%
- -----------------------------------------------------------------------------
MSCI World Index 24.65% 17.57% 19.32%
- -----------------------------------------------------------------------------
Value Line (Geometric) Index 27.91% 21.50% 19.49%
- -----------------------------------------------------------------------------
All Equity Funds Average (Lipper) 23.51% 18.33% 19.62%
- -----------------------------------------------------------------------------
All Long-Term Taxable Funds Average (Lipper) 17.78% 13.96% 14.50%
- -----------------------------------------------------------------------------
See page 12 for a description of each index.
The Sharpe ratio is a conventional measure that combines total return and
standard deviation to produce a risk-adjusted performance figure. It is a ratio
of reward (total return in excess of the 90-day Treasury bill return) to the
volatility risk (standard deviation). The higher the number, the better the
risk-adjusted return. A high Sharpe ratio is desirable.
Sharpe Ratios of Pearl Total Return Fund and Comparison Indexes through 6-30-03:
- -----------------------------------------------------------------------------
Sharpe Ratios: 1 year 3 years 5 years
- -----------------------------------------------------------------------------
Pearl Total Return Fund - 0.11 - 0.05 + 0.07
- -----------------------------------------------------------------------------
Wilshire 5000 Index - 0.00 - 0.75 - 0.31
- -----------------------------------------------------------------------------
MSCI World Index - 0.15 - 1.01 - 0.45
- -----------------------------------------------------------------------------
Value Line (Geometric) Index - 0.33 - 0.66 - 0.85
- -----------------------------------------------------------------------------
All Equity Funds Average (Lipper) - 0.10 - 0.79 - 0.26
- -----------------------------------------------------------------------------
All Long-Term Taxable Funds Average (Lipper) + 0.02 - 0.68 - 0.22
- -----------------------------------------------------------------------------
See page 12 for a description of each index.
Most of the Sharpe ratios were negative for these periods, because stock markets
seriously underperformed Treasury bills during the long, deep 3-year bear market
(2000-2002). This Fund's risk-adjusted performance was in line with its
comparison indexes for the past 1 year. We are very pleased that your Fund's
risk-adjusted performance was significantly better than all 5 comparison indexes
during the past 3 and 5 years through June 30, 2003. Total Return Fund had a
positive Sharpe ratio for the 5-year period, in contrast to all 5 benchmark
indexes.
7
- --------------------------------------------------------------------------------
Pearl Total Return Fund
- --------------------------------------------------------------------------------
Performance Summary:
- --------------------
. Pearl Total Return Fund had a + 12.42% total return for the six months
ended June 30, 2003. We are encouraged by this year-to-date gain (not
annualized), which grew to + 15.47% at August 12, 2003.
. Pearl Total Return Fund's + 12.42% total return slightly outperformed the
average (+ 12.29%) of this Fund's 5 comparison indexes during these six
months. (Not annualized.) See page 2 for each index's total return. We
believe this narrow margin is a significant outperformance because it was
achieved during the big market rise in the first half of 2003. Total
Return Fund had a risk-reducing partial defensive position, with only
about four-fifths of its total assets invested in stocks (through the
mutual funds in this Fund's portfolio; see page 5), but 3 of its 5
benchmark indexes are pure stock indexes.
. Your Fund's total return was - 10.75% in 2002, + 3.13% in 2001, + 1.56% in
2000, + 26.99% in 1999, + 4.60% in 1998, + 14.75% in 1997, + 14.19% in
1996, and + 21.13% in 1995.
. During the entire 3 1/2 years through June 30, 2003, Total Return Fund was
up 5.09% while its 5 comparison indexes were down 27.20% on average. (Not
annualized.) See page 1 for each index's total return. This period
included the 3-year bear market (2000-2002) -- the worst bear market since
at least 1973-74 -- and a strong rally in the first half of 2003.
. Your Fund strongly outperformed all 5 comparison indexes during the last 3
years and 5 years -- and outperformed 4 of the 5 during the last 10 years.
. Pearl Total Return Fund's risk-adjusted total return strongly outperformed
all 5 comparison indexes during the last 3 years and 5 years.
Performance is historical and does not guarantee future results. See page 12.
Fund Expenses. Total Return Fund's total net expenses (annualized), after
reimbursement by the Manager (see page 12), were 0.96% of the Fund's average net
assets during the first half of 2003. We believe this 0.96% expense ratio is one
of the lowest for all funds of its type (independent fund of funds) in the U.S.
Net Asset Value. At the close of June 30, 2003:
NAV (net asset value) per share $10.68
Net Assets of Total Return Fund increased from $39,928,483 at Dec. 31, 2002 to
$44,051,531 at June 30, 2003. The increase was primarily due to investment
results.
8
- --------------------------------------------------------------------------------
Pearl Aggressive Growth Fund
- --------------------------------------------------------------------------------
Fund Performance. Pearl Aggressive Growth Fund's performance record for the two
years since its inception is summarized in this graph:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PEARL AGGRESSIVE GROWTH FUND AND ITS COMPARISON INDEXES *
(as of 6-30 each year, from 7-2-01 inception)
(with dividends reinvested, except for Value Line Index)
[GRAPH APPEARS HERE]
Pearl
Aggressive Wilshire MSCI Value Standard & All Equity
Growth 5000 World Line (Geometric) Poor's 500 Funds Average
Fund Index Index Index Index (Lipper)
7-2-01 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6-30-02 $ 9,876 $ 8,338 $ 8,478 $ 8,111 $ 8,201 $ 8,472
6-30-03 $ 9,977 $ 8,444 $ 8,278 $ 7,479 $ 8,222 $ 8,381
Past performance does not predict future performance
* The total returns in this report, including the graph and tables, do not
reflect the deduction of taxes that a shareholder would pay on fund
dividends or on redemption of fund shares. Likewise, the total returns on
indexes do not reflect the deduction of taxes that an investor in stocks
would pay on dividends or on sale of stocks.
Pearl Aggressive Growth Fund has come through a very volatile first 2 years of
existence with a very small loss - but strongly outperformed all of its 5
comparison indexes during this 2-year period.
Performance of Pearl Aggressive Growth Fund and Comparison Indexes through
- --------------------------------------------------------------------------
6-30-03:
- --------
- -------------------------------------------------------------------------------
Average Annual Total Returns for periods ended 6-30-03 1 Year From 7-2-01
with dividends reinvested (except for Value Line Index): (inception)
- -------------------------------------------------------------------------------
Pearl Aggressive Growth Fund + 1.03% - 0.11%
- -------------------------------------------------------------------------------
Wilshire 5000 Index + 1.27% - 8.11%
- -------------------------------------------------------------------------------
MSCI World Index - 2.36% - 9.02%
- -------------------------------------------------------------------------------
Value Line (Geometric) Index - 7.79% - 13.52%
- -------------------------------------------------------------------------------
Standard & Poor's 500 Index + 0.25% - 9.33%
- -------------------------------------------------------------------------------
All Equity Funds Average (Lipper) - 1.07% - 8.45%
- -------------------------------------------------------------------------------
See page 12 for a description of each index.
9
- --------------------------------------------------------------------------------
Pearl Agressive Growth Fund
- --------------------------------------------------------------------------------
Risk-Adjusted Total Return. Even though Aggressive Growth Fund is not as focused
as Total Return Fund on the potential riskiness of its portfolio, we measure
Aggressive Growth Fund's total return in relation to the risk (volatility) it
incurred. Then we compare this risk-adjusted return with the Fund's 5 comparison
indexes.
Standard deviation is the conventional statistical measure used to determine the
volatility (variability) -- and therefore the risk -- of a mutual fund or an
index. The higher the standard deviation, the greater the volatility risk. A low
standard deviation is desirable, although an aggressive growth fund by its
nature will be more risky than a more conservative fund.
Standard Deviations of Pearl Aggressive Growth Fund and Comparison Indexes
through 6-30-03:
From 7-2-01
Annualized Standard Deviations: 1 Year (inception)
- ------------------------------------------------------------
Pearl Aggressive Growth Fund 23.84% 21.08%
- ------------------------------------------------------------
Wilshire 5000 Index 28.26% 22.31%
- ------------------------------------------------------------
MSCI World Index 24.65% 19.78%
- ------------------------------------------------------------
Value Line (Geometric) Index 27.91% 25.06%
- ------------------------------------------------------------
Standard & Poor's 500 Index 27.21% 21.20%
- ------------------------------------------------------------
All Equity Funds Average (Lipper) 23.51% 20.22%
- ------------------------------------------------------------
See page 12 for a description of each index.
The Sharpe ratio is a conventional measure that combines total return and
standard deviation to produce a risk-adjusted performance figure. It is a ratio
of reward (total return in excess of the 90-day Treasury bill return) to the
volatility risk (standard deviation). The higher the number, the better the
risk-adjusted return. A high Sharpe ratio is desirable.
Sharpe Ratios of Pearl Aggressive Growth Fund and Comparison Indexes through
6-30-03:
From 7-2-01
Sharpe Ratios: 1 Year (inception)
- ---------------------------------------------------------------
Pearl Aggressive Growth Fund - 0.01 - 0.19
- ---------------------------------------------------------------
Wilshire 5000 Index - 0.00 - 0.88
- ---------------------------------------------------------------
MSCI World Index - 0.15 - 1.07
- ---------------------------------------------------------------
Value Line (Geometric) Index - 0.33 - 1.17
- ---------------------------------------------------------------
Standard & Poor's 500 Index - 0.04 - 1.03
- ---------------------------------------------------------------
All Equity Funds Average (Lipper) - 0.10 - 1.00
- ---------------------------------------------------------------
See page 12 for a description of each index.
Since neither Aggressive Growth Fund nor any of the comparison indexes performed
better than Treasury bills in the difficult market during the past 2 years, all
of the Sharpe ratios were negative. However, we are pleased that this Fund's
risk-adjusted performance since its inception was the best in the group,
although this is not a primary consideration for this Fund.
10
- --------------------------------------------------------------------------------
Pearl Agressive Growth Fund
- --------------------------------------------------------------------------------
Performance Summary:
- -------------------
. Pearl Aggressive Growth Fund had a + 19.90% total return for the six months
ended June 30, 2003. We are pleased with this large year-to-date gain (not
annualized), which grew to + 26.50% at August 12, 2003.
. Pearl Aggressive Growth Fund's + 19.90% total return strongly outperformed
the average total return (+ 12.39%) of this Fund's 5 comparison indexes for
the first half of 2003. (Not annualized.) See page 2 for each index's total
return.
. Your Fund also strongly outperformed all 5 of its comparison indexes since
its inception (July 2, 2001). During its first 2 years though June 30,
2003, Pearl Aggressive Growth Fund had nearly a break-even performance
(down 0.23%) while all 5 benchmark indexes had big losses, down 18.40% on
average. (Not annualized.) See page 1 for each index's total return.
. Pearl Aggressive Growth Fund also strongly outperformed all 5 comparison
indexes on a risk-adjusted total return basis for the 2-year period since
its inception. See page 10.
Performance is historical and does not guarantee future results. See page 12.
Fund Expenses. Aggressive Growth Fund's total net expenses (annualized), after
reimbursement by the Manager (see page 12), were 0.98% of the Fund's average net
assets during the first half of 2003. We believe this 0.98% expense ratio is one
of the lowest for all funds of its type (independent fund of funds) in the U.S.
Net Asset Value. At the close of June 30, 2003:
NAV (net asset value) per share $9.82
Net Assets of Aggressive Growth Fund increased from $14,605,340 at December 31,
2002 to $17,355,351 at June 30, 2003. This was primarily due to investment
results.
11
General Information
- --------------------------------------------------------------------------------
This report is provided for the general information of the shareholders of Pearl
Mutual Funds. This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current Prospectus. Please read
the Prospectus carefully before you invest or send money. For more information
on either Fund, including fees and expenses, please call (toll-free)
866-747-9030 or visit our Website at www.pearlfunds.com.
Shares of the Pearl Funds are available to persons residing in certain states.
Please call (toll-free) 866-747-9030 to determine whether you are eligible to
purchase Fund shares. This report is not an offer of or a solicitation of an
offer to buy any of the Pearl Mutual Funds, nor shall any of the Pearl Mutual
Funds be offered or sold to any person, in any jurisdiction in which the offer,
solicitation, purchase, or sale would be unlawful under the securities law of
that jurisdiction.
Performance is historical and does not guarantee future results. Investment
return and principal value of an investment in each Pearl Fund will fluctuate,
so that an investor's shares in the Fund, when redeemed, may be worth more or
less than their original cost. Performance changes over time and may be
materially different by the time you receive this report. For recent performance
information, go to www.pearlfunds.com.
All investments involve risks. Even though Pearl Total Return Fund and Pearl
Aggressive Growth Fund each invest in many mutual funds, that investment
strategy cannot eliminate risk.
From July 1, 1972 through July 1, 2001, Pearl Total Return Fund's shares were
not registered under the Securities Act of 1933 and sales were made only on a
private basis. The Fund began offering its shares to the public pursuant to an
effective registration statement on July 2, 2001.
Total return means total growth of the investment, with all dividends and
distributions (including capital gains) reinvested.
All total returns for any period of less than 12 months are not annualized.
Limits on Expenses. Pearl Management Company, the Funds' Manager, has
contractually agreed to reimburse each Pearl Fund for all ordinary operating
expenses (including management and administrative fees) exceeding the following
expense ratios: 0.98% of a Fund's average net assets 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, for a period that does not exceed five years, to the extent this can be
done without exceeding the expense limits. These expense limits will continue at
least through December 31, 2007 unless a change is approved by the Funds' Board
of Trustees.
The Manager's reimbursement of expenses that exceed the expense limit lowers the
expense ratio and increases the overall return to investors.
Description of Indexes: The Wilshire 5000 Index is an unmanaged index that is
market-capitalization weighted, includes all publicly-traded U.S. common stocks
with readily available price data, and is generally representative of the
performance of the average dollar invested in U.S. common stocks. The MSCI World
Index is an unmanaged index that is market-capitalization
12
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 a broad range of
publicly-traded U.S. common stocks included in The Value Line Investment Survey
and is generally representative of the performance of the average U.S. common
stock. The Standard & Poor's (S & P) 500 Index is an unmanaged index of 500
stocks that is market-capitalization weighted and is generally representative of
the performance of larger companies in the U.S. The All Equity Funds Average
(Lipper) is an unmanaged and unweighted average of the total return performance
of all equity-oriented mutual funds as classified and calculated by Lipper Inc.
The All Long-Term Taxable Funds Average (Lipper) is an unmanaged and unweighted
average of the total return performance of all long-term taxable mutual funds as
classified and calculated by Lipper Inc.
The holdings of each Pearl Fund are not identical to the Wilshire 5000 Index,
MSCI World Index, Value Line (Geometric) Index, S & P 500 Index, All Equity
Funds Average (Lipper), All Long-Term Taxable Funds Average (Lipper), or any
other market index. Therefore, the performance of each Pearl Fund will not
mirror the returns of any particular index. It is not possible to invest
directly in an index.
Trademarks and copyrights relating to the indexes are owned by: Wilshire 5000
Index - Wilshire Financial Services, Inc.; MSCI World Index - Morgan Stanley
Capital International; Value Line (Geometric) Index - Valueline, Inc.; Standard
& Poor's 500 Index - The McGraw Hill Companies; and Lipper Averages - Reuters
Funds Information Limited, a United Kingdom corporation.
Communications Invited on Accounting and Auditing. Any person may communicate,
confidentially and anonymously, any concerns regarding accounting or auditing
matters to David L. Evans, Chairman of the Audit Committee of Pearl Mutual
Funds, by any of these three means:
1. E-mail addressed to dave@evanwood.com (This is the preferred method.)
2. Telephone to 303-679-9689
3. Mail to 32500 El Diente Court, Evergreen, CO 80439
Privacy Policy. Because we consider the preservation of your privacy a priority,
Pearl Mutual Funds has adopted a privacy policy. You may view the privacy policy
at www.pearlfunds.com (click the Privacy Policy page) or by calling (toll-free)
866-747-9030.
We Invite and Welcome Your Calls. A real, live person will talk with you,
promptly. You will know the full name of the person you talk with. He or she
will be one of our officers or key staff persons. You will get a straight
answer. If we don't know the answer, we will find it and get back to you
quickly.
If we break this promise, tell us and you will receive our personal apology.
We Also Invite You to E-mail, Fax, or Write to Us:
E-mail to info@pearlfunds.com
Fax to 563-288-4101
Write to Pearl Mutual Funds, 2610 Park Avenue, PO Box 209, Muscatine, IA 52761
13
PEARL TOTAL RETURN FUND
STATEMENT OF NET ASSETS
June 30, 2003
ASSETS:
INVESTMENTS in mutual funds, all common
stocks of unaffiliated issuers: Shares % of net Market
owned assets value
-------- ---------- ------------
Equity mutual funds:
Bridgeway Ultra Small Company Tax Advantage .................. 267,819 6.68% $ 2,940,654
DLB Small Company Opportunities Fund ......................... 61,090 1.86% 817,991
First Eagle Overseas Fund, Class I ........................... 610,188 21.14% 9,311,472
JP Morgan Mid Cap Value, Select .............................. 148,603 5.49% 2,416,292
Matthews Asian Growth and Income ............................. 237,499 6.05% 2,664,734
N/I Numeric Small Cap Value Fund ............................. 260,418 10.22% 4,502,621
Oakmark International Small Cap Fund, Class I ................ 212,497 5.81% 2,558,464
Oakmark Select Fund, Class I ................................. 144,173 9.01% 3,970,515
Royce Special Equity Fund .................................... 161,202 5.61% 2,471,228
Wasatch Core Growth Fund ..................................... 83,726 5.96% 2,626,475
William Blair International Growth Fund, Class I ............. 336,482 11.27% 4,963,106
---------- ------------
TOTAL EQUITY MUTUAL FUNDS ................................. 89.10% 39,243,552
---------- ------------
Income mutual funds:
PIMCO Total Return Fund, Institutional .......................... 58,467 1.46% 643,135
Pioneer High Yield Fund, Class A ................................ 325,570 8.17% 3,600,808
---------- ------------
TOTAL INCOME MUTUAL FUNDS ................................. 9.63% 4,243,943
---------- ------------
Money market mutual fund:
Vanguard Money Market Prime .................................. 10,916 0.02% 10,916
---------- ------------
TOTAL INVESTMENTS (cost $40,851,751 including
reinvested dividends and distributions) ..................... 98.75% 43,498,411
Cash ............................................................ 1.33% 588,879
Accrued interest on bank account ................................ 0.00% 185
---------- ------------
TOTAL ASSETS .............................................. 100.08% 44,087,475
---------- ------------
LIABILITIES:
Investment manager's fees payable (Note 5) ...................... 0.07% 29,813
Payable to manager for expenses of Fund (Note 5) ................ 0.01% 5,267
Other liabilities ............................................... 0.00% 864
---------- ------------
TOTAL LIABILITIES ......................................... 0.08% 35,944
---------- ------------
NET ASSETS, applicable to 4,124,547 outstanding shares of
beneficial interest (no par value); unlimited shares authorized ... 100.00% $ 44,051,531
========== ============
NET ASSET VALUE -- OFFERING AND
REDEMPTION PRICE PER SHARE ..................................... $ 10.68
============
NET ASSETS CONSIST OF:
Capital ......................................................... $ 43,784,292
Accumulated undistibuted net investment loss .................... (43,512)
Accumulated net realized losses ................................. (2,335,909)
Net unrealized appreciation in value of investments ............. 2,646,660
------------
TOTAL NET ASSETS .......................................... $ 44,051,531
============
See notes to financial statements.
14
PEARL TOTAL RETURN FUND
STATEMENT OF OPERATIONS
6 Months Ended
June 30, 2003
--------------
INVESTMENT INCOME (LOSS):
Income:
Dividends .............................................. $ 148,722
Interest on bank account ............................... 1,493
--------------
TOTAL INVESTMENT INCOME .......................... 150,215
Expenses, current year (Note 5):
Associations ........................................... 0
Auditors' services ..................................... 28,235
Custodian fees ......................................... 2,009
Data processing ........................................ 2,908
Trustees' fees (Note 6) ................................ 7,287
Registration fees ...................................... 6,162
Insurance .............................................. 1,216
Investment management and
administrative services fees (Note 5) ................. 165,955
Legal services ......................................... 21,036
Meetings ............................................... 1,109
Other .................................................. 489
--------------
TOTAL EXPENSES BEFORE REIMBURSEMENT ................. 236,406
Expenses reimbursed by investment manager (Note 5) ........ (42,371)
--------------
TOTAL EXPENSES ................................... 194,035
--------------
NET INVESTMENT LOSS .............................. (43,820)
--------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on investments
(securities of unaffiliated issuers) ..................... (1,262,665)
Change in net unrealized appreciation of investments ...... 6,168,500
--------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ....... 4,905,835
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 4,862,015
==============
See notes to financial statements.
15
PEARL TOTAL RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
6 Months Year Ended
Ended December 31,
INCREASE (DECREASE) IN NET ASSETS: June 30, 2003 2002
------------- ------------
FROM OPERATIONS:
Net investment income (loss) .............. ($ 43,820) $ 393,096
Net realized losses on investments......... (1,262,665) (1,027,139)
Change in net unrealized appreciation
(depreciation) of investments ............ 6,168,500 (4,218,298)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............. 4,862,015 (4,852,341)
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS (Note 7):
Dividends from net investment income ...... 0 (393,096)
------------- ------------
FROM CAPITAL SHARES TRANSACTIONS:
Proceeds received for shares sold
(77,513 and 211,154 shares) .............. 771,139 2,155,143
Net asset value of shares (0 and 41,353
shares) issued in reinvestment of
distributions ............................ 0 392,852
Paid on redemption of shares (155,880 and
402,934 shares), including exchanges
into Pearl Aggressive Growth Fund ........ (1,510,106) (4,181,260)
------------- ------------
DECREASE IN NET ASSETS FROM CAPITAL
SHARES TRANSACTIONS:
(net decrease of 78,367 and 150,427
shares) .............................. (738,967) (1,633,265)
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ...... 4,123,048 (6,878,702)
NET ASSETS:
Beginning of period ....................... 39,928,483 46,807,185
------------- ------------
End of period (including accumulated
undistributed net investment income
(loss), ($43,512) and $308,
respectively)............................. $ 44,051,531 $ 39,928,483
============= ============
See notes to financial statements.
16
PEARL AGGRESSIVE GROWTH FUND
STATEMENT OF NET ASSETS
June 30, 2003
ASSETS:
INVESTMENTS in mutual funds, all common % of
stocks of unaffiliated issuers: Shares net Market
owned assets value
--------- ---------- ------------
Equity mutual funds:
American Century International
Opportunity Fund ............... 176,263 5.83% $ 1,011,750
Bjurman Micro-Cap Growth Fund ... 73,522 10.70% 1,857,171
Bogle Small Cap Growth Fund,
Institutional Class ............ 111,385 12.83% 2,226,595
Dreyfus Premier Emerging
Markets Fund, Class A .......... 221,903 16.42% 2,849,231
Driehaus International
Discovery Fund ................. 94,094 12.07% 2,094,523
Oakmark Global Fund, Class I .... 155,524 13.89% 2,410,619
Wasatch Micro Cap Fund .......... 386,412 14.27% 2,476,899
Wasatch Small Cap Value Fund .... 194,740 4.63% 804,278
William Blair Small Cap Growth
Fund ........................... 89,766 8.95% 1,552,955
---------- ------------
TOTAL EQUITY MUTUAL FUNDS .... 99.59% 17,284,021
---------- ------------
Money market mutual fund:
Vanguard Money Market Prime ..... 6,363 0.04% 6,363
---------- ------------
TOTAL INVESTMENTS (cost
$15,516,890, including
reinvested dividends and
distributions) ................. 99.63% 17,290,384
Cash ............................... 0.45% 78,410
Accrued interest on bank account ... 0.00% 51
---------- ------------
TOTAL ASSETS ................. 100.08% 17,368,845
---------- ------------
LIABILITIES:
Investment manager's fees payable
(Note 5) ............................. 0.07% 11,792
Payable to manager for expenses of
Fund (Note 5) ........................ 0.01% 1,644
Other liabilities ..................... 0.00% 58
---------- ------------
TOTAL LIABILITIES ............ 0.08% 13,494
---------- ------------
NET ASSETS, applicable to 1,766,489
outstanding shares of beneficial
interest (no par value); unlimited
shares authorized .................... 100.00% $ 17,355,351
========== ============
NET ASSET VALUE -- OFFERING AND
REDEMPTION PRICE PER SHARE ........ $ 9.82
============
NET ASSETS CONSIST OF:
Capital ............................ $ 17,660,101
Accumulated undistributed net
investment losses ................. (203,352)
Accumulated net realized losses .... (1,874,892)
Net unrealized appreciation in
value of investments .............. 1,773,494
------------
TOTAL NET ASSETS ............. $ 17,355,351
============
See notes to financial statements.
17
PEARL AGGRESSIVE GROWTH FUND
STATEMENT OF OPERATIONS
Six Months
Ended
June 30,
2003
-----------
INVESTMENT INCOME (LOSS):
Income:
Dividends ............................................. $ 32
Interest on bank account .............................. 443
-----------
TOTAL INVESTMENT INCOME ............................ 475
Expenses, current year (Note 5):
Associations .......................................... 0
Auditors' services .................................... 10,366
Custodian fees ........................................ 744
Data processing ....................................... 1,107
Trustees' fees (Note 6) ............................... 2,713
Registration fees ..................................... 4,229
Insurance ............................................. 449
Investment management and
administrative services fees (Note 5) ................ 63,074
Legal services ........................................ 7,796
Meetings .............................................. 410
Other ................................................. 182
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT ................ 91,070
Expenses reimbursed by investment manager (Note 5) ....... (19,194)
-----------
TOTAL EXPENSES ..................................... 71,876
-----------
NET INVESTMENT LOSS ................................ (71,401)
-----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses from investments (securities of
unaffiliated issuers) ................................... (668,499)
Change in net unrealized appreciation of investments ..... 3,615,866
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ...... 2,947,367
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 2,875,966
===========
See notes to financial statements.
18
PEARL AGGRESSIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
Ended Year Ended
June 30, December 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
------------- --------------
FROM OPERATIONS:
Net investment loss ......................... ($ 71,401) ($ 131,951)
Net realized losses on investments .......... (668,499) (1,206,451)
Change in net unrealized appreciation
(depreciation) of investments .............. 3,615,866 (1,746,594)
------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............... 2,875,966 (3,084,996)
------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS (Note 7):
Dividends from net investment income ........ 0 0
Distributions from net realized gains ....... 0 0
------------- --------------
DECREASE IN NET ASSETS DUE TO
DISTRIBUTIONS ........................... 0 0
------------- --------------
FROM CAPITAL SHARES TRANSACTIONS:
Proceeds received for shares sold (23,471 and
183,251 shares) ............................ 214,045 1,850,762
Net asset value of shares (0 and 0 shares)
issued in reinvestment of distributions .... 0 0
Paid on redemption of shares (40,524 and 626
shares), including exchanges into Pearl
Total Return Fund .......................... (340,000) (6,061)
------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARES TRANSACTIONS:
(net increase (decrease) of (17,053)
and 182,625 shares) .................. (125,955) 1,844,701
------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........ 2,750,011 (1,240,295)
NET ASSETS:
Beginning of period ......................... 14,605,340 15,845,635
------------- --------------
End of period ............................... $ 17,355,351 $ 14,605,340
============= ==============
See notes to financial statements.
19
PEARL TOTAL RETURN FUND and
PEARL AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND YEAR ENDED DECEMBER 31, 2002
1. ORGANIZATION. Pearl Total Return Fund (PTRF) and Pearl Aggressive Growth
Fund (PAGF) (the "Funds") are each a series of Pearl Mutual Funds, a
Massachusetts business trust (the "Trust") registered under the Investment
Company Act of 1940 and are diversified, no-load, open-end management
investment companies (mutual funds).
The Funds' investments are limited to: (1) shares of mutual funds (open-end
funds) that the Funds can buy no-load (with no applicable sales load or
redemption fee); (2) shares of "low-load" mutual funds (open-end funds)
that the Funds can buy with a sales load or redemption fee that together do
not exceed 2% of the purchase price (however, the Funds expect that
substantially all of their investments in mutual funds will be on a no-load
basis); (3) closed-end fund shares with a sales commission or sales load
that does not exceed 2% of the purchase price (although the Funds have
never invested in closed-end funds); and (4) cash and cash equivalents.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation
of their financial statements. The policies are in conformity with
accounting principles generally accepted in the United States of America.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. (a)
Investments in shares of other mutual funds are valued at the net asset
value as reported by each mutual fund. (b) Securities transactions are
accounted for on the trade date. (c) Dividend income and the Funds'
distributions to their shareholders are recorded on the ex-dividend date.
(d) Gains or losses on sales of investments and unrealized appreciation or
depreciation of investments are determined on the basis of average cost.
3. INCOME TAXES. It is the Funds' policy to comply with the special provisions
of the Internal Revenue Code applicable to regulated investment companies
and to make all necessary distributions of net investment income and
realized gains so that the Funds will not be required to pay any federal or
state income taxes. Therefore, the Funds make no provision for income
taxes.
As of December 31, 2002, PTRF had the following capital loss carry-forwards
available to offset future capital gains: $46,105 through December 31, 2009
and $1,027,139 through December 31, 2010.
PTRF's cost for federal income tax purposes was $40,851,751, including the
amounts of all reinvested dividends and distributions, as of June 30, 2003;
the aggregate gross unrealized appreciation was $2,987,785; and the
aggregate gross unrealized depreciation was ($341,125); resulting in net
unrealized appreciation of $2,646,660.
As of December 31, 2002, PAGF had a capital loss carry-forward of
$1,206,393 that is available to offset future capital gains through
December 31, 2010.
PAGF's cost for federal income tax purposes was $15,516,890, including the
amounts of all reinvested dividends and distributions, as of June 30, 2003;
the aggregate gross unrealized appreciation was $1,812,530; and the
aggregate gross unrealized depreciation was ($39,036); resulting in net
unrealized appreciation of $1,773,494.
4. INVESTMENT TRANSACTIONS. PTRF's costs of purchases and proceeds of sales of
investment securities (excluding money market mutual funds) were $9,298,667
and $10,264,508, respectively, for the first half of 2003. Purchases
include reinvestments of dividends and distributions.
PAGF's costs of purchases and proceeds of sales of investment securities
(excluding money market mutual funds) were $2,430,000 and $2,594,714,
respectively, for the first half of 2003. Purchases include reinvestments
of dividends and distributions.
20
PEARL TOTAL RETURN FUND and
PEARL AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (continued)
SIX MONTHS ENDED JUNE 30, 2003 AND YEAR ENDED DECEMBER 31, 2002
5. INVESTMENT MANAGER; EXPENSES. Pearl Management Company (the "Manager") has
supervisory responsibility for the general management and investment of the
Funds' assets, including the decisions to buy and sell securities. The
Manager provides personnel and office space for the Funds and pays all
expenses of marketing the Funds' shares. The Manager's combined fees are at
the annual rate of 0.86% of each Fund's average net assets up to
$30,000,000 (computed at the beginning of each month); 0.77% of each Fund's
net assets in excess of $30,000,000 and not exceeding $100,000,000; and
0.53% of each Fund's net assets in excess of $100,000,000.
The Funds' expenses are limited by contract with the Manager. Through April
30, 2002, each Fund's total operating expenses in any year (including the
Manager's fees but excluding interest, taxes, expenses for purchase or sale
of investments, and extraordinary expenses) could not exceed 0.96% of the
Fund's average net assets up to $30,000,000 (computed at the beginning of
each month); 0.90% of the Fund's average net assets in excess of
$30,000,000 and not exceeding $100,000,000; and 0.78% of the Fund's average
net assets in excess of $100,000,000. Effective May 1, 2002, each Fund's
total operating expenses in any year (including the Manager's fees but
excluding interest, taxes, expenses for purchase or sale of investments,
and extraordinary expenses) cannot exceed 0.98% of the Fund's average net
assets up to $100,000,000 (computed at the beginning of each month) and
0.78% of the Fund's average net assets in excess of $100,000,000. The
Manager reimburses all the Funds' operating expenses beyond this limit.
For the first half of 2003 expenses totaling $42,371 were reimbursed by the
Manager beyond the expense limit for PTRF. PTRF remains liable to the
Manager for a cumulative net total of $361,451 reimbursed expenses which
are to be repaid by PTRF in the future, subject to the annual expense limit
and a five year period in which the Manager has the right to recover
reimbursed expenses.
For the first half of 2003 expenses totaling $19,194 were reimbursed by the
Manager beyond the expense limit for PAGF. PAGF remains liable to the
Manager for a cumulative net total of $130,282 reimbursed expenses which
are to be repaid by PAGF in the future, subject to the annual expense limit
and a five year period in which the Manager has the right to recover
reimbursed expenses.
The Manager has agreed to continue the expense limit at least through
December 31, 2007.
The Manager and its Officers, Directors, and shareholders, as a group,
owned 7.80% of PTRF's outstanding shares as of June 30, 2003. Entities
affiliated with one or more Officers and Directors of the Manager owned
87.53% of PTRF's outstanding shares as of June 30, 2003.
The Manager and its Officers, Directors, and shareholders, as a group,
owned 8.21% of PAGF's outstanding shares as of June 30, 2003. Entities
affiliated with one or more Officers and Directors of the Manager owned
90.00% of PAGF's outstanding shares as of June 30, 2003.
6. COMPENSATION. The Officers and two Trustees (David M. Stanley and Robert H.
Solt) of the Funds are also Officers of the Manager; they are paid by the
Manager and receive no compensation from the Funds. The Funds' five
Trustees who are not affiliated with the Manager are John W. Axel, Jeffrey
R. Boeyink, Douglas B. Coder, Dr. David N. DeJong, and David L. Evans. The
Trustees received fees from the Funds of $10,000 for the first half of 2003
and $36,000 for 2002.
7. DISTRIBUTIONS. On January 31, 2003, PTRF paid an income dividend of $.0944
per share from 2002 net investment income, to shareholders of record on
December 31, 2002. On January 31, 2002, PTRF paid an income dividend of
$.1199 per share from 2001 net investment income, to shareholders of record
on December 31, 2001. For shareholders reinvesting dividends and
distributions, each reinvestment date was the same as the record date.
On January 31, 2003, PAGF paid no dividend or distribution. On January 31,
2002, PAGF paid an income dividend of $.0621 per share from 2001 net
investment income and a long-term capital gains distribution of $.0966 per
share from 2001 realized long-term capital gains, to shareholders of record
on December 31, 2001. For shareholders reinvesting dividends and
distributions, each reinvestment date was the same as the record date.
21
PEARL TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
Six
Months
Ended
SELECTED PER-SHARE DATA June
derived from the 30, Year ended December 31,
financial statements: ------- ----------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
Net asset value,
beginning of period.......... $ 9.50 $ 10.75 $ 10.54 $ 12.16 $ 10.45 $ 11.23 $ 10.94 $ 10.15 $ 9.13 $ 9.87 $ 9.11
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Income from Investment
Operations
Net investment income (loss).. (0.01) 0.09 0.12 0.69 0.45 0.23 0.42 0.20 0.26 0.26 0.22
Net realized and unrealized
gains (losses) on investments 1.19 (1.25) 0.21 (0.50) 2.37 0.29 1.19 1.24 1.67 (0.58) 0.99
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Total investment operations... 1.18 (1.16) 0.33 0.19 2.82 0.52 1.61 1.44 1.93 (0.32) 1.21
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Less Distributions (Note 7)
Dividends from net
investment income ........... None (0.09) (0.12) (0.69) (0.45) (0.23) (0.42) (0.20) (0.26) (0.26) (0.22)
Distributions from net
realized capital gains
on investments............... None None None (1.12) (0.66) (1.07) (0.90) (0.45) (0.65) (0.16) (0.23)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Total distributions........... None (0.09) (0.12) (1.81) (1.11) (1.30) (1.32) (0.65) (0.91) (0.42) (0.45)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Net asset value,
end of period ............... $ 10.68 $ 9.50 $ 10.75 $ 10.54 $ 12.16 $ 10.45 $ 11.23 $ 10.94 $ 10.15 $ 9.13 $ 9.87
======= ======= ======= ======= ======= ======= ======= ======= ======= ====== ======
Total Return ................. 12.42% (10.75%) 3.13% 1.56% 26.99% 4.60% 14.75% 14.19% 21.13% (3.19%) 13.27%
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(thousands of dollars)....... 44,052 39,928 46,807 58,875 59,603 48,752 46,662 32,910 25,623 7,557 4,409
Ratio of net expenses to
average net assets........... 0.96%* 0.97% 0.94% 0.93% 0.92% 0.94% 0.93% 0.95% 1.06% 1.48% 1.38%
Ratio of gross expenses to
average net assets........... 1.18%* 1.26% 1.29% 1.05% 0.92% 0.94% 0.93% 0.95% 1.06% 1.48% 1.38%
Ratio of net investment
income (loss) to average net
assets....................... (0.22%)* 0.90% 0.95% 5.62% 3.85% 1.94% 3.82% 1.87% 4.52% 3.09% 4.19%
Ratio of investment income
less gross expenses to
average net assets .......... (0.43%)* 0.61% 0.61% 5.50% 3.91% 2.00% 3.86% 1.91% 4.59% 3.26% 3.85%
Portfolio turnover (excluding
money market mutual funds)... 47%* 55% 50% 78% 85% 79% 55% 78% 102% 87% 71%
See notes to financial statements.
<FN>
<F1>
* Annualized
</FN>
22
PEARL AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
Period July
Six 2, 2001
Months (inception)
SELECTED PER-SHARE DATA Ended through
derived from the June 30, December
financial statements: 2003 2002 31,2001
-------- -------- -----------
Net asset value, beginning of period.... $ 8.19 $ 9.90 $ 10.00
-------- -------- -----------
Income from Investment Operations
Net investment income (loss)............ (0.04) (0.06) 0.06
Net realized and unrealized
gains (losses) on investments.......... 1.67 (1.65) 0.00
-------- -------- -----------
Total investment operations............. 1.63 (1.71) 0.06
-------- -------- -----------
Less Distributions (Note 7)
Dividends from net investment income.... None None (0.06)
Distributions from net realized
capital gains on investments........... None None (0.10)
-------- -------- -----------
Total distributions..................... None None (0.16)
-------- -------- -----------
Net asset value, end of period.......... $ 9.82 $ 8.19 $ 9.90
======== ======== ===========
Total Return............................ 19.90% (17.27%) 0.60%
==============================================================================
- ------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(thousands of dollars)................. 17,355 14,605 15,846
Ratio of net expenses to average
net assets............................. 0.98%* 0.98% 0.96%*
Ratio of gross expenses to average
net assets............................. 1.21%* 1.31% 2.07%*
Ratio of net investment income (loss)
to average net assets.................. (0.95%)* (0.82%) 1.48%*
Ratio of investment income (loss) less
gross expenses to average net assets... (0.60%)* (1.15%) 0.60%*
Portfolio turnover (excluding
money market mutual funds)............. 33%* 56% 13%*
* Annualized
See notes to financial statements.
23
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. [Reserved]
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as
amended) are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, and there were no corrective actions with regard
to significant deficiencies and material weaknesses.
Item 10. Exhibits.
(a) Not applicable.
(b) (1) Certifications pursuant to Rule 30a-2 under the Investment Company Act
of 1940 (17 CFR 270.30a-2), attached hereto as Exhibits (b)(1)(i) and
(b)(1)(ii)
(2) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, attached hereto as Exhibit (b)(2)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Pearl Mutual Funds
By: /s/ David M. Stanley
-------------------------------
David M. Stanley
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 20, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ David M. Stanley
-------------------------------
David M. Stanley
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 20, 2003
By: /s/ Robert H. Solt
-------------------------------
Robert H. Solt
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 20, 2003