|
| As filed with the Securities and Exchange Commission on March 16, 2010. |
| |
| Registration No. 333-164920 |
| |
| |
| U.S. SECURITIES AND EXCHANGE COMMISSION |
| WASHINGTON, D.C. 20549 |
| |
| FORM N-14 |
| |
| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] |
| |
| [XX] Pre-Effective Amendment No. 1 |
| [ ] Post-Effective Amendment No. |
| |
| PRINCIPAL FUNDS, INC. |
| f/k/a Principal Investors Fund, Inc. |
| (Exact name of Registrant as specified in charter) |
| |
| 680 8th Street, Des Moines, Iowa 50392-2080 |
| (Address of Registrant's Principal Executive Offices) |
| |
| 515-248-3842 |
| (Registrant's Telephone Number, Including Area Code) |
| |
| Michael D. Roughton |
| Counsel, Principal Funds, Inc. |
| 711 High Street |
| Des Moines, Iowa 50392-2080 |
| (Name and Address of Agent for Service) |
| |
| Copies of all communications to: |
| John W. Blouch |
| Dykema Gossett PLLC |
| 1300 I Street, N.W. |
| Washington, D.C. 20005-3353 |
| 202-906-8714; 202-906-8669 (Fax) |
| |
| Approximate date of proposed public offering: As soon as practicable after this Registration Statement |
| becomes effective. |
| |
| Title of Securities Being Registered: Institutional, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and |
| Class R-5 Shares common stock, par value $.01 per share. |
| |
| No filing fee is due because an indefinite number of shares have been registered in reliance on Section 24(f) |
| under the Investment Company Act of 1940, as amended. |
| |
| EXPLANATORY NOTE |
| |
| Rule 461 Request for Acceleration: Attached to this filing is a transmittal letter in which the Registrant and the |
| Principal Underwriter request accelerated effectiveness to March 18, 2010 or as soon thereafter as practicable. |
|
| PRINCIPAL FUNDS, INC. |
| 680 8th Street |
| Des Moines, Iowa 50392-2080 |
| |
| |
| March 24, 2010 |
|
| Dear Shareholder: |
|
| A Special Meeting of Shareholders of Principal Funds, Inc. (“PFI”) will be held at 680 8th Street, Des Moines, Iowa 50392-2080, on |
| May 10, 2010 at 10 a.m., Central Time. |
|
| At the meeting, shareholders of the High Quality Intermediate-Term Bond Fund (the “Acquired Fund”) will be asked to consider and |
| approve a Plan of Acquisition (the “Plan”) providing for the reorganization of the High Quality Intermediate-Term Bond Fund into the Bond |
| Market Index Fund (the “Acquiring Fund”). Each of these Funds is a separate series or fund of PFI. |
|
| Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund in exchange for |
| shares of the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the shareholders of the Acquired Fund; and (iii) the |
| Acquired Fund will liquidate and terminate (the “Reorganization”). As a result of the Reorganization, each shareholder of the Acquired Fund |
| will become a shareholder of the Acquiring Fund. The total value of all shares of the Acquiring Fund issued in the Reorganization will equal |
| the total value of the net assets of the Acquired Fund. The number of full and fractional shares of the Acquiring Fund received by a |
| shareholder of the Acquired Fund will be equal in value to the value of that shareholder’s shares of the Acquired Fund as of the close of |
| regularly scheduled trading on the New York Stock Exchange (“NYSE”) on the closing date of the Reorganization. Holders of Class J, Class |
| R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquired Fund will receive, respectively, Class J, Class |
| R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquiring Fund. The Reorganization is expected to |
| occur as of the close of regularly scheduled trading on the NYSE on May 14, 2010. All share classes of the Acquired Fund will vote in the |
| aggregate and not by class with respect to the Reorganization. |
|
| The Board of Directors of PFI believes that the Reorganization will serve the best interests of shareholders of both the Acquired and |
| Acquiring Funds. The Funds have the same investment objectives in that they both seek to provide current income. The Funds also have |
| substantially similar principal policies and risks in that both invest primarily in investment grade fixed-income securities, although the |
| Acquiring Fund is an index fund that is passively managed and tracks the performance of the Barclays Capital U.S. Aggregate Bond Index |
| (the “Index”) while the Acquired Fund is actively managed and seeks to outperform the Index as its benchmark index. The Acquiring Fund |
| has lower advisory fee rates and is expected to have lower expense ratios following the Reorganization. Moreover, the Reorganization may |
| be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient management. |
| Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. |
|
| The value of your investment will not be affected by the Reorganization. Furthermore, in the opinion of legal counsel, no gain or loss |
| will be recognized by any shareholder for federal income tax purposes as a result of the Reorganization. |
|
| ***** |
|
| Enclosed you will find a Notice of Special Meeting of Shareholders, a Proxy Statement/Prospectus, and a proxy card for shares of the |
| Acquired Fund you owned as of March 8, 2010, the record date for the Meeting. The Proxy Statement/Prospectus provides background |
| information and describes in detail the matters to be voted on at the Meeting. |
|
| The Board of Directors has unanimously voted in favor of the proposed Reorganization and recommends that you vote FOR the |
| Proposal. |
|
| In order for shares to be voted at the Meeting, we urge you to read the Proxy Statement/Prospectus and then complete and mail |
| your proxy card(s) in the enclosed postage-paid envelope, allowing sufficient time for receipt by us by May 7, 2010. As a convenience, |
| we offer three options by which to vote your shares: |
|
| By Internet: Follow the instructions located on your proxy card. |
|
| By Phone: The phone number is located on your proxy card. Be sure you have your control number, as printed on your proxy card, |
| available at the time you call. |
|
| By Mail: Sign your proxy card and enclose it in the postage-paid envelope provided in this proxy package. |
|
| We appreciate your taking the time to respond to this important matter. Your vote is important. If you have any questions regarding the |
| Reorganization, please call our shareholder services department toll free at 1-800-222-5852. |
| |
| PRINCIPAL FUNDS, INC. |
| 680 8th Street |
| Des Moines, Iowa 50392-2080 |
|
| NOTICE OF SPECIAL MEETING OF SHAREHOLDERS |
|
| To the Shareholders of the High Quality Intermediate-Term Bond Fund: |
|
| Notice is hereby given that a Special Meeting of Shareholders (the “Meeting”) of the High Quality Intermediate-Term Bond Fund, a |
| separate series of Principal Funds, Inc. (“PFI”), will be held at 680 8th Street, Des Moines, Iowa 50392-2080, on May 10, 2010 at 10 a.m., |
| Central Time. A Proxy Statement/Prospectus providing information about the following proposal to be voted on at the Meeting is included |
| with this notice. The Meeting is being held to consider and vote on such proposal as well as any other business that may properly come |
| before the Meeting or any adjournment thereof: |
|
| Proposal: | Approval of a Plan of Acquisition providing for the reorganization of the High Quality Intermediate-Term Bond Fund |
| | (the “Fund”) into the Bond Market Index Fund. |
| |
| | The Board of Directors of PFI recommends that shareholders of the Fund vote FOR the Proposal. |
| |
| Approval of the Proposal will require the affirmative vote of the holders of at least a “Majority of the Outstanding Voting Securities” (as |
| defined in the accompanying Proxy Statement/Prospectus) of the Fund. |
|
| Each shareholder of record at the close of business on March 8, 2010 is entitled to receive notice of and to vote at the Meeting. |
|
| Please read the attached Proxy Statement/Prospectus. |
|
| | By order of the Board of Directors |
| |
| | Nora M. Everett |
| | President and Chief Executive Officer |
| March 24, 2010 |
| Des Moines, Iowa |
|
| PRINCIPAL FUNDS, INC. |
| 680 8th Street |
| Des Moines, Iowa 50392-2080 |
| |
| ————————— |
| |
| PROXY STATEMENT/PROSPECTUS |
| SPECIAL MEETING OF SHAREHOLDERS |
| TO BE HELD MAY 10, 2010 |
| |
| RELATING TO THE REORGANIZATION OF: |
| THE HIGH QUALITY INTERMEDIATE-TERM BOND FUND INTO |
| THE BOND MARKET INDEX FUND |
|
| This Proxy Statement/Prospectus is furnished in connection with the solicitation by the Board of Directors (the “Board” or “Directors”) |
| of Principal Funds, Inc. (“PFI”) of proxies to be used at a Special Meeting of Shareholders of PFI to be held at 680 8th Street, Des Moines, |
| Iowa 50392-2080, on May 10, 2010, at 10 a.m., Central Time (the “Meeting”). |
|
| At the Meeting, shareholders of the High Quality Intermediate-Term Bond Fund (the “Acquired Fund”) will be asked to consider and |
| approve a proposed Plan of Acquisition (the “Plan”) providing for the reorganization of the Acquired Fund into the Bond Market Index Fund |
| (the “Acquiring Fund”). |
|
| Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject to all the liabilities of the Acquired Fund in exchange for |
| shares of the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the Shareholders of the Acquired Fund; and (iii) the |
| Acquired Fund will liquidate and terminate (the “Reorganization”). As a result of the Reorganization, each shareholder of the Acquired Fund |
| will become a shareholder of the Acquiring Fund. The total value of all shares of the Acquiring Fund issued in the Reorganization will equal |
| the total value of the net assets of the Acquired Fund. The number of full and fractional shares of the Acquiring Fund received by a |
| shareholder of the Acquired Fund will be equal in value to the value of that shareholder’s shares of the Acquired Fund as of the close of |
| regularly scheduled trading on the New York Stock Exchange (“NYSE”) on the closing date of the Reorganization. Holders of Class J, Class |
| R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquired Fund will receive, respectively, Class J, Class |
| R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquiring Fund. If approved by shareholders of the |
| Acquired Fund, the Reorganization is expected to occur immediately after the close of regularly scheduled trading on the NYSE on May 14, |
| 2010 (the “Effective Time”). All share classes of the Acquired Fund will vote in the aggregate and not by class. The terms and conditions of |
| the Reorganization are more fully described below in this Proxy Statement/Prospectus and the Form of Plan of Acquisition which is attached |
| hereto as Appendix A. |
|
| This Proxy Statement/Prospectus contains information shareholders should know before voting on the Reorganization. Please read it |
| carefully and retain it for future reference. The Annual and Semi-Annual Reports to Shareholders of PFI contain additional information about |
| the investments of the Acquired Fund, and the Annual Report contains discussions of the market conditions and investment strategies that |
| significantly affected the Acquired Fund during the fiscal year ended October 31, 2009. Copies of these reports may be obtained at no charge |
| by calling our shareholder services department toll free at 1-800-247-4123. |
|
| A Statement of Additional Information dated March 24, 2010 (the “Statement of Additional Information”) relating to this Proxy |
| Statement/Prospectus has been filed with the Securities and Exchange Commission (“SEC”) and is incorporated by reference into this Proxy |
| Statement/Prospectus. PFI’s Prospectuses, dated March 1, 2009 and December 21, 2009 and as supplemented (collectively the “PFI |
| Prospectus”), (File Nos. 33-59474 and 811-07572) and the Statements of Additional Information for PFI, dated March 1, 2010 and December |
| 2009 and as supplemented (collectively “PFI SAI”), have been filed with the SEC and, insofar as they relate to the High Quality |
| Intermediate-Term Bond Fund, are incorporated by reference into this Proxy Statement/Prospectus. Copies of these documents may be |
| obtained without charge by writing to PFI at the address noted above or by calling our shareholder services department toll free at 1-800-222- |
| 5852. You may also call our shareholder services department toll fee at 1-800-222-5852 if you have any questions regarding the |
| Reorganization. |
|
| PFI is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (the |
| “1940 Act”) and files reports, proxy materials and other information with the SEC. Such reports, proxy materials and other information may |
| be inspected and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 (information on the |
| operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-5850). Such materials are also available on the |
| SEC’s EDGAR Database on its Internet site at www.sec.gov, and copies may be obtained, after paying a duplicating fee, by email request |
| addressed to publicinfo@sec.gov or by writing to the SEC’s Public Reference Room. |
|
| The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Proxy |
| Statement/Prospectus. Any representation to the contrary is a criminal offense. |
|
| The date of this Proxy Statement/Prospectus is March 24, 2010. |
| | |
| | TABLE OF CONTENTS | |
| | | Page |
| INTRODUCTION | 3 |
| THE REORGANIZATION | 3 |
| PROPOSAL: | APPROVAL OF A PLAN OF ACQUISITION PROVIDING FOR THE REORGANIZATION | |
| | OF THE HIGH QUALITY INTERMEDIATE -TERM BOND FUND INTO THE | |
| | BOND MARKET INDEX FUND | 4 |
| Comparison of Acquired and Acquiring Funds | 4 |
| Comparison of Investment Objectives and Strategies | 4 |
| Fees and Expenses of the Funds | 6 |
| Comparison of Principal Investment Risks | 8 |
| Performance | 9 |
| INFORMATION ABOUT THE REORGANIZATION | 10 |
| Plan of Acquisition | 10 |
| Reasons for the Reorganization | 10 |
| Board Consideration of the Reorganization | 10 |
| Description of the Securities to Be Issued | 11 |
| Federal Income Tax Consequences | 11 |
| CAPITALIZATION | 12 |
| ADDITIONAL INFORMATION ABOUT THE FUNDS | 13 |
| Certain Investment Strategies and Related Risks of the Funds | 13 |
| Multiple Classes of Shares | 16 |
| Costs of Investing in the Funds | 16 |
| Distribution Plans and Intermediary Compensation | 17 |
| Other Payments to Financial Intermediaries | 18 |
| Pricing of Fund Shares | 19 |
| Purchase of Fund Shares | 20 |
| Redemption of Fund Shares | 22 |
| Exchange of Fund Shares | 24 |
| Frequent Purchases and Redemptions | 25 |
| Dividends and Distributions | 26 |
| Tax Considerations | 26 |
| Portfolio Holdings Information | 27 |
| VOTING INFORMATION | 27 |
| OUTSTANDING SHARES AND SHARE OWNERSHIP | 28 |
| FINANCIAL HIGHLIGHTS | 30 |
| FINANCIAL STATEMENTS | 34 |
| LEGAL MATTERS | 34 |
| OTHER INFORMATION | 34 |
| APPENDIX A Form of Plan of Acquisition | A-1 |
| APPENDIX B Description of Index | B-1 |
| |
| INTRODUCTION |
|
| This Proxy Statement/Prospectus is being furnished to shareholders of the Acquired Fund to provide information regarding the Plan and |
| the Reorganization. | |
| |
| Principal Funds, Inc. PFI is a Maryland corporation and an open-end management investment company registered with the SEC under |
| the 1940 Act. PFI currently offers 66 separate series or funds (the “PFI Funds”), including the Acquired and Acquiring Funds. The sponsor |
| of PFI is Principal Life Insurance Company (“Principal Life”), and the investment advisor to the PFI Funds is Principal Management |
| Corporation (“PMC”). Principal Funds Distributor, Inc. (the “Distributor” or “PFD”) is the distributor for all share classes of the Acquired |
| and Acquiring Funds. Principal Life, an insurance company organized in 1879 under the laws of Iowa, PMC and PFD are indirect, wholly- |
| owned subsidiaries of Principal Financial Group, Inc. (“PFG”). Their address is the Principal Financial Group, Des Moines, Iowa 50392- |
| 2080. | |
| |
| Investment Management. Pursuant to an investment advisory agreement with PFI with respect to the Acquired and Acquiring Funds, |
| PMC provides investment advisory services and certain corporate administrative services to the Funds. As permitted by the investment |
| advisory agreement, PMC has entered into sub-advisory agreements with respect to the Acquired and Acquiring Funds as follows: |
|
| Acquired Fund | Sub-Advisor |
| High Quality Intermediate-Term Bond Fund | Principal Global Investors, LLC (“PGI”)* |
| |
| Acquiring Fund | Sub-Advisor |
| Bond Market Index Fund | Mellon Capital Management Corporation (“Mellon Capital”) |
| |
| * Spectrum Asset Management Inc. (“Spectrum”) serves as a sub-sub-advisor to the Acquired Fund and manages a portion of its |
| assets. | |
| |
| PMC and each sub-advisor and the sub-sub-advisor are registered with the SEC as investment advisors under the Investment Advisers |
| Act of 1940. | |
| |
| PGI is located at 801 Grand Avenue, Des Moines, IA 50392. PGI is an affiliate of PFG. |
|
| Mellon Capital is located at 50 Fremont Street, Suite 3900, San Francisco, CA 94105. Mellon Capital is a wholly owned subsidiary of |
| Mellon Financial Corporation. | |
| |
| Spectrum is located at 4 High Ridge Park, Stamford, CT 06905. Spectrum is an affiliate of PFG. |
|
| THE REORGANIZATION |
|
| At its meeting held on December 14, 2009, the Board, including all the Directors who are not “interested persons” (as defined in the |
| 1940 Act) of PFI (the “Independent Directors”), approved the Reorganization pursuant to the Plan providing for the combination of the |
| Acquired Fund into the Acquiring Fund. The Board concluded that the Reorganization is in the best interests of the Acquired Fund and the |
| Acquiring Fund and that the interests of existing shareholders of the Funds will not be diluted as a result of the Reorganization. The factors |
| that the Board considered in deciding to approve the Reorganization are discussed below under “Information About the Reorganization – |
| Board Consideration of the Reorganization.” | |
| |
| The Reorganization contemplates: (i) the transfer of all the assets, subject to all of the liabilities, of the Acquired Fund to the Acquiring |
| Fund in exchange for shares of the Acquiring Fund; (ii) the distribution to Acquired Fund shareholders of the Acquiring Fund shares; and (iii) |
| the liquidation and termination of the Acquired Fund. As a result of the Reorganization, each shareholder of the Acquired Fund will become |
| a shareholder of the Acquiring Fund. In the Reorganization, the Acquiring Fund will issue a number of shares with a total value equal to the |
| total value of the net assets of the Acquired Fund, and each shareholder of the Acquired Fund will receive a number of full and fractional |
| shares of the Acquiring Fund with a value equal to the value of that shareholder’s shares of the Acquired Fund, as of the close of regularly |
| scheduled trading on the NYSE on the closing date of the Reorganization (the “Effective Time”). The closing date of the Reorganization is |
| expected to be May 14, 2009. Holders of Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the |
| Acquired Fund will receive, respectively, Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the |
| Acquiring Fund. The terms and conditions of the Reorganization are more fully described below in this Proxy Statement/Prospectus and in |
| the Form of Plan of Acquisition, which is attached hereto as Appendix A. |
|
| The Board of Directors of PFI believes that the Reorganization will serve the best interests of shareholders of both the Acquired and |
| Acquiring Funds. The Funds have the same investment objectives in that they both seek to provide current income. The Funds also have |
| similar principal policies and risks in that both invest primarily in fixed-income securities held in the Barclays Capital U.S. Aggregate Bond |
| Index (the “Index”) with the Acquiring Fund attempting to match the Index and the Acquired Fund attempting to outperform the Index. The |
| Acquiring Fund has lower advisory fee rates and is expected to have lower expense ratios following the Reorganization. Moreover, the |
| Reorganization may be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient |
| management. Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. |
|
| In the opinion of legal counsel, the Reorganization will qualify as a tax-free reorganization and, for federal income tax purposes, no gain |
| or loss will be recognized as a result of the Reorganization by the Acquired or Acquiring Fund shareholders. See “Information About the |
| Reorganization – Federal Income Tax Consequences.” | |
| |
| The Reorganization will not result in any material change in the purchase and redemption procedures followed with respect to the |
| distribution of shares. See “Additional Information About the Funds – Purchases, Redemptions and Exchanges of Shares.” |
| | |
| The Acquired Fund is expected to achieve the greatest benefit from the Reorganization and, therefore, will pay all expenses and out-of- |
| pocket fees incurred in connection with the Reorganization, including printing, mailing, and legal fees. These expenses and fees are expected |
| to total $30,759. Assuming the Acquiring Fund experiences the expense ratios shown in the Annual Fund Operating Expenses table, |
| shareholders of the Acquired Fund may expect the Acquiring Fund to recover the estimated expenses of the Reorganization in one year. |
| Further, the Acquired Fund will also pay any trading costs associated with disposing of any portfolio securities of the Acquired Fund that |
| would not be compatible with the investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities that |
| would be compatible. 56% of the portfolio securities of the Acquired Fund are expected to be disposed of. The estimated loss, including |
| trading costs, would be $3,118,000 on a U.S. GAAP basis. The estimated per share capital loss would be $0.55. |
| |
| PROPOSAL: |
| APPROVAL OF A PLAN OF ACQUISITION PROVIDING |
| FOR THE REORGANIZATION OF THE |
| HIGH-QUALITY INTERMEDIATE TERM BOND FUND |
| INTO THE BOND MARKET INDEX FUND |
|
| Shareholders of the High-Quality Intermediate Term Bond Fund (the “Acquired Fund”) are being asked to approve the reorganization of |
| the Acquired Fund into the Bond Market Index Fund (the “Acquiring Fund.) |
| |
| Comparison of Acquired and Acquiring Funds |
|
| The following table provides comparative information with respect to the Acquired and Acquiring Funds. As indicated in the table, the |
| Funds have the same investment objectives in that both seek to provide current income. The Funds also have substantially similar principal |
| policies and risks in that both invest primarily in investment grade fixed-income securities. The Funds differ principally in that the Acquiring |
| Fund is an index fund that is passively managed and tracks the performance of the Barclays Capital U.S. Aggregate Bond Index (the |
| “Index”), while the Acquired Fund is actively managed and seeks to outperform the Index as its benchmark index. Both Funds may utilize |
| derivatives but the Acquired Fund, and not the Acquiring Fund, may use derivatives as a principal investment strategy. |
| |
| High-Quality Intermediate Term Bond Fund | Bond Market Index Fund |
| (Acquired Fund) | (Acquiring Fund) |
| |
| Approximate Net Assets as of January 31, 2010 (unaudited): | |
| $46,658,000 | $62,415,000 |
| |
| Investment Advisor: | PMC | |
| Sub-Advisors and Portfolio Managers: | |
| |
| PGI | Mellon Capital |
| William C. Armstrong has been with PGI since 1992. He earned a | David C. Kwan, CFA. Mr. Kwan is Managing Director, Fixed |
| Bachelor’s degree from Kearney State College and a Master’s | Income Management and Trading. He joined Mellon Capital in |
| degree from the University of Iowa. Mr. Armstrong has earned the | 1990. He earned a B.S. in Electrical Engineering and Computer |
| right to use the Chartered Financial Analyst designation. | Science from University of California at Berkeley and an MBA |
| Timothy R. Warrick has been with PGI since 1990. He earned a | from University of California at Berkeley. He has earned the right |
| Bachelor’s degree in Accounting and Economics from Simpson | to use the Chartered Financial Analyst designation. |
| College and an MBA in Finance from Drake University. Mr. | Zandra Zelaya, CFA. Ms. Zelaya is Vice President, Portfolio |
| Warrick has earned the right to use the Chartered Financial | Manager, Fixed-Income. She joined Mellon Capital in 1997. She |
| Analyst designation. | | earned a Bachelors of Science at California State University |
| | | Hayward in Finance. She has earned the right to the use the |
| Spectrum (Sub-sub-advisor) | Charted Financial Analyst designation. |
| Mark A. Lieb founded Spectrum in 1987. He earned a BA in | |
| Economics from Central Connecticut State University and an | |
| MBA in Finance from the University of Hartford. | |
| L. Phillip Jacoby has been with Spectrum since 1995. He earned a | |
| BS in Finance from Boston University. | |
| |
| Comparison of Investment Objectives and Strategies |
| Investment Objective: | | |
| Both the Acquired and Acquiring funds seek to provide current income. |
| |
| Principal Investment Strategies: | | |
| The Fund invests primarily in intermediate term high-quality | Under normal circumstances, the Fund invests at least 80% of its |
| fixed-income securities. Under normal circumstances, the Fund | net assets (plus any borrowings for investment purposes) in debt |
| maintains an effective maturity of four years or less and a dollar- | securities that are held in the Barclays Capital U.S. Aggregate |
| weighted effective maturity of greater than three and less than ten | Bond Index. The Barclays Capital U.S. Aggregate Bond Index |
| years. In determining the average effective maturity of the Fund’s | represents securities that are domestic, taxable, and dollar |
| assets, the maturity date of a callable security or prepayable | denominated. The index covers the U.S. investment grade fixed |
| | |
| securities may be adjusted to reflect PGI’s judgment regarding the | rate bond market, with index components for government and |
| likelihood of the security being called or prepaid. The Fund | corporate securities, mortgage pass-through securities, and asset- |
| considers the term “bond” to mean any debt security. Under | backed securities. These major sectors are subdivided into more |
| normal circumstances, the Fund invests at least 80% of its assets | specific indices that are calculated and reported on a regular basis. |
| in: | | The Fund considers the term “bond” to mean any debt security. |
| | |
| • | securities issued or guaranteed by the U.S. government or its | The Fund uses an indexing strategy or passive investment |
| | agencies or instrumentalities; | approach designed to track the performance of the Barclays |
| • | asset-backed securities and mortgage-backed securities | Capital U.S. Aggregate Bond Index. The Fund maintains a dollar- |
| | representing an interest in a pool of mortgage loans or other | weighted average maturity, duration and yield consistent with that |
| | assets; | of the Index. |
| • | debt securities and taxable municipal bonds rated, at the time | |
| | of purchase, AAA, AA, or A by Standard & Poor’s Rating | Because of the difficulty and expense of executing relatively small |
| | Service (“S&P”) or Aaa, Aa, or A by Moody’s Investors | bond trades, the Fund may not always be invested in the less |
| | Service, Inc. (“Moody’s”) or, if not rated, in PGI’s opinion, | heavily weighted Barclays Capital U.S. Aggregate Bond Index |
| | of comparable quality; and | bonds. In addition, the Fund's ability to match the performance of |
| • | securities issued or guaranteed by the governments of Canada | the Barclays Capital U.S. Aggregate Bond Index is affected to |
| | (provincial or federal government) or the United Kingdom | some degree by the size and timing of cash flows into and out of |
| | payable in U.S. dollars. | the Fund. The Fund is managed to attempt to minimize such |
| | effects. |
| The rest of the Fund’s assets may be invested in: | |
| • | preferred securities and/or common stock and preferred stock | Mellon Capital attempts to mirror the investment performance of |
| | that may be convertible (may be exchanged for a fixed | the Barclays Capital U.S. Aggregate Bond Index by allocating the |
| | number of shares of common stock of the same issuer) or | Fund's assets in approximately the same weightings as the |
| | may be non-convertible; | Barclays U.S. Capital Aggregate Bond Index; however, it is |
| • | foreign securities; or | unlikely that a perfect correlation of 1.00 will be achieved. |
| • | securities rated less than the three highest grades of S&P or | |
| | Moody’s but not lower than BBB- (S&P) or Baa3 (Moody’s) | |
| | (i.e. less than investment grade). | |
| | |
| The Fund may enter into dollar roll transactions, which may | |
| involve leverage. The Fund may utilize derivative | |
| strategies, which are financial contracts whose value depends | |
| upon, or is derived from, the value of an underlying asset, | |
| reference rate, or index, and may relate to stocks, bonds, interest | |
| rates, currencies or currency exchange rates, and related indexes. | |
| Derivative strategies may include certain options transactions, | |
| financial futures contracts, swaps, currency forwards, and related | |
| options for purposes such as earning income and enhancing | |
| returns, managing or adjusting the risk profile of the Fund, | |
| replacing more traditional direct investments, or obtaining | |
| exposure to certain markets. The Fund may actively trade portfolio | |
| securities in an attempt to achieve its investment objective. | |
|
| Hedging and Other Strategies: |
| Each of the Funds may invest in inverse floating rate obligations, may engage in hedging transactions through the use of financial futures |
| and options thereon and may also purchase and sell securities on a when-issued or forward commitment basis, invest in mortgage-backed |
| securities, enter into repurchase agreements, invest in stand-by commitments, engage in swap agreements, and lend portfolio securities. |
| Each of the Funds may invest in floating rate and variable rate obligations, including participation interests therein. |
|
| Temporary Defensive Investing: |
| For temporary defensive purposes in times of unusual or adverse market, economic, or political conditions, each Fund may invest up to |
| 100% of its assets in cash and cash equivalents. In taking such defensive measures, either Fund may fail to achieve its investment |
| objective. |
|
| Fundamental Investment Restrictions: |
| Each of the Funds is subject to nearly identical fundamental investment restrictions; the difference being that the Acquiring Fund is |
| permitted to participate in any future PFI interfund lending program. Such restrictions may not be changed without the approval of the |
| shareholders of the Funds. These fundamental restrictions deal with such matters as the issuance of senior securities, purchasing or selling |
| real estate or commodities, borrowing money, making loans, underwriting securities of other issuers, diversification or concentration of |
| investments, and short sales of securities. The fundamental investment restrictions of the Funds are described in the Statement of |
| Additional Information. |
|
| The investment objective of each Fund may be changed by the Board of Directors of PFI without shareholder approval. |
|
| Additional information about the investment strategies and the types of securities in which the Funds may invest is discussed below |
| under “Certain Investment Strategies and Related Risks of the Funds” as well as in the Statement of Additional Information. |
|
| The Statement of Additional Information provides further information about the portfolio manager(s) for each Fund, including |
| information about compensation, other accounts managed and ownership of Fund shares. |
| |
| Fees and Expenses of the Funds |
| The tables below compare the fees and expenses of the shares of the Acquired and Acquiring Funds. In the Reorganization, the holders |
| of Class R-1, Class R-2, Class R-3, Class R-4, class R-5 ("Retirement Class shares"), Class J, and Institutional Class shares of the Acquired |
| Fund will receive, respectively, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, Class J, and Institutional Class shares of the Acquiring |
| Fund. | |
| Shareholder Fees (fees paid directly from your investment) |
| The following table shows the fees and expenses you may pay when you buy and redeem Class J shares of the Funds. These fees and |
| expenses are more fully described under "Additional Information About the Funds –Costs of Investing in the Funds." The Retirement Class |
| and Institutional Class shares are not subject to sales charges or redemption fees. |
| | Class J |
| Maximum Deferred Sales Charge (Load) | 1.00%(1) |
| (as a percentage of dollars subject to charge) | |
| (1) A CDSC may apply on certain redemptions made within 18 months. |
|
| Fees and Expenses as a % of average daily net assets |
| The following table shows: (a) the ratios of expenses to average net assets of the Acquired Fund for the fiscal year ended October 31, |
| 2009; (b) the estimated ratios of expenses to average net assets of the Acquiring Fund for the fiscal year ended August 31, 2010; and (c) the |
| pro forma expense ratios of the Acquiring Fund for the fiscal year ending August 31, 2010 assuming that the Reorganization had taken place |
| at the commencement of the fiscal year ending August 31, 2010. |
| Annual Fund Operating Expenses |
| |
| Investment Management Fees/Sub-Advisory Arrangements |
| The Funds each pay their investment advisor, PMC, an advisory fee which for each Fund is calculated as a percentage of the Fund’s |
| average daily net assets pursuant to the following fee schedule: | |
| High Quality Intermediate-Term Bond Fund | Bond Market Index Fund |
| (Acquired Fund) | (Acquiring Fund) |
| |
| 0.40% of the first $500 million; | |
| 0.38% of the next $500 million; | 0.25% on all assets. |
| 0.36% of the next $500 million; and | |
| 0.35% of the excess over $1.5 billion. | |
| |
| As sub-advisors to the Funds, PGI and Mellon Capital are paid sub-advisory fees for their services. These sub-advisory fees are paid by |
| PMC, not by the Funds. PGI pays Spectrum a fee for its services. | |
| |
| A discussion of the basis of the Board’s approval of the advisory and sub-advisory agreements with respect to the Acquired and |
| Acquiring Funds is available in PFI’s Annual Report to Shareholders for the fiscal year ended October 31, 2009. |
|
| Comparison of Principal Investment Risks |
| In deciding whether to approve the Reorganization, shareholders should consider the amount and character of investment risk involved |
| in the respective investment objectives and strategies of the Acquired and Acquiring Funds. Because the Funds have the same investment |
| objectives and substantially similar principal policies, the Funds’ risks are substantially similar. As described below, the Funds also have |
| some different risks. | |
| |
| Risks Applicable to both Funds: | |
| Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of |
| fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment |
| obligations. | |
| Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; |
| nationalization, expropriation or confiscatory taxation; changes in foreign exchange rates and foreign exchange restrictions; settlement |
| delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. |
| companies). | |
| Municipal Securities Risk. Principal and interest payments on municipal securities may not be guaranteed by the issuing body and may |
| be payable only from a particular source. That source may not perform as expected and payment obligations may not be made or made on |
| time. | |
| Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in |
| interest rates. The longer a fund's average portfolio duration, the more sensitive the fund will be to changes in interest rates. |
| Prepayment Risk. Unscheduled prepayments on mortgage-backed and asset-backed securities may have to be reinvested at lower rates. |
| A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value |
| over time. | |
| Real Estate Securities Risk. Real estate securities (including real estate investment trusts ("REITs")) are subject to the risks associated |
| with direct ownership of real estate, including declines in value, adverse economic conditions, increases in expenses, regulatory changes and |
| environmental problems. A REIT could fail to qualify for tax-free passthrough of income under the Internal Revenue Code, and Fund |
| shareholders will indirectly bear their proportionate share of the expenses of REITs in which the Fund invests. |
| U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other |
| fixed-income securities. | |
| U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored or –chartered enterprises such as the |
| Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or |
| guaranteed by the U.S. Treasury. | |
| |
| Risks Applicable to the Acquired Fund: | |
| Active Trading Risk. Actively trading portfolio securities may result in high portfolio turnover rates and increase brokerage costs, |
| accelerate realization of taxable gains and adversely impact fund performance. | |
| Derivatives Risk. Transactions in derivatives (such as options, futures, and swaps) may increase volatility, cause the liquidation of |
| portfolio positions when not advantageous to do so and produce disproportionate losses. |
| |
| Risk Applicable to the Acquiring Fund: | |
| Underlying Fund Risk. An underlying fund to a fund of funds may experience relatively large redemptions or investments as the fund |
| of funds periodically reallocates or rebalances its assets. These transactions may cause the underlying fund to sell portfolio securities to meet |
| such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction |
| costs and adversely affect underlying fund performance. | |
| |
| INFORMATION ABOUT THE REORGANIZATION |
| Plan of Acquisition |
| The terms of the Plan are summarized below. The summary is qualified in its entirety by reference to the Form of the Plan which is |
| attached as Appendix A to this Proxy Statement/Prospectus. |
| Under the Plan, the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund. We expect that the |
| closing date will be May 14, 2010, or such earlier or later date as PMC may determine, and that the Effective Time of the Reorganization will |
| be as of the close of regularly scheduled trading on the NYSE (normally 3:00 p.m., Central Time) on that date. Each Fund will determine its |
| net asset values as of the close of trading on the NYSE using the procedures described in its then current prospectus (the procedures |
| applicable to the Acquired Fund and the Acquiring Fund are identical). The Acquiring Fund will issue to the Acquired Fund a number of |
| shares of each share class with a total value equal to the total value of the net assets of the corresponding share class of the Acquired Fund |
| outstanding at the Effective Time. |
| Immediately after the Effective Time, the Acquired Fund will distribute to its shareholders Acquiring Fund shares of the same class as |
| the Acquired Fund shares each shareholder owns in exchange for all Acquired Fund shares of that class. Acquired Fund shareholders will |
| receive a number of full and fractional shares of the Acquiring Fund that are equal in value to the value of the shares of the Acquired Fund |
| that are surrendered in the exchange. In connection with the exchange, the Acquiring Fund will credit on its books an appropriate number of |
| its shares to the account of each Acquired Fund shareholder, and the Acquired Fund will cancel on its books all its shares registered to the |
| account of that shareholder. After the Effective Time, the Acquired Fund will be dissolved in accordance with applicable law. |
| The Plan may be amended, but no amendment may be made which in the opinion of the Board would materially adversely affect the |
| interests of the shareholders of the Acquired Fund. The Board may abandon and terminate the Plan at any time before the Effective Time if it |
| believes that consummation of the transactions contemplated by the Plan would not be in the best interests of the shareholders of either of the |
| Funds. | |
| Under the Plan, the Acquired Fund will pay all expenses and out-of-pocket fees incurred in connection with the Reorganization. |
| If the Plan is not consummated for any reason, the Board will consider other possible courses of action. |
| Reasons for the Reorganization |
| The Board of Directors of PFI believes that the Reorganization will serve the best interests of shareholders of both the Acquired and |
| Acquiring Funds. The Funds have the same investment objectives in that they both seek to provide current income. The Funds also have |
| substantially similar principal policies and risks in that both invest primarily in investment grade fixed-income securities, although the |
| Acquiring Fund is an index fund that is passively managed and tracks the performance of the Barclays Capital U.S. Aggregate Bond Index |
| (the “Index”) while the Acquired Fund is actively managed and seeks to outperform the Index as its benchmark index. The Acquiring Fund |
| has lower advisory fee rates and is expected to have lower expense ratios following the Reorganization. Moreover, the Reorganization may |
| be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient management. |
| Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. |
| Board Consideration of the Reorganization |
| Due to the lack of demand and scale for the Acquired Fund, t he Board, including the Independent Directors, considered the |
| Reorganization pursuant to the Plan at its meeting on December 14, 2009. The Board considered information presented by PMC, and the |
| Independent Directors were assisted by independent legal counsel. The Board requested and evaluated such information as it deemed |
| necessary to consider the Reorganization. At the meeting, the Board unanimously approved the Reorganization after concluding that |
| participation in the Reorganization is in the best interests of the Acquired Fund and the Acquiring Fund and that the interests of existing |
| shareholders of the Funds will not be diluted as a result of the Reorganization. |
| In determining whether to approve the Reorganization, the Board made inquiry into a number of matters and considered, among others, |
| the following factors, in no order of priority: |
| (1) | the investment objectives and principal investment strategies and risks of the Funds; |
| (2) | nearly identical fundamental investment restrictions; |
| (3) | estimated trading costs associated with disposing of any portfolio securities of the Acquired Fund and reinvesting the proceeds in |
| | connection with the Reorganization; |
| (4) | expense ratios and available information regarding the fees and expenses of the Funds; |
| (5) | composite performance information of Mellon Capital; |
| (6) | the prospects for growth of and for achieving economies of scale by the Acquired Fund in combination with the Acquiring Fund; |
| (7) | the absence of any material differences in the rights of shareholders of the Funds; |
| (8) | the financial strength, investment experience and resources of Mellon Capital, which currently serves as sub-advisor to the |
| | Acquiring Fund; |
| (9) | any direct or indirect benefits expected to be derived by PMC and its affiliates from the Reorganization; |
| (10) | the direct or indirect federal income tax consequences of the Reorganization, including the expected tax-free nature of the |
| | Reorganization and the impact of any federal income tax loss carry forwards and the estimated capital gain or loss expected to be |
| | incurred in connection with disposing of any portfolio securities that would not be compatible with the investment objectives and |
| | strategies of the Acquiring Fund; |
| (11) | the fact that the Reorganization will not result in any dilution of Acquired or Acquiring Fund shareholder values; |
| (12) | the terms and conditions of the Plan; and |
| |
| (13) possible alternatives to the Reorganization. |
|
| The Board’s decision to recommend approval of the Reorganization was based on a number of factors, including the following: |
| (1) | it should be reasonable for shareholders of the Acquired Fund to have similar investment expectations after the Reorganization |
| | because the Funds have the same investment objectives and substantially similar principal investment strategies and risks; |
| (2) | Mellon Capital as sub-advisor responsible for managing the assets of the Acquiring Fund may be expected to provide high quality |
| | investment advisory services and personnel for the foreseeable future; |
| (3) | the Acquiring Fund has lower advisory fee rates and, following the Reorganization, the combined Acquired and Acquiring Fund is |
| | expected to have lower overall expense ratios than the Acquired Fund; |
| (4) | the combination of the Acquired and Acquiring Funds may be expected to afford shareholders of the Acquired Fund on an ongoing |
| | basis greater prospects for growth and efficient management; and |
| Description of the Securities to Be Issued |
| PFI is a Maryland corporation that is authorized to issue its shares of common stock in separate series and separate classes of series. |
| Each of the Acquired and Acquiring Funds is a separate series of PFI, and the Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 |
| and Institutional Class shares of common stock of the Acquiring Fund to be issued in connection with the Reorganization represent interests |
| in the assets belonging to that series and have identical dividend, liquidation and other rights, except that expenses allocated to a particular |
| series or class are borne solely by that series or class and may cause differences in rights as described herein. Expenses related to the |
| distribution of, and other identified expenses properly allocated to, the shares of a particular series or class are charged to, and borne solely |
| by, that series or class, and the bearing of expenses by a particular series or class may be appropriately reflected in the net asset value |
| attributable to, and the dividend and liquidation rights of, that series or class. |
| All shares of PFI have equal voting rights and are voted in the aggregate and not by separate series or class of shares except that shares |
| are voted by series or class: (i) when expressly required by Maryland law or the 1940 Act and (ii) on any matter submitted to shareholders |
| which the Board has determined affects the interests of only a particular series or class. |
| The share classes of the Acquired Fund have the same rights with respect to the Acquired Fund that the share classes of the Acquiring |
| Fund have with respect to the Acquiring Fund. |
| Shares of both Funds, when issued, have no cumulative voting rights, are fully paid and non-assessable, have no preemptive or |
| conversion rights and are freely transferable. Each fractional share has proportionately the same rights as are provided for a full share. |
| Federal Income Tax Consequences |
| To be considered a tax-free “reorganization” under Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), a |
| reorganization must exhibit a continuity of business enterprise. Because the Acquiring Fund will use a portion of the Acquired Fund’s assets |
| in its business and will continue the Acquired Fund’s historic business, the combination of the Acquired Fund into the Acquiring Fund will |
| exhibit a continuity of business enterprise. Therefore, the combination will be considered a tax-free “reorganization” under applicable |
| provisions of the Code. In the opinion of tax counsel to PFI, no gain or loss will be recognized by either of the Funds or their shareholders in |
| connection with the combination, the tax cost basis of the Acquiring Fund shares received by shareholders of the Acquired Fund will equal |
| the tax cost basis of their shares in the Acquired Fund, and their holding periods for the Acquiring Fund shares will include their holding |
| periods for the Acquired Fund shares. |
| Capital Loss Carryforward. As of October 31, 2009, the Acquired Fund had an accumulated capital loss carryforward of approximately |
| $26,713,000. After the Reorganization, these losses will be available to the Acquiring Fund to offset its capital gains, although the amount of |
| offsetting losses in any given year may be limited. As a result of this limitation, it is possible that the Acquiring Fund may not be able to use |
| these losses as rapidly as the Acquired Fund might have, and part of these losses may not be useable at all. The ability of the Acquiring Fund |
| to utilize the accumulated capital loss carryforward in the future depends upon a variety of factors that cannot be known in advance, |
| including the existence of capital gains against which these losses may be offset. In addition, the benefits of any capital loss carryforward |
| currently are available only to shareholders of the Acquired Fund. After the Reorganization, however, these benefits will inure to the benefit |
| of all shareholders of the Acquiring Fund. |
| Distribution of Income and Gains. Prior to the Reorganization, the Acquired Fund, whose taxable year will end as a result of the |
| Reorganization, will declare to its shareholders of record one or more distributions of all of its previously undistributed net investment |
| income and net realized capital gain, including capital gains on any securities disposed of in connection with the Reorganization. Such |
| distributions will be made to shareholders before the Reorganization. An Acquired Fund shareholder will be required to include any such |
| distributions in such shareholder’s taxable income. This may result in the recognition of income that could have been deferred or might never |
| have been realized had the Reorganization not occurred. |
| The foregoing is only a summary of the principal federal income tax consequences of the Reorganization and should not be considered |
| to be tax advice. There can be no assurance that the Internal Revenue Service will concur on all or any of the issues discussed above. You |
| may wish to consult with your own tax advisors regarding the federal, state, and local tax consequences with respect to the foregoing matters |
| and any other considerations which may apply in your particular circumstances. |
|
| CAPITALIZATION |
| The following tables show as of January 31, 2010: (i) the capitalization of the Acquired Fund; (ii) the capitalization of the Acquiring |
| Fund; and (iii) the pro forma combined capitalization of the Acquiring Fund, adjusted to reflect the estimated expenses of the Reorganization, |
| as if the Reorganization had occurred as of that date. As of January 31, 2010, the Acquired Fund outstanding six classes of shares: Class R-1, |
| Class R-2, Class R-3, Class R-4, Class R5, and Institutional Class The Acquiring Fund will first issue Class J shares on March 16, 2010. |
| The Acquired Fund will pay all expenses and out-of-pocket fees incurred in connection with the Reorganization including printing, |
| mailing, and legal fees. The expenses and fees the Acquired Fund will pay are expected to total $30,759. |
| Further, the Acquired Fund will also pay any trading costs associated with disposing of any portfolio securities of the Acquired Fund |
| that would not be compatible with the investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities |
| that would be compatible. The estimated loss, including trading costs, would be $3,118,000 on a U.S. GAAP basis. The estimated per share |
| capital loss would be $0.55. |
|
| ADDITIONAL INFORMATION ABOUT THE FUNDS |
| Certain Investment Strategies and Related Risks of the Funds |
| This section provides information about certain investment strategies and related risks of the Funds. The Statement of Additional |
| Information contains additional information about investment strategies and their related risks. |
| Some of the principal investment risks vary between the Funds and the variations are described above. The value of each Fund’s |
| securities may fluctuate on a daily basis. As with all mutual funds, as the values of each Fund’s assets rise or fall, the Fund’s share price |
| changes. If an investor sells Fund shares when their value is less than the price the investor paid, the investor will lose money. As with any |
| security, the securities in which the Funds invest have associated risk. |
| Market Volatility |
| Equity securities include common stocks, preferred stocks, convertible securities, depositary receipts, rights, and warrants. Common |
| stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a company’s stock may fall as a result |
| of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or |
| services. A stock’s value may also fall because of factors affecting not just the company, but also companies in the same industry or in a |
| number of different industries, such as increases in production costs. The value of a company’s stock may also be affected by changes in |
| financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In |
| addition, a company’s stock generally pays dividends only after the company invests in its own business and makes required payments to |
| holders of its bonds and other debt. For this reason, the value of a company’s stock will usually react more strongly than its bonds and other |
| debt to actual or perceived changes in the company’s financial condition or prospects. Stocks of smaller companies may be more vulnerable |
| to adverse developments than those of larger companies. |
| Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors. The issuer |
| generally pays the investor a fixed, variable or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt |
| securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values. |
| Interest Rate Changes. Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise |
| when interest rates fall and fall when interest rates rise. Longer term bonds and zero coupon bonds are generally more sensitive to interest |
| rate changes. |
| Credit Risk. Fixed-income security prices are also affected by the credit quality of the issuer. Investment grade debt securities are |
| medium and high quality securities. Some bonds, such as lower grade or “junk” bonds, may have speculative characteristics and may be |
| particularly sensitive to economic conditions and the financial condition of the issuers. |
| Repurchase Agreements and Loaned Securities |
| The Funds may invest a portion of their assets in repurchase agreements, although this is not a principal investment strategy. Repurchase |
| agreements typically involve the purchase of debt securities from a financial institution such as a bank, savings and loan association, or |
| broker-dealer. A repurchase agreement provides that the Fund sells back to the seller and that the seller repurchases the underlying securities |
| at a specified price on a specific date. Repurchase agreements may be viewed as loans by the Fund collateralized by the underlying securities. |
| This arrangement results in a fixed rate of return that is not subject to market fluctuation while the Fund holds the security. In the event of a |
| default or bankruptcy by a selling financial institution, the affected Fund bears a risk of loss. To minimize such risks, the Funds enter into |
| repurchase agreements only with large, well-capitalized and well-established financial institutions. In addition, the value of the securities |
| collateralizing the repurchase agreement is, and during the entire term of the repurchase agreement remains, at least equal to the repurchase |
| price, including accrued interest. |
| The Funds may lend their portfolio securities to unaffiliated broker-dealers and other unaffiliated qualified financial institutions. These |
| transactions involve risk of loss to a fund if the counterparty should fail to return such securities to the fund upon demand or if the |
| counterparty’s collateral invested by the fund declines in value as a result of investment losses. |
| Currency Contracts |
| The Funds may enter into currency contracts, currency futures contracts and options, and options on currencies for hedging and other |
| purposes. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a |
| price set in the contract. A Fund will not hedge currency exposure to an extent greater than the aggregate market value of the securities held |
| or to be purchased by the Fund (denominated or generally quoted or currently convertible into the currency). |
| Hedging is a technique used in an attempt to reduce risk. If a Fund’s Sub-Advisor hedges market conditions incorrectly or employs a |
| strategy that does not correlate well with the Fund’s investment, these techniques could result in a loss. These techniques may increase the |
| volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques |
| could result in a loss if the other party to the transaction does not perform as promised. There is also a risk of government action through |
| exchange controls that would restrict the ability of the Fund to deliver or receive currency. |
| Forward Commitments |
| The Funds may enter into forward commitment agreements, although this is not a principal investment strategy. These agreements call |
| for a fund to purchase or sell a security on a future date at a fixed price. The Funds may also enter into contracts to sell their investments |
| either on demand or at a specific interval. |
| |
| Temporary Defensive Measures |
| From time to time, as part of its investment strategy, each Fund may invest without limit in cash and cash equivalents for temporary |
| defensive purposes in response to adverse market, economic or political conditions. To the extent that the Fund is in a defensive position, it |
| may lose the benefit of upswings and limit its ability to meet its investment objective. For this purpose, cash equivalents include: bank notes, |
| bank certificates of deposit, bankers’ acceptances, repurchase agreements, commercial paper, and commercial paper master notes which are |
| floating rate debt instruments without a fixed maturity. In addition, each Fund may purchase U.S. government securities, preferred stocks and |
| debt securities, whether or not convertible into or carrying rights for common stock. |
| There is no limit on the extent to which the Funds may take temporary defensive measures. In taking such measures, the Funds may fail |
| to achieve their investment objectives. |
| Warrants |
| Each of the Funds may invest in warrants though none of the Funds use such investments as a principal investment strategy. A warrant is |
| a certificate granting its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market |
| price. | |
| Real Estate Investment Trusts |
| The Funds may invest in real estate investment trust securities, herein referred to as “REITs.” REITs involve certain unique risks in |
| addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack |
| of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the |
| underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent |
| upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self- |
| liquidation. As an investor in a REIT, the Fund will be subject to the REIT’s expenses, including management fees, and will remain subject |
| to the Fund’s advisory fees with respect to the assets so invested. REIT’s are also subject to the possibilities of failing to qualify for the |
| special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act. |
| Investment in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited |
| financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than |
| larger company securities. |
| Convertible Securities |
| Convertible securities are fixed-income securities that a Fund has the right to exchange for equity securities at a specified conversion |
| price. The option allows the Fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For |
| example, the Fund may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. |
| If the market value of the shares of common stock reached $12, the Fund could realize an additional $2 per share by converting its fixed- |
| income securities. |
| Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued |
| the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than |
| non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. |
| However, convertible securities permit the Fund to realize some of the potential appreciation of the underlying equity securities with less risk |
| of losing its initial investment. |
| The Funds treat convertible securities as both fixed-income and equity securities for purposes of investment policies and limitations |
| because of their unique characteristics. The Funds may invest in convertible securities without regard to their ratings. |
| Foreign Investing |
| The Funds may invest in securities of foreign companies but not as a principal investment strategy. For the purpose of this restriction, |
| foreign companies are: |
| • | companies with their principal place of business or principal office outside the U.S. or |
| • | companies for which the principal securities trading market is outside the U.S. |
| Foreign companies may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. |
| companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Securities of |
| many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities |
| exchanges may be generally higher than those on U.S. exchanges. |
| Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets there have been |
| times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these |
| transactions. Delays in settlement could result in temporary periods when a portion of Fund assets is not invested and earning no return. If a |
| Fund is unable to make intended security purchases due to settlement problems, the Fund may miss attractive investment opportunities. In |
| addition, a Fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security. |
| With respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, |
| or diplomatic developments that could affect a Fund’s investments in those countries. In addition, a Fund may also suffer losses due to |
| nationalization, expropriation, or differing accounting practices and treatments. Investments in foreign securities are subject to laws of the |
| foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in |
| the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for a |
| Fund. Finally, even though certain currencies may be convertible into U.S. dollars, the conversion rates may be artificial relative to the actual |
| market values and may be unfavorable to Fund investors. |
| |
| Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility, than is the case with |
| many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally |
| more expensive than in the U.S. Though the Funds intend to acquire the securities of foreign issuers where there are public trading markets, |
| economic or political turmoil in a country in which a Fund has a significant portion of its assets or deterioration of the relationship between |
| the U.S. and a foreign country may negatively impact the liquidity of a Fund’s portfolio. A Fund may have difficulty meeting a large number |
| of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers. |
| A Fund may choose to invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership |
| of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but |
| are subject to the foreign securities to which they relate. |
| Investments in companies of developing (also called “emerging”) countries are subject to higher risks than investments in companies in |
| more developed countries. These risks include: |
| • | increased social, political, and economic instability; |
| • | a smaller market for these securities and low or nonexistent volume of trading that results in a lack of liquidity and in greater price |
| | volatility; |
| • | lack of publicly available information, including reports of payments of dividends or interest on outstanding securities; |
| • | foreign government policies that may restrict opportunities, including restrictions on investment in issuers or industries deemed |
| | sensitive to national interests; |
| • | relatively new capital market structure or market-oriented economy; |
| • | the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political or social events |
| | in these countries; |
| • | restrictions that may make it difficult or impossible for the Fund to vote proxies, exercise shareholder rights, pursue legal remedies, |
| | and obtain judgments in foreign courts; and |
| • | possible losses through the holding of securities in domestic and foreign custodial banks and depositories. |
| In addition, many developing countries have experienced substantial and, in some periods, extremely high rates of inflation for many |
| years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities |
| markets of those countries. |
| Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or |
| approval in some developing countries. A Fund could be adversely affected by delays in or a refusal to grant any required governmental |
| registration or approval for repatriation. |
| Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and |
| may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other |
| protectionist measures imposed or negotiated by the countries with which they trade. |
| Small and Medium Capitalization Companies |
| The Funds may invest in securities of companies with mid-sized market capitalizations. Market capitalization is defined as total current |
| market value of a company’s outstanding common stock. Investments in companies with smaller market capitalizations may involve greater |
| risks and price volatility (wide, rapid fluctuations) than investments in larger, more mature companies. Small companies may be less |
| significant within their industries and may be at a competitive disadvantage relative to their larger competitors. While smaller companies may |
| be subject to these additional risks, they may also realize more substantial growth than larger or more established companies. |
| Smaller companies may be less mature than larger companies. At this earlier stage of development, the companies may have limited |
| product lines, reduced market liquidity for their shares, limited financial resources, or less depth in management than larger or more |
| established companies. Unseasoned issuers are companies with a record of less than three years continuous operation, including the operation |
| of predecessors and parents. Unseasoned issuers by their nature have only a limited operating history that can be used for evaluating the |
| company’s growth prospects. As a result, investment decisions for these securities may place a greater emphasis on current or planned |
| product lines and the reputation and experience of the company’s management and less emphasis on fundamental valuation factors than |
| would be the case for more mature growth companies. |
| Derivatives |
| To the extent permitted by its investment objectives and policies, the Funds may invest in securities that are commonly referred to as |
| derivative securities. Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a security, asset, or |
| market index. Certain derivative securities are described more accurately as index/structured securities. Index/structured securities are |
| derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, |
| indices or other financial indicators (reference indices). |
| Some derivatives, such as mortgage-related and other asset-backed securities, are in many respects like any other investment, although |
| they may be more volatile or less liquid than more traditional debt securities. |
| There are many different types of derivatives and many different ways to use them. Futures and options are commonly used for |
| traditional hedging purposes to attempt to protect a fund from exposure to changing interest rates, securities prices, or currency exchange |
| rates and for cash management purposes as a low-cost method of gaining exposure to a particular securities market without investing directly |
| in those securities. A fund may enter into put or call options, future contracts, options on futures contracts and over-the-counter swap |
| contracts (e.g., interest rate swaps, total return swaps and credit default swaps) for both hedging and non-hedging purposes. |
| |
| Generally, the Fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible |
| investment for the particular Fund. The return on a derivative security may increase or decrease, depending upon changes in the reference |
| index or instrument to which it relates. The risks associated with derivative investments include: |
| • | the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the sub- |
| | advisor anticipated; |
| • | the possibility that there may be no liquid secondary market which may make it difficult or impossible to close out a position when |
| | desired; |
| • | the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund’s initial investment; and |
| • | the counterparty may fail to perform its obligations. |
| Multiple Classes of Shares |
| The Board of Directors of PFI has adopted an 18f-3 Plan for each of the Funds. Under these plans, each of the Funds currently offers the |
| following shares: Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, Class J and Institutional Class. The shares are the same except for |
| differences in class expenses, including any Rule 12b-1 fees and any applicable sales charges, excessive trading and other fees. Additional |
| share classes may be offered in the future by the Acquiring Fund. |
| Costs of Investing in the Funds |
| Fees and Expenses of the Funds |
| The fees and expenses of the Funds are described below. Depending on the class of your shares, you may incur one-time or ongoing fees |
| or both. One-time fees include sales or redemption fees. Ongoing fees are the operating expenses of a Fund and include fees paid to the |
| Fund’s manager, underwriter and others who provide ongoing services to the Fund. The Class R-1, R-2, R-3, R-4, and Class R-5 shares are |
| collectively referred to herein as the "Retirement Class shares." |
| Fees and expenses are important because they lower your earnings. However, lower costs do not guarantee higher earnings. For |
| example, a fund with no front-end sales charge may have higher ongoing expenses than a fund with such a sales charge. |
| One-time fees |
| Institutional and Retirement Class Shares: |
| Institutional Class and Retirement Class Shares are sold without a front-end sales charge and do not have a contingent deferred sales |
| charge. There is no sales charge on Institutional Class or Retirement Class shares of the Funds purchased with reinvested dividends or other |
| distributions. |
| Class J |
| The Class J shares of the Funds are sold without a front-end sales charge. There is no sales charge on shares purchased with reinvested |
| dividends or other distributions. |
| If you sell your Class J shares within 18 months of purchase, a contingent deferred sales charge (CDSC) may be imposed on the shares |
| sold. The CDSC, if any, is determined by multiplying by 1.00% the lesser of the market value at the time of redemption or the initial |
| purchase price of the shares sold. |
| The CDSC is not imposed on shares: |
| • | that were purchased pursuant to the Small Amount Force Out program (SAFO); |
| • | redeemed within 90 days after an account is re-registered due to a shareholder’s death; or |
| • | redeemed due to a shareholder’s disability (as defined in the Internal Revenue Code) provided the shares were purchased prior to |
| | the disability; |
| • | redeemed from retirement plans to satisfy minimum distribution rules under the Internal Revenue Code; |
| • | sold using a systematic withdrawal plan (up to 1% per month (measured cumulatively with respect to nonmonthly plans) of the |
| | value of the Fund account at the time, and beginning on the date, the systematic withdrawal plan is established); |
| • | that were redeemed from retirement plans to satisfy excess contribution rules under the Internal Revenue Code; or |
| An excessive trading fee of 1.00% is charged on redemptions or exchanges of $30,000 or more if the shares were purchased within 30 |
| days of the redemption or exchanges. The fee does not apply to redemptions made: through a systematic withdrawal plan; due to a |
| shareholder’s death or disability (as defined in the Internal Revenue Code); or to satisfy minimum distribution rules imposed by the |
| Internal Revenue Code. The fee is calculated as a percentage of market value of the shares redeemed or exchanged at the time of the |
| shares’ redemption. |
| Ongoing fees |
| Ongoing Fees reduce the value of each share. Because they are ongoing, they increase the cost of investing in the Funds. |
| Each Fund pays ongoing fees to PMC and others who provide services to the Fund. These fees include: |
| • | Management Fee – Through the Management Agreement with the Fund, PMC has agreed to provide investment advisory services |
| | and administrative services to the Fund. |
| • | Other Expenses – A portion of expenses that are allocated to all classes of the Fund. |
| • | Distribution Fee – Each of the Funds has adopted a distribution plan under Rule 12b-1 of the 1940 Act for its Retirement Class |
| | shares and Class J shares of each Fund pay a distribution fee based on the average daily net asset value (NAV) of the Fund. These |
| | fees pay distribution and other expenses for the sale of Fund shares and for services provided to shareholders. Over time, these fees |
| | may exceed other types of sales charges. |
| |
| • | Transfer Agent Fee. Principal Shareholder Services, Inc. (“PSS”) has entered into a Transfer Agency Agreement with the Fund |
| | under which PSS provides transfer agent services to the Funds at cost. |
| Retirement Class Shares Only |
| • | Service Fee – PMC has entered into a Services Agreement with PFI under which PMC performs personal services for shareholders. |
| • | Administrative Service Fee – PMC has entered into an Administrative Services Agreement with PFI under which PMC provides |
| | transfer agent and corporate administrative services to the Fund. In addition, PMC has assumed the responsibility for |
| | communications with and recordkeeping services for beneficial owners of Fund shares. |
| Class J and Institutional Class shares of the Funds also pay expenses of registering and qualifying shares for sale, the cost of producing |
| and distributing reports and prospectuses to shareholders, and the cost of shareholder meetings held solely for Class J and Institutional Class |
| shares respectively. |
| Distribution Plans and Intermediary Compensation |
| |
| Institutional Class Shares |
| Neither Fund has adopted a 12b-1 Plan for Institutional Class shares. |
| Retirement Class Shares |
| PFI has adopted Distribution and Service Plans under Rule 12b-1 under the 1940 Act (a “12b-1 plan”) for the Class R-1, R-2, R-3, and |
| R-4 shares of each Fund. Under the 12b-1 plan, the Funds will make payments from their assets attributable to the particular share class to |
| PFD .for distribution-related expenses and for providing services to shareholders of that share class. Payments under the 12b-1 plans will not |
| automatically terminate for funds that are closed to new investors or to additional purchases by existing shareholders. The Board will |
| determine whether to terminate, modify, or leave unchanged the 12b-1 plan for any fund at the time the Board directs the implementation of |
| the closure of the fund. Because Rule 12b-1 fees are ongoing fees, over time they will increase the cost of an investment in the Funds and |
| may cost more than paying other types of sales charges. |
| The maximum annual Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for each of the above |
| classes of the Funds are set forth below: |
|
| Retirement Plan Services. Each Fund pays a Service Fee and Administrative Services Fee to PMC for providing services to retirement |
| plan shareholders. PMC typically pays some or all of these fees to Principal Life Insurance Company, which has entered into an agreement to |
| provide these services to the retirement plan shareholders. PMC may also enter into agreements with other intermediaries to provide these |
| services, and pay some or all of the Fees to such intermediaries. |
| Plan recordkeepers, who may have affiliated financial intermediaries that sell shares of the funds, may be paid additional amounts. In |
| addition, financial intermediaries may be affiliates of entities that receive compensation from the Distributor for maintaining retirement plan |
| “platforms” that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. |
| The amounts paid to plan recordkeepers for recordkeeping services, and their related service requirements may vary across fund groups |
| and share classes. This may create an incentive for financial intermediaries and their Investment Representatives to recommend one fund |
| complex over another or one class of shares over another. |
| Class J Shares |
| Each Fund has adopted a 12b-1 plan for its Class J shares. Under the 12b-1 Plans, the Funds may make payments from assets attributable |
| to the particular share class to the Distributor for distribution related expenses and for providing services to shareholders of that share class. |
| Because Rule 12b-1 fees are ongoing fees, over time they will increase the cost of an investment in the Funds and may cost more than paying |
| other types of sales charges. |
| The maximum annual Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for each of the above class |
| of the Acquiring Fund is set forth below: |
| |
| Acsencus | MSCS Financial Services |
| ADP Retirement Services | New York State Deferred Compensation Plan |
| Alerus Retirement Solutions | Newport Retirement Plan Services |
| American Century Investments | National Financial Services |
| American General Life Insurance | Next Financial |
| Ameriprise | NFP Securities |
| Associated Financial Group | North Ridge Securities |
| Benefit Plan Administrators | Northwestern Mutual |
| Cadaret Grant | NRP Financial |
| Charles Schwab & Co. | NYLife Distributors LLC |
| Charles Schwab Trust Company | Pershing |
| Chase Investments Services Corp. | Plan Administrators, Inc. |
| Citigroup Global Markets | Principal Global Investors |
| Commonwealth Financial Network | Principal Life Insurance Company |
| CompuSys | Principal Trust Company |
| CPI | ProEquities |
| Daily Access Corporation | Prudential |
| Digital Retirement Solutions | Raymond James |
| Edward Jones | RBC Capital Markets |
| ePlan Services | RBC Dain Rauscher |
| Expert Plan | Reliance Trust Company |
| Farmers Financial | Robert W. Baird & Co. |
| Fidelity | Royal Alliance Associates, Inc. |
| Financial Data Services | SagePoint Financial, Inc. |
| Financial Network Investment Corp | Saxony Securities |
| First Allied Securities | Scottrade |
| First American Bank | Securian Financial Services |
| First Clearing | Securities America |
| Foothill Securities | SII Investments |
| FSC Securities | Southwest Securities |
| G.A. Reppie | Standard Retirement Services |
| Geneos Wealth Management | Stifel Nicolaus & Company |
| Genesis Employee Benefit | SunAmerica |
| GPC Securities, Inc. | T. Rowe Price Retirement Plan Services |
| Gunn Allen Financial | TD Ameritrade |
| GWFS Equities | Texas Pension Consultants |
| Howe Bames Investment | The Investment Center |
| ICMA-Retirement Corp. | Thrivent Financial |
| ING Financial Partners | Thrivent Investment Management |
| Investacorp | TransAm Securities |
| J.W. Cole Financial | Triad Advisors |
| James T. Borello & Co. | U.S. Wealth Advisors |
| Janney Montgomery Scott | UBS Financial Services |
| JP Morgan | Unison |
| Key Investments | Uvest Financial Services |
| Lincoln Financial | Vanguard Brokerage Services |
| Lincoln Investment Planning | VSR Financial Services |
| LPL | Wachovia |
| Mercer HR Services | Wedbush Morgan Securities |
| Merrill Lynch | Wells Fargo |
| MidAtlantic Capital | Wilmington Trust |
| Morgan Keegan | Workman Securities |
| Morgan Stanley | WRP Investments |
| Morgan Stanley Smith Barney | |
| |
| Although a Fund may use brokers who sell shares of the Funds to effect portfolio transactions, the sale of shares is not considered as a |
| factor by the Fund’s Sub-Advisors when selecting brokers to effect portfolio transactions. |
| Your intermediary may charge fees and commissions, including processing fees, in addition to those described in this prospectus. The |
| amount and applicability of any such fee is determined and disclosed separately by the intermediary. You should ask your Financial |
| Professional for information about any fees and/or commissions that are charged. |
| Additionally, the Distributor and its affiliates will, in some cases, provide payments to reimburse directly or indirectly the costs incurred |
| by intermediaries and their associated Financial Professionals in connection with educational seminars and training and marketing efforts |
| related to the Funds for the intermediaries’ employees and representatives and/or their clients and potential clients. The costs and expenses |
| associated with these efforts may include travel, lodging, entertainment, and meals. The Distributor will also, in some cases, provide payment |
| or reimbursement for expenses associated with qualifying dealers’ conferences, transactions (“ticket”) charges, and general marketing |
| expenses. | |
| Pricing of Fund Shares |
| Each Fund’s shares are bought and sold at the current share price. The share price of each class of each Fund is calculated each day the |
| NYSE is open (shares are not priced on the days on which the NYSE is closed for trading, generally New Year’s Day, Martin Luther King, |
| Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and |
| Christmas). The share price is determined as of the close of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy |
| or sell shares is received, the share price used to fill the order is the next price calculated after the order is received in good order by us at our |
| transaction processing center in Canton, Massachusetts. In order for us to process your purchase order on the day it is received, we must |
| receive the order (with complete information): |
| • | on a day that the NYSE is open and |
| • | prior to the close of trading on the NYSE (normally 3 p.m. Central Time). |
| Orders received after the close of the NYSE or on days that the NYSE is not open will be processed on the next day that the NYSE is |
| open for normal trading. |
| If we receive an application or purchase request for a new mutual fund account or subsequent purchase into an existing account that is |
| accompanied by a check and the application or purchase request does not contain complete information, we may hold the application (and |
| check) for up to two business days while we attempt to obtain the necessary information. If we receive the necessary information within two |
| business days, we will process the order using the next share price calculated. If we do not receive the information within two business days, |
| the application and check will be returned to you. |
| For all PFI Funds, the share price is calculated by: |
| • | taking the current market value of the total assets of the Fund |
| • | subtracting liabilities of the Fund |
| • | dividing the remainder proportionately into the classes of the Fund |
| • | subtracting the liability of each class |
| • | dividing the remainder by the total number of shares outstanding for that class. |
| NOTES: | |
| • | If market quotations are not readily available for a security owned by a Fund, its fair value is determined using a policy adopted by |
| | the Directors. Fair valuation pricing is subjective and creates the possibility that the fair value determined for a security may differ |
| | materially from the value that could be realized upon the sale of the security. |
| • | A Fund’s securities may be traded on foreign securities markets that generally complete trading at various times during the day |
| | prior to the close of the NYSE. Generally, the values of foreign securities used in computing a Fund’s Net Asset Value (“NAV”) |
| | are the market quotations as of the close of the foreign market. Foreign securities and currencies are also converted to U.S. dollars |
| | using the exchange rate in effect at the close of the NYSE. Occasionally, events affecting the value of foreign securities occur when |
| | the foreign market is closed and the NYSE is open. The Fund has adopted policies and procedures to “fair value” some or all |
| | securities held by a Fund if significant events occur after the close of the market on which the foreign securities are traded but |
| | before the Fund’s NAV is calculated. |
| Significant events can be specific to a single security or can include events that affect a particular foreign market or markets. A |
| significant event can also include a general market movement in the U.S. securities markets. If the Manager believes that the market value of |
| any or all of the foreign securities is materially affected by such an event, the securities will be valued, and the Fund’s NAV will be |
| calculated, using the policy adopted by the Fund. These fair valuation procedures are intended to discourage shareholders from investing in |
| the Fund for the purpose of engaging in market timing or arbitrage transactions. |
| The trading of foreign securities generally or in a particular country or countries may not take place on all days the NYSE is open, or |
| may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the Fund may change on days when shareholders are |
| unable to purchase or redeem shares. |
| • | Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any point in time. |
| | These may be referred to as local price and premium price. The premium price is often a negotiated price that may not consistently |
| | represent a price at which a specific transaction can be effected. The Fund has a policy to value such securities at a price at which |
| | the Sub-Advisor expects the securities may be sold. |
| | |
| Purchase of Fund Shares |
| Institutional Class Shares |
| |
| | Only eligible purchasers may buy Institutional Class shares of the Funds. At the present time, eligible purchasers include but are not |
| limited to: | |
| • | retirement and pension plans to which Principal Life Insurance Company (“Principal Life”) provides recordkeeping services; |
| • | separate accounts of Principal Life; |
| • | Principal Life or any of its subsidiaries or affiliates; |
| • | any fund distributed by Principal Funds Distributor, Inc. if the fund seeks to achieve its investment objective by investing primarily in |
| | shares of mutual funds; |
| • | clients of Principal Global Investors, LLC.; |
| • | sponsors, recordkeepers, or administrators of wrap account or mutual fund asset allocation programs or participants in those programs; |
| • | certain pension plans; |
| • | certain retirement account investment vehicles administered by foreign or domestic pension plans; |
| • | an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial |
| | institution, pursuant to a written agreement; and |
| • | certain institutional clients that have been approved by Principal Life for purposes of providing plan record keeping. |
| | PMC reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please |
| check with your financial advisor or our home office for state availability. |
| | Shares may be purchased from the Distributor. There are no sales charges on Institutional Class shares of the Fund. There are no |
| restrictions on amounts to be invested in Institutional Class shares of the Fund. Shareholder accounts for the Fund are maintained under an |
| open account system. Under this system, an account is opened and maintained for each investor (generally an omnibus account or an |
| institutional investor). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and |
| the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates |
| are not issued. The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market |
| timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management |
| strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PMC’s |
| opinion, may be disruptive to the Fund. For these purposes, PMC may consider an investor’s trading history in the Fund or other Funds |
| sponsored by Principal Life and accounts under common ownership or control. |
| | Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to |
| refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, |
| money orders, travelers' checks, credit card checks, and foreign checks. PMC may recommend to the Board, and the Board may elect, to |
| close certain funds to new and existing investors. |
| | NOTE: | No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than |
| | | those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon |
| | | as having been provided or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD. |
| Retirement Class Shares |
| |
| | The Retirement Class shares may be purchased through retirement plans, though not all plans offer each Fund. Such plans may impose |
| fees in addition to those charged by the Funds. The services or share classes available to you may vary depending upon how you wish to |
| purchase shares of the Fund. Each share class represents investments in the same portfolio of securities, but each class has its own expense |
| structure, allowing you to choose the class that best meets your situation (not all classes are available to all plans). Each investor’s financial |
| considerations are different. You should speak with your financial professional to help you decide which share class is best for you. |
| |
| | Only eligible purchasers may buy Retirement Class shares of the Funds. At the present time, eligible purchasers include but are not |
| limited to: | |
| • | retirement and pension plans to which Principal Life Insurance Company ("Principal Life") provides recordkeeping services; |
| • | separate accounts of Principal Life; |
| • | Principal Life or any of its subsidiaries or affiliates; |
| • | any fund distributed by Principal Funds Distributor, Inc. if the fund seeks to achieve its investment objective by investing primarily in |
| | shares of mutual funds; |
| • | clients of Principal Global Investors, LLC.; |
| • | certain pension plans; |
| • | certain retirement account investment vehicles administered by foreign or domestic pension plans; |
| • | an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial |
| | institution, pursuant to a written agreement; and |
| • | certain retirement plan clients that have an approved organization for purposes of providing plan record keeping services. |
| | PMC reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please |
| check with your financial advisor or our home office for state availability. |
| | |
| Shares may be purchased from Principal Funds Distributor, Inc. The Distributor is an affiliate of Principal Life Insurance Company and |
| with it are subsidiaries of Principal Financial Group, Inc. and members of the Principal Financial Group. There are no sales charges on R-1, |
| R-2, R-3, R-4, and R-5 Class shares of the Fund. Shareholder accounts for the Fund are maintained under an open account system. Under this |
| system, an account is opened and maintained for each investor (generally an omnibus account or an plan level account). Each investment is |
| confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The |
| statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates are not issued. |
| The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market timing |
| because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies |
| and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PMC's opinion, |
| may be disruptive to the Fund. For these purposes, PMC may consider an investor's trading history in the Fund or other Funds sponsored by |
| Principal Life and accounts under common ownership or control. |
| Payments may be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to |
| refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, |
| money orders, travelers' checks, credit card checks, and foreign checks. |
| PMC may recommend to the Board, and the Board may elect, to close certain funds to new and existing investors. |
| NOTE: | No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than |
| | | those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon |
| | | as having been provided or made by Principal Funds, a Fund, PMC, any Sub-Advisor, or Principal Funds Distributor, Inc. |
| Class J Shares | |
| |
| Class J shares are currently available only through registered representatives of: |
| • | Princor who are also employees of Principal Life (These registered representatives are sales counselors of Principal Connection, a |
| | distribution channel used to directly market certain products and services of the companies of the Principal Financial Group.); |
| • | selected broker-dealers selling Class J shares in conjunction with health savings accounts; and |
| • | selected broker-dealers that have entered into a selling agreement to offer Class J shares. |
| For more information about Class J shares of the Funds, please call the Connection at 1-800-247-8000, extension 411. |
| Fill out the Principal Funds (or the IRA, SEP or SIMPLE) application completely. You must include: |
| • | the name you want to appear on the account; |
| • | the Principal Funds in which you want to invest; |
| • | the amount of the investment; |
| • | your Social Security number; and |
| • | other required information. |
| Each Fund requires a minimum initial investment of $1,000. Subsequent investment minimums are $100. |
| • | PFI may reject or cancel any purchase orders for any reason. For example, PFI does not intend to permit market timing because |
| | short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management |
| | strategies and by increasing expenses. Accordingly, PFI may reject any purchase orders from market timers or investors that, in |
| | PMC’s opinion, may be disruptive to the Funds. For these purposes, PMC may consider an investor's trading history in the Funds |
| | or other Funds sponsored by Principal Life and accounts under common ownership or control. PMC may recommend to the Board, |
| | and the Board may elect, to close certain funds to new and existing investors. |
| • | If you are making an initial purchase of Principal Funds of $1,000,000 or more and have selected Class J shares, the purchase will |
| | be of Class A shares of the Fund(s) you have selected. If you are making subsequent purchases into your existing Principal Funds |
| | Class J share accounts and the combined value of the subsequent investment and your existing Class A, Class B, Class C, and Class |
| | J share accounts combined for Rights of Accumulation purposes exceeds $1,000,000, the subsequent investment will be applied to |
| | purchase Class A shares of the Fund(s) you have selected. Purchases made by you, your spouse or domestic partner, your children, |
| | the children of your spouse or domestic partner up to and including the age of 25 and/or a trust created by or primarily for the |
| | benefit of such persons (together “a Qualified Purchaser”) will be combined along with the value of existing Class A, B, C, and J |
| | shares of Principal Funds owned by such persons, to determine the applicable sales charge. Class A shares of Money Market Fund |
| | are not included in the calculation unless they were acquired in exchange from other Principal Funds shares. |
| • | The minimum investment applies on a per Fund level, not on the total investment being made. |
| To eliminate the need for safekeeping, Principal Funds will not issue certificates for shares. Principal Funds may periodically close to |
| new purchases of shares or refuse any order to buy shares if PMC determines that doing so would be in the best interests of Principal Funds |
| and its shareholders. Accounts with foreign addresses cannot be established. If an existing shareholder with a U.S. address moves to a foreign |
| location and updates the address on the shareholder's account, we are unable to process any purchases or exchanges on that account. |
| Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to |
| refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, |
| starter checks, money orders, travelers' checks, credit card checks, and foreign checks. |
| Payment. Payment for shares of Principal Funds purchased as a direct rollover IRA is made by the retirement plan trustees. Payment for |
| other shares is generally made via personal check or cashiers check. We consider your purchase of Fund shares by check to be your |
| authorization to make an automated clearing house (“ACH”) debit entry to your account. Shares purchased by check may be sold only after |
| the check has cleared your bank, which may take up to 7 calendar days. |
| |
| Your Financial Professional can help you buy shares of Principal Funds by mail, through bank wire, direct deposit or Automatic |
| Investment Plan. Contact Principal Funds at 1-800-222-5852 to obtain bank wire instructions. No wires are accepted on days when the NYSE |
| is closed or when the Federal Reserve is closed (because the bank that would receive your wire is closed). |
| Direct Deposit |
| |
| Your Financial Professional can help you make a Direct Deposit from your paycheck (if your employer approves) or from a government |
| allotment. Direct Deposit allows you to deposit automatically all or part of your paycheck (or government allotment) to your Principal Funds |
| account(s). You will receive a Direct Deposit Authorization Form to give to your employer or the governmental agency (either of which may |
| charge a fee for this service). Shares will be purchased on the day the ACH notification is received by the transfer agent’s bank. On days |
| when the NYSE is closed, but the bank receiving the ACH notification is open, your purchase will be priced at the next calculated share |
| price. | |
| Automatic Investment Plan |
| |
| Your Financial Professional can help you establish an Automatic Investment Plan. You may make regular monthly investments with |
| automatic deductions from your bank or other financial institution account. You select the day of the month the deduction is to be made. If |
| that date is a non-trading day, we will process the deduction on the next trading day. If the next trading day falls in the next month or year, |
| we will process the deduction on the day prior to your selected day. The minimum initial investment is waived if you set up an Automatic |
| Investment Plan when you open your account. Minimum monthly purchase is $100 per Fund. |
| |
| NOTE: No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than those |
| contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon as having been provided |
| or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD. |
| Redemption of Fund Shares |
| Institutional Class Shares |
| Institutional Class Shares of the Funds may be redeemed upon request. There is no charge for the redemption. Shares are redeemed at |
| the NAV per share next computed after the request is received by a Fund in proper and complete form. The Funds generally send payment for |
| shares sold the business day after the sell order is received. Under unusual circumstances, the Funds may suspend redemptions, or postpone |
| payment for more than seven days, as permitted by federal securities law. |
| Retirement Class Shares |
| |
| Subject to any restrictions imposed by a plan, Retirement Class shares may be sold back to the Funds any day the NYSE is open. For |
| more information about how to sell shares of a Fund, including any charges that a plan may impose, please consult the plan. |
| |
| The Funds generally sends payment for shares sold the business day after the sell order is received. Under unusual circumstances, the |
| Funds may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. |
| Distributions in Kind. Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may |
| determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in |
| cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution “in |
| kind” of securities from the Fund’s portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might |
| incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the |
| same method the Fund uses to value its portfolio securities as described in this prospectus. |
| |
| Redemption fees. The Fund board of directors has determined that it is not necessary to impose a fee upon the redemption of fund shares, |
| because the Fund has adopted transfer restrictions as described in “Exchange of Fund Shares.” |
| Class J Shares |
| After you place a sell order in proper form, shares are sold using the next share price calculated. The amount you receive will be reduced |
| by any applicable CDSC or excessive trading fee. There is no additional charge for a sale of shares; however, you will be charged a $10 wire |
| fee if you have the sale proceeds wired to your bank. Generally, the sale proceeds are sent out on the next business day* after the sell order |
| has been placed. It may take additional business days for your financial institution to post this payment to your account at that financial |
| institution. At your request, the check will be sent overnight (a $15 overnight fee will be deducted from your account unless other |
| arrangements are made). A Fund can only sell shares after your check making the Fund investment has cleared your bank, which may take up |
| to 7 calendar days. A sell order from one owner is binding on all joint owners. |
| * a day when the NYSE is open for normal business |
| |
| Distributions from IRA, SEP, SIMPLE, and SAR-SEP accounts may be taken as: |
| • | lump sum of the entire interest in the account, |
| • | partial interest in the account, or |
| • | periodic payments of either a fixed amount or an amount based on certain life expectancy calculations. |
| Tax penalties may apply to distributions before the participant reaches age 59 1/2. |
| Selling shares may create a gain or a loss for federal (and state) income tax purposes. You should maintain accurate records for use in |
| preparing your income tax returns. |
| |
| Generally, sales proceeds checks are: |
| • | payable to all owners on the account (as shown in the account registration) and |
| • | mailed to the address on the account (if not changed within last 15 days) or previously authorized bank account. |
| For other payment arrangements, please call Principal Funds. You should also call Principal Funds for special instructions that may |
| apply to sales from accounts: |
| • | when an owner has died; |
| • | for certain employee benefit plans; or |
| • | owned by corporations, partnerships, agents, or fiduciaries. |
| Payment for shares sold is generally sent the business day after the sell order is received. Under unusual circumstances, Fund may |
| suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. |
| Within 60 calendar days after the sale of J shares, you may reinvest the amount of the sale proceeds into any Principal Funds Class J |
| shares fund; shares purchased by redemption proceeds are not subject to the eighteen month CDSC. It is the responsibility of the shareholder |
| to notify the Fund at the time of repurchase if the purchase proceeds are from a redemption of the Fund within the past 60 days. |
| The transaction is considered a sale for federal (and state) income tax purposes even if the proceeds are reinvested. |
| If a loss is realized on the sale, the reinvestment may be subject to the “wash sale” rules resulting in the postponement of the recognition |
| of the loss for tax purposes. |
| CDSC-Free withdrawal privilege. Sales may be subject to a CDSC. Redemption of Class J shares made through a systematic withdrawal |
| plan in an amount of up to 1.00% per month (measured cumulatively with respect to nonmonthly plans) of the value of the Fund account at |
| the time, and beginning on the date, the systematic withdrawal plan is established) may be made without a CDSC. The free withdrawal |
| privilege not used in a calendar year is not added to the free withdrawal privileges for any following year. |
| Sell shares by mail: |
| • | Send a distribution form (available at www.PrincipalFunds.com or by calling 1-800-222-5852) which is signed by the |
| | owner/owners of the account to: |
| | Principal Funds |
| | P.O. Box 55904 |
| | Boston, MA 02205 |
| • | Medallion Signature Guarantee* will be required if the: |
| • | sell order is for more than $100,000; |
| • | wire or ACH is being sent to a shareholder's U.S. bank account not previously authorized or the request does not include a voided |
| | check or deposit slip indicating a common owner between the bank account and mutual fund account; |
| • | check is being sent to an address other than the account address; |
| • | account address has been changed within 15 days of the sell order; or |
| • | check is payable to a party other than the account shareholder(s), Principal Life or a retirement plan trustee or custodian that has |
| | agreed in writing to accept a transfer of assets from the Fund. |
| * If required, the signature(s) must be guaranteed by a commercial bank, trust company, credit union, savings and loan, national securities |
| exchange member or brokerage firm. A signature guarantee by a notary public or savings bank is not acceptable. |
| Sell shares in amounts of $100,000 or less by telephone |
| • | The combined amount requested from all funds to which the redemption request relates is $100,000 or less. |
| • | The address on the account must not have been changed within the last 15 days and telephone privileges must apply to the account |
| | from which the shares are being sold. |
| Sales made under your systematic withdrawal plan will reduce and may eventually exhaust your account. The Funds do not normally |
| accept purchase payments while a systematic withdrawal plan is in effect (unless the purchase represents a substantial addition to your |
| account). | |
| The Fund from which the systematic withdrawal is made makes no recommendation as to either the number of shares or the fixed |
| amount that you withdraw. |
| Excessive Trading Fee. An excessive trading fee may apply to redemptions made within 30 days of purchase as described in "Frequent |
| Purchases and Redemptions." If excessive trading is deemed to be occurring, additional restrictive actions may be taken, as described below. |
| Distributions in Kind. Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may |
| determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in |
| cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution “in |
| kind” of securities from the Fund’s portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might |
| incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the |
| same method the Fund uses to value its portfolio securities as described in this prospectus. |
| | |
| Exchange of Fund Shares |
| Institutional Class and Retirement Class Shares |
| | An exchange between Funds is a redemption of shares of one Fund and a concurrent purchase of shares in another Fund with the |
| redemption proceeds. A shareholder, including a beneficial owner of shares held in nominee name or a participant in a participant-directed |
| employee benefit plan, may exchange Fund shares under certain circumstances. In addition to any restrictions an intermediary or an |
| employee benefit plan imposes, Fund shares may be exchanged, without charge, for shares of any other Fund of the Principal Funds, |
| provided that: |
| | • | the shareholder has not exchanged shares of the Fund within 30 days preceding the exchange, unless the shareholder is exchanging |
| | | into the Money Market Fund, |
| | • | the share class of such other Fund is available through the plan, and |
| | • | the share class of such other Fund is available in the shareholder’s state of residence. |
| | All exchanges completed on the same day are considered a single exchange for purposes of this exchange limitation. In addition, the |
| Fund will reject an order to purchase shares of any Fund if the shareholder redeemed shares from that Fund within the preceding 30-day |
| period. The 30-day exchange or purchase restriction does not apply to exchanges or purchases made on a scheduled basis such as scheduled |
| periodic portfolio rebalancing transactions. |
| | If Fund shares are purchased through an intermediary that is unable or unwilling to impose the 30-day exchange restriction described |
| above, Fund management may waive this restriction in lieu of the exchange limitation that the intermediary is able to impose if, in |
| management’s judgment, such limitation is reasonably likely to prevent excessive trading in Fund shares. In order to prevent excessive |
| exchanges, and under other circumstances where the Fund Board of Directors or the Manager believes it is in the best interests of the Fund, |
| the Fund reserves the right to revise or terminate this exchange privilege, limit the amount or further limit the number of exchanges, reject |
| any exchange or close an account. |
| Class J Shares |
| | Your shares in the Funds may be exchanged without a CDSC for the same share class of any other Principal Funds. However, the |
| original purchase date of the shares from which an exchange is made is used to determine if newly acquired shares are subject to a CDSC |
| when they are sold. The Fund reserves the to right to revise or terminate the exchange privilege at any time. Notice will be provided to |
| shareholders of any such change, to the extent required by law. |
| | You may exchange shares by: |
| | • | sending a written request to: |
| | | Principal Funds |
| | | P.O. Box 55904 |
| | | Boston, MA 02205 |
| | • | completing an Exchange Authorization Form (available on www.principalfunds.com or by calling 1-800-222-5852). |
| | • | via the Internet at www.principalfunds.com. |
| | • | calling us, if you have telephone privileges on the account. |
| Automatic Exchange Election |
| | This election authorizes an exchange from one Principal Funds to another on a monthly, quarterly, semiannual or annual basis. You can |
| set up an automatic exchange by: |
| | • | completing an automatic Exchange Election form available on www.principalfunds.com, |
| | • | completing the Automatic Exchange Election section of the application, |
| | • | calling us if telephone privileges apply to the account from which the exchange is to be made, or |
| | • | sending us your written instructions. |
| | Your automatic exchange continues until: |
| | • | you instruct us to stop by calling us if telephone privileges apply to the account or by sending us your written instructions; or |
| | • | your Fund account balance is zero. |
| | You may specify the day of the exchange (if none is selected, the exchange will be made on the 15th of the month). If the selected day is |
| not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year prior to your selected date, the |
| transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the |
| date or amount by telephoning us. |
| General | |
| • | An exchange by any joint owner is binding on all joint owners. |
| • | If you do not have an existing account in the Fund to which the exchange is being made, a new account is established. The new account |
| | has the same owner(s), dividend and capital gain options and dealer of record as the account from which the shares are being exchanged. |
| • | All exchanges are subject to the minimum investment and eligibility requirements of the Fund being acquired. |
| • | You may acquire shares of a Fund only if its shares are legally offered in your state of residence. |
| • | For an exchange to be effective the day we receive your instruction, we must receive the instruction in good order at our transaction |
| | processing center in Canton, Massachusetts before the close of normal trading on the NYSE (generally 3 p.m. Central Time). |
| |
| When money is exchanged or transferred from one account registration or tax identification number to another, the account holder is |
| relinquishing his or her rights to the money. Therefore exchanges and transfers can only be accepted by telephone if the exchange (transfer) is |
| between: | |
| • | accounts with identical ownership, |
| • | an account with a single owner to one with joint ownership if the owner of the single owner account is also an owner of the account |
| | with joint ownership, |
| • | a single owner to a Uniform Transfer to Minors Act ("UTMA") account if the owner of the single owner account is also the |
| | custodian on the UTMA account, or |
| • | a single or jointly owned account to an IRA account to fund the yearly IRA contribution of the owner (or one of the owners in the |
| | case of a jointly owned account). |
| The exchange is treated as a sale of shares for federal (and state) income tax purposes and may result in a capital gain or loss. Income tax |
| rules regarding the calculation of cost basis may make it undesirable in certain circumstances to exchange shares within 90 days of their |
| purchase. | |
| Fund shares used to fund an employee benefit plan may be exchanged only for shares of other Principal Funds available to employee |
| benefit plans. Such an exchange must be made by following the procedures provided in the employee benefit plan and the written service |
| agreement. |
| Excessive Trading Fee. An excessive trading fee may apply to exchanges made within 30 days of purchase as described in “Frequent |
| Purchases and Redemptions.” If excessive trading is deemed to be occurring, additional restrictive actions may be taken, as described below. |
| Frequent Purchases and Redemptions |
| The Funds are not designed for, and do not knowingly accommodate, frequent purchases and redemptions of fund shares by investors. If |
| you intend to trade frequently and/or use market timing investment strategies, you should not purchase these Funds. |
| Frequent purchases and redemptions pose a risk to the Funds because they may: |
| • | Disrupt the management of the Funds by: |
| • | forcing the Funds to hold short-term (liquid) assets rather than investing for long-term growth, which results in lost investment |
| | opportunities for the Fund; and |
| • | causing unplanned portfolio turnover; |
| • | hurt the portfolio performance of the Funds; and |
| • | increase expenses of the Funds due to: |
| • | increased broker-dealer commissions and |
| • | increased recordkeeping and related costs. |
| The Board of Directors of the Fund has adopted policies and procedures with respect to frequent purchases and redemptions of shares of |
| the Funds. The Funds monitor shareholder trading activity to identify and take action against abuses. While our policies and procedures are |
| designed to identify and protect against abusive trading practices, there can be no certainty that we will identify and prevent abusive trading |
| in all instances. If we are not able to identify such excessive trading practices, the Funds and their shareholders may be harmed. When we do |
| identify abusive trading, we will apply our policies and procedures in a fair and uniform manner. |
| Institutional Class Shares |
| If we, or a Fund, deem abusive trading practices to be occurring, we will take action that may include, but is not limited to: |
| • | Rejecting exchange instructions from the shareholder or other person authorized by the shareholder to direct exchanges; |
| • | Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by 1st class U.S. mail |
| | only and disallowing requests made by facsimile, overnight courier, telephone or via the internet; |
| • | Limiting the number of exchanges during a year; |
| • | Requiring a holding period of a minimum of 30 days before permitting exchanges among the Funds where there is evidence of at |
| | least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption); |
| | and |
| • | Taking such other action as directed by the Fund. |
| The Funds have reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an |
| exchange may be completed prior to a determination of abusive trading. In those instances, we will reverse the exchange. We will give you |
| notice in writing in this instance. |
| Retirement Class Shares |
| The Funds have adopted an exchange frequency restriction, described above in “Exchange of Fund Shares” to limit excessive trading in |
| fund shares. |
| Class J Shares |
| Currently the Funds impose an excessive trading fee on redemptions or exchanges of $30,000 or more of a Fund's Class J shares |
| redeemed within 30 days after they are purchased. The fee does not apply to redemptions or exchanges made pursuant to an Automatic |
| Exchange Election or Systematic Withdrawal Plan through an Automatic Exchange Election or a Systematic Withdrawal Plan; due to a |
| shareholder's death or disability (as defined in the Internal Revenue Code); to satisfy minimum distribution rules imposed by the Internal |
| Revenue Code; or where the application of the fee would cause a Fund to fail to be considered a “qualified default investment alternative” |
| under the Employee Retirement Income Security Act of 1976, as amended, and the rules and regulations thereunder. The fee is equal to |
| | |
| 1.00% of the total redemption or exchange amount. The fee is paid to the Funds and is intended to offset the trading costs, market impact, and |
| other costs associated with short-term money movement in and out of the Funds. |
| | The imposition of the excessive trading fee may be waived if an intermediary, such as a retirement plan recordkeeper, through which |
| Fund shares are made available to shareholders is unable or unwilling to impose the fee, but is able to implement other procedures the Fund |
| believes are reasonably designed to prevent excessive trading in Fund shares. In addition, if a Fund deems frequent trading and redemptions |
| to be occurring, action will be taken that may include, but is not limited to: |
| | • | Increasing the excessive trading fee to 2%, |
| | • | Increasing the excessive trading fee period from 30 days to as much as 90 days, |
| | • | Applying the excessive trading fee to redemptions or exchanges of less than $30,000, |
| | • | Limiting the number of permissible exchanges available to shareholders identified as "excessive traders," |
| | • | Limit exchange requests to be in writing and submitted through the United States Postal Service (in which case, requests for |
| | | exchanges by fax, telephone or internet will not be accepted), and |
| | • | Taking such other action as directed by the Fund. |
| Dividends and Distributions |
| | Dividends are based on estimates of income, expenses, and shareholder activity for the Fund. Actual income, expenses, and shareholder |
| activity may differ from estimates; consequently, differences, if any, will be included in the calculation of subsequent dividends. The Funds |
| pay their net investment income to shareholders of record on the business day prior to the payment date. The Acquired and Acquiring Funds |
| pay their net investment income on an annual basis. The payment date is annually in December. |
| |
| | Net realized capital gains, if any, are distributed annually in December. Payments are made to shareholders of record on the business |
| day prior to the payable date. Capital gains may be taxable at different rates, depending on the length of time that the Fund holds its assets. |
| | Dividend and capital gains distributions will be reinvested, without a sales charge, in shares of the Fund from which the distribution is |
| paid. However, you may authorize the distribution to be: |
| | • | invested in shares of another PFI Fund without a sales charge (distributions of a Fund may be directed only to one receiving Fund); |
| | | or |
| | • | paid in cash, if the amount is $10 or more. |
| | Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, except that any distributions of long-term |
| capital gains will be taxed as such regardless of how long Fund shares have been held. Special tax rules apply to Fund distributions to |
| Individual Retirement Accounts and other retirement plans. A tax advisor should be consulted to determine the suitability of the Fund as an |
| investment by such a plan and the tax treatment of distributions by the Fund. A tax advisor can also provide information on the potential |
| impact of possible foreign, state, and local taxes. A Fund’s investments in foreign securities may be subject to foreign withholding taxes. In |
| that case, the Fund’s yield on those securities would be decreased. |
| | To the extent that distributions the Funds pay are derived from a source other than net income (such as a return of capital), a notice will |
| be included in your quarterly statement pursuant to Section 19(a) of the 1940 Act and Rule 19a-1 disclosing the source of such distributions. |
| Furthermore, such notices shall be posted monthly on our web site at www.principalfunds.com. You may request a copy of all such notices, |
| free of charge, by telephoning 1-800-222-5852. The amounts and sources of distributions included in such notices are estimates only and you |
| should not rely upon them for purposes of reporting income taxes. The Fund will send shareholders a Form 1099-DIV for the calendar year |
| that will tell shareholders how to report these distributions for federal income tax purposes. |
| NOTES: | |
| • | A Fund’s payment of income dividends and capital gains has the effect of reducing the share price by the amount of the payment. |
| • | Distributions from a Fund, whether received in cash or reinvested in additional shares, may be subject to federal (and state) income tax. |
| • | For these reasons, buying shares of a Fund shortly before it makes a distribution may be disadvantageous to you. |
| Tax Considerations |
| | Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on |
| dividends and capital gains distributions whether such dividends or distributions are paid in cash or reinvested in additional shares. Special |
| tax rules apply to distributions to IRAs and other retirement accounts. You should consult a tax advisor to determine the suitability of the |
| Fund as an investment by such a plan and the tax treatment of Fund distributions. |
| | Generally, dividends paid by the Funds from interest, dividends, or net short-term capital gains will be taxed as ordinary income. |
| Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such |
| (generally at a 15% tax rate), regardless of how long you have held your shares. For taxable years beginning before January 1, 2011, |
| distributions of investment income properly designated by the Fund as derived from “qualified dividend income” will be taxed at the rates |
| applicable to long-term capital gains. |
| | A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to |
| that shareholder, would be taxable to that shareholder as described above, subject to a holding period requirement for dividends designated as |
| qualified dividend income. |
| | Because of tax law requirements, you must provide the Funds with an accurate and certified taxpayer identification number (for |
| individuals, generally a Social Security number) to avoid “back-up” withholding, which is currently imposed at a rate of 28%. |
| | Early in each calendar year, each Fund will notify you of the amount and tax status of distributions paid to you for the preceding year. |
|
| Any gain resulting from the sale, redemption, or exchange of your shares will generally also be subject to tax. You should consult your |
| tax advisor for more information on your own tax situation, including possible foreign, state, and local taxes. |
| Investments by a Fund in foreign securities may be subject to foreign withholding taxes. In that case, the Fund’s yield on those securities |
| would be decreased. Shareholders of the Funds that invest in foreign securities may be entitled to claim a credit or deduction with respect to |
| foreign taxes. In addition, the Fund’s investments in foreign securities or foreign currencies may increase or accelerate the Fund’s recognition |
| of ordinary income and may affect the timing or amount of the Fund’s distributions. |
| Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash |
| generated by such instruments. As a result, the Fund could be required at times to liquidate other investments in order to satisfy its |
| distribution requirements under the Code. The Fund’s use of derivatives will also affect the amount, timing, and character of the Fund’s |
| distributions. |
| The information contained in this Proxy Statement/Prospectus is not a complete description of the federal, state, local, or foreign tax |
| consequences of investing in the Fund. You should consult your tax advisor before investing in the Fund. |
| Portfolio Holdings Information |
| A description of the PFI’s policies and procedures with respect to disclosure of the Funds’ portfolio securities is available in the |
| Statement of Additional Information. |
| VOTING INFORMATION |
| Voting procedures. If you complete and return the enclosed proxy ballot, the persons named as proxies will vote your shares as you |
| indicate or for approval of each matter for which there is no indication. You may revoke your proxy at any time prior to the proxy’s exercise |
| by: (i) sending written notice to the Secretary of Principal Funds, Inc. at Principal Financial Group, Des Moines, Iowa 50392-2080, prior to |
| the Meeting; (ii) subsequent execution and return of another proxy prior to the Meeting; or (iii) being present and voting in person at the |
| Meeting after giving oral notice of the revocation to the Chairman of the Meeting. |
| Voting rights. Only shareholders of record at the close of business on March 8, 2010 (the “Record Date”), are entitled to vote. The |
| shareholders of each class of shares of the Acquired Fund will vote together on the proposed Reorganization and on any other matter |
| submitted to such shareholders. You are entitled to one vote on each matter submitted to the shareholders of the Acquired Fund for each |
| share of the Fund that you hold, and fractional votes for fractional shares held. The Proposal requires for approval the affirmative vote of a |
| “Majority of the Outstanding Voting Securities,” which is a term defined in the 1940 Act to mean, with respect to the Acquired Fund, the |
| affirmative vote of the lesser of (1) 67% or more of the voting securities of the Fund present at the Meeting, if the holders of more than 50% |
| of the outstanding voting securities of the Fund are present in person or by proxy, or (2) more than 50% of the outstanding voting securities |
| of the Fund. |
| The number of votes eligible to be cast at the Meeting as of the Record Date and other share ownership information are set forth below |
| under the heading “Outstanding Shares and Share Ownership” in this Proxy Statement/Prospectus. |
| Quorum requirements. A quorum must be present at the Meeting for the transaction of business. The presence in person or by proxy of |
| one-third of the shares of the Acquired Fund outstanding at the close of business on the Record Date constitutes a quorum for a meeting of |
| that Fund. Abstentions and broker non-votes (proxies from brokers or nominees indicating that they have not received instructions from the |
| beneficial owners on an item for which the broker or nominee does not have discretionary power) are counted toward a quorum but do not |
| represent votes cast for any issue. Under the 1940 Act, the affirmative vote necessary to approve a Proposal may be determined with |
| reference to a percentage of votes present at the Meeting, which would have the effect of counting abstentions as if they were votes against a |
| Proposal. |
| In the event the necessary quorum to transact business or the vote required to approve a proposal is not obtained at the Meeting, the |
| persons named as proxies or any shareholder present at the Meeting may propose one or more adjournments of the Meeting in accordance |
| with applicable law to permit further solicitation of proxies. Any such adjournment as to the Proposal or any other matter will require the |
| affirmative vote of the holders of a majority of the shares of the Acquired Fund cast at the Meeting. The persons named as proxies and any |
| shareholder present at the Meeting will vote for or against any adjournment in their discretion. |
| Solicitation procedures. PFI intends to solicit proxies by mail. Officers or employees of PFI, PMC or their affiliates may make additional |
| solicitations by telephone, internet, facsimile or personal contact. They will not be specially compensated for these services. Brokerage |
| houses, banks and other fiduciaries may be requested to forward soliciting materials to their principals and to obtain authorization for the |
| execution of proxies. For those services, they will be reimbursed by PMC for their out-of-pocket expenses. |
| Expenses of the Meeting. The expenses of the Meeting will be treated as an expense related to the Reorganization and will be paid by the |
| Acquired Fund. |
| | | | | |
| | 2009 | 2008 | 2007 | 2006 | 2005 |
| HIGH QUALITY INTERMEDIATE-TERM BOND FUND | | | | | |
| Class J shares | | | | | |
| Net Asset Value, Beginning of Period | $ 8.64 | $ 10.72 | $ 10.79 | $ 10.59 | $ 10.68 |
| Income from Investment Operations: | | | | | |
| Net Investment Income (Loss)(a) | 0 .27 | 0.44 | 0.46 | 0.42 | 0 .33 |
| Net Realized and Unrealized Gain (Loss) on Investments | 0 .08 | (2 .07) | (0 .16) | 0.04 | (0 .25) |
| Total From Investment Operations | 0 .35 | (1 .63) | 0.30 | 0.46 | 0 .08 |
| Less Dividends and Distributions: | | | | | |
| Dividends from Net Investment Income | (0 .64) | (0 .45) | (0 .37) | (0 .25) | (0 .11) |
| Distributions from Realized Gains | – | – | – | (0 .01) | (0 .06) |
| Total Dividends and Distributions | (0 .64) | (0 .45) | (0 .37) | (0 .26) | (0 .17) |
| Net Asset Value, End of Period | $ 8.35 | $ 8.64 | $ 10.72 | $ 10.79 | $ 10.59 |
| Total Return(b) | 4 .77% | (15 .89)% | 2 .85% | 4.46% | 0 .80% |
| Ratio/Supplemental Data: | | | | | |
| Net Assets, End of Period (in thousands) | $ 26,081 | $ 26,729 | $ 34,054 | $ 36,023 | $ 36,958 |
| Ratio of Expenses to Average Net Assets | 1 .19% | 1 .08% | 1 .13% | 1.35% | 1 .35% |
| Ratio of Expenses to Average Net Assets (Excluding Reverse | | | | | |
| Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 1.18% | 1 .08% |
| Ratio of Gross Expenses to Average Net Assets(d) | 1 .24% | – | – | 1.49% | 1 .52% |
| Ratio of Net Investment Income to Average Net Assets | 3 .43% | 4 .36% | 4 .38% | 4.01% | 3 .08% |
| Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
| |
| | 2009 | 2008 | 2007 | 2006 | 2005 |
| HIGH QUALITY INTERMEDIATE-TERM BOND FUND | | | | | |
| Institutional shares | | | | | |
| Net Asset Value, Beginning of Period | $ 8.70 | $ 10.80 | $ 10.86 | $ 10.66 | $ 10.71 |
| Income from Investment Operations: | | | | | |
| Net Investment Income (Loss)(a) | 0 .38 | 0.50 | 0.55 | 0.50 | 0 .41 |
| Net Realized and Unrealized Gain (Loss) on Investments | 0 .04 | (2 .08) | (0 .17) | 0.03 | (0 .26) |
| Total From Investment Operations | 0 .42 | (1 .58) | 0.38 | 0.53 | 0 .15 |
| Less Dividends and Distributions: | | | | | |
| Dividends from Net Investment Income | (0 .70) | (0 .52) | (0 .44) | (0 .32) | (0 .14) |
| Distributions from Realized Gains | – | – | – | (0 .01) | (0 .06) |
| Total Dividends and Distributions | (0 .70) | (0 .52) | (0 .44) | (0 .33) | (0 .20) |
| Net Asset Value, End of Period | $ 8.42 | $ 8.70 | $ 10.80 | $ 10.86 | $ 10.66 |
| Total Return | 5 .67% | (15 .34)% | 3 .63% | 5.12% | 1 .46% |
| Ratio/Supplemental Data: | | | | | |
| Net Assets, End of Period (in thousands) | $ 309 | $ 34,727 | $ 29,755 | $ 13,377 | $ 2,494 |
| Ratio of Expenses to Average Net Assets | 0 .45% | 0 .43% | 0 .40% | 0.65% | 0 .72% |
| Ratio of Expenses to Average Net Assets (Excluding Reverse | | | | | |
| Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.40% | 0 .40% |
| Ratio of Gross Expenses to Average Net Assets(f) | 1 .03% | – | – | – | – |
| Ratio of Net Investment Income to Average Net Assets | 4 .85% | 5 .02% | 5 .13% | 4.76% | 3 .90% |
| Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
| |
| | 2009 | 2008 | 2007 | 2006 | 2005 |
| HIGH QUALITY INTERMEDIATE-TERM BOND FUND | | | | | |
| R-1 shares | | | | | |
| Net Asset Value, Beginning of Period | $ 8.64 | $ 10.74 | $ 10.80 | $ 10.60 | $ 10.69 |
| Income from Investment Operations: | | | | | |
| Net Investment Income (Loss)(a) | 0 .25 | 0.41 | 0.45 | 0.41 | 0 .32 |
| Net Realized and Unrealized Gain (Loss) on Investments | 0 .10 | (2 .08) | (0 .17) | 0.03 | (0 .24) |
| Total From Investment Operations | 0 .35 | (1 .67) | 0.28 | 0.44 | 0 .08 |
| Less Dividends and Distributions: | | | | | |
| Dividends from Net Investment Income | (0 .63) | (0 .43) | (0 .34) | (0 .23) | (0 .11) |
| Distributions from Realized Gains | – | – | – | (0 .01) | (0 .06) |
| Total Dividends and Distributions | (0 .63) | (0 .43) | (0 .34) | (0 .24) | (0 .17) |
| Net Asset Value, End of Period | $ 8.36 | $ 8.64 | $ 10.74 | $ 10.80 | $ 10.60 |
| Total Return | 4 .72% | (16 .18)% | 2 .71% | 4.20% | 0 .79% |
| Ratio/Supplemental Data: | | | | | |
| Net Assets, End of Period (in thousands) | $ 1,619 | $ 1,407 | $ 1,283 | $ 681 | $ 102 |
| Ratio of Expenses to Average Net Assets | 1 .31% | 1 .31% | 1 .28% | 1.54% | 1 .61% |
| Ratio of Expenses to Average Net Assets (Excluding Reverse | | | | | |
| Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 1.28% | 1 .28% |
| Ratio of Net Investment Income to Average Net Assets | 3 .25% | 4 .12% | 4 .25% | 3.88% | 2 .99% |
| Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
| | | | | |
| | 2009 | 2008 | 2007 | 2006 | 2005 |
| HIGH QUALITY INTERMEDIATE-TERM BOND FUND | | | | | |
| R-2 shares | | | | | |
| Net Asset Value, Beginning of Period | $ 8.57 | $ 10.64 | $ 10.70 | $ 10.51 | $ 10.61 |
| Income from Investment Operations: | | | | | |
| Net Investment Income (Loss)(a) | 0 .27 | 0.44 | 0.46 | 0.41 | 0 .32 |
| Net Realized and Unrealized Gain (Loss) on Investments | 0 .08 | (2 .06) | (0 .16) | 0.03 | (0 .24) |
| Total From Investment Operations | 0 .35 | (1 .62) | 0.30 | 0.44 | 0 .08 |
| Less Dividends and Distributions: | | | | | |
| Dividends from Net Investment Income | (0 .64) | (0 .45) | (0 .36) | (0 .24) | (0 .12) |
| Distributions from Realized Gains | – | – | – | (0 .01) | (0 .06) |
| Total Dividends and Distributions | (0 .64) | (0 .45) | (0 .36) | (0 .25) | (0 .18) |
| Net Asset Value, End of Period | $ 8.28 | $ 8.57 | $ 10.64 | $ 10.70 | $ 10.51 |
| Total Return | 4 .75% | (15 .93)% | 2 .88% | 4.29% | 0 .74% |
| Ratio/Supplemental Data: | | | | | |
| Net Assets, End of Period (in thousands) | $ 3,426 | $ 3,630 | $ 51,729 | $ 4,737 | $ 5,503 |
| Ratio of Expenses to Average Net Assets | 1 .18% | 1 .18% | 1 .15% | 1.46% | 1 .44% |
| Ratio of Expenses to Average Net Assets (Excluding Reverse | | | | | |
| Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 1.15% | 1 .15% |
| Ratio of Net Investment Income to Average Net Assets | 3 .50% | 4 .28% | 4 .35% | 3.91% | 3 .04% |
| Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
| |
| | 2009 | 2008 | 2007 | 2006 | 2005 |
| HIGH QUALITY INTERMEDIATE-TERM BOND FUND | | | | | |
| R-3 shares | | | | | |
| Net Asset Value, Beginning of Period | $ 8.59 | $ 10.67 | $ 10.73 | $ 10.53 | $ 10.62 |
| Income from Investment Operations: | | | | | |
| Net Investment Income (Loss)(a) | 0 .29 | 0.44 | 0.48 | 0.43 | 0 .33 |
| Net Realized and Unrealized Gain (Loss) on Investments | 0 .07 | (2 .06) | (0 .16) | 0.04 | (0 .24) |
| Total From Investment Operations | 0 .36 | (1 .62) | 0.32 | 0.47 | 0 .09 |
| Less Dividends and Distributions: | | | | | |
| Dividends from Net Investment Income | (0 .65) | (0 .46) | (0 .38) | (0 .26) | (0 .12) |
| Distributions from Realized Gains | – | – | – | (0 .01) | (0 .06) |
| Total Dividends and Distributions | (0 .65) | (0 .46) | (0 .38) | (0 .27) | (0 .18) |
| Net Asset Value, End of Period | $ 8.30 | $ 8.59 | $ 10.67 | $ 10.73 | $ 10.53 |
| Total Return | 4 .95% | (15 .84)% | 3 .06% | 4.57% | 0 .90% |
| Ratio/Supplemental Data: | | | | | |
| Net Assets, End of Period (in thousands) | $ 5,878 | $ 9,053 | $ 9,052 | $ 47,919 | $ 39,642 |
| Ratio of Expenses to Average Net Assets | 1 .00% | 1 .00% | 0 .97% | 1.28% | 1 .23% |
| Ratio of Expenses to Average Net Assets (Excluding Reverse | | | | | |
| Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.97% | 0 .97% |
| Ratio of Net Investment Income to Average Net Assets | 3 .76% | 4 .44% | 4 .55% | 4.09% | 3 .15% |
| Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
| |
| | 2009 | 2008 | 2007 | 2006 | 2005 |
| HIGH QUALITY INTERMEDIATE-TERM BOND FUND | | | | | |
| R-4 shares | | | | | |
| Net Asset Value, Beginning of Period | $ 8.59 | $ 10.68 | $ 10.74 | $ 10.54 | $ 10.62 |
| Income from Investment Operations: | | | | | |
| Net Investment Income (Loss)(a) | 0 .29 | 0.46 | 0.50 | 0.45 | 0 .37 |
| Net Realized and Unrealized Gain (Loss) on Investments | 0 .09 | (2 .07) | (0 .16) | 0.04 | (0 .26) |
| Total From Investment Operations | 0 .38 | (1 .61) | 0.34 | 0.49 | 0 .11 |
| Less Dividends and Distributions: | | | | | |
| Dividends from Net Investment Income | (0 .67) | (0 .48) | (0 .40) | (0 .28) | (0 .13) |
| Distributions from Realized Gains | – | – | – | (0 .01) | (0 .06) |
| Total Dividends and Distributions | (0 .67) | (0 .48) | (0 .40) | (0 .29) | (0 .19) |
| Net Asset Value, End of Period | $ 8.30 | $ 8.59 | $ 10.68 | $ 10.74 | $ 10.54 |
| Total Return | 5 .18% | (15 .75)% | 3 .26% | 4.76% | 1 .06% |
| Ratio/Supplemental Data: | | | | | |
| Net Assets, End of Period (in thousands) | $ 2,058 | $ 2,401 | $ 3,982 | $ 1,748 | $ 881 |
| Ratio of Expenses to Average Net Assets | 0 .81% | 0 .81% | 0 .78% | 1.06% | 1 .12% |
| Ratio of Expenses to Average Net Assets (Excluding Reverse | | | | | |
| Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.78% | 0 .78% |
| Ratio of Net Investment Income to Average Net Assets | 3 .82% | 4 .62% | 4 .75% | 4.32% | 3 .55% |
| Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
|
| Appendix A |
| |
| |
| FORM OF PLAN OF ACQUISITION |
| |
| High Quality Intermediate-Term Bond Fund and |
| Bond Market Index Fund |
| |
| The Board of Directors of Principal Funds, Inc., a Maryland corporation (the “Fund”), deems it advisable that Bond Market Index |
| Fund series of the Fund (“Bond Market Index”) acquire all of the assets of High Quality Intermediate-Term Bond Fund series of the Fund |
| (“High Quality Intermediate-Term Bond”) in exchange for the assumption by Bond Market Index of all of the liabilities of High Quality |
| Intermediate-Term Bond and shares issued by Bond Market Index which are thereafter to be distributed by High Quality Intermediate- |
| Term Bond pro rata to its shareholders in complete liquidation and termination of High Quality Intermediate-Term Bond and in exchange |
| for all of High Quality Intermediate-Term Bond ’s outstanding shares. |
| |
| High Quality Intermediate-Term Bond will transfer to Bond Market Index, and Bond Market Index will acquire from High Quality |
| Intermediate-Term Bond, all of the assets of High Quality Intermediate-Term Bond on the Closing Date and will assume from High |
| Quality Intermediate-Term Bond all of the liabilities of High Quality Intermediate-Term Bond in exchange for the issuance of the number |
| of shares of Bond Market Index determined as provided in the following paragraphs, which shares will be subsequently distributed pro rata |
| to the shareholders of High Quality Intermediate-Term Bond in complete liquidation and termination of High Quality Intermediate-Term |
| Bond and in exchange for all of High Quality Intermediate-Term Bond ’s outstanding shares. High Quality Intermediate-Term Bond will |
| not issue, sell or transfer any of its shares after the Closing Date, and only redemption requests received by High Quality Intermediate- |
| Term Bond in proper form prior to the Closing Date shall be fulfilled by High Quality Intermediate-Term Bond. Redemption requests |
| received by High Quality Intermediate-Term Bond thereafter will be treated as requests for redemption of those shares of Bond Market |
| Index allocable to the shareholder in question. |
| |
| High Quality Intermediate-Term Bond will declare, and Bond Market Index may declare, to its shareholders of record on or prior to |
| the Closing Date a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its |
| shareholders all of its income (computed without regard to any deduction for dividends paid) and all of its net realized capital gains, if any, |
| as of the Closing Date. |
| |
| On the Closing Date, Bond Market Index will issue to High Quality Intermediate-Term Bond a number of full and fractional shares of |
| Bond Market Index, taken at their then net asset value, having an aggregate net asset value equal to the aggregate value of the net assets of |
| High Quality Intermediate-Term Bond. The aggregate value of the net assets of High Quality Intermediate-Term Bond and Bond Market |
| Index shall be determined in accordance with the then current Prospectus of the Fund as of close of regularly scheduled trading on the New |
| York Stock Exchange on the Closing Date. |
| |
| The closing of the transactions contemplated in this Plan (the “Closing”) shall be held at the offices of Principal Management |
| Corporation, 680 8th Street, Des Moines, Iowa 50392 at 3:00 p.m. Central Time on May 14, 2010, or on such earlier or later date as fund |
| management may determine. The date on which the Closing is to be held as provided in this Plan shall be known as the “Closing Date.” |
| |
| In the event that on the Closing Date (a) the New York Stock Exchange is closed for other than customary weekend and holiday |
| closings or (b) trading on said Exchange is restricted or (c) an emergency exists as a result of which it is not reasonably practicable for |
| Bond Market Index or High Quality Intermediate-Term Bond to fairly determine the value of its assets, the Closing Date shall be postponed |
| until the first business day after the day on which trading shall have been fully resumed. |
| |
| As soon as practicable after the Closing, High Quality Intermediate-Term Bond shall (a) distribute on a pro rata basis to the |
| shareholders of record of High Quality Intermediate-Term Bond at the close of business on the Closing Date the shares of Bond Market |
| Index received by High Quality Intermediate-Term Bond at the Closing in exchange for all of High Quality Intermediate-Term Bond’s |
| outstanding shares, and (b) be liquidated in accordance with applicable law and the Fund’s Articles of Incorporation. |
| |
| For purposes of the distribution of shares of Bond Market Index to shareholders of High Quality Intermediate-Term Bond, Bond |
| Market Index shall credit its books an appropriate number its shares to the Fund of each shareholder of High Quality Intermediate-Term |
| Bond. No certificates will be issued for shares of Bond Market Index. After the Closing Date and until surrendered, each outstanding |
| certificate, if any, which, prior to the Closing Date, represented shares of High Quality Intermediate-Term Bond, shall be deemed for all |
| purposes of the Fund’s Articles of Incorporation and Bylaws to evidence the appropriate number of shares of Bond Market Index to be |
| credited on the books of Bond Market Index in respect of such shares of High Quality Intermediate-Term Bond as provided above. |
| |
| Prior to the Closing Date, High Quality Intermediate-Term Bond shall deliver to Bond Market Index a list setting forth the assets to be |
| assigned, delivered and transferred to Bond Market Index, including the securities then owned by High Quality Intermediate-Term Bond |
| and the respective federal income tax bases (on an identified cost basis) thereof, and the liabilities to be assumed by Bond Market Index |
| pursuant to this Plan. |
| |
| All of High Quality Intermediate-Term Bond’s portfolio securities shall be delivered by High Quality Intermediate-Term Bond’s |
| custodian on the Closing Date to Bond Market Index or its custodian, either endorsed in proper form for transfer in such condition as to |
| constitute good delivery thereof in accordance with the practice of brokers or, if such securities are held in a securities depository within |
|
| the meaning of Rule 17f-4 under the Investment Company Act of 1940, transferred to an Fund in the name of Bond Market Index or its |
| custodian with said depository. All cash to be delivered pursuant to this Plan shall be transferred from High Quality Intermediate-Term |
| Bond’s at its custodian to Bond Market Index’s at its custodian. If on the Closing Date High Quality Intermediate-Term Bond is unable to |
| make good delivery to Bond Market Index’s custodian of any of High Quality Intermediate-Term Bond’s portfolio securities because such |
| securities have not yet been delivered to High Quality Intermediate-Term Bond’s custodian by its brokers or by the transfer agent for such |
| securities, then the delivery requirement with respect to such securities shall be waived, and High Quality Intermediate-Term Bond shall |
| deliver to Bond Market Index’s custodian on or by said Closing Date with respect to said undelivered securities executed copies of an |
| agreement of assignment in a form satisfactory to Bond Market Index, and a due bill or due bills in form and substance satisfactory to the |
| custodian, together with such other documents including brokers’ confirmations, as may be reasonably required by Bond Market Index. |
| |
| This Plan may be abandoned and terminated, whether before or after action thereon by the shareholders of High Quality Intermediate- |
| Term Bond and notwithstanding favorable action by such shareholders, if the Board of Directors believe that the consummation of the |
| transactions contemplated hereunder would not be in the best interests of the shareholders of either Fund. This Plan may be amended by |
| the Board of Directors at any time, except that after approval by the shareholders of High Quality Intermediate-Term Bond no amendment |
| may be made with respect to the Plan which in the opinion of the Board of Directors materially adversely affects the interests of the |
| shareholders of High Quality Intermediate-Term Bond. |
| |
| Except as expressly provided otherwise in this Plan, High Quality Intermediate-Term Bond will pay or cause to be paid all out-of- |
| pocket fees and expenses incurred in connection with the transactions contemplated under this Plan. |
| |
| IN WITNESS WHEREOF, each of the parties hereto has caused this Plan to be executed by its President or its Executive Vice President |
| as of the 4th day of February, 2010. |
| |
| PART B |
| INFORMATION REQUIRED IN |
| A STATEMENT OF ADDITIONAL INFORMATION |
| |
| PRINCIPAL FUNDS, INC. |
| 680 8th Street |
| Des Moines, Iowa 50392-2080 |
| STATEMENT OF ADDITIONAL INFORMATION |
|
| Dated: March 24, 2010 |
|
| | This Statement of Additional Information is available to the shareholders of the High Quality Intermediate- |
| Term Bond Fund (the "Acquired Fund"), in connection with the proposed reorganization of the Acquired Fund |
| into the Bond Market Index Fund (the "Acquiring Fund") (the "Reorganization"). Each of the Acquired and |
| Acquiring Funds is a separate series of Principal Funds, Inc. ("PFI"). |
| |
| | This Statement of Additional Information is not a prospectus and should be read in conjunction with the |
| Proxy Statement/Prospectus dated March 24, 2010, relating to the Special Meeting of Shareholders of the |
| Acquired Fund to be held on May 10, 2010. The Proxy Statement/Prospectus, which describes the proposed |
| Reorganization, may be obtained without charge by writing to Principal Management Corporation, 680 8th |
| Street, Des Moines, Iowa 50392-2080, or by calling toll free at 1-800-222-5852. |
|
| TABLE OF CONTENTS |
| |
| (1) Statement of Additional Information of PFI dated March 1, 2010, as supplemented. |
| |
| (2) Audited Financial Statements of PFI for the fiscal year ended October 31, 2009, related to the Acquired |
| | Fund. |
| |
| (3) The unaudited financial statements of the Acquired Fund included in PFI's Semi-Annual Report to |
| | Shareholders for the six-month period ended April 30, 2009. |
| |
| (4) Pro Forma Financial Information for the combination of the Acquired Fund into the Acquiring Fund. |
| |
| INFORMATION INCORPORATED BY REFERENCE |
| |
| | This Statement of Additional Information incorporates by reference the following documents (or designated |
| portions thereof) that have been filed with the Securities and Exchange Commission (File Nos. 33-59474; and |
| 811-07572). |
| |
| (1) | The Statement of Additional Information of Principal Funds, Inc. ("PFI") dated March 1, 2009, (including |
| | Supplements dated March 20, 2009, May 4, 2009, June 19, 2009, August 10, 2009, August 25, 2009, |
| | September 21, 2009, September 30, 2009, November 12, 2009, December 17, 2009 and February 5, 2010, |
| | and filed via EDGAR on each of those respective dates). |
| |
| (2) | The financial statements of the Acquired Fund included in PFI's Annual Report to Shareholders for the |
| | fiscal year ended October 31, 2009, which have been audited by Ernst & Young LLP, Independent |
| | Registered Public Accounting Firm, as filed on Form N-CSR on December 30, 2009; and |
| |
| (3) | The unaudited financial statements of the Acquired Fund included in PFI's Semi-Annual Report to |
| | Shareholders for the six-month period ended April 30, 2009, as filed on Form N-CSRS on July 6, 2009. |
| |
| | The Annual and Semi-Annual Reports to Shareholders of PFI are available upon request and without charge |
| by calling toll-free at 1-800-222-5852. |
|
| PRO FORMA FINANCIAL STATEMENTS |
| |
| The unaudited pro forma information provided herein should be read in conjunction with the annual report of |
| Principal Funds, Inc. High Quality Intermediate-Term Bond Fund dated October 31, 2009. |
|
| On December 14, 2009, the Board of Directors of Principal Funds, Inc., High Quality Intermediate-Term Bond |
| Fund approved an Agreement and Plan of Reorganization (the “Reorganization”) whereby, Bond Market Index |
| Fund will acquire all the assets of High Quality Intermediate-Term Bond Fund subject to the liabilities of such |
| fund, in exchange for a number of shares equal to the pro rata net assets of Bond Market Index Fund. |
|
| The unaudited pro forma information set forth below for the period ended January 31, 2010 is intended to |
| present ratios and supplemental data as if the acquisition of the High Quality Intermediate-Term Bond Fund (the |
| “Acquired Fund”), by the Bond Market Index Fund (the “Acquiring Fund”), had been consummated at |
| January 31, 2009. |
|
| Principal Management Corporation is the investment advisor for both the Acquired and the Acquiring Funds. |
|
| The management fees payable by the Acquired Fund to Principal Management Corporation are as follows: |
| 0.40% of the first $500 million of the fund’s average daily net assets, 0.38% on the next $500 million of such |
| assets, 0.36% on the next $500 million of such assets, and 0.35% of the excess over $1.5 billion of such assets. |
|
| The management fees payable by the Acquiring Fund to Principal Management Corporation are 0.25% of the |
| fund’s average daily net assets. |
|
| As of January 31, 2010, the net assets of: (i) the Acquired Fund were approximately $46,658,000 and (ii) the |
| Acquiring Fund were approximately $62,415,000. The net assets of the combined fund as of January 31, 2010 |
| would have been approximately $109,042,000, reflecting a reduction of $30,759 due to estimated reorganization |
| costs. The estimated reorganization costs do not reflect commission costs due to portfolio realignment. |
|
| On a pro forma basis for the period ended January 31, 2010, the proposed reorganization would result in the |
| following approximate decreases to expenses charged: |
|
| No significant accounting policies will change as a result of the proposed reorganization. |
| Securities held by the Acquired Fund may be sold in connection with the Reorganization in order to meet the |
| investment objectives and strategies of the Acquiring Fund. The Acquired Fund will pay any trading costs |
| associated with disposing of any portfolio securities of the Acquired Fund that would not be compatible with the |
| investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities that would |
| be compatible. The estimated loss, including trading costs, would be $3,118,000 on a U.S. GAAP basis. The |
| estimated per share capital loss would be $0.55. |
|
| The Reorganization will be accounted for as a tax-free reorganization of investment companies. In a tax-free |
| reorganization no gain or loss will be recognized by the Acquired Fund or its shareholders as a result of the |
| Acquisition. The historical cost of investment securities will be carried forward to the surviving entity and |
| results of operations of Bond Market Index Fund for pre-combination periods will not be restated. |
|
| At October 31, 2009, the High Quality Intermediate-Term Bond Fund had a capital loss carryforward of |
| approximately $26,713,000. At January 31, 2010, the Bond Market Index Fund had no capital loss carryforward. |
| | |
| PART C |
| |
| OTHER INFORMATION |
| |
| Item 15. | Indemnification |
| |
| Under Section 2-418 of the Maryland General Corporation Law, with respect to any |
| proceedings against a present or former director, officer, agent or employee (a "corporate |
| representative") of the Registrant, the Registrant may indemnify the corporate representative |
| against judgments, fines, penalties, and amounts paid in settlement, and against expenses, |
| including attorneys' fees, if such expenses were actually incurred by the corporate representative |
| in connection with the proceeding, unless it is established that: |
| |
| (i) | The act or omission of the corporate representative was material to the matter |
| giving rise to the proceeding; and |
| |
| | 1. | Was committed in bad faith; or |
| |
| | 2. | Was the result of active and deliberate dishonesty; or |
| |
| (ii) | The corporate representative actually received an improper personal benefit in |
| money, property, or services; or |
| |
| (iii) | In the case of any criminal proceeding, the corporate representative had |
| reasonable cause to believe that the act or omission was unlawful. |
| |
| If a proceeding is brought by or on behalf of the Registrant, however, the Registrant may |
| not indemnify a corporate representative who has been adjudged to be liable to the Registrant. |
| Under the Registrant's Articles of Incorporation and Bylaws, directors and officers of the |
| Registrant are entitled to indemnification by the Registrant to the fullest extent permitted under |
| Maryland law and the Investment Company Act of 1940. Reference is made to Article VI, |
| Section 7 of the Registrant's Articles of Incorporation, Article 12 of the Registrant's Bylaws and |
| Section 2-418 of the Maryland General Corporation Law. |
| |
| The Registrant has agreed to indemnify, defend and hold the Distributor, its officers and |
| directors, and any person who controls the Distributor within the meaning of Section 15 of the |
| Securities Act of 1933, free and harmless from and against any and all claims, demands, |
| liabilities and expenses (including the cost of investigating or defending such claims, demands or |
| liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers, |
| directors or any such controlling person may incur under the Securities Act of 1933, or under |
| common law or otherwise, arising out of or based upon any untrue statement of a material fact |
| contained in the Registrant's registration statement or prospectus or arising out of or based upon |
| any alleged omission to state a material fact required to be stated in either thereof or necessary |
| to make the statements in either thereof not misleading, except insofar as such claims, demands, |
| liabilities or expenses arise out of or are based upon any such untrue statement or omission |
| made in conformity with information furnished in writing by the Distributor to the Registrant for use |
| in the Registrant's registration statement or prospectus: provided, however, that this indemnity |
| agreement, to the extent that it might require indemnity of any person who is also an officer or |
| director of the Registrant or who controls the Registrant within the meaning of Section 15 of the |
| Securities Act of 1933, shall not inure to the benefit of such officer, director or controlling person |
| unless a court of competent jurisdiction shall determine, or it shall have been determined by |
| controlling precedent that such result would not be against public policy as expressed in the |
| Securities Act of 1933, and further provided, that in no event shall anything contained herein be |
| so construed as to protect the Distributor against any liability to the Registrant or to its security |
| holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad |
| faith, or gross negligence, in the performance of its duties, or by reason of its reckless disregard |
| | |
| of its obligations under this Agreement. The Registrant's agreement to indemnify the Distributor, |
| its officers and directors and any such controlling person as aforesaid is expressly conditioned |
| upon the Registrant being promptly notified of any action brought against the Distributor, its |
| officers or directors, or any such controlling person, such notification to be given by letter or |
| telegram addressed to the Registrant. | |
| |
| | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be |
| permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing |
| provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and |
| Exchange Commission such indemnification is against public policy as expressed in the Act and |
| is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities |
| (other than the payment by the registrant of expenses incurred or paid by a director, officer or |
| controlling person of the registrant in the successful defense of any action, suit or proceeding) is |
| asserted by such director, officer or controlling person in connection with the securities being |
| registered, the registrant will, unless in the opinion of its counsel the matter has been settled by |
| controlling precedent, submit to a court of appropriate jurisdiction the question whether such |
| indemnification by it is against public policy as expressed in the Act and will be governed by the |
| final adjudication of such issue. | |
| |
| Item 16. Exhibits. | |
| |
| Unless otherwise stated, all filing references are to File No. 33-59474 |
| |
| Item 16. Exhibits. | |
| (1) a. | Articles of Amendment and Restatement -- Filed as Ex-99.B1.A on 04/12/1996 (Accession |
| | No. 0000898745-96-000012) | |
| b. | Articles of Amendment and Restatement -- Filed as Ex-99.A1.B on 09/22/00 (Accession No |
| | 0000898745-00-500024) | |
| c. | Articles of Amendment and Restatement dated 6/14/02 -- Filed as Ex-99.A.1.C on 12/30/02 |
| | (Accession No. 0001126871-02-000036) |
| d. | Articles of Amendment dated 5/23/05 -- Filed as Ex-99.A on 09/08/05 (Accession No. |
| | 0000898786-05-000254) | |
| e. | Articles of Amendment dated 9/30/05 -- Filed as Ex-99.A on 11/22/05 (Accession No. |
| | 0000870786-05-000263) | |
| f. | Articles of Amendment dated 7/7/06 (Incorporated by reference from exhibit #1(2)b to |
| | registration statement No. 333-137477 filed on Form N-14 on 9/20/06 Accession No. |
| | 0000009713-06-000062) | |
| g. | Articles of Amendment -- Filed as Ex-99.B1 on 09/12/97 (Accession No. 0000898745-97- |
| | 000023) | |
| h. | Articles of Amendment dated 06/04/08 -- Filed as Ex-99.A on 07/17/08 (Accession No. |
| | 0000009713-08-000060) | |
| i. | Articles of Amendment dated 06/30/09 – Filed as Ex-99.A(1)h on 10/07/09 (Accession No. |
| | 0000898745-09-000489) | |
| |
| j. | Certificate of Correction dated 9/14/00 -- Filed as Ex-99.A3 on 09/22/00 (Accession No. |
| | 0000898745-00-500024) | |
| k. | Certificate of Correction dated 12/13/00 -- Filed as Ex-99.A3 on 10/12/01 (Accession No. |
| | 0001127048-01-500041) | |
| |
| l. | Articles Supplementary dated 12/11/00 -- Filed as Ex-99.A.4A on 02/25/02 (Accession No. |
| | 0000870786-02-000051) | |
| m. | Articles Supplementary dated 3/12/01 – Filed as EX-99.A.4B on 02/25/02 (Accession No. |
| | 0000870786-02-000051) | |
| n. | Articles Supplementary dated 4/16/02 -- Filed as Ex-99.A.4.C on 12/30/02 (Accession No. |
| | 0001126871-02-000036) | |
| | |
| o. | Articles Supplementary dated 9/25/02 -- Filed as Ex-99.A.4.D on 12/30/02 (Accession No. |
| | 0001126871-02-000036) | |
| p. | Articles Supplementary dated 2/5/03 – Filed as Ex-99.A on 02/25/03 (Accession No. |
| | 0000870786-03-000031) | |
| q. | Articles Supplementary dated 4/30/03 -- Filed as Ex-99.A4F on 09/11/03 (Accession No. |
| | 0000870786-03-000169) | |
| r. | Articles Supplementary dated 6/10/03 -- Filed as Ex-99.A4G on 09/11/03 (Accession No. |
| | 0000870786-03-000169) | |
| s. | Articles Supplementary dated 9/9/03 -- Filed as Ex-99.A4H on 09/11/03 (Accession No. |
| | 0000870786-03-000169) | |
| t. | Articles Supplementary dated 11/6/03 – Filed as Ex-99.A on 12/15/03 (Accession No. |
| | 0000870786-03-000202) | |
| u. | Articles Supplementary dated 1/29/04-- Filed as Ex-99.A on 02/26/04 (Accession No. |
| | 0001127048-04-000033) | |
| v. | Articles Supplementary dated 3/8/04-- Filed as Ex-99.A on 07/27/04 (Accession No. |
| | 0000870786-04-000163) | |
| w. | Articles Supplementary dated 6/14/04 – Filed as Ex-99.A on 09/27/2004 (Accession No. |
| | 0000870786-04-000207) | |
| x. | Articles Supplementary dated 9/13/04 – Filed as Ex-99.A on 12/13/04 (Accession No. |
| | 0000870786-04-000242) | |
| y. | Articles Supplementary dated 10/1/04 – Filed as Ex-99.A on 12/13/04 (Accession No. |
| | 0000870786-04-000242) | |
| z. | Articles Supplementary dated 12/13/04 -- Filed as Ex-99.A on 02/28/05 (Accession No. |
| | 0000870786-05-000065) | |
| aa. Articles Supplementary dated 2/4/05 – Filed as Ex-99.A on 05/16/05 (Accession No. |
| | 0000870786-05-000194) | |
| bb. Articles Supplementary dated 2/24/05 – Filed as Ex-99.A on 05/16/05 (Accession No. |
| | 0000870786-05-000194) | |
| cc. Articles Supplementary dated 5/6/05 – Filed as Ex-99.A on 09/08/05 (Accession No. |
| | 0000870786-05-000254) | |
| dd. Articles Supplementary dated 12/20/05 (filed 2/28/06) |
| ee. Articles Supplementary dated 9/20/06 (Incorporated by reference from exhibit #1(4)t to |
| | registration statement No. 333-137477 filed on Form N-14 on 9/20/06 Accession No. |
| | 0000009713-06-000062) | |
| ff. | Articles Supplementary dated 1/12/07 -- Filed as Ex-99.A on 01/16/07 (Accession No. |
| | 0000898745-07-000011) | |
| gg. Articles Supplementary dated 1/22/07 -- Filed as Ex-99.A on 07/18/07 (Accession No. |
| | 0000898745-07-000086) | |
| hh. Articles Supplementary dated 7/24/07 -- Filed as Ex-99.A on 09/28/07 (Accession No. |
| | 0000898745-07-000152) | |
| ii. | Articles Supplementary dated 09/13/07 -- Filed as Ex-99.A on 12/14/07 (Accession No. |
| | 0000898745-07-000184) | |
| jj. | Articles Supplementary dated 1/3/08 -- Filed as Ex-99.A.4.Y on 02/20/08 (Accession No. |
| | 0000950137-08-002501 | |
| kk. Articles Supplementary dated 3/13/08 -- Filed as Ex-99.A4Z on 05/01/08 (Accession No. |
| | 0000950137-08-006512) | |
| ll. | Articles Supplementary dated 06/23/08 -- Filed as Ex-99.A on 07/17/08 (Accession No. |
| | 0000009713-08-000060) | |
| mm.Articles Supplementary dated 09/10/08 Initial Capital Agreement dtd 5/1/08 -- Filed as Ex- |
| | 99.A.4 on 12/12/08 (Accession No. 0000898745-08-000166) |
| nn. Articles Supplementary dated 10/31/08 – Filed as Ex-99.A.4 on 12/12/08 (Accession No. |
| | 0000898745-08-000166) | |
| oo. Articles Supplementary dated 01/13/09 – Filed as Ex-99.A(4)dd on 10/07/09 (Accession No. |
| | 0000898745-09-000489) | |
| pp. Articles Supplementary dated 03/10/09 – Filed as Ex-99.A(4)ee on 10/07/09 (Accession No. |
| | 0000898745-09-000489) | |
| | | | |
| | qq. Articles Supplementary dated 05/01/09 – Filed as Ex-99.A(4)ff on 10/07/09 (Accession No. |
| | | 0000898745-09-000489) | |
| | rr. | Articles Supplementary dated 06/19/09 – Filed as Ex-99.A(4)gg on 10/07/09 (Accession No. |
| | | 0000898745-09-000489) | |
| |
| (2) | By-laws – Filed as Ex-99(b) on 12/30/09 (Accession No. 0000898745-09-000572) |
| |
| (3) | N/A | | | |
| |
| (4) Form of Plan of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus) |
| |
| (5) | Included in Exhibits 1 and 2 hereto. | |
| |
| (6) | (1) | a. | Amended & Restated Management Agreement dated 07/01/09 – Filed as Ex-99.D(1)u |
| | | | on 10/07/09 (Accession No. 0000898745-09-000489) |
| |
| | (2) | a. | Amended & Restated Sub-Adv Agreement with Mellon Capital dated 02/17/09 -- Filed |
| | | | as Ex-99.D(21)d on 12/18/09 (Accession No. 0000898745-09-000546) |
| |
| | (3) | a. | Amended & Restated Sub-Adv Agreement with PGI dtd 07/01/09 – Filed as Ex- |
| | | | 99.D(23)m on 10/07/09 (Accession No. 0000898745-09-000489) |
| |
| | (4) | a. | Amended & Restated Sub-Adv Agreement with Spectrum dated 9/12/05 -- Filed as Ex- |
| | | | 99.D on 12/29/05 (Accession No. 0000898745-05-000035) |
| |
| (7) | (1) | a. | Distribution Agreement (Class A, Class B, Class C, Class J, Preferred Class, Advisors |
| | | | Preferred Class, Select Class, Advisors Select Class, Advisors Signature Class, |
| | | | Institutional Class and Class S Shares dated 5/1/08 – Filed as Ex-99.E on 07/29/09 |
| | | | (Accession No. 0000898745-09-000354) |
| |
| | (2) | a. | Selling Agreement--Advantage Classes -- Filed as Ex-99.E2A on 09/11/03 (Accession |
| | | | No. 0000870786-03-000169) | |
| | | b. | Selling Agreement--J Shares -- Filed as Ex-99.E2B on 09/11/03 (Accession No. |
| | | | 0000870786-03-000169) | |
| |
| (8) | N/A | | | |
| |
| (9) | (1) | a. | Domestic Portfolio Custodian Agreement with Bank of New York -- Filed as Ex-99.B8.A |
| | | | on 04/12/1996 (Accession No. 0000898745-96-000012) |
| | | b. | Domestic Funds Custodian Agreement with Bank of New York -- Filed as Ex-99.G1.B on |
| | | | 12/05/00 (Accession No. 0000898745-00-000021) |
| | | c. | Domestic and Global Custodian Agreement with Bank of New York -- Filed as Ex-99.G |
| | | | on 11/22/05 (Accession No. 0000870786-05-000263) |
| |
| (10)Rule 12b-1 Plan | |
| |
| | (1) | Class J Plan | |
| | | a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.H on 12/30/02 (Accession No. |
| | | | 0001126871-02-000036) | |
| | | b. | Amended & Restated dtd 9/13/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | | 0000870786-04-000207) | |
| | | c. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. |
| | | | 0000870786-05-000065) | |
| | | d. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. |
| | | | 0000870786-05-000263) | |
| | | |
| | e. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(4)e to |
| | | registration | |
| | | statement No. 333-137477 filed on Form N-14 on 10/6/06) |
| | f. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. |
| | | 0000898745-07-000011) | |
| | g. | Amended & Restated dtd 1/1/08 – Filed as Ex-99.M.4G on 02/28/08 (Accession No. |
| | | 0000950137-08-002501) | |
| | h. | Amended & Restated dtd 1/1/08 -- Filed as Ex-99.M4H on 05/01/08 (Accession No. |
| | | 0000950137-08-006512) | |
| | i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M4H on 05/01/08 (Accession No. |
| | | 0000950137-08-006512) | |
| |
| (2) | R-1 f/k/a Advisors Signature Plan – Filed as Ex-99.M on 12/13/04 (Accession No. |
| | 0000870786-04-000242) | |
| | a. | Amended & Restated dtd 9/13/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | b. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. |
| | | 0000870786-05-000065) | |
| | c. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. |
| | | 0000870786-05-000263) | |
| | d. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(5)d to |
| | | registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. |
| | | 0000898745-06-000145) | |
| | e. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. |
| | | 0000898745-07-000011) | |
| | f. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M5F on 05/01/08 (Accession No. |
| | | 0000950137-08-006512) | |
| | g. | Amended & Restated Distribution Plan and Agreement Class R-1 dtd 6/24/08 – Filed as |
| | | Ex-99.M1J on 09/30/08 (Accession No. 0000898745-08-000083 |
| | h. | Amended & Restated Distribution Plan and Agreement Class R-1 dtd 09/16/09 – Filed |
| | | as Ex-99.M(5)h on 10/07/09 (Accession No. 0000898745-09-000489) |
| |
| (3) | R-2 f/k/a Advisors Select Plan -- Filed as Ex-99.M2 on 09/22/00 (Accession No. |
| | 0000898745-00-500024) | |
| | a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.F on 12/30/02 (Accession No. |
| | | 0001126871-02-000036) | |
| | b. | Amended & Restated dtd 3/11/04 – Filed as Ex-99.M on 03/16/04 (Accession No. |
| | | 0000870786-04-000044) | |
| | c. | Amended & Restated dtd 6/14/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | d. | Amended & Restated dtd 9/13/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | e. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. |
| | | 0000870786-05-000065) | |
| | f. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. |
| | | 0000870786-05-000263) | |
| | g. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(2)g to |
| | | registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. |
| | | 0000898745-06-000142) | |
| | h. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. |
| | | 0000898745-07-000011) | |
| | i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M2I on 05/01/08 (Accession No. |
| | | 0000950137-08-006512) | |
| | j. | Amended & Restated Distribution Plan and Agreement Class R-2 dtd 6/24/08 – Filed as |
| | | Ex-99.M2J on 09/30/08 (Accession No. 0000898745-08-000083) |
| | | |
| | k. | Amended & Restated Distribution Plan and Agreement Class R-2 dtd 09/16/09 – Filed |
| | | as Ex-99.M(6)k on 10/07/09 (Accession No. 0000898745-09-000489) |
| |
| (4) | R-3 f/k/a Advisors Preferred Plan -- Filed as Ex-99.M1 on 09/22/00 (Accession No. |
| | 0000898745-00-500024) | |
| | a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.G on 12/30/02 (Accession No. |
| | | 0001126871-02-000036) | |
| | b. | Amended & Restated dtd 3/11/04 -- Filed as Ex-99.M on 03/16/04 (Accession No. |
| | | 0000870786-04-00044) | |
| | c. | Amended & Restated dtd 6/14/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | d. | Amended & Restated dtd 9/13/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | e. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. |
| | | 0000870786-05-000065) | |
| | f. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. |
| | | 0000870786-05-000263) | |
| | g. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(1)g |
| | | to registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. |
| | | 0000898745-06-00145) | |
| | h. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. |
| | | 0000898745-07-000011) | |
| | i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M1I on 05/01/08 (Accession No. |
| | | 0000950137-08-006512) | |
| | j. | Amended & Restated Distribution Plan and Agreement Class R-3 dtd 6/24/08 – Filed as |
| | | Ex-99.M3J on 09/30/08 (Accession No. 0000898745-08-000083 |
| | i. | Amended & Restated Distribution Plan and Agreement Class R-3 dtd 09/16/09 – Filed |
| | | as Ex-99.M(7)i on 10/07/09 (Accession No. 0000898745-09-000489) |
| |
| (5) | R-4 f/k/a Select Plan -- Filed as Ex-99.E.1.D on 12/30/02 (Accession No. 0001126871-02- |
| | 000036) | |
| | a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.E on 12/30/02 (Accession No. |
| | | 0001126871-02-000036) | |
| | b. | Amended & Restated dtd 3/11/04 – Filed as Ex-99.M on 03/16/04 (Accession No. |
| | | 0000870786-04-000044) | |
| | c. | Amended & Restated dtd 6/14/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | d. | Amended & Restated dtd 9/13/04 – Filed as Ex-99.M on 09/27/2004 (Accession No. |
| | | 0000870786-04-000207) | |
| | e. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. |
| | | 0000870786-05-000065) | |
| | f. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. |
| | | 0000870786-05-000263) | |
| | g. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(3)g to |
| | | registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. |
| | | 0000898745-06-000145) | |
| | h. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. |
| | | 0000898745-07-000011) | |
| | i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M3I on 05/01/08 (Accession No. |
| | | 0000950137-08-006512) | |
| | j. | Amended & Restated Distribution Plan and Agreement Class R-4 dtd 6/24/08 – Filed as |
| | | Ex-99.M5G on 09/30/08 (Accession No. 0000898745-08-000083 |
| | k. | Amended & Restated Distribution Plan and Agreement Class R-4 dtd 09/16/09 – Filed |
| | | as Ex-99.M(8)k on 10/07/09 (Accession No. 0000898745-09-000489) |
| | | | |
| (11) | Opinion and Consent of counsel, regarding legality of issuance of shares and other matters – |
| | Filed as Ex-99.11 on 02/16/10 on form N-14 (Accession No. 0000898745-10-000029) |
| |
| (12) | Opinion and Consent of _______________________________________________on tax matters ** |
| |
| (13) | N/A | | | |
| |
| (14) | Consent of Independent Registered Public Accountants | |
| | (a) | Consent of Ernst & Young LLP dtd March 12, 2010* | |
| |
| (15 ) N/A | | | |
| |
| (16) | (a) | Powers of Attorney Ex-99.16(a) on 02/16/10 on form N-14 (Accession No. 0000898745- |
| | | 10-000029) | |
| |
| (17) | (a) | Prospectuses dated 03/01/09, as supplemented | |
| | | (1) | The Prospectus for Class J shares, dated March 1, 2009, included in Post-Effective |
| | | | Amendment No. 70 to the registration statement on Form N-1A (File No. 33-59474) |
| | | | filed on March 2, 2009; | |
| |
| | | (2) | The Prospectus for Institutional Class shares, dated March 1, 2009, included in |
| | | | Post-Effective Amendment No. 68 to the registration statement on Form N-1A (File |
| | | | No. 33-59474) filed on March 2, 2009; | |
| |
| | | (3) | The Prospectus for R-1, R-2, R-3, R-4, and R-5 Class shares, dated March 1, 2009, |
| | | | included in Post-Effective Amendment No. 69 to the registration statement on Form |
| | | | N-1A (File No. 33-59474) filed on March 2, 2009; | |
| |
| | | (4) | Supplements to the Class J shares Prospectus dated and filed March 20, 2009, April |
| | | | 8, 2009, April 9, 2009, May 4, 2009, May 21, 2009, June 19, 2009, August 25, 2009, |
| | | | September 18, 2009, September 30, 2009, October 16, 2009, November 12, 2009, |
| | | | December 17, 2009, and January 11, 2010; | |
| |
| | | (5) | Supplements to the Institutional Class shares Prospectus dated and filed March 20, |
| | | | 2009, April 8, 2009, April 9, 2009, April 10, 2009, May 4, 2009, May 21, 2009, June |
| | | | 19, 2009, July 30, 2009, August 25, 2009, September 18, 2009, October 16, 2009 |
| | | | November 12, 2009, December 17, 2009, and January 11, 2010; |
| |
| | | (6) | Supplements to the R-1, R-2, R-3, R-4, and R-5 Class shares Prospectus dated and |
| | | | filed March 20, 2009, April 8, 2009, April 9, 2009, May 4, 2009, May 21, 2009, June |
| | | | 19, 2009, August 25, 2009, September 18, 2009, October 16, 2009, November 12, |
| | | | 2009, December 17, 2009, and January 11, 2010; | |
| |
| | (b) | Statement of Additional Information dated March 1, 2009, included in Post-Effective |
| | | Amendment No. 66 to the registration statement on Form N-1A (File No. 33-59474) filed |
| | | on February 27, 2009; and supplements thereto dated and filed on March 20, 2009, May |
| | | 4, 2009, June 19, 2009, August 10, 2009, August 25, 2009, September 21, 2009, |
| | | September 30, 2009, November 12, 2009, and December 17, 2009. |
| |
| | (c) | Annual Report of Principal Funds, Inc. for the fiscal year ended October 31, 2009 (filed |
| | | on Form N-CSR on December 30, 2009) | |
| |
| * | Filed herein. | |
| ** | To be filed by amendment. | |
