As filed with the Securities and Exchange Commission on December 9, 2011. | |
Registration No. 333-178050 | |
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) | |
650 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, Esq. | |
Drinker Biddle & Reath, LLP | |
1500 K Street, N.W. | |
Washington, DC 20005-1209 | |
(202) 230-5422; 202-842-8465 (Fax) |
Approximate date of proposed public offering: As soon as practicable after this Registration |
Statement becomes effective. |
Title of Securities Being Registered: A, B, C, J, R-1, R-2, R-3, R-4, R-5, and Institutional Class |
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. |
It is proposed that this filing will become effective on December 12, 2011, pursuant to Rule 488. |
EXPLANATORY NOTE |
RULE 461 REQUEST FOR ACCELERATION: The Registrant and the Principal Underwriter have |
filed a separate correspondence requesting Accelerated effectiveness to December 12, 2011 or |
as soon thereafter as practicable. |
PRINCIPAL FUNDS, INC. | |
650 8th Street | |
Des Moines, Iowa 50392-2080 | |
1-800-222-5852 | |
December 15, 2011 | |
Dear Shareholder: | |
A Special Meeting of Shareholders of Principal Funds, Inc. (“PFI”) will be held at 650 8th Street, Des Moines, Iowa 50392-2080, | |
on February 6, 2012, 10:00 a.m. Central Time (the “Meeting”). | |
At the Meeting, the shareholders of each of the series of PFI listed in the first column below (each an “Acquired Fund”) will be | |
asked to consider and approve a Plan of Acquisition (a “Plan”) providing for its reorganization into the PFI series listed in the | |
second column below (the “Acquiring Fund”) (each a reorganization and, collectively, the “Reorganization”). As indicated, the | |
Acquiring Fund is the same in each reorganization. | |
ACQUIRED FUND | ACQUIRING FUND |
SmallCap Value Fund -----------------------> | SmallCap Blend Fund |
SmallCap Growth Fund -----------------------> | SmallCap Blend Fund |
The SmallCap Value Fund has a policy of investing primarily in equity securities of companies with small market capitalizations | |
and which have value characteristics. The SmallCap Growth Fund has a policy of investing primarily in equity securities of | |
companies with small market capitalizations and which have growth characteristics. The SmallCap Blend Fund has a policy of | |
investing primarily in equity securities of companies with small market capitalizations and which have value and/or growth | |
characteristics. | |
Under the Plans and with respect to each reorganization: (i) the Acquiring Fund will acquire all the assets, subject to all the | |
liabilities, of an 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. As a result of the Reorganization, | |
each shareholder of an Acquired Fund will become a shareholder of the Acquiring Fund. The total value of all shares of the | |
Acquiring Fund issued in the Reorganization to an Acquired Fund 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 an 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 A, Class B, Class C, | |
Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 shares of an Acquired Fund will receive, | |
respectively, Class A, Class B, Class C, Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 | |
shares of the Acquiring Fund. The Reorganization is expected to occur as of the close of regularly scheduled trading on the | |
NYSE on February 17, 2012. All share classes of each Acquired Fund will vote in the aggregate and not by class with respect to | |
the Reorganization. | |
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 each Acquired Fund you owned as of November 28, 2011, the record date for the Meeting. The Proxy Statement/Prospectus | |
provides background information and concisely 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 February 3, 2012. 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. |
650 8th Street |
Des Moines, Iowa 50392-2080 |
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS |
To the Shareholders of the SmallCap Value Fund and SmallCap Growth Fund: |
Notice is hereby given that a Special Meeting of Shareholders (the “Meeting”) of the SmallCap Value Fund and SmallCap |
Growth Fund (collectively, the “Acquired Funds”), each a separate series of Principal Funds, Inc. (“PFI”), will be held at 650 8th |
Street, Des Moines, Iowa 50392-2080, on February 6, 2012, at 10:00 a.m. Central Time. A Proxy Statement/Prospectus |
providing information about the following proposals to be voted on at the Meeting is included with this notice. The Meeting is |
being held to consider and vote on such proposals as well as any other business that may properly come before the Meeting or |
any adjournment thereof: |
Proposal 1: Approval of a Plan of Acquisition providing for the reorganization of the SmallCap Value Fund into the |
SmallCap Blend Fund. (Only shareholders of the SmallCap Value Fund will vote on this proposal.) |
Proposal 2: Approval of a Plan of Acquisition providing for the reorganization of the SmallCap Growth Fund into the |
SmallCap Blend Fund. (Only shareholders of the SmallCap Growth Fund will vote on this proposal.) |
The Board of Directors of PFI recommends that shareholders of the Acquired Funds vote FOR the Proposals. |
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 applicable Acquired Fund. |
Each shareholder of record at the close of business on November 28, 2011 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 |
December 15, 2011 |
Des Moines, Iowa |
PRINCIPAL FUNDS, INC. | ||
650 8th Street | ||
Des Moines, Iowa 50392-2080 | ||
————————— | ||
PROXY STATEMENT/PROSPECTUS | ||
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 6, 2012 | ||
RELATING TO THE REORGANIZATION OF: | ||
1) | THE SMALLCAP VALUE FUND INTO THE SMALLCAP BLEND FUND | |
2) | THE SMALLCAP GROWTH FUND INTO THE SMALLCAP BLEND 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 650 | ||
8th Street, Des Moines, Iowa 50392-2080, on February 6, 2012, at 10:00 a.m. Central Time (the “Meeting”). | ||
At the Meeting, shareholders of each of the series of PFI listed in the first column below (each, an “Acquired Fund”) will be | ||
asked to consider and approve a Plan of Acquisition (a “Plan”) providing for its reorganization into the PFI series listed in the | ||
second column below (the “Acquiring Fund”). | ||
ACQUIRED FUND | ACQUIRING FUND | |
SmallCap Value Fund -----------------> | SmallCap Blend Fund | |
SmallCap Growth Fund ----------------> | SmallCap Blend Fund | |
Under the Plans and with respect to each reorganization: (i) the Acquiring Fund will acquire all the assets, subject to all the | ||
liabilities, of an 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. As a result of the Reorganization, | ||
each shareholder of an Acquired Fund will become a shareholder of the Acquiring Fund. The total value of all shares of the | ||
Acquiring Fund issued in the Reorganization to an Acquired Fund 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 an 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 A, Class B, Class C, | ||
Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 shares of an Acquired Fund will receive, | ||
respectively, Class A, Class B, Class C, Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 | ||
shares of the Acquiring Fund. The Reorganization is expected to occur as of the close of regularly scheduled trading on the | ||
NYSE on February 17, 2012. All share classes of each Acquired Fund will vote in the aggregate and not by class with respect to | ||
the Reorganization. The implementation of the Reorganization as to one Acquired Fund is not contingent upon its | ||
implementation as to the other Acquired Fund. | ||
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 and Acquiring Funds, and the Annual Report contains discussions | ||
of the market conditions and investment strategies that significantly affected the Acquired and Acquiring Funds during the fiscal | ||
year ended October 31, 2011. Copies of these reports may be obtained without charge by writing PFI at the address noted | ||
above or by calling our shareholder services department toll free at 1-800-247-4123. The Annual Report for the fiscal year | ||
ended October 31, 2011 is expected to be sent to shareholders on or about December 28, 2011. | ||
A Statement of Additional Information dated December 15, 2011 (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 Prospectus, dated March 1, 2011 and as supplemented, (File No. 33-59474) and | ||
the Statement of Additional Information for PFI, dated March 1, 2011 and as supplemented (“PFI SAI”), have been filed with the | ||
SEC and, insofar as they relate to the Acquired Funds, 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 December 15, 2011. |
TABLE OF CONTENTS | |
INTRODUCTION | 3 |
THE REORGANIZATION | 3 |
PROPOSAL 1: Approval of a Plan of Acquisition Providing for the Reorganization of the | |
SmallCap Value Fund into the SmallCap Blend Fund | 5 |
Comparison of Acquired and Acquiring Funds | 5 |
Comparison of Investment Objectives and Strategies | 5 |
Comparison of Principal Investment Risks | 6 |
Fees and Expenses of the Funds | 7 |
Performance | 9 |
Reasons for the Reorganization | 11 |
Board Consideration of the Reorganization | 12 |
PROPOSAL 2: Approval of a Plan of Acquisition Providing for the Reorganization of the | |
SmallCap Growth Fund into the SmallCap Blend Fund | 13 |
Comparison of Acquired and Acquiring Funds | 13 |
Comparison of Investment Objectives and Strategies | 13 |
Comparison of Principal Investment Risks | 14 |
Fees and Expenses of the Funds | 14 |
Performance | 17 |
Reasons for the Reorganization | 19 |
Board Consideration of the Reorganization | 20 |
INFORMATION ABOUT THE REORGANIZATION | 21 |
Plans of Acquisition | 21 |
Description of the Securities to Be Issued | 21 |
Federal Income Tax Consequences | 22 |
CAPITALIZATION | 22 |
ADDITIONAL INFORMATION ABOUT THE FUNDS | 25 |
Certain Investment Strategies and Related Risks of the Funds | 25 |
Multiple Classes of Shares | 31 |
Costs of Investing in the Funds | 31 |
Distribution Plans and Intermediary Compensation | 32 |
Other Payments to Financial Intermediaries | 33 |
Pricing of Fund Shares | 33 |
Purchase of Fund Shares | 34 |
Redemption of Fund Shares | 38 |
Exchange of Fund Shares | 42 |
Frequent Purchases and Redemptions | 44 |
Dividends and Distributions | 45 |
Tax Considerations | 46 |
Portfolio Holdings Information | 46 |
VOTING INFORMATION | 47 |
OUTSTANDING SHARES AND SHARE OWNERSHIP | 47 |
FINANCIAL HIGHLIGHTS | 51 |
FINANCIAL STATEMENTS | 65 |
LEGAL MATTERS | 65 |
OTHER INFORMATION | 65 |
APPENDIX A Forms of Plans of Acquisition | A-1 |
2
INTRODUCTION |
This Proxy Statement/Prospectus is being furnished to shareholders of the Acquired Funds to provide information regarding the |
Plans 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 97 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 each of 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 each of the |
Acquired and Acquiring Funds as follows with Principal Global Investors, LLC (“PGI”). |
PMC and the 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 and PMC. |
THE REORGANIZATION |
At its meeting held on September 13, 2011, the Board of Directors of PFI (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 Plans providing for the combination of each Acquired Fund into the Acquiring Fund. The Board concluded with respect to |
each combination that the Reorganization is in the best interests of the Acquired Fund and the Acquiring Fund and that the |
interests of existing shareholders of each Fund will not be diluted as a result of the Reorganization. The factors that the Board |
considered in deciding to approve the Reorganization as to each Acquired Fund is discussed under each proposal 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 each 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 each Acquired Fund. As a result of the Reorganization, each shareholder |
of an Acquired Fund will become a shareholder of the Acquiring Fund. In the Reorganization, the Acquiring Fund will issue to |
each Acquired Fund 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 |
February 17, 2012. Holders of Class A, Class B, Class C, Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class |
R-4, and Class R-5 shares of an Acquired Fund will receive, respectively, Class A, Class B, Class C, Institutional Class, Class J, |
Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 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 Forms of the Plans attached |
hereto as Appendix A. |
The Board believes that the reorganization of the SmallCap Value Fund into the SmallCap Blend Fund under Proposal 1 will |
serve the best interests of the shareholders of both Funds. The SmallCap Blend Fund has outperformed the SmallCap Value |
Fund over the one- and five-year periods ended December 31, 2010 and for the nine-month period ended September 30, 2011. |
Moreover, the SmallCap Blend Fund, as a fund with greater assets following significant redemptions of SmallCap Value Fund |
shares in June and July, 2011, may be expected to afford shareholders of the SmallCap Value Fund, on an ongoing basis, |
greater prospects for growth and efficient management. The Funds have the same investment objectives in that both seek to |
provide long-term growth of capital, and they also have similar principal policies and risks in that both invest principally in equity |
securities of companies with small market capitalizations. The Funds have the same advisory fee rates and, although the |
SmallCap Blend Fund has higher overall net expense ratios than the Small Cap Value Fund with respect to certain share |
classes, PMC has agreed to cap the expenses of the SmallCap Blend Fund for a two-year period following the Reorganization |
so that expense ratios are no higher than the projected fiscal year end 2011 ratios of the Small Cap Blend Fund as of March 31, |
2011. After the contractual two year expense limitation period, the expenses could increase to a level that may be higher than |
currently experienced by shareholders of the SmallCap Value Fund. Combining the Funds will not result in any dilution of the |
interests of existing shareholders of the Funds. |
3
The Board believes that the Reorganization of the SmallCap Growth Fund into the SmallCap Blend Fund under Proposal 2 will |
serve the best interests of the shareholders of both Funds. The SmallCap Blend Fund has outperformed the SmallCap Growth |
Fund over the one-, three-, and five- and ten-year periods ended December 31, 2010. Moreover, the SmallCap Blend Fund, as a |
fund with greater assets, may be expected to afford shareholders of the SmallCap Growth Fund, on an ongoing basis, greater |
prospects for growth and efficient management. The Funds have the same investment objectives in that both seek to provide |
long-term growth of capital, and they also have similar principal policies and risks in that both invest principally in equity |
securities of companies with small market capitalizations. The Funds have the same advisory fee rates and, although the |
SmallCap Blend Fund has higher overall net expense ratios than the Small Cap Growth Fund with respect to certain share |
classes, PMC has agreed to cap the expenses of the SmallCap Blend Fund for a two-year period following the Reorganization |
so that the expense ratios are no higher than the projected post merger ratios of the SmallCap Growth Fund. After the |
contractual two year expense limitation period, the expenses could increase to a level that may be higher than currently |
experienced by shareholders of the SmallCap Growth Fund. Combining the Funds will not result in any dilution of the interests of |
existing shareholders of the Funds. |
In the opinion of legal counsel, each 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. Please see |
“Information About the Reorganization – Federal Income Tax Consequences” for a discussion the tax consequences to each |
Acquired Fund and its shareholders of disposing of portfolio securities, as described below, and their relation to available pre- |
reorganization capital losses of that Acquired Fund. |
The Reorganization will not result in any material change in the purchase, redemption, and exchange procedures followed with |
respect to the distribution of shares. See “Additional Information About the Funds – Purchases, Redemptions and Exchanges of |
Shares.” |
With respect to the reorganization of the SmallCap Value Fund into the SmallCap Blend Fund under Proposal 1, the Acquired |
Fund is expected to achieve the greatest benefit from the reorganization. As discussed above and as a result of the |
reorganization, shareholders of the Acquired Fund will become shareholders of an Acquiring Fund that has stronger historical |
performance and better prospects for growth than the Acquired Fund, and they are not expected to experience increased fund |
operating expenses (excluding an increase in fund operating expenses due to an increase in Acquired Fund Fees and |
Expenses). The expenses and out-of-pocket fees incurred in connection with the Reorganization, including printing, mailing, and |
legal fees will be paid for by PMC and are expected to total $44,472. The Acquired Fund will pay any trading costs associated |
with disposing, prior to the Reorganization, 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 Acquired Fund is expected to dispose of approximately 46% of its portfolio securities. The trading costs are estimated to be |
$99,000 with an approximate gain of $33,326,000 on a U.S. GAAP basis. The per share capital gain is estimated to be $1.53. |
With respect to the reorganization of the SmallCap Growth Fund into the SmallCap Blend Fund under Proposal 2, the Acquired |
Fund is expected to achieve the greatest benefit from the reorganization. As discussed above and as a result of the |
reorganization, shareholders of the Acquired Fund will become shareholders of an Acquiring Fund that has stronger historical |
performance and better prospects for growth than the Acquired Fund, and they are not expected to experience increased fund |
operating expenses. The expenses and out-of-pocket fees incurred in connection with the Reorganization, including printing, |
mailing, and legal fees will be paid for by PMC and are expected to total $44,484.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 |
Acquired Fund is expected to dispose of approximately 52% of its portfolio securities. The trading costs are estimated to be |
$62,000 with an approximate gain of $12,936,000 on a U.S. GAAP basis. The per share capital gain is estimated to be $1.12. |
4
PROPOSAL 1: | |||
Approval of a Plan of Acquisition Providing for the Reorganization of the | |||
SmallCap Value Fund into the SmallCap Blend Fund | |||
Shareholders of the SmallCap Value Fund (the “Acquired Fund”) are being asked to approve the reorganization of the Acquired | |||
Fund into the SmallCap Blend Fund (the “Acquiring Fund”). Under Proposal 2, the shareholders of a second Fund, the SmallCap | |||
Growth Fund, are being asked to approve the reorganization of that Fund into 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 Funds seek to provide long-term growth of capital. In addition, | |||
both Funds invest primarily in equity securities of small-cap companies. The Funds differ principally in that the Acquired Fund | |||
invests with a value orientation while the Acquiring Fund invests with a blend of value and growth orientations. | |||
SmallCap Value Fund | SmallCap Blend Fund | ||
(Acquired Fund) | (Acquiring Fund) | ||
Approximate Net Assets as of April 30, 2011 (unaudited) | |||
$352,875,000 | $250,009,000 | ||
* Subsequent to April 30, 2011, PFI’s Strategic Asset Management (SAM) Portfolios redeemed approximately | |||
$206,300,000 in assets from the Acquired Fund. | |||
Investment Advisor: | PMC (for both funds) | ||
Sub-Advisors and Portfolio Managers: | PGI (for both Funds) | ||
Phil Nordhus (Since 2006 for SmallCap Blend and since 2011 for SmallCap Value), Portfolio Manager. Mr. Nordhus has | |||
been with PGI since 1990. He earned a bachelor’s degree in Economics from Kansas State University and an M.B.A. from | |||
Drake University. Mr. Nordhus has earned the right to use the Chartered Financial Analyst designation. | |||
Brian Pattinson (Since 2011 for both Funds), Portfolio Manager. Mr. Pattinson has been with Principal Global Investors | |||
since 1994. He earned a bachelor's degree and an M.B.A. in Finance from the University of Iowa. Mr. Pattinson has earned | |||
the right to use the Chartered Financial Analyst designation. | |||
Comparison of Investment Objectives and Strategies | |||
Investment Objective: | Both Funds seek to provide long-term growth of capital. | ||
Principal Investment Strategies: | |||
Under normal circumstances, the Fund invests at least 80% | Under normal circumstances, the Fund invests at least | ||
of its net assets in equity securities of companies with small | 80% of its net assets in equity securities of companies with | ||
market capitalizations (those with market capitalizations | small market capitalizations (those with market | ||
similar to companies in the Russell 2000 Value Index (as of | capitalizations similar to companies in the Russell 2000® | ||
the most recent calendar year end, this range was between | Index (as of the most recent calendar year end, this range | ||
approximately $20 million and $4.1 billion)) at the time of | was between approximately $0.02 billion and $5.2 billion)) | ||
purchase. The Fund invests in value equity securities; the | at the time of purchase. | ||
value orientation selection emphasizes buying equity | |||
securities that appear to be undervalued. The Fund will also | The Fund invests in equity securities with value and/or | ||
invest in real estate investment trusts. | growth characteristics and constructs an investment | ||
portfolio that has a "blend" of equity securities with these | |||
characteristics. The value orientation selection emphasizes | |||
buying equity securities that appear to be undervalued. The | |||
growth orientation selection emphasizes buying equity | |||
securities of companies whose potential for growth of | |||
capital and earnings is expected to be above average. The | |||
Fund does not have a policy of preferring one of these | |||
categories over the other. | |||
The investment objective of each Fund may be changed by the Board 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. |
5
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 |
identical investment objectives and substantially similar principal policies, the Funds’ risks are substantially similar. As described |
below, the Funds also have some different risks. Many factors affect the value of investments in the Funds, and it is possible to |
lose money by investing in either Fund. |
Risks Applicable to both Funds: |
Equity Securities Risk. Equity securities (common, convertible preferred stocks and other securities whose values are tied to |
the price of stocks, such as rights, warrants and convertible debt securities) could decline in value if the issuer's financial |
condition declines or in response to overall market and economic conditions. A fund's principal market segment(s), such as large |
cap, mid cap or small cap stocks, or growth or value stocks, may underperform other market segments or the equity markets as |
a whole. Investments in smaller companies and mid-size companies may involve greater risk and price volatility than |
investments in larger, more mature companies. |
Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be |
appropriately priced at the time of purchase. |
Risks Applicable to the Acquired Fund: |
Real Estate Investment Trusts ("REITs") Risk. A REIT could fail to qualify for tax-free pass-through 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. |
Risk Applicable to the Acquiring Fund: |
Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations. |
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 A, Class B, Class C, |
Institutional Class, and Class J shares of the Acquired Fund will receive, respectively, Class R-1, Class R-2, Class R-3, Class |
R-4, Class R-5, Class A, Class B, Class C, Institutional Class, and Class J shares of the Acquiring Fund. |
Shareholder Fees (fees paid directly from your investment) (for both Funds) |
The following table shows the fees and expenses you may pay when you buy and redeem Class A, Class B, Class C, and |
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 A | Class B | Class C | Class J | |
Maximum Sales Charge (Load) Imposed on | ||||
Purchases (as a percentage of offering price) | 5.50% | None | None | None |
Maximum Deferred Sales Charge (Load) (as a | ||||
percentage of dollars subject to charge) | 1.00% | 5.00% | 1.00% | 1.00% |
6
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, 2010; (b) the ratios of expenses to average net assets of the Acquiring Fund for the fiscal year ended October 31, | |||||||
2010; and (c) the pro forma expense ratios of the Acquiring Fund for the fiscal year ending October 31, 2010 assuming that the | |||||||
Reorganization had taken place at the commencement of that fiscal year, and (d) the pro forma expense ratios of the Acquiring | |||||||
Fund for the fiscal year ended October 31, 2010, assuming that the Reorganization under both Proposals 1 and 2 had taken | |||||||
place at the commencement of that fiscal year. | |||||||
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | |||||||
Acquired | Total | Total Operating | |||||
Fund | Operating | Expenses | |||||
Management | 12b-1 | Other | Fees & | Expense | Expense | After Expense | |
Class | Fees | Fees | Expenses | Expenses | Ratio | Reimbursement | Reimbursement |
(a) SmallCap Value Fund (Acquired Fund) | |||||||
A | 0.75% | 0.25% | 0.64% | 0.10% | 1.74% | 0.29%(1) | 1.45% |
B | 0.75 | 1.00 | 1.50 | 0.10 | 3.35 | 0.96(1) | 2.39 |
C | 0.75 | 1.00 | 1.11 | 0.10 | 2.96 | 0.78(1) | 2.18 |
Institutional | 0.75 | - | 0.05 | 0.10 | 0.90 | -(4) | 0.90 |
J | 0.75 | 0.45 | 0.27 | 0.10 | 1.57 | - | 1.57 |
R-1 | 0.75 | 0.35 | 0.54 | 0.10 | 1.74 | - | 1.74 |
R-2 | 0.75 | 0.30 | 0.46 | 0.10 | 1.61 | - | 1.61 |
R-3 | 0.75 | 0.25 | 0.33 | 0.10 | 1.43 | - | 1.43 |
R-4 | 0.75 | 0.10 | 0.29 | 0.10 | 1.24 | - | 1.24 |
R-5 | 0.75 | - | 0.27 | 0.10 | 1.12 | - | 1.12 |
(b) SmallCap Blend Fund ( Acquiring Fund) | |||||||
A | 0.75% | 0.25% | 0.51% | 0.05% | 1.56% | - | 1.56% |
B | 0.75 | 1.00 | 1.01 | 0.05 | 2.81 | 0.38%(2) | 2.43 |
C | 0.75 | 1.00 | 1.92 | 0.05 | 3.72 | 1.47(2) | 2.25 |
Institutional | 0.75 | - | 0.08 | 0.05 | 0.88 | - | 0.88 |
J | 0.75 | 0.45 | 0.22 | 0.05 | 1.47 | - | 1.47 |
R-1 | 0.75 | 0.35 | 0.55 | 0.05 | 1.70 | - | 1.70 |
R-2 | 0.75 | 0.30 | 0.47 | 0.05 | 1.57 | - | 1.57 |
R-3 | 0.75 | 0.25 | 0.34 | 0.05 | 1.39 | - | 1.39 |
R-4 | 0.75 | 0.10 | 0.30 | 0.05 | 1.20 | - | 1.20 |
R-5 | 0.75 | - | 0.28 | 0.05 | 1.08 | - | 1.08 |
(c) SmallCap Blend Fund (Acquiring Fund) | |||||||
(Pro forma assuming Reorganization) | |||||||
A | 0.75% | 0.25% | 0.50% | 0.05% | 1.55% | 0.15%(3) | 1.40% |
B | 0.75 | 1.00 | 0.93 | 0.05 | 2.73 | 0.39(3) | 2.34 |
C | 0.75 | 1.00 | 0.95 | 0.05 | 2.75 | 0.62(3) | 2.13 |
Institutional | 0.75 | - | 0.04 | 0.05 | 0.84 | - (3) | 0.84 |
J | 0.75 | 0.45 | 0.21 | 0.05 | 1.46 | - | 1.46 |
R-1 | 0.75 | 0.35 | 0.54 | 0.05 | 1.69 | - | 1.69 |
R-2 | 0.75 | 0.30 | 0.46 | 0.05 | 1.56 | - | 1.56 |
R-3 | 0.75 | 0.25 | 0.33 | 0.05 | 1.38 | - | 1.38 |
R-4 | 0.75 | 0.10 | 0.29 | 0.05 | 1.19 | - | 1.19 |
R-5 | 0.75 | - | 0.27 | 0.05 | 1.07 | - | 1.07 |
(d) SmallCap Blend Fund (Acquiring Fund) | |||||||
(Pro forma assuming Reorganization and second fund Reorganization under Proposal 2) | |||||||
A | 0.75% | 0.25% | 0.53% | 0.05% | 1.58% | 0.18%(3) | 1.40% |
B | 0.75 | 1.00 | 0.95 | 0.05 | 2.75 | 0.41(3) | 2.34 |
C | 0.75 | 1.00 | 0.84 | 0.05 | 2.64 | 0.51(3) | 2.13 |
Institutional | 0.75 | - | 0.04 | 0.05 | 0.84 | - (3) | 0.84 |
J | 0.75 | 0.45 | 0.21 | 0.05 | 1.46 | - | 1.46 |
R-1 | 0.75 | 0.35 | 0.54 | 0.05 | 1.69 | - | 1.69 |
R-2 | 0.75 | 0.30 | 0.46 | 0.05 | 1.56 | - | 1.56 |
R-3 | 0.75 | 0.25 | 0.33 | 0.05 | 1.38 | - | 1.38 |
R-4 | 0.75 | 0.10 | 0.29 | 0.05 | 1.19 | - | 1.19 |
R-5 | 0.75 | - | 0.27 | 0.05 | 1.07 | - | 1.07 |
7
(1) | PMC has contractually agreed to limit the Fund’s expenses attributable to Class A, Class B, and Class C shares and, if necessary, pay expenses |
normally payable by the Fund, excluding interest expense and Acquired Fund Fees and Expenses, through the period ending February 28, 2013. | |
The expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to | |
exceed 1.35% for Class A, 2.29% for Class B, and 2.08% for Class C shares. This agreement can be terminated by mutual agreement of the | |
parties (Principal Funds, Inc. and Principal Management Corporation). | |
(2) | PMC has contractually agreed to limit the Fund’s expenses attributable to Class A, Class B, and Class C shares and, if necessary, pay expenses |
normally payable by the Fund, excluding interest expense and Acquired Fund Fees and Expenses, through the period ending February 28, 2013. | |
The expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to | |
exceed 1.63% for Class A, 2.38% for Class B, and 2.20% for Class C shares. This agreement can be terminated by mutual agreement of the | |
parties (Principal Funds, Inc. and Principal Management Corporation). | |
(3) PMC has contractually agreed to limit the Fund’s expenses attributable to Class A, Class B, Class C, and Institutional Class shares and, if | |
necessary, pay expenses normally payable by the Fund, excluding interest expense and Acquired Fund Fees and Expenses, through the period | |
ending February 28, 2014. The expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on | |
an annualized basis) not to exceed 1.35% for Class A, 2.29% for Class B, 2.08% for Class C, and 0.80% for Institutional Class shares. This | |
agreement can be terminated by mutual agreement of the parties (Principal Funds, Inc. and Principal Management Corporation). | |
(4) PMC has contractually agreed to limit the Fund’s expenses attributable to Institutional Class shares and, if necessary, pay expenses normally | |
payable by the Fund, excluding interest expense and Acquired Fund Fees and Expenses, through the period ending February 28, 2013. The | |
expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to | |
exceed 0.80%. This agreement can be terminated by mutual agreement of the parties (Principal Funds, Inc. and Principal Management | |
Corporation). |
Examples: The following examples are intended to help you compare the costs of investing in shares of the Acquired and |
Acquiring Funds. The examples assume that fund expenses continue at the rates shown in the table above, that you invest |
$10,000 in the particular fund for the time periods indicated and that all dividends and distributions are reinvested. The examples |
also assume that your investment has a 5% return each year. With respect to Class B shares, the table reflects the conversion |
of such shares to Class A shares after 8 years. The examples also take into account the relevant contractual expense limit until |
the date of expiration. The examples should not be considered a representation of future expense of the Acquired or |
Acquiring fund. Actual expense may be greater or less than those shown. |
If you sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
SmallCap Value Fund (Acquired Fund) | Class A | $689 | $1,038 | $1,412 | $2,462 |
Class B | $742 | $1,326 | $1,849 | $3,193 | |
Class C | $321 | $ 830 | $1,477 | $3,215 | |
Institutional Class | $ 92 | $ 287 | $ 498 | $1,108 | |
Class J | $260 | $ 496 | $ 855 | $1,867 | |
Class R-1 | $177 | $ 548 | $ 944 | $2,052 | |
Class R-2 | $164 | $ 508 | $ 876 | $1,911 | |
Class R-3 | $146 | $ 452 | $ 782 | $1,713 | |
Class R-4 | $126 | $ 393 | $ 681 | $1,500 | |
Class R-5 | $114 | $ 356 | $ 617 | $1,363 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $700 | $1,016 | $1,353 | $2,304 |
Class B | $746 | $1,229 | $1,645 | $2,805 | |
Class C | $328 | $ 979 | $1,775 | $3,856 | |
Institutional Class | $ 90 | $ 281 | $ 488 | $1,084 | |
Class J | $250 | $ 465 | $ 813 | $1,757 | |
Class R-1 | $173 | $ 536 | $ 923 | $2,009 | |
Class R-2 | $160 | $ 496 | $ 855 | $1,867 | |
Class R-3 | $142 | $ 440 | $ 761 | $1,669 | |
Class R-4 | $122 | $ 381 | $ 660 | $1,455 | |
Class R-5 | $110 | $ 343 | $ 595 | $1,317 | |
SmallCap Blend (Acquiring Fund) | Class A | $685 | $ 982 | $1,318 | $2,267 |
(Pro forma assuming Reorganization) | Class B | $737 | $1,165 | $1,567 | $2,717 |
Class C | $316 | $ 722 | $1,331 | $2,978 | |
Institutional Class | $ 86 | $ 268 | $ 466 | $1,037 | |
Class J | $249 | $ 462 | $ 797 | $1,746 | |
Class R-1 | $172 | $ 533 | $ 918 | $1,998 | |
Class R-2 | $159 | $ 493 | $ 850 | $1,856 | |
Class R-3 | $140 | $ 437 | $ 755 | $1,657 | |
Class R-4 | $121 | $ 378 | $ 654 | $1,443 | |
Class R-5 | $109 | $ 340 | $ 590 | $1,306 |
8
If you sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
SmallCap Blend (Acquiring Fund) | Class A | $685 | $ 984 | $1,327 | $2,293 |
(Pro forma assuming Reorganization and | Class B | $737 | $1,167 | $1,573 | $2,729 |
second fund Reorganization under Proposal 2) | Class C | $316 | $ 712 | $1,298 | $2,889 |
Institutional Class | $ 86 | $ 268 | $ 466 | $1,037 | |
Class J | $249 | $ 462 | $ 797 | $1,746 | |
Class R-1 | $172 | $ 533 | $ 918 | $1,998 | |
Class R-2 | $159 | $ 493 | $ 850 | $1,856 | |
Class R-3 | $140 | $ 437 | $ 755 | $1,657 | |
Class R-4 | $121 | $ 378 | $ 654 | $1,443 | |
Class R-5 | $109 | $ 340 | $ 590 | $1,306 | |
If you do not sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
SmallCap Value Fund (Acquired Fund) | Class A | $689 | $1,037 | $1,412 | $2,462 |
Class B | $242 | $ 926 | $1,649 | $3,193 | |
Class C | $221 | $ 830 | $1,477 | $3,215 | |
Class J | $160 | $ 496 | $ 855 | $1,867 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $700 | $1,016 | $1,353 | $2,304 |
Class B | $246 | $ 829 | $1,445 | $2,805 | |
Class C | $228 | $ 979 | $1,775 | $3,856 | |
Class J | $150 | $ 465 | $ 803 | $1,757 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $685 | $ 982 | $1,318 | $2,267 |
(Pro forma assuming Reorganization) | Class B | $237 | $ 765 | $1,367 | $2,710 |
Class C | $216 | $ 722 | $1,331 | $2,978 | |
Class J | $149 | $ 462 | $ 797 | $1,746 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $685 | $ 984 | $1,327 | $2,293 |
(Pro forma assuming Reorganization and | Class B | $237 | $ 767 | $1,373 | $2,729 |
second fund Reorganization under Proposal 2) | Class C | $216 | $ 712 | $1,298 | $2,889 |
Class J | $149 | $ 462 | $ 797 | $1,746 |
Portfolio Turnover | |||
Each of the Funds pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A | |||
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes for shareholders who hold | |||
Fund shares in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, | |||
affect the Fund’s performance. During the most recent fiscal year, the portfolio turnover rate for the Acquired Fund was 77.9% of | |||
the average value of its portfolio while the portfolio turnover rate for the Acquiring Fund was 65.2%. | |||
Investment Management Fees/Sub-Advisory Arrangements | |||
Each Fund pays its 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: | |||
SmallCap Value Fund | SmallCap Blend Fund | ||
(Acquired Fund) | (Acquiring Fund) | ||
First $500 million | 0.75% | First $500 million | 0.75% |
Next $500 million | 0.73% | Next $500 million | 0.73% |
Next $500 million | 0.71% | Next $500 million | 0.71% |
Over $1.5 billion | 0.70% | Over $1.5 billion | 0.70% |
The sub-advisor to each Fund receives sub-advisory fees paid by PMC and not by the Fund. | |||
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, 2010. | |||
Performance | |||
The following information provides an indicator of the risks of investing in the Funds. The bar chart below shows how each | |||
Fund’s total return has varied year-by-year, while the table below shows each Fund’s performance over time (along with the | |||
returns of a broad-based market index for reference). Annual returns do not reflect any applicable sales charges and would be | |||
lower if they did. A Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will | |||
perform in the future. You may get updated performance information online at www.principalfunds.com or by calling 1-800-222- | |||
5852. | |||
The SmallCap Value Fund’s Institutional Class shares and Class J shares were first sold on March 1, 2001, Class A and | |||
Class B shares commenced operations on June 28, 2005, Class C shares were first sold on January 16, 2007, and R-1 Class |
9
shares were first sold on November 1, 2004. For periods prior to these dates, the returns are based on the performance of |
SmallCap Value Fund’s R-3 Class shares adjusted to reflect the fees and expenses of these classes. The adjustments result in |
performance for such periods that is no higher than the historical performance of R-3 Class shares. The R-2, R-3, R-4 and R-5 |
Class shares were first sold on December 6, 2000. |
The SmallCap Blend Fund’s Institutional Class shares and Class J shares were first sold on March 1, 2001, Class A and |
Class B shares commenced operations on June 28, 2005, Class C shares were first sold on January 16, 2007, and R-1 Class |
shares were first sold on November 1, 2004. For periods prior to these dates, the returns are based on the performance of |
SmallCap Blend Fund’s R-3 Class shares adjusted to reflect the fees and expenses of these classes. The adjustments result in |
performance for such periods that is no higher than the historical performance of R-3 Class shares. The R-2, R-3, R-4 and R-5 |
Class shares were first sold on December 6, 2000. |
Highest return for a quarter during the period of the bar chart above: | Q2 '03 | 22.98% |
Lowest return for a quarter during the period of the bar chart above: | Q4 '08 | -22.11% |
Year-to-date return for the quarter ending September 30, 2011: -19.52% |
Highest return for a quarter during the period of the bar chart above: | Q2 '03 | 19.65% |
Lowest return for a quarter during the period of the bar chart above: | Q4 '08 | -26.29% |
Year-to-date return for the quarter ending September 30, 2011: -17.07% |
10
Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2010 | |||
1 Year | 5 Years | 10 Years | |
SmallCap Value Fund (Acquired Fund) | |||
-- Class A (before taxes) | 14.11% | -0.32% | 6.60% |
(after taxes on distributions) | 14.04 | -0.90 | 5.60 |
(after taxes on distributions and sale of shares) | 9.27 | -0.43 | 5.33 |
-- Class B | 14.68 | -0.42 | 6.40 |
-- Class C | 18.90 | 0.13 | 6.64 |
-- Institutional Class | 21.42 | 1.44 | 8.04 |
-- Class J | 19.74 | 0.79 | 7.22 |
-- Class R-1 | 20.49 | 0.58 | 7.11 |
-- Class R-2 | 20.63 | 0.70 | 7.25 |
-- Class R-3 | 20.79 | 0.87 | 7.44 |
-- Class R-4 | 21.05 | 1.07 | 7.63 |
-- Class R-5 | 21.16 | 1.19 | 7.76 |
Russell 2000 Value Index (reflects no deduction for fees, expenses, or taxes) | 24.50 | 3.52 | 8.42 |
Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2010 | |||
1 Year | 5 Years | 10 Years | |
SmallCap Blend Fund (Acquiring Fund) | |||
-- Class A (before taxes) | 16.37% | 0.37% | 4.83% |
(after taxes on distributions) | 16.37 | -0.19 | 4.34 |
(after taxes on distributions and sale of shares) | 10.64 | 0.27 | 4.17 |
-- Class B | 16.78 | 0.21 | 4.55 |
-- Class C | 21.43 | 0.83 | 4.67 |
-- Institutional Class | 24.01 | 2.24 | 6.17 |
-- Class J | 22.48 | 1.72 | 5.45 |
-- Class R-1 | 23.03 | 1.36 | 5.25 |
-- Class R-2 | 23.12 | 1.49 | 5.39 |
-- Class R-3 | 23.45 | 1.69 | 5.57 |
-- Class R-4 | 23.66 | 1.97 | 5.79 |
-- Class R-5 | 23.78 | 1.99 | 5.91 |
Russell 2000 Index (reflects no deduction for fees, expenses, or taxes) | 26.85 | 4.47 | 6.33 |
After-tax returns are shown for Class A shares only and would be different for the other share classes. They are calculated using |
the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual |
after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not |
relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual |
retirement accounts. |
Reasons for the Reorganization |
The Board believes that the reorganization will serve the best interests of the shareholders of both the Acquired and Acquiring |
Funds. The Acquiring Fund has outperformed the Acquired Fund over the one-, and five-year periods ended December 31, |
2010 and for the nine-month period ended September 30, 2011. Moreover, the Acquiring Fund, as a fund with greater assets, |
may be expected to afford shareholders of the Acquired Fund, on an ongoing basis, greater prospects for growth and efficient |
management as larger funds tend to have lower expenses and may be more marketable. The Funds have the same investment |
objectives in that both seek to provide long-term growth of capital, and they also have similar principal policies and risks in that |
both invest principally in equity securities of companies with small market capitalizations. The Funds have the same advisory fee |
rates and, although the Acquiring Fund has higher overall net expense ratios than the Acquired Fund with respect to certain |
share classes, PMC has agreed to cap the expenses of the Acquiring Fund for a two-year period following the Reorganization. |
Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. |
11
Board Consideration of the Reorganization | |
At its September 13, 2011 meeting, 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) | 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) | comparative investment performance of and other information pertaining to the Funds; |
(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 PGI, which currently serves as sub-advisor to the Acquiring |
Fund; | |
(9) | any direct or indirect benefits, including potential economic 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 including liquidation of the Acquired Fund or continuing the Acquired Fund as | |
currently operated. | |
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) | PGI 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 Funds have the same advisory fee rates and, although the Acquiring Fund has higher overall expense ratios than the |
Acquired Fund with respect to certain share classes, PMC has agreed to cap the expenses of the Acquiring Fund for a two- | |
year period following the Reorganization; | |
(4) | the Acquiring Fund has outperformed the Acquired fund for the one-, and five-year periods ended December 31, 2010 and |
for the nine-month period ended September 30, 2011; and | |
(5) | 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. |
12
PROPOSAL 2: | ||
Approval of a Plan of Acquisition Providing for the Reorganization of the | ||
SmallCap Growth Fund into the SmallCap Blend Fund | ||
Shareholders of the SmallCap Growth Fund (the “Acquired Fund”) are being asked to approve the reorganization of the | ||
Acquired Fund into the SmallCap Blend Fund (the “Acquiring Fund.) Under Proposal 1, the shareholders of a second Fund, the | ||
SmallCap Value Fund, are being asked to approve the reorganization of that Fund into 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 Funds seek to provide long-term growth of capital. In addition, | ||
both Funds invest primarily in equity securities of small-cap companies. The Funds differ principally in that the Acquired Fund | ||
invests with a growth orientation while the Acquiring Fund invests with a blend of growth and value orientations. | ||
SmallCap Growth Fund | SmallCap Blend Fund | |
(Acquired Fund) | (Acquiring Fund) | |
Approximate Net Assets as of April 30, 2011 (unaudited) | ||
$101,561,000 | $250,009,000 | |
Investment Advisor: | PMC (for both Funds) | |
Sub-Advisors and Portfolio Managers: | PGI (for both Funds) | |
Phil Nordhus (Since 2006 for SmallCap Blend and since 2009 for SmallCap Growth), Portfolio Manager. Mr. Nordhus has | ||
been with PGI since 1990. He earned a bachelor’s degree in Economics from Kansas State University and an M.B.A. from | ||
Drake University. Mr. Nordhus has earned the right to use the Chartered Financial Analyst designation. | ||
Brian Pattinson (Since 2011 for both Funds), Portfolio Manager. Mr. Pattinson has been with Principal Global Investors | ||
since 1994. He earned a bachelor's degree and an M.B.A. in Finance from the University of Iowa. Mr. Pattinson has earned | ||
the right to use the Chartered Financial Analyst designation. | ||
Comparison of Investment Objectives and Strategies | ||
Investment Objective: | Both Funds seek to provide long-term growth of capital. |
Principal Investment Strategies: | |
Under normal circumstances, the Fund invests at least 80% | Under normal circumstances, the Fund invests at least 80% |
of its net assets in equity securities of companies with small | of its net assets in equity securities of companies with small |
market capitalizations (those with market capitalizations | market capitalizations (those with market capitalizations |
similar to companies in the Russell 2000 Growth Index (as | similar to companies in the Russell 2000® Index (as of the |
of the most recent calendar year end, the range was | most recent calendar year end, this range was between |
between approximately $20 million and $5.2 billion)) at the | approximately $0.02 billion and $5.2 billion)) at the time of |
time of purchase. The Fund invests in growth equity | purchase. |
securities; growth orientation emphasizes buying equity | |
securities of companies whose potential for growth of capital | The Fund invests in equity securities with value and/or |
and earnings is expected to be above average. | growth characteristics and constructs an investment portfolio |
that has a "blend" of equity securities with these | |
characteristics. The value orientation selection emphasizes | |
buying equity securities that appear to be undervalued. The | |
growth orientation selection emphasizes buying equity | |
securities of companies whose potential for growth of capital | |
and earnings is expected to be above average. The Fund | |
does not have a policy of preferring one of these categories | |
over the other. | |
The investment objective of each Fund may be changed by the Board 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. |
13
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 |
identical investment objectives and substantially similar principal policies, the Funds’ risks are substantially similar. As described |
below, the Funds also have some different risks. Many factors affect the value of investments in the Funds, and it is possible to |
lose money by investing in either Fund. |
Risks Applicable to both Funds: |
Equity Securities Risk. Equity securities (common, convertible preferred stocks and other securities whose values are tied to |
the price of stocks, such as rights, warrants and convertible debt securities) could decline in value if the issuer's financial |
condition declines or in response to overall market and economic conditions. A fund's principal market segment(s), such as large |
cap, mid cap or small cap stocks, or growth or value stocks, may underperform other market segments or the equity markets as |
a whole. Investments in smaller companies and mid-size companies may involve greater risk and price volatility than |
investments in larger, more mature companies. |
Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations. |
Risk Applicable to the Acquiring Fund: |
Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be |
appropriately priced at the time of purchase. |
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 A, Class B, Class C, |
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 A, Class B, Class C, Class J, and Institutional Class shares of the Acquiring Fund. |
Shareholder Fees (fees paid directly from your investment) (for both Funds) |
The following table shows the fees and expenses you may pay when you buy and redeem Class A, Class B, Class C, and |
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 A | Class B | Class C | Class J | |
Maximum Sales Charge (Load) Imposed on | ||||
Purchases (as a percentage of offering price) | 5.50% | None | None | None |
Maximum Deferred Sales Charge (Load) (as a | ||||
percentage of dollars subject to charge) | 1.00% | 5.00% | 1.00% | 1.00% |
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, 2010; (b) the ratios of expenses to average net assets of the Acquiring Fund for the fiscal year ended October 31, |
2010; and (c) the pro forma expense ratios of the Acquiring Fund for the fiscal year ending October 31, 2010 assuming that the |
Reorganization had taken place at the commencement of that fiscal year, and (d) the pro forma expense ratios of the Acquiring |
Fund for the fiscal year ended October 31, 2010, assuming that the Reorganization under both Proposals 1 and 2 had taken |
place at the commencement of that fiscal year. |
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) |
Acquired | Total | ||||||
Fund | Operating | Total | |||||
Management | 12b-1 | Other | Fees & | Expense | Expense | Operating | |
Class | Fees | Fees | Expenses Expenses | Ratio | Reimbursement | Expenses | |
(a) SmallCap Growth Fund (Acquired Fund) | |||||||
A | 0.75% | 0.25% | 0.72% | - | 1.72% | 0.14%(1) | 1.58% |
B | 0.75 | 1.00 | 1.86 | - | 3.61 | 1.28(1) | 2.33 |
C | 0.75 | 1.00 | 1.54 | - | 3.29 | 1.08(1) | 2.21 |
Institutional | 0.75 | - | 0.07 | - | 0.82 | - | 0.82 |
J | 0.75 | 0.45 | 0.29 | - | 1.49 | - | 1.49 |
R-1 | 0.75 | 0.35 | 0.54 | - | 1.64 | - | 1.64 |
R-2 | 0.75 | 0.30 | 0.46 | - | 1.51 | - | 1.51 |
R-3 | 0.75 | 0.25 | 0.33 | - | 1.33 | - | 1.33 |
R-4 | 0.75 | 0.10 | 0.29 | - | 1.14 | - | 1.14 |
R-5 | 0.75 | - | 0.27 | - | 1.02 | - | 1.02 |
14
Acquired | Total | ||||||
Fund | Operating | Total | |||||
Management | 12b-1 | Other | Fees & | Expense | Expense | Operating | |
Class | Fees | Fees | Expenses | Expenses | Ratio | Reimbursement | Expenses |
(b) SmallCap Blend Fund ( Acquiring Fund) | |||||||
A | 0.75% | 0.25% | 0.51% | 0.05% | 1.56% | - | 1.56% |
B | 0.75 | 1.00 | 1.01 | 0.05 | 2.81 | 0.38%(2) | 2.43 |
C | 0.75 | 1.00 | 1.92 | 0.05 | 3.72 | 1.47(2) | 2.25 |
Institutional | 0.75 | - | 0.08 | 0.05 | 0.88 | - | 0.88 |
J | 0.75 | 0.45 | 0.22 | 0.05 | 1.47 | - | 1.47 |
R-1 | 0.75 | 0.35 | 0.55 | 0.05 | 1.70 | - | 1.70 |
R-2 | 0.75 | 0.30 | 0.47 | 0.05 | 1.57 | - | 1.57 |
R-3 | 0.75 | 0.25 | 0.34 | 0.05 | 1.39 | - | 1.39 |
R-4 | 0.75 | 0.10 | 0.30 | 0.05 | 1.20 | - | 1.20 |
R-5 | 0.75 | - | 0.28 | 0.05 | 1.08 | - | 1.08 |
(c) SmallCap Blend Fund (Acquiring Fund) | |||||||
(Pro forma assuming Reorganization) | |||||||
A | 0.75% | 0.25% | 0.54% | 0.05% | 1.59% | 0.19%(3) | 1.40% |
B | 0.75 | 1.00 | 0.99 | 0.05 | 2.79 | 0.45(3) | 2.34 |
C | 0.75 | 1.00 | 1.13 | 0.05 | 2.93 | 0.80(3) | 2.13 |
Institutional | 0.75 | - | 0.06 | 0.05 | 0.86 | 0.01(3) | 0.85 |
J | 0.75 | 0.45 | 0.21 | 0.05 | 1.46 | - | 1.46 |
R-1 | 0.75 | 0.35 | 0.54 | 0.05 | 1.69 | - | 1.69 |
R-2 | 0.75 | 0.30 | 0.46 | 0.05 | 1.56 | - | 1.56 |
R-3 | 0.75 | 0.25 | 0.33 | 0.05 | 1.38 | - | 1.38 |
R-4 | 0.75 | 0.10 | 0.29 | 0.05 | 1.19 | - | 1.19 |
R-5 | 0.75 | - | 0.27 | 0.05 | 1.07 | - | 1.07 |
(d) SmallCap Blend Fund (Acquiring Fund) | |||||||
(Pro forma assuming Reorganization and second fund Reorganization under Proposal 1) | |||||||
A | 0.75% | 0.25% | 0.53% | 0.05% | 1.58% | 0.18%(3) | 1.40% |
B | 0.75 | 1.00 | 0.95 | 0.05 | 2.75 | 0.41(3) | 2.34 |
C | 0.75 | 1.00 | 0.84 | 0.05 | 2.64 | 0.51(3) | 2.13 |
Institutional | 0.75 | - | 0.04 | 0.05 | 0.84 | - (3) | 0.84 |
J | 0.75 | 0.45 | 0.21 | 0.05 | 1.46 | - | 1.46 |
R-1 | 0.75 | 0.35 | 0.54 | 0.05 | 1.69 | - | 1.69 |
R-2 | 0.75 | 0.30 | 0.46 | 0.05 | 1.56 | - | 1.56 |
R-3 | 0.75 | 0.25 | 0.33 | 0.05 | 1.38 | - | 1.38 |
R-4 | 0.75 | 0.10 | 0.29 | 0.05 | 1.19 | - | 1.19 |
R-5 | 0.75 | - | 0.27 | 0.05 | 1.07 | - | 1.07 |
(1) | PMC has contractually agreed to limit the Fund’s expenses attributable to Class A, Class B and Class C shares and, if necessary, pay |
expenses normally payable by the Fund, excluding interest expense, through the period ending February 28, 2013. The expense limit will | |
maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.58% for | |
Class A shares, 2.33% for Class B and 2.21% for Class C shares. This agreement can be terminated by mutual agreement of the parties | |
(Principal Funds, Inc. and Principal Management Corporation). | |
(2) PMC has contractually agreed to limit the Fund’s expenses attributable to Class A, Class B, and Class C shares and, if necessary, pay | |
expenses normally payable by the Fund, excluding interest expense and Acquired Fund Fees and Expenses, through the period ending | |
February 28, 2013. The expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on an | |
annualized basis) not to exceed 1.63% for Class A, 2.38% for Class B, and 2.20% for Class C shares. This agreement can be terminated by | |
mutual agreement of the parties (Principal Funds, Inc. and Principal Management Corporation). | |
(3) PMC has contractually agreed to limit the Fund’s expenses attributable to Class A, Class B, Class C, and Institutional Class shares and, if | |
necessary, pay expenses normally payable by the Fund, excluding interest expense and Acquired Fund Fees and Expenses, through the | |
period ending February 28, 2014. The expense limit will maintain a total level of operating expenses (expressed as a percent of average net | |
assets on an annualized basis) not to exceed 1.35% for Class A, 2.29% for Class B, 2.08% for Class C, and 0.80% for Institutional Class | |
shares. This agreement can be terminated by mutual agreement of the parties (Principal Funds, Inc. and Principal Management Corporation). |
15
Examples: The following examples are intended to help you compare the costs of investing in shares of the Acquired and |
Acquiring Funds. The examples assume that fund expenses continue at the rates shown in the table above, that you invest |
$10,000 in the particular fund for the time periods indicated and that all dividends and distributions are reinvested. The examples |
also assume that your investment has a 5% return each year. With respect to Class B shares, the table reflects the conversion |
of such shares to Class A shares after 8 years. The examples also take into account the relevant contractual expense limit until |
the date of expiration. The examples should not be considered a representation of future expense of the Acquired or |
Acquiring fund. Actual expense may be greater or less than those shown. |
If you sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
SmallCap Growth Fund (Acquired Fund) | Class A | $702 | $1,047 | $1,418 | $2,456 |
Class B | $736 | $1,367 | $1,941 | $3,346 | |
Class C | $324 | $ 895 | $1,608 | $3,499 | |
Institutional Class | $ 84 | $ 262 | $ 455 | $1,014 | |
Class J | $252 | $ 471 | $ 813 | $1,779 | |
Class R-1 | $167 | $ 517 | $ 892 | $1,944 | |
Class R-2 | $154 | $ 477 | $ 824 | $1,802 | |
Class R-3 | $135 | $ 421 | $ 729 | $1,601 | |
Class R-4 | $116 | $ 362 | $ 628 | $1,386 | |
Class R-5 | $104 | $ 325 | $ 563 | $1,248 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $700 | $1,016 | $1,353 | $2,304 |
Class B | $746 | $1,229 | $1,645 | $2,805 | |
Class C | $328 | $ 979 | $1,775 | $3,856 | |
Institutional Class | $ 90 | $ 281 | $ 488 | $1,084 | |
Class J | $250 | $ 465 | $ 803 | $1,757 | |
Class R-1 | $173 | $ 536 | $ 923 | $2,009 | |
Class R-2 | $160 | $ 496 | $ 855 | $1,867 | |
Class R-3 | $142 | $ 440 | $ 761 | $1,669 | |
Class R-4 | $122 | $ 381 | $ 660 | $1,455 | |
Class R-5 | $110 | $ 343 | $ 595 | $1,317 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $685 | $ 985 | $1,330 | $2,301 |
(Pro forma assuming Reorganization) | Class B | $737 | $1,170 | $1,585 | $2,755 |
Class C | $316 | $ 738 | $1,385 | $3,123 | |
Institutional Class | $ 87 | $ 273 | $ 476 | $1,060 | |
Class J | $249 | $ 462 | $ 797 | $1,746 | |
Class R-1 | $172 | $ 533 | $ 918 | $1,998 | |
Class R-2 | $159 | $ 493 | $ 850 | $1,856 | |
Class R-3 | $140 | $ 437 | $ 755 | $1,657 | |
Class R-4 | $121 | $ 378 | $ 654 | $1,443 | |
Class R-5 | $109 | $ 340 | $ 590 | $1,306 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $685 | $ 984 | $1,327 | $2,293 |
(Pro forma assuming Reorganization and | Class B | $737 | $1,167 | $1,573 | $2,729 |
second fund Reorganization under Proposal 1) | Class C | $316 | $ 712 | $1,298 | $2,889 |
Institutional Class | $ 86 | $ 268 | $ 466 | $1,037 | |
Class J | $249 | $ 462 | $ 797 | $1,746 | |
Class R-1 | $172 | $ 533 | $ 918 | $1,998 | |
Class R-2 | $159 | $ 493 | $ 850 | $1,856 | |
Class R-3 | $140 | $ 437 | $ 755 | $1,657 | |
Class R-4 | $121 | $ 378 | $ 654 | $1,443 | |
Class R-5 | $109 | $ 340 | $ 590 | $1,306 | |
If you do not sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
SmallCap Growth Fund (Acquired Fund) | Class A | $702 | $1,047 | $1,418 | $2,456 |
Class B | $236 | $ 968 | $1,742 | $3,346 | |
Class C | $224 | $ 895 | $1,608 | $3,499 | |
Class J | $152 | $ 471 | $ 813 | $1,779 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $700 | $1,016 | $1,353 | $2,304 |
Class B | $246 | $ 829 | $1,445 | $2,805 | |
Class C | $228 | $ 979 | $1,775 | $3,856 | |
Class J | $150 | $ 465 | $ 803 | $1,757 |
16
If you sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $685 | $ 985 | $1,330 | $2,301 |
(Pro forma assuming Reorganization) | Class B | $237 | $ 770 | $1,385 | $2,755 |
Class C | $216 | $ 738 | $1,385 | $3,123 | |
Class J | $149 | $ 462 | $ 797 | $1,746 | |
SmallCap Blend Fund (Acquiring Fund) | Class A | $685 | $ 984 | $1,327 | $2,293 |
(Pro forma assuming Reorganization and | Class B | $237 | $ 767 | $1,373 | $2,729 |
second fund Reorganization under Proposal 1) | Class C | $216 | $ 712 | $1,298 | $2,889 |
Class J | $149 | $ 462 | $ 797 | $1,746 |
Portfolio Turnover |
Each Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher |
portfolio turnover rate may indicate higher transaction costs and may result in higher taxes for shareholders who hold Fund |
shares in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect |
Fund performance. During the most recent fiscal year, the portfolio turnover rate for the Acquired Fund was 89.1% of the |
average value of its portfolio while the portfolio turnover rate for the Acquiring Fund was 65.2%. |
Investment Management Fees/Sub-Advisory Arrangements |
Each Fund pays its 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: |
SmallCap Growth Fund | SmallCap Blend Fund | ||
(Acquired Fund) | (Acquiring Fund) | ||
First $500 million | 0.75% | First $500 million | 0.75% |
Next $500 million | 0.73% | Next $500 million | 0.73% |
Next $500 million | 0.71% | Next $500 million | 0.71% |
Over $1.5 billion | 0.70% | Over $1.5 billion | 0.70% |
The sub-advisor to each Fund receives sub-advisory fees paid by PMC and not by the Fund. |
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, 2010. |
Performance |
The following information provides an indicator of the risks of investing in the Funds. The bar chart below shows how the |
Acquired Fund’s total return has varied year-by-year, while the table below shows each Fund’s performance over time (along |
with the returns of a broad-based market index for reference). Annual returns do not reflect any applicable sales charges and |
would be lower if they did. A Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund |
will perform in the future. You may get updated performance information online at www.principalfunds.com or by calling 1-800- |
222-5852. |
The SmallCap Growth Fund’s Institutional Class shares and Class J shares were first sold on March 1, 2001, Class A, Class B, |
and Class C shares commenced operations on January 16, 2007, and R-1 Class shares were first sold on November 1, 2004. |
For periods prior to these dates, the returns are based on the performance of SmallCap Growth Fund’s R-3 Class shares |
adjusted to reflect the fees and expenses of these classes. The adjustments result in performance for such periods that is no |
higher than the historical performance of R-3 Class shares. The R-2, R-3, R-4 and R-5 Class shares were first sold on |
December 6, 2000. |
The SmallCap Blend Fund’s Institutional Class shares and Class J shares were first sold on March 1, 2001, Class A and |
Class B shares commenced operations on June 28, 2005, Class C shares were first sold on January 16, 2007, and R-1 Class |
shares were first sold on November 1, 2004. For periods prior to these dates, the returns are based on the performance of |
SmallCap Blend Fund’s R-3 Class shares adjusted to reflect the fees and expenses of these classes. The adjustments result in |
performance for such periods that is no higher than the historical performance of R-3 Class shares. The R-2, R-3, R-4 and R-5 |
Class shares were first sold on December 6, 2000. |
17
Highest return for a quarter during the period of the bar chart above: | Q4 '01 | 33.61% |
Lowest return for a quarter during the period of the bar chart above: | Q3' 01 | -33.20% |
Year-to-date return for the quarter ending September 30, 2011: -15.95% |
Highest return for a quarter during the period of the bar chart above: | Q2 '03 | 19.65% |
Lowest return for a quarter during the period of the bar chart above: | Q4 '08 | -26.29% |
Year-to-date return for the quarter ending September 30, 2011: -17.07% |
18
Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2010 | |||
1 Year | 5 Years | 10 Years | |
SmallCap Growth Fund (Acquired Fund) | |||
-- Class A (before taxes) | 15.67% | 0.10% | 0.70% |
(after taxes on distributions) | 15.67 | -0.20 | 0.21 |
(after taxes on distributions and sale of shares) | 10.18 | 0.12 | 0.48 |
-- Class B | 16.57 | -0.13 | 0.14 |
-- Class C | 20.61 | 0.58 | 0.49 |
-- Institutional Class | 23.60 | 2.03 | 1.95 |
-- Class J | 21.86 | 1.33 | 1.16 |
-- Class R-1 | 22.38 | 1.13 | 1.05 |
-- Class R-2 | 22.62 | 1.26 | 1.20 |
-- Class R-3 | 22.89 | 1.45 | 1.37 |
-- Class R-4 | 23.09 | 1.62 | 1.59 |
-- Class R-5 | 23.15 | 1.78 | 1.69 |
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or taxes) | 29.09 | 5.30 | 3.78 |
Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2010 | |||
1 Year | 5 Years | 10 Years | |
SmallCap Blend Fund (Acquiring Fund) | |||
-- Class A (before taxes) | 16.37% | 0.37% | 4.83% |
(after taxes on distributions) | 16.37 | -0.19 | 4.34 |
(after taxes on distributions and sale of shares) | 10.64 | 0.27 | 4.17 |
-- Class B | 16.78 | 0.21 | 4.55 |
-- Class C | 21.43 | 0.83 | 4.67 |
-- Institutional Class | 24.01 | 2.24 | 6.17 |
-- Class J | 22.48 | 1.72 | 5.45 |
-- Class R-1 | 23.03 | 1.36 | 5.25 |
-- Class R-2 | 23.12 | 1.49 | 5.39 |
-- Class R-3 | 23.45 | 1.69 | 5.57 |
-- Class R-4 | 23.66 | 1.97 | 5.79 |
-- Class R-5 | 23.78 | 1.99 | 5.91 |
Russell 2000 Index (reflects no deduction for fees, expenses, or taxes) | 26.85 | 4.47 | 6.33 |
After-tax returns are shown for Class A shares only and would be different for the other share classes. They are calculated using |
the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual |
after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not |
relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual |
retirement accounts. |
Reasons for the Reorganization |
The Board believes that the reorganization will serve the best interests of the shareholders of both the Acquired and Acquiring |
Funds. The Acquiring Fund has outperformed the Acquired Fund over the one-, three-, five-, and ten-year periods ended |
December 31, 2010. Moreover, the Acquiring Fund, as a fund with greater assets, may be expected to afford shareholders of |
the Acquired Fund, on an ongoing basis, greater prospects for growth and efficient management as larger funds tend to have |
lower expenses and may be more marketable. The Funds have the same investment objectives in that both seek to provide |
long-term growth of capital, and they also have similar principal policies and risks in that both invest principally in equity |
securities of companies with small market capitalizations. The Funds have the same advisory fee rates and, although the |
Acquiring Fund has higher overall net expense ratios than the Acquired Fund with respect to certain share classes, PMC has |
agreed to cap the expenses of the Acquiring Fund for a two-year period following the Reorganization. Combining the Funds will |
not result in any dilution of the interests of existing shareholders of the Funds. |
19
Board Consideration of the Reorganization | |
At its September 13, 2011 meeting, 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) | 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) | comparative investment performance of and other information pertaining to the Funds; |
(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 PGI, which currently serves as sub-advisor to the Acquiring |
Fund; | |
(9) | any direct or indirect benefits, including potential economic 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 including liquidation of the Acquired Fund or continuing the Acquired Fund as | |
currently operated. | |
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) | PGI 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 Funds have the same advisory fee rates and, although the Acquiring Fund has higher overall expense ratios than the |
Acquired Fund with respect to certain share classes, PMC has agreed to cap the expenses of the Acquiring Fund for a two- | |
year period following the Reorganization | |
(4) | the Acquiring Fund has outperformed the Acquired Fund for the one-, three- and five- and ten-year periods ended |
December 31, 2010; and | |
(5) | 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. |
20
INFORMATION ABOUT THE REORGANIZATION |
Plans of Acquisition |
The terms of the Plans are summarized below. The summary is qualified in its entirety by reference to the Forms of the Plans |
attached as Appendix A to this Proxy Statement/Prospectus. |
Under each 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 February 17, 2012, 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, each 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 each Acquired |
Fund will cancel on its books all its shares registered to the account of that shareholder. After the Effective Time, each Acquired |
Fund will be dissolved in accordance with applicable law. |
The Plans 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 Funds. The Board may abandon and terminate either or both of the Plans |
at any time before the Effective Time if it believes that consummation of the transactions contemplated by the Plan(s) would not |
be in the best interests of the shareholders of any or all of the Funds. |
Under the Plan related to the Reorganization of the SmallCap Value Fund into the SmallCap Blend Fund, PMC will pay all of the |
out-of-pocket costs in connection with the transaction contemplated under this Plan |
Under the Plan related to the Reorganization of the SmallCap Growth Fund into the SmallCap Blend Fund, PMC will pay all |
expenses and out-of-pocket fees incurred in connection with the Reorganization. |
If a Reorganization is not consummated for any reason, the Board will consider other possible courses of action, including the |
liquidation (and termination) of the Acquired Fund. |
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 A, Class B, Class C, 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 Funds 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 Funds have the same rights with respect to the Acquired Funds that the share classes of the |
Acquiring Fund have with respect to the Acquiring Fund. |
Shares of all 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. |
21
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, with respect to the reorganization under |
each of Proposal 1 and Proposal 2, 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 each 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 Acquired Funds or |
their shareholders in connection with each 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, 2011, the Acquired Funds had an accumulated capital loss carryforwards of |
approximately $159,737,000 for the SmallCap Value Fund and $81,862,000 for the SmallCap Growth Fund. 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 an 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 carryforwards 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 of an Acquired Fund currently are available only to shareholders of that Acquired Fund. |
After the Reorganization, however, these benefits will inure to the benefit of all shareholders of the Acquiring Fund. |
Capital Gains from Disposition of Portfolio Securities. The disposition of portfolio securities by the Acquired Funds prior to and in |
connection with the Reorganization could result in the Acquired Funds incurring long-term and short-term capital gains. |
However, it is expected that the available capital loss carryforwards for the Acquired Funds, described above, will offset any |
such capital gains. To the extent any such capital gains are not offset, they will be passed through to the shareholders of the |
Acquired Funds and subject to taxation as described below. |
Distribution of Income and Gains. Prior to the Reorganization, each 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 April 30, 2011: (i) the capitalization of the Acquired Funds; (ii) the capitalization of the Acquiring |
Fund; and (iii) the pro forma combined capitalization of the Acquiring Fund. (a) as if each reorganization had occurred separately |
and (b) as if both reorganizations had occurred as of April 30, 2011. As of April 30, 2011, the Acquired Funds and the Acquiring |
Fund each had outstanding ten classes of shares; Class A, Class B, Class C, Class J, Institutional, R-1, R-2, R-3, R-4, and R-5. |
The Acquired Funds will pay any trading costs associated with disposing of any of their portfolio securities 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. These trading costs are estimated to be $62,000 for SmallCap Growth Fund and $99,000 for SmallCap |
Value Fund. The estimated gain would be $12,936,000 ($1.12 per share) for SmallCap Growth Fund and an estimated gain of |
$33,326,000($1.53 per share) for SmallCap Value Fund, on a U.S. GAAP basis. |
With respect to the reorganization of the SmallCap Value Fund into the SmallCap Blend Fund under Proposal 1, the table below |
does not reflect the redemption from the Acquired Fund subsequent to April 30, 2011 of approximately $206.3 million in assets |
by the PFI Strategic Asset Management (SAM) Portfolios. |
22
Net Assets | Shares | ||||
(000s) | NAV | (000s) | |||
(1) | SmallCap Growth Fund | Class A | $ 46,496 | $ 8.91 | 5,217 |
(Acquired Fund) | Class B | 2,166 | 8.56 | 253 | |
Class C | 2,899 | 8.69 | 334 | ||
Class J | 30,739 | 8.43 | 3,647 | ||
Institutional | 12,997 | 9.24 | 1,407 | ||
R-1 | 587 | 8.70 | 68 | ||
R-2 | 402 | 8.87 | 45 | ||
R-3 | 663 | 9.03 | 73 | ||
R-4 | 305 | 9.28 | 33 | ||
R-5 | 4,307 | 9.38 | 459 | ||
$101,561 | 11,536 | ||||
(2) | SmallCap Value Fund | Class A | $ 18,816 | $16.29 | 1,155 |
(Acquired Fund) | Class B | 2,505 | 15.78 | 159 | |
Class C | 3,436 | 16.03 | 214 | ||
Class J | 47,172 | 15.77 | 2,992 | ||
Institutional | 246,015 | 16.30 | 15,089 | ||
R-1 | 2,186 | 16.09 | 136 | ||
R-2 | 4,238 | 16.11 | 263 | ||
R-3 | 9,730 | 16.29 | 597 | ||
R-4 | 5,039 | 16.39 | 307 | ||
R-5 | 13,738 | 16.47 | 834 | ||
$352,875 | 21,746 | ||||
(3) | SmallCap Blend Fund | Class A | $ 88,326 | $15.76 | 5,605 |
(Acquiring Fund) | Class B | 5,367 | 14.87 | 361 | |
Class C | 2,718 | 15.31 | 178 | ||
Class J | 101,006 | 15.20 | 6,645 | ||
Institutional | 43,509 | 16.27 | 2,675 | ||
R-1 | 257 | 15.48 | 17 | ||
R-2 | 1,248 | 15.50 | 81 | ||
R-3 | 1,081 | 15.79 | 68 | ||
R-4 | 2,464 | 16.08 | 153 | ||
R-5 | 4,033 | 16.26 | 248 | ||
$250,009 | 16,031 | ||||
Increase(Decrease) in shares outstanding | Class A | (2,267) | |||
of the Acquired Fund to reflect the exchange | Class B | (107) | |||
for shares of the Acquiring Fund. | Class C | (145) | |||
(assuming the combination of (1) and (3)) | Class J | (1,625) | |||
Institutional | (608) | ||||
R-1 | (30) | ||||
R-2 | (19) | ||||
R-3 | (31) | ||||
R-4 | (14) | ||||
R-5 | (194) | ||||
SmallCap Blend Fund | Class A | $134,822 | $15.76 | 8,555 | |
(Acquiring Fund) | Class B | 7,533 | 14.87 | 507 | |
(assuming the combination of (1) and (3)) | Class C | 5,617 | 15.31 | 367 | |
Class J | 131,745 | 15.20 | 8,667 | ||
Institutional | 56,506 | 16.27 | 3,474 | ||
R-1 | 844 | 15.48 | 55 | ||
R-2 | 1,650 | 15.50 | 107 | ||
R-3 | 1,744 | 15.79 | 110 | ||
R-4 | 2,769 | 16.08 | 172 | ||
R-5 | 8,340 | 16.26 | 513 | ||
$351,570 | 22,527 |
23
Net Assets | Shares | |||
(000s) | NAV | (000s) | ||
(Decrease) in net assets to reflect the redemption | Institutional | $(187,267) | (11,489) | |
of PFI’s SAM Portfolios from SmallCap Value at | ||||
April 30, 2011 values | ||||
Increase(Decrease) in shares outstanding | Class A | 39 | ||
of the Acquired Fund to reflect the exchange | Class B | 9 | ||
for shares of the Acquiring Fund. | Class C | 10 | ||
(assuming the combination of (2) and (3)) | Class J | 111 | ||
Institutional | 10 | |||
R-1 | 5 | |||
R-2 | 10 | |||
R-3 | 19 | |||
R-4 | 6 | |||
R-5 | 11 | |||
SmallCap Blend Fund | Class A | $107,142 | $15.76 | 6,799 |
(Acquiring Fund) | Class B | 7,872 | 14.87 | 529 |
(assuming the combination of (2) and (3)) | Class C | 6,154 | 15.31 | 402 |
Class J | 148,178 | 15.20 | 9,748 | |
Institutional | 102,257 | 16.27 | 6,285 | |
R-1 | 2,443 | 15.48 | 158 | |
R-2 | 5,486 | 15.50 | 354 | |
R-3 | 10,811 | 15.79 | 684 | |
R-4 | 7,503 | 16.08 | 466 | |
R-5 | 17,771 | 16.26 | 1,093 | |
$415,617 | 26,518 | |||
SmallCap Blend Fund | Class A | $153,638 | $15.76 | 9,749 |
(Acquiring Fund) | Class B | 10,038 | 14.87 | 675 |
(assuming the combination of (1), (2) and (3)) | Class C | 9,053 | 15.31 | 591 |
Class J | 178,917 | 15.20 | 11,770 | |
Institutional | 115,254 | 16.27 | 7,084 | |
R-1 | 3,030 | 15.48 | 196 | |
R-2 | 5,888 | 15.50 | 380 | |
R-3 | 11,474 | 15.79 | 726 | |
R-4 | 7,808 | 16.08 | 485 | |
R-5 | 22,078 | 16.26 | 1,358 | |
$517,178 | 33,014 |
24
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. |
The table below identifies the strategies and risks that apply to the Funds and indicates for each Fund whether such strategies |
and risks are principal, non-principal or not applicable. |
INVESTMENT STRATEGIES AND RISKS | SMALLCAP BLEND | SMALLCAP GROWTH | SMALLCAP VALUE |
Convertible Securities | Non-Principal | Non-Principal | Non-Principal |
Derivatives | Non-Principal | Non-Principal | Non-Principal |
Equity Securities | Principal | Principal | Principal |
Exchange Traded Funds (ETFs) | Non-Principal | Non-Principal | Non-Principal |
Fixed-Income Securities | Non-Principal | Non-Principal | Non-Principal |
Foreign Securities | Non-Principal | Non-Principal | Non-Principal |
Initial Public Offerings ("IPOs") | Non-Principal | Non-Principal | Non-Principal |
Liquidity Risk(1) | Non-Principal | Non-Principal | Non-Principal |
Management Risk(1) | Non-Principal | Non-Principal | Non-Principal |
Market Volatility(1) | Non-Principal | Non-Principal | Non-Principal |
Master Limited Partnerships | Non-Principal | Non-Principal | Non-Principal |
Portfolio Turnover | Non-Principal | Non-Principal | Non-Principal |
Preferred Securities | Non-Principal | Non-Principal | Non-Principal |
Real Estate Investment Trusts | Non-Principal | Non-Principal | Principal |
Repurchase Agreements | Non-Principal | Non-Principal | Non-Principal |
Royalty Trusts | Non-Principal | Non-Principal | Non-Principal |
Small and Medium Capitalization Companies | Principal | Principal | Principal |
Temporary Defensive Measures | Non-Principal | Non-Principal | Non-Principal |
Underlying Funds | Not Applicable | Principal | Principal |
(1) These risks are not deemed principal for purposes of this table because they apply to almost all funds; however, in certain circumstances, |
they could significantly affect the net asset value, yield, and total return. |
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. |
Derivatives. Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional |
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). |
There are many different types of derivatives and many different ways to use them. Futures, forward contracts, 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 as a low-cost method of gaining exposure to a particular securities market |
without investing directly in those securities. The Funds may enter into put or call options, futures contracts, options on futures |
contracts, over-the-counter swap contracts (e.g., interest rate swaps, total return swaps and credit default swaps), currency |
futures contracts and options, options on currencies, and forward currency contracts for both hedging and non-hedging |
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 approximate |
aggregate market value of the securities held or to be purchased by the Fund (denominated or generally quoted or currently |
25
convertible into the currency). The Funds may enter into forward commitment agreements (not as a principal investment | |
strategy), which call for the Fund to purchase or sell a security on a future date at a fixed price. Each of the Funds may also | |
enter into contracts to sell its investments either on demand or at a specific interval. | |
Generally, no Fund may invest in a derivative security unless the reference index or the instrument to which it relates is an | |
eligible investment for the Fund or the reference currency relates to an eligible investment for the Fund. | |
The return on a derivative security may increase or decrease, depending upon changes in the reference index or instrument to | |
which it relates. 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. | |
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 PMC or |
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 possibility that the counterparty may fail to perform its obligations. |
For currency contracts, there is also a risk of government action through exchange controls that would restrict the ability of the | |
Fund to deliver or receive currency. | |
Equity Securities. Equity securities include common stocks, convertible securities, depositary receipts, rights (a right is an | |
offering of common stock to investors who currently own shares which entitle them to buy subsequent issues at a discount from | |
the offering price), and warrants (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). 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. Some of the Funds focus their investments on certain market capitalization ranges. Market capitalization is defined | |
as total current market value of a company's outstanding equity securities. The market capitalization of companies in the Funds' | |
portfolios and their related indexes will change over time and, the Funds will not automatically sell a security just because it falls | |
outside of the market capitalization range of their indexes. Stocks of smaller companies may be more vulnerable to adverse | |
developments than those of larger companies. | |
Exchange Traded Funds ("ETFs"). These are a type of index or actively managed fund bought and sold on a securities | |
exchange. An ETF trades like common stock. Shares in an index ETF represent an interest in a fixed portfolio of securities | |
designed to track a particular market index. The Funds could purchase shares issued by an ETF to gain exposure to a portion of | |
the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the | |
risks of owning the underlying securities they are designed to track, although ETFs have management fees that increase their | |
costs. Fund shareholders indirectly bear their proportionate share of the expenses of the ETFs in which the fund invests. | |
Fixed-Income Securities. Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow | |
money from investors (some examples include investment grade corporate bonds, mortgage-backed securities, U.S. | |
government securities and asset-backed securities). 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. If interest rates fall, issuers of callable bonds may call (repay) securities with high | |
interest rates before their maturity dates; this is known as call risk. In this case, a fund would likely reinvest the proceeds | |
from these securities at lower interest rates, resulting in a decline in the fund's income. | |
• | 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. To the | |
extent that the mortgages underlying mortgage-backed securities are "sub-prime mortgages" (mortgages granted to | |
borrowers whose credit histories would not support conventional mortgages), the risk of default is higher. |
26
Foreign Investing. For the Funds in this prospectus, 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. |
Depending on the fund, the fund may invest in securities of developed markets, developing (also called "emerging") markets, or | |
both. Usually, the term "emerging market country" means any country which is considered to be an emerging country by the | |
international financial community (including the International Bank for Reconstruction and Development (also known as the | |
World Bank) and MSCI Emerging Markets Index). These countries generally include every nation in the world except the United | |
States, Canada, Japan, Australia, New Zealand, and most nations located in Western Europe. | |
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. To protect against future uncertainties in foreign currency exchange rates, the funds are authorized to enter | |
into certain foreign currency exchange transactions. | |
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. |
27
Initial Public Offerings ("IPOs"). An IPO is a company's first offering of stock to the public. IPO risk is that the market value of | |
IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small | |
number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high | |
transaction costs. IPO shares are subject to market risk and liquidity risk. In addition, the market for IPO shares can be | |
speculative and/or inactive for extended periods of time. The limited number of shares available for trading in some IPOs may | |
make it more difficult for a Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. | |
Investors in IPO shares can be affected by substantial dilution in the value of their shares by sales of additional shares and by | |
concentration of control in existing management and principal shareholders. | |
When a Fund's asset base is small, a significant portion of the Fund's performance could be attributable to investments in IPOs | |
because such investments would have a magnified impact on the Fund. As the Fund's assets grow, the effect of the Fund's | |
investments in IPOs on the Fund's performance probably will decline, which could reduce the Fund's performance. Because of | |
the price volatility of IPO shares, a Fund may choose to hold IPO shares for a very short period of time. This may increase the | |
turnover of the Fund's portfolio and lead to increased expenses to the Fund, such as commissions and transaction costs. By | |
selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. | |
Liquidity Risk. A fund is exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair the | |
fund's ability to sell particular securities or close derivative positions at an advantageous price. Funds with principal investment | |
strategies that involve securities of companies with smaller market capitalizations, foreign securities, derivatives, or securities | |
with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. | |
Management Risk. If a Sub-Advisor's investment strategies do not perform as expected, the Fund could underperform other | |
funds with similar investment objectives or lose money. | |
• | Active Management: The performance of a Fund that is actively managed will reflect in part the ability of PMC or Sub- |
Advisor(s) to make investment decisions that are suited to achieving the Fund's investment objective. Funds that are | |
actively managed are prepared to invest in securities, sectors, or industries differently from the benchmark. | |
• | Passive Management: Index funds use a passive, or indexing, investment approach. Index funds do not attempt to manage |
market volatility, use defensive strategies or reduce the effect of any long-term periods of poor stock or bond performance. | |
Index funds attempt to replicate their relevant target index by investing primarily in the securities held by the index in | |
approximately the same proportion of the weightings in the index. However, because of the difficulty of executing some | |
relatively small securities trades, such funds may not always be invested in the less heavily weighted securities held by the | |
index. An index fund's ability to match the performance of their relevant index may affected by many factors, such as fund | |
expenses, the timing of cash flows into and out of the fund, changes in securities markets, and changes in the composition | |
of the index. | |
Market Volatility. The value of a fund's portfolio securities may go down in response to overall stock or bond market | |
movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and | |
down in value more than bonds. If the fund's investments are concentrated in certain sectors, its performance could be worse | |
than the overall market. The value of an individual security or particular type of security can be more volatile than the market as | |
a whole and can perform differently from the value of the market as a whole. It is possible to lose money when investing in the | |
fund. | |
Master Limited Partnerships. Master limited partnerships ("MLPs") tend to pay relatively higher distributions than other types | |
of companies. The amount of cash that each individual MLP can distribute to its partners will depend on the amount of cash it | |
generates from operations, which will vary from quarter to quarter depending on factors affecting the market generally and on | |
factors affecting the particular business lines of the MLP. Available cash will also depend on the MLPs' level of operating costs | |
(including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition | |
costs (if any), fluctuations in working capital needs and other factors. The benefit derived from investment in MLPs depends | |
largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal | |
income tax liability at the entity level. If, as a result of a change in current law or a change in an MLP's business, an MLP were | |
treated as a corporation for federal income tax purposes, the MLP would be obligated to pay federal income tax on its income at | |
the corporate tax rate. If an MLP were classified as a corporation for federal income tax purposes, the amount of cash available | |
for distribution would be reduced and the distributions received might be taxed entirely as dividend income. | |
Portfolio Turnover. "Portfolio Turnover" is the term used in the industry for measuring the amount of trading that occurs in a | |
Fund's portfolio during the year. For example, a 100% turnover rate means that on average every security in the portfolio has | |
been replaced once during the year. Funds that engage in active trading may have high portfolio turnover rates. | |
Funds with high turnover rates (more than 100%) often have higher transaction costs (which are paid by the Fund) and may | |
lower the Fund's performance. For some funds, high portfolio turnover rates, although increasing transaction expenses, may | |
contribute to higher performance. | |
Please consider all the factors when you compare the turnover rates of different funds. You should also be aware that the "total | |
return" line in the Financial Highlights section reflects portfolio turnover costs. No turnover rate can be calculated for the Money | |
Market Fund because of the short maturities of the securities in which it invests. |
28
Preferred Securities. Preferred securities generally pay fixed rate dividends and/or interest (though some are adjustable rate) |
and typically have "preference" over common stock in payment priority and the liquidation of a company's assets – preference |
means that a company must pay on its preferred securities before paying on its common stock, and the claims of preferred |
securities holders are ahead of common stockholders' claims on assets in a corporate liquidation. Holders of preferred securities |
usually have no right to vote for corporate directors or on other matters. The market value of preferred securities is sensitive to |
changes in interest rates as they are typically fixed income securities - the fixed income payments are expected to be the |
primary source of long-term investment return. Preferred securities share many investment characteristics with bonds; therefore, |
the risks and potential rewards of investing in the Fund are more similar to those associated with a bond fund than a stock fund. |
Real Estate Investment Trusts. Real estate investment trust securities ("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). REITs are characterized as: equity REITs, which |
primarily own property and generate revenue from rental income; mortgage REITs, which invest in real estate mortgages; and |
hybrid REITs, which combine the characteristics of both equity and mortgage REITs. 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 REITs expenses, |
including management fees, and will remain subject to the Fund's advisory fees with respect to the assets so invested. REITs |
are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Internal Revenue |
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. |
Repurchase Agreements. 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 a 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 Fund enters into repurchase |
agreements only with parties a Sub-Advisor deems creditworthy (those that are 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. |
Royalty Trusts. A royalty trust generally acquires an interest in natural resource or chemical companies and distributes the |
income it receives to its investors. A sustained decline in demand for natural resource and related products could adversely |
affect royalty trust revenues and cash flows. Such a decline could result from a recession or other adverse economic conditions, |
an increase in the market price of the underlying commodity, higher taxes or other regulatory actions that increase costs, or a |
shift in consumer demand. Rising interest rates could adversely impact the performance, and limit the capital appreciation, of |
royalty trusts because of the increased availability of alternative investments at more competitive yields. Fund shareholders will |
indirectly bear their proportionate share of the royalty trusts' expenses. |
Small and Medium Capitalization Companies. Funds may invest in securities of companies with small- or 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, 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. |
Temporary Defensive Measures. From time to time, as part of its investment strategy, each Fund (other than the Money |
Market Fund which may invest in high-quality money market securities at any time) 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, a 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 Fund |
may fail to achieve its investment objective. |
29
High Yield Securities. Debt securities rated at the time of purchase BB+ or lower by Standard & Poor's Ratings Services or |
Ba1 or lower by Moody's or, if not rated, determined to be of equivalent quality by Principal or the Sub-Advisor are sometimes |
referred to as high yield or "junk bonds" and are considered speculative; such securities could be in default at time of purchase. |
Investment in high yield bonds involves special risks in addition to the risks associated with investment in highly rated debt |
securities. High yield bonds may be regarded as predominantly speculative with respect to the issuer's continuing ability to meet |
principal and interest payments. Moreover, such securities may, under certain circumstances, be less liquid than higher rated |
debt securities. |
Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher quality debt |
securities. The ability of a Fund to achieve its investment objective may, to the extent of its investment in high yield bonds, be |
more dependent on such credit analysis than would be the case if the Fund were investing in higher quality bonds. |
High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than |
higher-grade bonds. The prices of high yield bonds have been found to be less sensitive to interest rate changes than more |
highly rated investments, but more sensitive to adverse economic downturns or individual corporate developments. If the issuer |
of high yield bonds defaults, a Fund may incur additional expenses to seek recovery. |
The secondary market on which high yield bonds are traded may be less liquid than the market for higher-grade bonds. Less |
liquidity in the secondary trading market could adversely affect the price at which a Fund could sell a high yield bond and could |
adversely affect and cause large fluctuations in the daily price of the Fund's shares. Adverse publicity and investor perceptions, |
whether or not based on fundamental analysis, may decrease the value and liquidity of high yield bonds, especially in a thinly |
traded market. |
The use of credit ratings for evaluating high yield bonds also involves certain risks. For example, credit ratings evaluate the |
safety of principal and interest payments, not the market value risk of high yield bonds. Also, credit rating agencies may fail to |
change credit ratings in a timely manner to reflect subsequent events. If a credit rating agency changes the rating of a portfolio |
security held by a Fund, the Fund may retain the security if Principal or Sub-Advisor thinks it is in the best interest of |
shareholders. |
Index Funds. Index funds generally attempt to mirror the investment performance of the index by allocating the fund's assets in |
approximately the same weightings as the index. However, it is unlikely that the fund's performance will perfectly correlate with |
the index performance for a variety of reasons. The correlation between fund performance and index performance may be |
affected by the Fund's expenses, changes in securities markets, changes in the composition of the index and the timing of |
purchases and sales of fund shares. Because of the difficulty and expense of executing relatively small securities trades, index |
funds may not always be invested in the less heavily weighted securities and may at times be weighted differently than the |
index. |
Municipal Obligations and AMT-Subject Bonds. The two principal classifications of municipal bonds are "general obligation" |
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit, with either limited or |
unlimited taxing power for the payment of principal and interest. Revenue bonds are not supported by the issuer's full taxing |
authority. Generally, they are payable only from the revenues of a particular facility, a class of facilities, or the proceeds of |
another specific revenue source. |
"AMT-subject bonds" are municipal obligations issued to finance certain "private activities," such as bonds used to finance |
airports, housing projects, student loan programs, and water and sewer projects. Interest on AMT-subject bonds is an item of tax |
preference for purposes of the federal individual alternative minimum tax ("AMT") and will also give rise to corporate alternative |
minimum taxes. See "Tax Considerations" for a discussion of the tax consequences of investing in the Funds. |
Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, |
which may have an effect upon the ability of the Fund to purchase sufficient amounts of tax-exempt securities. |
Securities Lending Risk. To earn additional income, each Fund may lend portfolio securities to approved financial institutions. |
Risks of such a practice include the possibility that a financial institution becomes insolvent, increasing the likelihood that the |
Fund will be unable to recover the loaned security or its value. Further, the cash collateral received by the Fund in connection |
with such a loan may be invested in a security that subsequently loses value. |
30
Multiple Classes of Shares | |
The Board of Directors of PFI has adopted an 18f-3 Plan for each of the Funds. Under these plans, the Funds may offer some or | |
all of the following shares: Class A, Class B, Class C, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, Class J, Class P | |
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. | |
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 | |
Class A, Class B and Class C Shares | |
• | You may pay a one-time sales charge for each purchase (Class A shares) or redemption (Class B or Class C shares). |
• | Class A shares may be purchased at a price equal to the share price plus an initial sales charge. Investments of $1 million |
or more of Class A shares are sold without an initial sales charge but may be subject to a contingent deferred sales charge | |
(CDSC) at the time of redemption. | |
• | Class B and Class C shares have no initial sales charge but may be subject to a CDSC. If you sell (redeem) shares and the |
CDSC is imposed, it will reduce the amount of sales proceeds. | |
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 waived 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 |
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, Class J shares, Class A shares, Class B shares and Class C shares. Each Fund pays 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. |
31
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 A, Class B, Class C, 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 A, Class B, Class C, Class J and Institutional Class shares respectively. | |
Distribution Plans and Intermediary Compensation | |
Institutional Class Shares | |
None of the Funds has adopted a 12b-1 Plan for Institutional Class shares. | |
Retirement Class Shares | |
PFI has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act for each of the Class R-1, R-2, | |
R-3 and R-4 shares. Under the 12b-1 Plans, each Fund makes payments from its assets attributable to the particular share | |
class to the Fund's Distributor for distribution-related expenses and for providing services to shareholders of that share class. | |
Payments under the 12b-1 plans are made by the Funds to the Distributor pursuant to the 12b-1 plans regardless of the | |
expenses incurred by the Distributor. When the Distributor receives Rule 12b-1 fees, it may pay some or all of them to | |
intermediaries whose customers are shareholders of the funds for sales support services and for providing services to | |
shareholders of that share class. Intermediaries may include, among others, broker-dealers, registered investment advisors, | |
banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies. Because Rule 12b- | |
1 fees are paid out of Fund assets and are ongoing fees, over time they will increase the cost of your investment in the Funds | |
and may cost you more than 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: |
Share Class | 12b-1 Fee |
R-1 | 0.35% |
R-2 | 0.30% |
R-3 | 0.25% |
R-4 | 0.10% |
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 A, Class B, Class C and Class J Shares |
Each Fund has adopted a 12b-1 plan for its Class A, Class B, Class C and 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 classes of the Acquiring Funds is set forth below: |
Share Class | 12b-1 Fee |
Class A | 0.25% |
Class B | 1.00% |
Class C | 1.00% |
Class J | 0.45% |
32
The proceeds from the Rule 12b-1 fees paid by Class A, Class B, Class C and Class J shareholders, together with any | |
applicable contingent deferred sales charge, are paid to the Distributor. The Distributor generally uses these fees to finance any | |
activity that is primarily intended to result in the sale of shares. Examples of such expenses include compensation to | |
salespeople and selected dealers (including financing the commission paid to the dealer at the time of the sale), printing of | |
prospectuses and statements of additional information and reports for other than existing shareholders, and preparing and | |
conducting sales seminars. The Distributor also uses the fees to provide services to existing shareholders, including without | |
limitation, services such as furnishing information as to the status of shareholder accounts, responding to telephone and written | |
inquiries of shareholders, and assisting shareholders with tax information. | |
Other Payments to Financial Intermediaries | |
If one mutual fund sponsor makes greater payments than another, your Financial Professional and his or her intermediary may | |
have an incentive to recommend one fund complex over another. Similarly, if your Financial Professional or his or her | |
intermediary receives more distribution assistance for one share class versus another, then they may have an incentive to | |
recommend that share class. | |
Financial Professionals who deal with investors on an individual basis are typically associated with an intermediary. Financial | |
Professionals may receive some or all of the amounts paid to the intermediary with which he or she is associated. You can ask | |
your Financial Professional for information about any payments he or she or the intermediary receives from the Distributor, its | |
affiliates or the Fund and any services provided. | |
Please speak with your Financial Professional to learn more about the total amounts paid to your Financial Professional and his | |
or her intermediary by the Funds, the Distributor and its affiliates, and by sponsors of other mutual funds he or she may | |
recommend to you. You should also carefully review disclosures made by your Financial Professional at the time of purchase. | |
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 you additional fees other than those disclosed in this prospectus. Ask your Financial Professional | |
about any fees and commissions they charge. | |
Additionally, in some cases the Distributor and its affiliates will provide payments or reimbursements in connection with the costs | |
of conferences, educational seminars, training and marketing efforts related to the Funds. Such activities may be sponsored by | |
intermediaries or the Distributor. The costs associated with such activities may include travel, lodging, entertainment, and meals. | |
In some cases the Distributor will also provide payment or reimbursement for expenses associated with 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 New York Stock Exchange (“NYSE”) is open (share prices are not calculated 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 we calculate after we receive the order at our transaction processing center in Canton, | |
Massachusetts. To process your purchase order on the day we receive it, 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 each Fund 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. |
33
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 | |
Class A, Class B and Class C Shares | |
Shares of the Funds are generally purchased through persons employed by or affiliated with broker/dealer firms (“Financial | |
Professionals”). Financial Professionals may establish shareholder accounts according to their procedures or they may establish | |
shareholder accounts directly with the Fund by visiting www.PrincipalFunds.com to obtain the appropriate forms. | |
An investment in the Fund may be held in various types of accounts, including individual, joint ownership, trust, and business | |
accounts. The Fund also offers a range of custodial accounts for those who wish to invest for retirement and/ or education | |
expenses. Prospective shareholders should consult with their Financial Professional prior to making decisions about the account | |
and type of investment that are appropriate for them. The Fund reserves the right to refuse any order for the purchase of shares, | |
including those by exchange. PMC may recommend to the Board, and the Board may elect, to close certain funds to new | |
investors or close certain funds to new and existing investors. | |
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. | |
To eliminate the need for safekeeping, PFI will not issue certificates for shares. | |
Making an Investment | |
PFI has a minimum initial investment amount of $1,000 and a minimum subsequent investment amount of $100. Initial and | |
subsequent investment minimums apply on a per-fund basis for each Fund or Portfolio in which a shareholder invests. | |
Shareholders must meet the minimum initial investment amount of $1,000 unless an Automatic Investment Plan (“‘AIP”) is | |
established. With an AIP, the minimum initial investment is $100. Accounts or automatic payroll deduction plans established with | |
an AIP that do not meet the minimum initial investment must maintain subsequent automatic investments that total at least | |
$1,200 annually. Minimums may be waived on accounts set up for: certain employee benefit plans; retirement plans qualified | |
under Internal Revenue Code Section 401(a); payroll deduction plans submitting contributions in an electronic format devised | |
and/or approved by the Fund; and purchases through an omnibus account with a broker-dealer, investment advisor, or other | |
financial institution. | |
Payment. Payment for Fund 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. | |
The Funds may, in their discretion and under certain limited circumstances, accept securities as payment for Fund shares at the | |
applicable net asset value (“‘NAV”). For federal income tax purposes, a purchase of shares with securities will be treated as a | |
sale or exchange of such securities on which the investor will generally realize a taxable gain or loss. Each Fund will value | |
securities used to purchase its shares using the same method the Fund uses to value its portfolio securities as described in this | |
prospectus. |
34
Your Financial Professional can help you buy shares of the Funds by mail, through bank wire, direct deposit, or AIP. 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). Contact information for the Fund is as follows: |
Mailing Addresses: | ||
Regular Mail Principal Funds P.O. Box 8024 Boston, MA 02266-8024 | Overnight Mail Principal Funds 30 Dan Road Canton, MA 02021-2809 |
After you place a buy order in proper form, which must be received at the transaction processing center in Canton, | |
Massachusetts, shares are bought using the next share price calculated. | |
Customer Service | |
You may speak with a Client Relations Specialist by calling 1-800-222-5852, between 7:00 a.m. and 7:00 p.m. Central Time. | |
Wire Instructions: To obtain ACH or wire instructions, please contact a Client Relations Specialist. | |
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 PFI account(s). You can request 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 (“AIP”) | |
Your Financial Professional can help you establish an AIP. 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 AIP 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. | |
Class B Shares | |
Class B shares of the Funds are no longer be available for purchase, except through exchanges and dividend reinvestments as | |
discussed below. Effective May 12, 2010, exchanges cannot be made into the Funds. Class B shareholders may continue to | |
hold such shares until they automatically convert to Class A shares under the existing conversion schedule (based on purchase | |
date), as described below. Shareholders who owned Class B shares on February 26, 2010 will still receive dividend | |
reinvestments and may continue to exchange their shares for other Class B Fund shares in accordance with the Funds' current | |
policies. Effective on and after the Closing Date, Class B shareholders who have an automated investment plan in Class B | |
shares (such as Automatic Investment Plan (“AIP”) or automatic exchange election), will have such recurring investments | |
automatically redirected into Class A shares of the same Fund with the applicable Class A sales charge (load). All other features | |
of Class B shares, including Rule 12b-1 distribution and/or service fees, contingent deferred sales charge schedules and | |
conversion features, remain unchanged and continue in effect. We may modify these policies in the future. | |
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 PFD 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. |
35
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”). 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 Institutional Class shares of the Funds. There are no restrictions on amounts to be invested in | |
Institutional Class shares of the Funds. | |
Shareholder accounts for the Funds 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 a Fund as evidence of ownership of Fund shares. Share certificates are not issued. | |
The Funds may reject or cancel any purchase orders for any reason. For example, the Funds do 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 Funds 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. | |
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 R-1, R-2, R-3, R-4, and R-5 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 PFD 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 PFD. PFD 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 a 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. |
36
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 or share classes 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. | |
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 1-800-243-4380, extension 1000. | |
Fill out the PFI (or the IRA, SEP or SIMPLE) application completely. You must include: | |
• | the name you want to appear on the account; |
• | the PFI Fund 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 PFI 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 PFI 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 PFI 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 | |
PFI shares. | |
However, if you have selected a Fund which does not offer A shares, we will contact you for instructions as to how to allocate | |
your purchase. | |
• | The minimum investment applies on a per Fund level, not on the total investment being made. |
To eliminate the need for safekeeping, PFI will not issue certificates for shares. PFI 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 PFI 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. |
37
Payment. Payment for shares of PFI 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 PFI 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, broker-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 | |
Class A, Class B and Class C Shares | |
After you place a sell order in proper form, which must be received at the transaction processing center in Canton, | |
Massachusetts, shares are sold using the next share price calculated. The amount you receive will be reduced by any | |
applicable CDSC. 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 (a day when the NYSE is | |
open for normal business) 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). Shares purchased by check may be | |
sold only after the check has cleared your bank, which may take up to 7 calendar days. A sell order from one owner is binding | |
on all joint owners. | |
Distributions from IRA, SEP, SIMPLE, 403(b) 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. | |
Sale of 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 PFI. You should also call PFI 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, PFI | |
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 shares, you may reinvest the amount of the sale proceeds into any PFI Class A shares | |
without a sales charge if the shares that were sold were Class A shares, or were Class B shares on which a CDSC was paid or | |
on which the CDSC was waived in connection with a Required Minimum Distribution, involuntary redemption, or due to the | |
death of the shareholder. Within 60 calendar days after the sale of Class C shares, any amount of the sale proceeds that you | |
reinvest will be reinvested in Class C shares; shares purchased by redemption proceeds are not subject to the twelve month |
38
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. | ||
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. | ||
Sell shares by mail | ||
• | Send a letter or distribution form (call us for the form) which is signed by the owner/owners of the account to Principal | |
Funds, P.O. Box 8024, Boston, MA 02266-8024 (or overnight mail to 30 Dan Road, Canton, MA 02021-2809). Specify the | ||
Fund(s) and account number. | ||
• | Specify the number of shares or the dollar amount to be sold. | |
• | A Medallion Signature Guarantee* will be required if the: | |
• | sell order is for more than $100,000; | |
• | check is being sent to an address other than the account address; | |
• | 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; | ||
• | 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 guaranteed by a notary public or | ||
savings bank is not acceptable. | ||
Sell shares in amounts of $100,000 or less by telephone | ||
• | The request may be made by a shareholder or by the shareholder’s Financial Professional. | |
• | 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. | ||
• | If our phone lines are busy, you may need to send in a written sell order. | |
• | To sell shares the same day, the order must be received in good order before the close of normal trading on the NYSE | |
(generally 3:00 p.m. Central Time). | ||
• | Telephone redemption privileges are NOT available for PFI 403(b) plans and certain employer sponsored benefit plans. | |
• | If previously authorized, wire or ACH can be sent to a shareholder’s U.S. bank account. | |
Systematic withdrawal plans | ||
You may set up a systematic withdrawal plan on a monthly, quarterly, semiannual, or annual basis to: | ||
• | sell enough shares to provide a fixed amount of money ($100 minimum amount; the required minimum is waived to the | |
extent necessary to meet the required minimum distribution as defined by the Internal Revenue Code), | ||
• | pay insurance or annuity premiums or deposits to Principal Life (call us for details), and | |
• | provide an easy method of making monthly installment payments (if the service is available from your creditor who must | |
supply the necessary forms). | ||
You can set up a systematic withdrawal plan by: | ||
• | completing the applicable section of the application, or | |
• | sending us your written instructions, or | |
• | completing a Systematic Withdrawal Plan Request form (available on www.PrincipalFunds.com), or | |
• | calling us if you have telephone privileges on the account (telephone privileges may not be available for all types of | |
accounts). | ||
Your systematic withdrawal plan continues until: | ||
• | you instruct us to stop or | |
• | your Fund account balance is zero. | |
When you set up the withdrawal plan, you select which day you want the sale made (if none is selected, the sale will be made | ||
on the 15th of the month). If the selected date 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. Sales made | ||
under your systematic withdrawal plan will reduce and may eventually exhaust your account. |
39
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. | |
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 Fund any day the NYSE is | |
open. For more information about how to sell shares of the 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. 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 (a day | |
when the NYSE is open for normal business) 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. | |
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. |
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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 non-monthly 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. | ||
• | If our phone lines are busy, you may need to send in a written sell order. | |
• | To sell shares the same day, the order must be received in good order before the close of normal trading on the NYSE | |
(generally 3:00 p.m. Central Time). | ||
• | Telephone redemption privileges are NOT available for Principal Funds 403(b) plans and certain employee sponsored | |
benefit plans. | ||
• | If previously authorized, checks can be sent to a shareholder's U.S. bank account. | |
Systematic withdrawal plans: | ||
You may set up a systematic withdrawal plan on a monthly, quarterly, semiannual or annual basis to: | ||
• | sell enough shares to provide a fixed amount of money ($100 minimum amount; the required minimum is waived to the | |
extent necessary to meet required minimum distributions as defined by the Internal Revenue Code); | ||
• | pay insurance or annuity premiums or deposits to Principal Life (call us for details); and | |
• | provide an easy method of making monthly installment payments (if the service is available from your creditor who must | |
supply the necessary forms). | ||
• | You can set up a systematic withdrawal plan by: | |
• | completing the applicable section of the application; or | |
• | sending us your written instructions; or | |
• | calling us if you have telephone privileges on the account (telephone privileges may not be available for all types of | |
accounts). | ||
Your systematic withdrawal plan continues until: | ||
• | you instruct us to stop; or | |
• | your Fund account balance is zero. | |
When you set up the withdrawal plan, you select which day you want the sale made (if none is selected, the sale will be made | ||
on the 15th of the month). If the selected date 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. | ||
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. |
41
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 | |
Class A, Class B and Class C Shares | |
Your shares in the Funds may be exchanged without a sales charge or CDSC for the same class of any other PFI Funds. The | |
Fund reserves the right to revise or terminate the exchange privilege at any time. | |
Automatic Exchange Election | |
This election authorizes an exchange from one fund of PFI to another on a monthly, quarterly, semiannual or annual basis. You | |
can set up an automatic exchange by: | |
• | 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. |
• | completing an Automatic Exchange Election form (available on www.principalfunds.com) |
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 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 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. | |
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 PFI, 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. |
42
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, except shares of the Money Market 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 right to revise or terminate the exchange privilege at any time. | |
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 broker-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). |
43
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. | ||
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 Funds; 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. | |
Certain Funds may be at greater risk of harm due to frequent purchases and redemptions. For example, those Funds that invest | ||
in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage. | ||
The Funds have adopted procedures to “fair value” foreign securities under certain circumstances, which are intended, in part, | ||
to discourage excessive trading of shares of the Funds. The Board of Directors of the Funds have also 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. If we are not able to identify such | ||
abusive trading practices, the abuses described above may harm the Funds. | ||
Class A, Class B and Class C Shares | ||
Currently the Funds impose an excessive trading fee on redemptions or exchanges of $30,000 or more of a Fund’s Class A, | ||
Class B and Class C 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; 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. | ||
If an intermediary, such as a retirement plan or recordkeeper, is unwilling to impose the Fund’s excessive trading fee, the Fund | ||
may waive such fee if it determines that the intermediary is able to implement other policies and procedures reasonably | ||
designed to prevent excessive trading in Fund shares. If an intermediary is unable to implement the Fund’s excessive trading | ||
policy or to implement other procedures reasonably designed to prevent excessive trading in Fund shares, the Fund may waive | ||
the application of its excessive trading policy with respect to transactions of beneficial owners underlying the intermediary’s | ||
omnibus account if, in Fund management’s opinion, the purchases and redemptions at the omnibus account level are not likely | ||
to have an adverse impact on the management of the Fund’s portfolio. | ||
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 per year; and | |
• | Taking other such 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 | ||
and return the account holdings to the positions held prior to the exchange. We will give the shareholder that requested the | ||
exchange notice in writing in this instance. |
44
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 payment date is annually in December. For more details on the payment schedule, go to www.principalfunds.com. | |
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 of the PFI Funds 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. |
45
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 Investment Company Act of 1940, as | |
amended, 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 from 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, 2013, 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. | |
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. | |
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. | |
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%. | |
Any gain resulting from the redemption or exchange of your shares will generally also be subject to tax. For shares acquired | |
after January 1, 2012, you will need to select a cost basis method to be used to calculate your reported gains and losses prior to | |
or at the time of any redemption or exchange. If you do not select a method, the Funds’ default method of average cost will be | |
applied to the transactions. The cost basis method used on your account could significantly affect your taxes due and should be | |
carefully considered. 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 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 Internal Revenue 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 Funds. You should consult your tax advisor before investing in the Funds. | |
Portfolio Holdings Information | |
A description of PFI’s policies and procedures with respect to disclosure of the Funds’ portfolio securities is available in the | |
Statement of Additional Information. |
46
VOTING INFORMATION |
Voting procedures. If you complete and return the enclosed proxy card(s), 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 November 28, 2011 (the “Record Date”), are entitled to |
vote. The shareholders of each class of shares of each 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 |
each Acquired Fund for each share of the Fund that you hold, and fractional votes for fractional shares held. Each 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, the affirmative vote of the lesser of (1) 67% or more of the voting securities of the Acquired Fund present at the |
Meeting, if the holders of more than 50% of the outstanding voting securities of the Acquired Fund are present in person or by |
proxy, or (2) more than 50% of the outstanding voting securities of the Acquired Fund. The approval of one Reorganization is |
not contingent upon approval of any other Reorganization. |
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”. |
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 an 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 Funds. |
OUTSTANDING SHARES AND SHARE OWNERSHIP |
The following table shows as of November 28, 2011, the Record Date, the number of shares outstanding for each class of the |
Acquired and Acquiring Funds: |
SmallCap Value Fund | SmallCap Growth Fund | SmallCap Blend Fund | |||
(Acquired Fund) | (Acquired Fund) | (Acquiring Fund) | |||
Shares | Shares | Shares | |||
Share Class | Outstanding | Share Class | Outstanding | Share Class | Outstanding |
A | 956,809.613 | A | 4,944,639.496 | A | 5,403,217.741 |
B | 139,374.462 | B | 191,980.046 | B | 282,074.489 |
C | 205,745.871 | C | 317,733.658 | C | 190,878.188 |
Institutional | 654,733.137 | Institutional | 77,370.302 | Institutional | 2,668,428.687 |
J | 2,802,057.595 | J | 3,432,538.520 | J | 6,293,210.091 |
R-1 | 113,067.561 | R-1 | 63,099.691 | R-1 | 11,219.555 |
R-2 | 158,821.484 | R-2 | 38,554.916 | R-2 | 86,570.554 |
R-3 | 349,554.456 | R-3 | 80,461.336 | R-3 | 41,510.198 |
R-4 | 175,256.221 | R-4 | 35,327.632 | R-4 | 143,390.854 |
R-5 | 389,684.381 | R-5 | 419,454.606 | R-5 | 238,187.388 |
As of the November 28, 2011 Record Date, the Directors and Officers of PFI together owned less than 1% of the outstanding |
shares of any class of shares of the Acquired or Acquiring Funds. |
47
As of the November 28, 2011 Record Date, the following persons owned of record, or were known by PFI to own beneficially, |
5% or more of the outstanding shares of any class of shares of the Acquiring Fund: |
Percentage | |||
Acquiring | Share | of | |
Fund | Class | Name/Address of Shareholder | Ownership |
SMALLCAP BLEND | C | PERSHING LLC | 23.30% |
1 PERSHING PLZ | |||
JERSEY CITY NJ 07399-0001 | |||
SMALLCAP BLEND | Institutional | THE PRINCIPAL TRUST FOR | 65.43 |
POST-RETIREMENT MEDICAL BENEFITS 61021 | |||
ATTN STEPHANIE WATTS S-001-S60 | |||
PRINCIPAL FINANCIAL GROUP | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | Institutional | THE PRINCIPAL TRUST FOR | 13.29 |
POST-RETIREMENT MEDICAL BENEFITS 61022 | |||
ATTN STEPHANIE WATTS S-001-S60 | |||
PRINCIPAL FINANCIAL GROUP | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | Institutional | THE PRINCIPAL TRUST FOR | 7.51% |
POST-RETIREMENT MEDICAL BENEFITS 61009 | |||
ATTN STEPHANIE WATTS S-001-S60 | |||
PRINCIPAL FINANCIAL GROUP | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | Institutional | THE PRINCIPAL TRUST FOR | 6.56 |
POST-RETIREMENT MEDICAL BENEFITS 61006 | |||
ATTN STEPHANIE WATTS S-001-S60 | |||
PRINCIPAL FINANCIAL GROUP | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | R-1 | DELAWARE CHARTER GUARANTEE & TRUST | 100.00 |
FBO VARIOUS QUALIFIED PLANS | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | R-2 | DCGT AS TTEE AND/OR CUST | 100.00 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | R-3 | DCGT AS TTEE AND/OR CUST | 39.52 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | R-3 | BUFFALO WILD WINGS INC | 32.33 |
FBO BUFFALO WILD WINGS MGMT DC PLAN | |||
ATTN: ALISSA A. PARTEE | |||
5500 WAYZATA BLVD; STE 1600 | |||
MINNEAPOLIS MN 55416-1237 | |||
SMALLCAP BLEND | R-3 | PRINCIPAL TRUST COMPANY | 7.99 |
FBO DEF COMP OF CLAREMONT CLUB | |||
ATTN SUSAN SAGGIONE | |||
1013 CENTRE ROAD | |||
WILMINGTON DE 19805-1265 | |||
SMALLCAP BLEND | R-3 | WHITLOCK PACKAGING CORP FBO | 5.38 |
WHITLOCK PKG CORP EXEC NQ EXCESS | |||
ATTN JOHN GOFF | |||
5314 S YALE AVE STE 206 | |||
TULSA OK 74135-6269 | |||
SMALLCAP BLEND | R-4 | DCGT AS TTEE AND/OR CUST | 99.96 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 |
48
Percentage | |||
Acquiring | Share | of | |
Fund | Class | Name/Address of Shareholder | Ownership |
SMALLCAP BLEND | R-5 | DCGT AS TTEE AND/OR CUST | 80.37% |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP BLEND | R-5 | BANKERS TRUST COMPANY | 8.22 |
FBO NQ PLAN OF BBC WORLDWIDE | |||
ATTN DEBBIE WILLIAMS | |||
453 7TH ST | |||
DES MOINES IA 50309-4110 |
As of the November 28, 2011 Record Date, the following persons owned of record, or were known by PFI to own beneficially, |
5% or more of the outstanding shares of any class of shares of the Acquired Funds: |
Percentage | |||
Acquired | Share | of | |
Fund | Class | Name/Address of Shareholder | Ownership |
SMALLCAP GROWTH | A | CHARLES SCHWAB & CO INC | 30.38% |
SPECIAL CUSTODY ACCT | |||
FBO CUSTOMERS | |||
ATTN MUTUAL FUNDS | |||
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
SMALLCAP GROWTH | C | PERSHING LLC | 14.08 |
1 PERSHING PLZ | |||
JERSEY CITY NJ 07399-0001 | |||
SMALLCAP GROWTH | C | PRINCIPAL LIFE INSURANCE CO CUST | 5.61 |
IRA PHILIP C SAMMONS | |||
971 FIRE ROCK PL | |||
COLORADO SPGS CO 80921-8425 | |||
SMALLCAP GROWTH | Institutional | DCGT AS TTEE AND/OR CUST | 66.66 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP GROWTH | Institutional | PERSHING LLC | 28.83 |
1 PERSHING PLZ | |||
JERSEY CITY NJ 07399-0001 | |||
SMALLCAP GROWTH | R-1 | DELAWARE CHARTER GUARANTEE & TRUST | 91.60 |
FBO VARIOUS QUALIFIED PLANS | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP GROWTH | R-2 | DELAWARE CHARTER GUARANTEE & TRUST | 100.00 |
FBO VARIOUS QUALIFIED PLANS | |||
FBO PRINCIPAL FINANCIAL GROUP | |||
ATTN RIS NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP GROWTH | R-3 | DELAWARE CHARTER GUARANTEE & TRUST | 87.82 |
FBO VARIOUS QUALIFIED PLANS | |||
FBO PRINCIPAL FINANCIAL GROUP | |||
ATTN RIS NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP GROWTH | R-3 | DELTA DENTAL PLAN OF OKLAHOMA | 7.53 |
FBO DELTA DENTAL OK INC SUP PLAN | |||
ATTN STEPHANIE ELLIOT | |||
16 NW 63RD ST | |||
OKLAHOMA CITY OK 73116-9116 |
49
Percentage | |||
Acquired | Share | of | |
Fund | Class | Name/Address of Shareholder | Ownership |
SMALLCAP GROWTH | R-4 | DCGT AS TTEE AND/OR CUST | 97.48% |
FBO VARIOUS QUALIFIED PLANS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP GROWTH | R-5 | DCGT AS TTEE AND/OR CUST | 58.83 |
FBO MEDICAL SERVICES OF NORTHWEST | |||
NORTHWEST ARKANSAS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP GROWTH | R-5 | DELAWARE CHARTER GUARANTEE & TRUST | 37.10 |
FBO VARIOUS QUALIFIED PLANS | |||
FBO PRINCIPAL FINANCIAL GROUP | |||
ATTN RIS NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP VALUE | C | PERSHING LLC | 19.63 |
1 PERSHING PLZ | |||
JERSEY CITY NJ 07399-0001 | |||
SMALLCAP VALUE | C | MLPF&S FOR THE SOLE | 6.98 |
BENEFIT OF ITS CUSTOMERS | |||
ATTN FUND ADMINISTRATION | |||
4800 DEER LAKE DR EAST 3RD FL | |||
JACKSONVILLE FL 32246-6484 | |||
SMALLCAP VALUE | A | PERSHING LLC | 11.83 |
1 PERSHING PLZ | |||
JERSEY CITY NJ 07399-0001 | |||
SMALLCAP VALUE | A | CHARLES SCHWAB & CO INC | 6.81 |
SPECIAL CUSTODY ACCT FBO CUSTOMERS | |||
ATTN MUTUAL FUNDS | |||
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
SMALLCAP VALUE | B | PERSHING LLC | 14.27 |
1 PERSHING PLZ | |||
JERSEY CITY NJ 07399-0001 | |||
SMALLCAP VALUE | B | CHARLES SCHWAB & CO INC | 12.48 |
SPECIAL CUSTODY ACCT FBO CUSTOMERS | |||
ATTN MUTUAL FUNDS | |||
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
SMALLCAP VALUE | B | PRINCIPAL LIFE INSURANCE CO CUST | 8.07 |
IRA OF NORMAN G TELAAK | |||
29 BUCYRUS DR | |||
AMHERST NY 14228-1944 | |||
SMALLCAP VALUE | Institutional | NFS LLC | 56.55 |
FEBO FIIOC AS AGENT FOR | |||
QUALIFIED EMPLOYEE BENEFIT | |||
PLANS 401K FINOPS-IC FUNDS | |||
100 MAGELLAN WAY KW1C | |||
COVINGTON KY 41015-1987 | |||
SMALLCAP VALUE | Institutional | MERCER TRUST COMPANY TTEE | 26.24 |
FBO HEALTH NET, INC 401(K) | |||
AIL STOP N-2-E PLAN #650706 | |||
1 INVESTORS WAY | |||
ORWOOD MA 02062-1599 | |||
SMALLCAP VALUE | Institutional | NATIONWIDE TRUST COMPANY FSB | 9.78 |
C/O IPO PORTFOLIO ACCOUNTING | |||
PO BOX 182029 | |||
COLUMBUS OH 43218-2029 |
50
Percentage | |||
Acquired | Share | of | |
Fund | Class | Name/Address of Shareholder | Ownership |
SMALLCAP VALUE | R-1 | DELAWARE CHARTER GUARANTEE & TRUST | 94.30% |
FBO VARIOUS QUALIFI ED PLANS | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP VALUE | R-2 | DCGT AS TTEE AND/OR CUST | 99.23 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP VALUE | R-3 | DCGT AS TTEE AND/OR CUST | 91.23 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP VALUE | R-4 | DCGT AS TTEE AND/OR CUST | 98.49 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP VALUE | R-5 | DCGT AS TTEE AND/OR CUST | 64.02 |
FBO PRINCIPAL FINANCIAL GROUP | |||
QUALIFIED PRIN ADVTG OMNIBUS | |||
ATTN NPIO TRADE DESK | |||
711 HIGH STREET | |||
DES MOINES IA 50392-0001 | |||
SMALLCAP VALUE | R-5 | BANKERS TRUST COMPANY | 15.27 |
FBO NQ PLAN OF BBC WORLDWIDE | |||
ATTN DEBBIE WILLIAMS | |||
453 7TH ST | |||
DES MOINES IA 50309-4110 | |||
SMALLCAP VALUE | R-5 | BROOKFIELD ENGINEERING LAB INC | 5.08 |
BO NQ EXCESS OF BROOKFIELD LAB | |||
ATTN: JAMES KAUFFMAN | |||
MIDDLEBORO MA 02346 |
FINANCIAL HIGHLIGHTS |
The financial highlights table for each of the Acquired Funds and the Acquiring Fund is intended to help investors understand |
the financial performance of each Fund for the past five fiscal years (or since inception in the case of a Fund in operation for less |
than five years) and for the semi-annual period ended April 30, 2011. Certain information reflects financial results for a single |
share of a Fund. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment |
in a particular Fund (assuming reinvestment of all dividends and distributions). Information for the fiscal years ended October 31, |
2007, through October 31, 2010, has been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, |
whose report, along with each Fund’s financial statements, is included in PFI’s Annual Report to Shareholders for the fiscal year |
ended October 31, 2010. Copies of this report are available on request as described above. Information for the semi-annual |
period ended April 30, 2011, has not been audited. |
51
FINANCIAL HIGHLIGHTS | |||||||||
PRINCIPAL FUNDS, INC. | |||||||||
(unaudited) | |||||||||
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): | |||||||||
Net Asset | Net | Net Realized | Distributions | Total | |||||
Value, | Investment | and Unrealized | Total From | from | Dividends | Net Asset | Net Assets, End | ||
Beginning of | Income | Gain (Loss) on | Investment | Realized | and | Value, End | of Period (in | ||
Period | (Loss)(a) | Investments | Operations | Gains | Distributions | of Period | Total Return(b) | thousands) | |
SMALLCAP BLEND FUND | |||||||||
Class A shares | |||||||||
2011(c) | $12 .99 | ($0 .04) | $2 .81 | $2 .77 | $– | $– | $15 .76 | 21 .32%(d) | $88,326 |
2010 | 10.47 | (0.04) | 2 .56 | 2 .52 | – | – | 12 .99 | 24 .07 | 73,302 |
2009 | 10.36 | – | 0.11 | 0.11 | – | – | 10 .47 | 1 .06 | 61,823 |
2008 | 17.95 | (0.02) | (6 .14) | (6 .16) | (1 .43) | (1 .43) | 10.36 | (36.97) | 66,286 |
2007 | 17.30 | (0.05) | 2 .10 | 2 .05 | (1 .40) | (1 .40) | 17.95 | 12.48 | 118,157 |
2006 | 15.93 | (0.02) | 2 .33 | 2 .31 | (0 .94) | (0 .94) | 17.30 | 14.97 | 109,783 |
Class B shares | |||||||||
2011(c) | 12.31 | (0.10) | 2 .66 | 2 .56 | – | – | 14.87 | 20 .80 (d) | 5,367 |
2010 | 10.04 | (0.18) | 2 .45 | 2 .27 | – | – | 12 .31 | 22 .61 | 5,809 |
2009 | 10.05 | (0.10) | 0 .09 | (0 .01) | – | – | 10 .04 | (0 .10) | 7,037 |
2008 | 17.60 | (0.13) | (5 .99) | (6 .12) | (1 .43) | (1 .43) | 10.05 | (37.52) | 10,021 |
2007 | 17.12 | (0.19) | 2 .07 | 1 .88 | (1 .40) | (1 .40) | 17.60 | 11.55 | 22,058 |
2006 | 15.89 | (0.14) | 2 .31 | 2 .17 | (0 .94) | (0 .94) | 17.12 | 14.09 | 24,476 |
Class C shares | |||||||||
2011(c) | 12.67 | (0.09) | 2 .73 | 2 .64 | – | – | 15.31 | 20 .84 (d) | 2,718 |
2010 | 10.27 | (0.12) | 2 .52 | 2 .40 | – | – | 12 .67 | 23 .37 | 1,546 |
2009 | 10.22 | (0.05) | 0 .10 | 0 .05 | – | – | 10 .27 | 0 .49 | 940 |
2008 | 17.85 | (0.12) | (6 .08) | (6 .20) | (1 .43) | (1 .43) | 10.22 | (37.44) | 836 |
2007(g) | 16.60 | (0.14) | 1 .39 | 1 .25 | – | – | 17.85 | 7 .53 (d) | 1,573 |
52
FINANCIAL HIGHLIGHTS (Continued) |
PRINCIPAL FUNDS, INC. |
(unaudited) |
Ratio of | Ratio of Net | |
Expenses to | Investment Income | |
Average Net | to Average Net | Portfolio |
Assets | Assets | Turnover Rate |
1.42%(e),(f) | (0 .49)%(e) | 83.4%(e) |
1.51 (f) | (0.32) | 65.2 |
1 .65 | (0.01) | 89.5 |
1 .46 | (0.11) | 55.6 |
1 .43 | (0.28) | 60.9 |
1 .40 | (0.15) | 103.0 |
2 .38 (e),(f) | (1 .44) (e) | 83 .4 (e) |
2.74 (f) | (1.55) | 65.2 |
2 .78 | (1.15) | 89.5 |
2 .33 | (0.97) | 55.6 |
2 .26 | (1.11) | 60.9 |
2 .11 | (0.85) | 103.0 |
2 .20 (e),(f) | (1 .28) (e) | 83 .4 (e) |
2.20 (f) | (1.01) | 65.2 |
2.20 (f) | (0.56) | 89.5 |
2.20 (f) | (0.85) | 55.6 |
2 .20 (e),(f) | (1 .04) (e) | 60 .9 (e) |
(a) Calculated based on average shares outstanding during the period. |
(b) Total return is calculated without the front-end sales charge or contingent deferred sales charge. |
(c) Six months ended April 30, 2011. |
(d) Total return amounts have not been annualized. |
(e) Computed on an annualized basis. |
(f) Reflects Manager's contractual expense limit. |
(g) Period from January 17, 2007 through October 31, 2007. Class C shares incurred a net realized and unrealized gain of $.25 per share from January 10, 2007, through |
January 16, 2007. |
53
FINANCIAL HIGHLIGHTS | ||||||||
PRINCIPAL FUNDS, INC. | ||||||||
(unaudited) | ||||||||
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): | ||||||||
Net Asset | Net | Net Realized | Distributions | Distributions | ||||
Value, | Investment | and Unrealized | Total From | from | from | Total | Net Assets, End | |
Beginning of | Income | Gain (Loss) on | Investment | Investment | Realized | Dividends and | of Period (in | |
Period | (Loss)(a) | Investments | Operations | Income | Gains | Distributions | thousands) | |
SMALLCAP BLEND FUND | ||||||||
Class J shares | ||||||||
2011(c) | $12 .52 | ($0 .02) | $2 .70 | $2 .68 | $– | $– | $– | $15.20 |
2010 | 10.07 | (0 .02) | 2.47 | 2.45 | – | – | – | 12 .52 |
2009 | 9.97 | 0 .03 | 0 .11 | 0 .14 | (0 .04) | – | (0 .04) | 10 .07 |
2008 | 17.27 | 0 .04 | (5 .91) | (5 .87) | – | (1 .43) | (1 .43) | 9.97 |
2007 | 16.68 | (0 .03) | 2.02 | 1.99 | – | (1 .40) | (1 .40) | 17 .27 |
2006 | 15.40 | (0 .03) | 2.25 | 2.22 | – | (0 .94) | (0 .94) | 16 .68 |
Institutional shares | ||||||||
2011(c) | 13.37 | 0 .01 | 2 .89 | 2 .90 | – | – | – | 16 .27 |
2010 | 10.74 | 0 .05 | 2 .63 | 2 .68 | (0 .05) | – | (0 .05) | 13 .37 |
2009 | 10.62 | 0 .08 | 0 .11 | 0 .19 | (0 .07) | – | (0 .07) | 10 .74 |
2008 | 18.24 | 0 .08 | (6 .27) | (6 .19) | – | (1 .43) | (1 .43) | 10 .62 |
2007 | 17.45 | 0 .07 | 2 .12 | 2 .19 | – | (1 .40) | (1 .40) | 18 .24 |
2006 | 15.97 | 0 .08 | 2 .34 | 2 .42 | – | (0 .94) | (0 .94) | 17 .45 |
R-1 shares | ||||||||
2011(c) | 12.78 | (0 .05) | 2.75 | 2.70 | – | – | – | 15 .48 |
2010 | 10.31 | (0 .05) | 2.52 | 2.47 | – | – | – | 12 .78 |
2009 | 10.20 | – | 0.11 | 0.11 | – | – | – | 10 .31 |
2008 | 17.72 | (0 .04) | (6 .05) | (6 .09) | – | (1 .43) | (1 .43) | 10 .20 |
2007 | 17.13 | (0 .08) | 2.07 | 1.99 | – | (1 .40) | (1 .40) | 17 .72 |
2006 | 15.82 | (0 .07) | 2.32 | 2.25 | – | (0 .94) | (0 .94) | 17 .13 |
R-2 shares | ||||||||
2011(c) | 12.78 | (0 .04) | 2.76 | 2.72 | – | – | – | 15 .50 |
2010 | 10.30 | (0 .04) | 2.52 | 2.48 | – | – | – | 12 .78 |
2009 | 10.18 | 0 .01 | 0 .11 | 0 .12 | – | – | – | 10 .30 |
2008 | 17.67 | (0 .02) | (6 .04) | (6 .06) | – | (1 .43) | (1 .43) | 10 .18 |
2007 | 17.06 | (0 .06) | 2.07 | 2.01 | – | (1 .40) | (1 .40) | 17 .67 |
2006 | 15.74 | (0 .04) | 2.30 | 2.26 | – | (0 .94) | (0 .94) | 17 .06 |
R-3 shares | ||||||||
2011(c) | 13.01 | (0 .03) | 2.81 | 2.78 | – | – | – | 15 .79 |
2010 | 10.47 | (0 .02) | 2.56 | 2.54 | – | – | – | 13 .01 |
2009 | 10.32 | 0 .03 | 0 .12 | 0 .15 | – | – | – | 10 .47 |
2008 | 17.86 | – | (6 .11) | (6 .11) | – | (1 .43) | (1 .43) | 10 .32 |
2007 | 17.21 | (0 .03) | 2.08 | 2.05 | – | (1 .40) | (1 .40) | 17 .86 |
2006 | 15.85 | (0 .02) | 2.32 | 2.30 | – | (0 .94) | (0 .94) | 17 .21 |
R-4 shares | ||||||||
2011(c) | 13.24 | (0 .02) | 2.86 | 2.84 | – | – | – | 16 .08 |
2010 | 10.65 | 0 .01 | 2 .60 | 2 .61 | (0 .02) | – | (0 .02) | 13 .24 |
2009 | 10.51 | 0 .05 | 0 .12 | 0 .17 | (0 .03) | – | (0 .03) | 10 .65 |
2008 | 18.14 | 0 .03 | (6 .23) | (6 .20) | – | (1 .43) | (1 .43) | 10 .51 |
2007 | 17.42 | – | 2.12 | 2.12 | – | (1 .40) | (1 .40) | 18 .14 |
2006 | 15.93 | 0 .01 | 2 .42 | 2 .43 | – | (0 .94) | (0 .94) | 17 .42 |
R-5 shares | ||||||||
2011(c) | 13.38 | (0 .01) | 2.89 | 2.88 | – | – | – | 16 .26 |
2010 | 10.76 | 0 .02 | 2 .63 | 2 .65 | (0 .03) | – | (0 .03) | 13 .38 |
2009 | 10.61 | 0 .06 | 0 .12 | 0 .18 | (0 .03) | – | (0 .03) | 10 .76 |
2008 | 18.28 | 0 .05 | (6 .29) | (6 .24) | – | (1 .43) | (1 .43) | 10 .61 |
2007 | 17.54 | 0 .02 | 2 .12 | 2 .14 | – | (1 .40) | (1 .40) | 18 .28 |
2006 | 16.08 | 0 .04 | 2 .36 | 2 .40 | – | (0 .94) | (0 .94) | 17 .54 |
54
FINANCIAL HIGHLIGHTS (Continued) | |||||
PRINCIPAL FUNDS, INC. | |||||
(unaudited) | |||||
Ratio of Net | |||||
Net Assets, End of | Ratio of Expenses | Ratio of Gross | Investment Income | ||
Period (in | to Average Net | Expenses to Average | to Average Net | Portfolio | |
Total Return | thousands) | Assets | Net Assets(b) | Assets | Turnover Rate |
21.41%(d),(e) | $101,006 | 1.26%(f) | 1 .39%(f) | (0 .33)%(f) | 83 .4%(f) |
24.33 (e) | 86,986 | 1.35 | 1 .42 | (0 .16) | 65 .2 |
1.43 (e) | 75,770 | 1.32 | 1 .35 | 0 .32 | 89 .5 |
(36 .73) (e) | 83,926 | 1.04 | – | 0 .32 | 55 .6 |
12.59 (e) | 159,977 | 1.33 | – | (0 .18) | 60 .9 |
14.90 (e) | 146,800 | 1.45 | – | (0 .20) | 103 .0 |
21.69 (d) | 43,509 | 0.80 (f) | 0.81 (f) | 0.12 (f) | 83 .4 (f) |
25.03 | 35,729 | 0.80 | 0 .83 | 0 .39 | 65 .2 |
1.92 | 28,365 | 0.79 | 0 .85 | 0 .84 | 89 .5 |
(36 .52) | 26,459 | 0.77 | – | 0 .58 | 55 .6 |
13.22 | 42,510 | 0.75 | – | 0 .40 | 60 .9 |
15.66 | 39,492 | 0.75 | – | 0 .50 | 103 .0 |
21.13 (d) | 257 | 1.64 (f) | – | (0 .70) (f) | 83 .4 (f) |
23.96 | 232 | 1.65 | – | (0 .46) | 65 .2 |
1.08 | 203 | 1.65 | – | (0 .02) | 89 .5 |
(37 .07) | 218 | 1.65 | – | (0 .28) | 55 .6 |
12.24 | 414 | 1.63 | – | (0 .47) | 60 .9 |
14.69 | 187 | 1.63 | – | (0 .41) | 103 .0 |
21.28 (d) | 1,248 | 1.51 (f) | – | (0 .59) (f) | 83 .4 (f) |
24.08 | 1,195 | 1.52 | – | (0 .33) | 65 .2 |
1.18 | 1,091 | 1.52 | – | 0 .12 | 89 .5 |
(37 .00) | 1,312 | 1.52 | – | (0 .16) | 55 .6 |
12.42 | 2,626 | 1.50 | – | (0 .35) | 60 .9 |
14.83 | 2,490 | 1.50 | – | (0 .25) | 103 .0 |
21.37 (d) | 1,081 | 1.33 (f) | – | (0 .41) (f) | 83 .4 (f) |
24.26 | 889 | 1.34 | – | (0 .15) | 65 .2 |
1.45 | 700 | 1.34 | – | 0 .30 | 89 .5 |
(36 .88) | 1,050 | 1.34 | – | 0 .01 | 55 .6 |
12.55 | 1,930 | 1.32 | – | (0 .17) | 60 .9 |
14.99 | 2,285 | 1.32 | – | (0 .09) | 103 .0 |
21.45 (d) | 2,464 | 1.14 (f) | – | (0 .22) (f) | 83 .4 (f) |
24.52 | 2,139 | 1.15 | – | 0 .04 | 65 .2 |
1.63 | 1,914 | 1.15 | – | 0 .50 | 89 .5 |
(36 .79) | 1,746 | 1.15 | – | 0 .19 | 55 .6 |
12.82 | 2,141 | 1.13 | – | 0 .02 | 60 .9 |
15.77 | 1,452 | 1.13 | – | 0 .05 | 103 .0 |
21.52 (d) | 4,033 | 1.02 (f) | – | (0 .10) (f) | 83 .4 (f) |
24.72 | 3,314 | 1.03 | – | 0 .16 | 65 .2 |
1.76 | 2,856 | 1.03 | – | 0 .60 | 89 .5 |
(36 .73) | 1,181 | 1.03 | – | 0 .32 | 55 .6 |
12.85 | 2,584 | 1.01 | – | 0 .14 | 60 .9 |
15.42 | 7,084 | 1.01 | – | 0 .24 | 103 .0 |
(a) Calculated based on average shares outstanding during the period. |
(b) Excludes expense reimbursement from Manager and/or Distributor. |
(c) Six months ended April 30, 2011. |
(d) Total return amounts have not been annualized. |
(e) Total return is calculated without the contingent deferred sales charge. |
(f) Computed on an annualized basis. |
55
FINANCIAL HIGHLIGHTS | |||||||||
PRINCIPAL FUNDS, INC. | |||||||||
(unaudited) | |||||||||
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): | |||||||||
Net Asset | Net | Net Realized | Dividends | Total | |||||
Value, | Investment | and Unrealized | Total From | from Net | Dividends | Net Asset | Net Assets, End | ||
Beginning | Income | Gain (Loss) on | Investment | Investment | and | Value, End | of Period (in | ||
of Period | (Loss)(a) | Investments | Operations | Income | Distributions | of Period | Total Return(b) | thousands) | |
SMALLCAP GROWTH FUND | |||||||||
Class A shares | |||||||||
2011(c) | $7 .16 | ($0 .04) | $1 .79 | $1 .75 | $– | $– | $8 .91 | 24 .44%(d) | $46,496 |
2010 | 5 .77 | (0 .08) | 1 .47 | 1 .39 | – | – | 7 .16 | 24 .09 | 37,428 |
2009 | 5 .43 | (0 .06) | 0 .40 | 0 .34 | – | – | 5 .77 | 6 .26 | 28,743 |
2008 | 10 .18 | (0 .07) | (4 .10) | (4 .17) | (0 .58) | (0 .58) | 5 .43 | (43 .33) | 29,467 |
2007(g) | 8 .87 | (0 .04) | 1 .35 | 1 .31 | – | – | 10 .18 | 14 .77 (d) | 115,046 |
Class B shares | |||||||||
2011(c) | 6 .90 | (0 .06) | 1 .72 | 1 .66 | – | – | 8 .56 | 24 .06 (d) | 2,166 |
2010 | 5 .62 | (0 .13) | 1 .41 | 1 .28 | – | – | 6 .90 | 22 .78 | 2,051 |
2009 | 5 .32 | (0 .09) | 0 .39 | 0 .30 | – | – | 5 .62 | 5 .64 | 2,337 |
2008 | 10 .07 | (0 .15) | (4 .02) | (4 .17) | (0 .58) | (0 .58) | 5 .32 | (43 .82) | 2,931 |
2007(g) | 8 .87 | (0 .15) | 1 .35 | 1 .20 | – | – | 10 .07 | 13 .53 (d) | 7,549 |
Class C shares | |||||||||
2011(c) | 7 .00 | (0 .06) | 1 .75 | 1 .69 | – | – | 8 .69 | 24 .14 (d) | 2,899 |
2010 | 5 .68 | (0 .11) | 1 .43 | 1 .32 | – | – | 7 .00 | 23 .24 | 1,991 |
2009 | 5 .36 | (0 .08) | 0 .40 | 0 .32 | – | – | 5 .68 | 5 .97 | 1,427 |
2008 | 10 .10 | (0 .12) | (4 .04) | (4 .16) | (0 .58) | (0 .58) | 5 .36 | (43 .58) | 1,184 |
2007(g) | 8 .87 | (0 .12) | 1 .35 | 1 .23 | – | – | 10 .10 | 13 .87 (d) | 1,730 |
56
FINANCIAL HIGHLIGHTS (Continued) |
PRINCIPAL FUNDS, INC. |
(unaudited) |
Ratio of Net | ||
Ratio of | Investment | |
Expenses to | Income to | |
Average Net | Average Net | Portfolio Turnover |
Assets | Assets | Rate |
1.58%(e),(f) | (0 .94)%(e) | 53.8%(e) |
1.70 (f) | (1 .25) | 89.1 |
1.82 | (1 .16) | 96.8 |
1.51 (f) | (0 .80) | 62.9 |
1 .19 (e),(f) | (0 .59) (e) | 70 .0 (e),(h) |
2 .33 (e),(f) | (1 .69) (e) | 53 .8 (e) |
2.55 (f) | (2 .12) | 89.1 |
2.57 (f) | (1 .91) | 96.8 |
2.57 (f) | (1 .90) | 62.9 |
2 .54 (e),(f) | (1 .94) (e) | 70 .0 (e),(h) |
2 .21 (e),(f) | (1 .58) (e) | 53 .8 (e) |
2.21 (f) | (1 .75) | 89.1 |
2.21 (f) | (1 .54) | 96.8 |
2.21 (f) | (1 .55) | 62.9 |
2 .21 (e),(f) | (1 .60) (e) | 70 .0 (e),(h) |
(a) Calculated based on average shares outstanding during the period. |
(b) Total return is calculated without the front-end sales charge or contingent deferred sales charge. |
(c) Six months ended April 30, 2011. |
(d) Total return amounts have not been annualized. |
(e) Computed on an annualized basis. |
(f) Reflects Manager's contractual expense limit. |
(g) Period from January 17, 2007 through October 31, 2007. Class A and Class B shares incurred a net realized and unrealized loss of $.05 and $.03 per share from |
January 10, 2007, through January 16, 2007. Class C shares incurred a net realized and unrealized gain of $.20 per share from January 10, 2007, through January 16, |
2007. |
(h) Portfolio turnover rate excludes portfolio realignment from the acquisition of WM SmallCap Growth Fund. |
57
FINANCIAL HIGHLIGHTS | ||||||||
PRINCIPAL FUNDS, INC. | ||||||||
(unaudited) | ||||||||
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): | ||||||||
Net Asset | Net | Net Realized | Distributions | Total | ||||
Value, | Investment | and Unrealized | Total From | from | Dividends | Net Asset | ||
Beginning | Income | Gain (Loss) on | Investment | Realized | and | Value, End | ||
of Period | (Loss)(a) | Investments | Operations | Gains | Distributions | of Period | Total Return | |
SMALLCAP GROWTH FUND | ||||||||
Class J shares | ||||||||
2011(c) | $6 .76 | ($0 .03) | $1 .70 | $1 .67 | $– | $– | $8.43 | 24 .70%(d),(e) |
2010 | 5.44 | (0 .06) | 1.38 | 1.32 | – | – | 6.76 | 24 .26 (e) |
2009 | 5.10 | (0 .04) | 0.38 | 0.34 | – | – | 5.44 | 6 .67 (e) |
2008 | 9.57 | (0 .06) | (3 .83) | (3 .89) | (0 .58) | (0 .58) | 5.10 | (43 .15) (e) |
2007 | 8.42 | (0 .07) | 1.60 | 1.53 | (0 .38) | (0 .38) | 9.57 | 18 .87 (e) |
2006 | 7.87 | (0 .07) | 1.12 | 1.05 | (0 .50) | (0 .50) | 8.42 | 13 .69 (e) |
Institutional shares | ||||||||
2011(c) | 7.39 | (0 .01) | 1.86 | 1.85 | – | – | 9.24 | 25 .03 (d) |
2010 | 5.91 | (0 .02) | 1.50 | 1.48 | – | – | 7.39 | 25 .04 |
2009 | 5.50 | (0 .01) | 0.42 | 0.41 | – | – | 5.91 | 7 .47 |
2008 | 10 .21 | (0 .01) | (4 .12) | (4 .13) | (0 .58) | (0 .58) | 5.50 | (42 .78) |
2007 | 8.89 | (0 .01) | 1.71 | 1.70 | (0 .38) | (0 .38) | 10.21 | 19 .82 |
2006 | 8.22 | (0 .01) | 1.18 | 1.17 | (0 .50) | (0 .50) | 8.89 | 14 .60 |
R-1 shares | ||||||||
2011(c) | 6.99 | (0 .04) | 1.75 | 1.71 | – | – | 8.70 | 24 .46 (d) |
2010 | 5.64 | (0 .08) | 1.43 | 1.35 | – | – | 6.99 | 23 .94 |
2009 | 5.29 | (0 .05) | 0.40 | 0.35 | – | – | 5.64 | 6 .62 |
2008 | 9.93 | (0 .08) | (3 .98) | (4 .06) | (0 .58) | (0 .58) | 5.29 | (43 .31) |
2007 | 8.73 | (0 .09) | 1.67 | 1.58 | (0 .38) | (0 .38) | 9.93 | 18 .76 |
2006 | 8.15 | (0 .08) | 1.16 | 1.08 | (0 .50) | (0 .50) | 8.73 | 13 .58 |
R-2 shares | ||||||||
2011(c) | 7.13 | (0 .04) | 1.78 | 1.74 | – | – | 8.87 | 24 .40 (d) |
2010 | 5.74 | (0 .07) | 1.46 | 1.39 | – | – | 7.13 | 24 .22 |
2009 | 5.38 | (0 .04) | 0.40 | 0.36 | – | – | 5.74 | 6 .69 |
2008 | 10 .07 | (0 .07) | (4 .04) | (4 .11) | (0 .58) | (0 .58) | 5.38 | (43 .19) |
2007 | 8.84 | (0 .08) | 1.69 | 1.61 | (0 .38) | (0 .38) | 10.07 | 18 .87 |
2006 | 8.23 | (0 .07) | 1.18 | 1.11 | (0 .50) | (0 .50) | 8.84 | 13 .82 |
R-3 shares | ||||||||
2011(c) | 7.25 | (0 .03) | 1.81 | 1.78 | – | – | 9.03 | 24 .55 (d) |
2010 | 5.83 | (0 .06) | 1.48 | 1.42 | – | – | 7.25 | 24 .36 |
2009 | 5.45 | (0 .03) | 0.41 | 0.38 | – | – | 5.83 | 6 .97 |
2008 | 10 .18 | (0 .05) | (4 .10) | (4 .15) | (0 .58) | (0 .58) | 5.45 | (43 .12) |
2007 | 8.92 | (0 .07) | 1.71 | 1.64 | (0 .38) | (0 .38) | 10.18 | 19 .05 |
2006 | 8.29 | (0 .06) | 1.19 | 1.13 | (0 .50) | (0 .50) | 8.92 | 13 .97 |
R-4 shares | ||||||||
2011(c) | 7.44 | (0 .02) | 1.86 | 1.84 | – | – | 9.28 | 24 .73 (d) |
2010 | 5.97 | (0 .05) | 1.52 | 1.47 | – | – | 7.44 | 24 .62 |
2009 | 5.58 | (0 .03) | 0.42 | 0.39 | – | – | 5.97 | 6 .99 |
2008 | 10 .38 | (0 .04) | (4 .18) | (4 .22) | (0 .58) | (0 .58) | 5.58 | (42 .95) |
2007 | 9.07 | (0 .05) | 1.74 | 1.69 | (0 .38) | (0 .38) | 10.38 | 19 .30 |
2006 | 8.41 | (0 .04) | 1.20 | 1.16 | (0 .50) | (0 .50) | 9.07 | 14 .14 |
R-5 shares | ||||||||
2011(c) | 7.52 | (0 .02) | 1.88 | 1.86 | – | – | 9.38 | 24 .73 (d) |
2010 | 6.03 | (0 .04) | 1.53 | 1.49 | – | – | 7.52 | 24 .71 |
2009 | 5.62 | (0 .02) | 0.43 | 0.41 | – | – | 6.03 | 7 .30 |
2008 | 10 .44 | (0 .03) | (4 .21) | (4 .24) | (0 .58) | (0 .58) | 5.62 | (42 .89) |
2007 | 9.11 | (0 .03) | 1.74 | 1.71 | (0 .38) | (0 .38) | 10.44 | 19 .44 |
2006 | 8.43 | (0 .03) | 1.21 | 1.18 | (0 .50) | (0 .50) | 9.11 | 14 .35 |
58
FINANCIAL HIGHLIGHTS (Continued) | ||||
PRINCIPAL FUNDS, INC. | ||||
(unaudited) | ||||
Net Assets, End | Ratio of Gross | Ratio of Net | ||
of Period (in | Ratio of Expenses to | Expenses to Average | Investment Income to | Portfolio |
thousands) | Average Net Assets | Net Assets(b) | Average Net Assets | Turnover Rate |
$30,739 | 1.32%(f) | 1.46%(f) | (0 .69)%(f) | 53 .8%(f) |
25,075 | 1.43 | 1.49 | (0 .98) | 89 .1 |
21,738 | 1.56 | 1.61 | (0 .89) | 96 .8 |
21,941 | 1.42 | – | (0 .76) | 62 .9 |
41,871 | 1.46 | – | (0 .79) | 70 .0 (g) |
35,009 | 1.53 | – | (0 .88) | 109 .9 |
12,997 | 0.80 (f) | 0.99 (f) | (0 .14) (f) | 53 .8 (f) |
179,020 | 0.80 | 0.82 | (0 .36) | 89 .1 |
164,515 | 0.79 | 0.82 | (0 .13) | 96 .8 |
162,099 | 0.76 | – | (0 .11) | 62 .9 |
307,452 | 0.75 | – | (0 .14) | 70 .0 (g) |
8,368 | 0.75 | – | (0 .08) | 109 .9 |
587 | 1.66 (f) | – | (0 .95) (f) | 53 .8 (f) |
647 | 1.64 | – | (1 .20) | 89 .1 |
563 | 1.64 | – | (0 .96) | 96 .8 |
312 | 1.65 | – | (1 .01) | 62 .9 |
204 | 1.63 | – | (0 .99) | 70 .0 (g) |
77 | 1.63 | – | (0 .97) | 109 .9 |
402 | 1.53 (f) | – | (0 .90) (f) | 53 .8 (f) |
529 | 1.51 | – | (1 .07) | 89 .1 |
437 | 1.51 | – | (0 .84) | 96 .8 |
381 | 1.51 | – | (0 .84) | 62 .9 |
848 | 1.50 | – | (0 .83) | 70 .0 (g) |
574 | 1.50 | – | (0 .80) | 109 .9 |
663 | 1.35 (f) | – | (0 .69) (f) | 53 .8 (f) |
1,814 | 1.33 | – | (0 .90) | 89 .1 |
2,182 | 1.33 | – | (0 .66) | 96 .8 |
2,071 | 1.34 | – | (0 .69) | 62 .9 |
1,862 | 1.32 | – | (0 .70) | 70 .0 (g) |
71 | 1.32 | – | (0 .65) | 109 .9 |
305 | 1.16 (f) | – | (0 .52) (f) | 53 .8 (f) |
281 | 1.14 | – | (0 .72) | 89 .1 |
444 | 1.14 | – | (0 .55) | 96 .8 |
1,231 | 1.15 | – | (0 .52) | 62 .9 |
343 | 1.13 | – | (0 .47) | 70 .0 (g) |
62 | 1.13 | – | (0 .44) | 109 .9 |
4,307 | 1.04 (f) | – | (0 .40) (f) | 53 .8 (f) |
3,776 | 1.02 | – | (0 .54) | 89 .1 |
1,521 | 1.02 | – | (0 .42) | 96 .8 |
2,157 | 1.03 | – | (0 .42) | 62 .9 |
1,352 | 1.01 | – | (0 .34) | 70 .0 (g) |
1,061 | 1.01 | – | (0 .33) | 109 .9 |
(a) Calculated based on average shares outstanding during the period. |
(b) Excludes expense reimbursement from Manager and/or Distributor. |
(c) Six months ended April 30, 2011. |
(d) Total return amounts have not been annualized. |
(e) Total return is calculated without the contingent deferred sales charge. |
(f) Computed on an annualized basis. |
(g) Portfolio turnover rate excludes portfolio realignment from the acquisition of WM SmallCap Growth Fund. |
59
FINANCIAL HIGHLIGHTS | |||||||||
PRINCIPAL FUNDS, INC. | |||||||||
(unaudited) | |||||||||
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): | |||||||||
Net Asset | Net | Net Realized | Dividends | Distributions | Total | ||||
Value, | Investment | and Unrealized | Total From | from Net | from | Dividends | Net Asset | ||
Beginning of | Income | Gain (Loss) on | Investment | Investment | Realized | and | Value, End | ||
Period | (Loss)(a) | Investments | Operations | Income | Gains | Distributions | of Period | Total Return(b) | |
SMALLCAP VALUE FUND | |||||||||
Class A shares | |||||||||
2011(c) | $13 .97 | ($0 .01) | $2 .40 | $2 .39 | ($0 .07) | $– | ($0 .07) | $16.29 | 17 .11%(d) |
2010 | 11.61 | 0.04 | 2 .37 | 2 .41 | (0 .05) | – | (0 .05) | 13 .97 | 20 .81 |
2009 | 12.30 | 0.06 | (0 .73) | (0 .67) | (0 .02) | – | (0 .02) | 11 .61 | (5 .46) |
2008 | 18.82 | 0.05 | (5 .16) | (5 .11) | (0 .08) | (1 .33) | (1.41) | 12 .30 | (29 .06) |
2007 | 19.21 | 0.06 | 0 .44 | 0 .50 | – | (0 .89) | (0 .89) | 18 .82 | 2 .55 |
2006 | 17.49 | 0.01 | 2 .99 | 3 .00 | – | (1 .28) | (1 .28) | 19 .21 | 18 .03 |
Class B shares | |||||||||
2011(c) | 13.53 | (0.08) | 2 .33 | 2 .25 | – | – | – | 15 .78 | 16 .63 (d) |
2010 | 11.31 | (0.08) | 2 .30 | 2 .22 | – | – | – | 13 .53 | 19 .63 |
2009 | 12.08 | (0.04) | (0 .73) | (0 .77) | – | – | – | 11 .31 | (6 .37) |
2008 | 18.59 | (0.09) | (5 .09) | (5 .18) | – | (1 .33) | (1 .33) | 12 .08 | (29 .76) |
2007 | 19.14 | (0.11) | 0 .45 | 0 .34 | – | (0 .89) | (0 .89) | 18 .59 | 1 .68 |
2006 | 17.55 | (0.13) | 3 .00 | 2 .87 | – | (1 .28) | (1 .28) | 19 .14 | 17 .18 |
Class C shares | |||||||||
2011(c) | 13.73 | (0.07) | 2 .37 | 2 .30 | – | – | – | 16 .03 | 16 .75 (d) |
2010 | 11.45 | (0.05) | 2 .33 | 2 .28 | – | – | – | 13 .73 | 19 .91 |
2009 | 12.21 | (0.01) | (0 .75) | (0 .76) | – | – | – | 11 .45 | (6 .22) |
2008 | 18.72 | (0.06) | (5 .12) | (5 .18) | – | (1 .33) | (1 .33) | 12 .21 | (29 .54) |
2007(h) | 18.93 | (0.06) | (0 .15) | (0 .21) | – | – | – | 18 .72 | (1 .11) (d) |
60
FINANCIAL HIGHLIGHTS (Continued) |
PRINCIPAL FUNDS, INC. |
(unaudited) |
Ratio of Net | |||
Net Assets, | Ratio of Expenses | Investment Income | |
End of Period | to Average Net | to Average Net | Portfolio Turnover |
(in thousands) | Assets | Assets | Rate |
$18,816 | 1.35%(e),(f) | (0 .15)%(e) | 112 .7%(e) |
15,561 | 1.35 (f) | 0 .33 | 77 .9 |
13,392 | 1.35 (f) | 0 .57 | 97 .2 |
14,995 | 1.35 (f) | 0 .33 | 101 .9 |
23,033 | 1.36 (f) | 0 .34 | 112 .8 (g) |
8,839 | 1.49 (f) | 0 .07 | 97 .9 |
2,505 | 2.29 (e),(f) | (1.08) (e) | 112 .7 (e) |
2,367 | 2.29 (f) | (0 .61) | 77 .9 |
2,676 | 2.29 (f) | (0 .37) | 97 .2 |
2,789 | 2.29 (f) | (0 .60) | 101 .9 |
4,545 | 2.27 (f) | (0 .58) | 112 .8 (g) |
1,612 | 2.24 (f) | (0 .70) | 97 .9 |
3,436 | 2.08 (e),(f) | (0.88) (e) | 112 .7 (e) |
2,959 | 2.08 (f) | (0 .40) | 77 .9 |
3,048 | 2.08 (f) | (0 .13) | 97 .2 |
3,481 | 2.08 (f) | (0 .41) | 101 .9 |
4,496 | 2 .09 (e),(f) | (0 .42) (e) | 112 .8 (e),(g) |
(a) Calculated based on average shares outstanding during the period. |
(b) Total return is calculated without the front-end sales charge or contingent deferred sales charge. |
(c) Six months ended April 30, 2011. |
(d) Total return amounts have not been annualized. |
(e) Computed on an annualized basis. |
(f) Reflects Manager's contractual expense limit. |
(g) Portfolio turnover rate excludes portfolio realignment from the acquisition of WM SmallCap Value Fund. |
(h) Period from January 17, 2007 through October 31, 2007. Class C shares incurred a net realized and unrealized loss of $.27 per share from January 10, 2007, through |
January 16, 2007. |
61
FINANCIAL HIGHLIGHTS | ||||||||
PRINCIPAL FUNDS, INC. | ||||||||
(unaudited) | ||||||||
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): | ||||||||
Net Asset | Net | Net Realized | Dividends | Distributions | Total | |||
Value, | Investment | and Unrealized | Total From | from Net | from | Dividends | Net Asset | |
Beginning of | Income | Gain (Loss) on | Investment | Investment | Realized | and | Value, End | |
Period | (Loss)(a) | Investments | Operations | Income | Gains | Distributions | of Period | |
SMALLCAP VALUE FUND | ||||||||
Class J shares | ||||||||
2011(c) | $13 .51 | ($0 .01) | $2 .33 | $2 .32 | ($0 .06) | $– | ($0 .06) | $15.77 |
2010 | 11.23 | 0 .04 | 2 .28 | 2 .32 | (0 .04) | – | (0 .04) | 13 .51 |
2009 | 11.91 | 0 .05 | (0 .72) | (0 .67) | (0 .01) | – | (0 .01) | 11 .23 |
2008 | 18.27 | 0 .04 | (4 .99) | (4 .95) | (0 .08) | (1 .33) | (1 .41) | 11 .91 |
2007 | 18.67 | 0 .06 | 0 .43 | 0 .49 | – | (0 .89) | (0 .89) | 18 .27 |
2006 | 17.02 | 0 .01 | 2 .92 | 2 .93 | – | (1 .28) | (1 .28) | 18 .67 |
Institutional shares | ||||||||
2011(c) | 14.01 | 0 .03 | 2 .40 | 2 .43 | (0 .14) | – | (0 .14) | 16 .30 |
2010 | 11.64 | 0 .11 | 2 .37 | 2 .48 | (0 .11) | – | (0 .11) | 14 .01 |
2009 | 12.37 | 0 .12 | (0 .75) | (0 .63) | (0 .10) | – | (0 .10) | 11 .64 |
2008 | 18.91 | 0 .14 | (5 .17) | (5 .03) | (0 .18) | (1 .33) | (1 .51) | 12 .37 |
2007 | 19.32 | 0 .18 | 0 .44 | 0 .62 | (0 .14) | (0 .89) | (1 .03) | 18 .91 |
2006 | 17.54 | 0 .14 | 3 .01 | 3 .15 | (0 .09) | (1 .28) | (1 .37) | 19 .32 |
R-1 shares | ||||||||
2011(c) | 13.77 | (0 .03) | 2.37 | 2.34 | (0 .02) | – | (0 .02) | 16 .09 |
2010 | 11.46 | – | 2.34 | 2.34 | (0 .03) | – | (0 .03) | 13 .77 |
2009 | 12.17 | 0 .03 | (0 .73) | (0 .70) | (0 .01) | – | (0 .01) | 11 .46 |
2008 | 18.63 | – | (5 .09) | (5 .09) | (0 .04) | (1 .33) | (1 .37) | 12 .17 |
2007 | 19.07 | 0 .02 | 0 .43 | 0 .45 | – | (0 .89) | (0 .89) | 18 .63 |
2006 | 17.39 | (0 .02) | 2.98 | 2.96 | – | (1 .28) | (1 .28) | 19 .07 |
R-2 shares | ||||||||
2011(c) | 13.80 | (0 .02) | 2.36 | 2.34 | (0 .03) | – | (0 .03) | 16 .11 |
2010 | 11.48 | 0 .02 | 2 .34 | 2 .36 | (0 .04) | – | (0 .04) | 13 .80 |
2009 | 12.17 | 0 .04 | (0 .73) | (0 .69) | – | – | – | 11 .48 |
2008 | 18.63 | 0 .03 | (5 .10) | (5 .07) | (0 .06) | (1 .33) | (1 .39) | 12 .17 |
2007 | 19.05 | 0 .05 | 0 .42 | 0 .47 | – | (0 .89) | (0 .89) | 18 .63 |
2006 | 17.35 | 0 .01 | 2 .97 | 2 .98 | – | (1 .28) | (1 .28) | 19 .05 |
R-3 shares | ||||||||
2011(c) | 13.95 | (0 .01) | 2.40 | 2.39 | (0 .05) | – | (0 .05) | 16 .29 |
2010 | 11.60 | 0 .05 | 2 .36 | 2 .41 | (0 .06) | – | (0 .06) | 13 .95 |
2009 | 12.30 | 0 .06 | (0 .73) | (0 .67) | (0 .03) | – | (0 .03) | 11 .60 |
2008 | 18.83 | 0 .05 | (5 .16) | (5 .11) | (0 .09) | (1 .33) | (1 .42) | 12 .30 |
2007 | 19.23 | 0 .08 | 0 .43 | 0 .51 | (0 .02) | (0 .89) | (0 .91) | 18 .83 |
2006 | 17.47 | 0 .04 | 3 .00 | 3 .04 | – | (1 .28) | (1 .28) | 19 .23 |
R-4 shares | ||||||||
2011(c) | 14.04 | – | 2.42 | 2.42 | (0 .07) | – | (0 .07) | 16 .39 |
2010 | 11.67 | 0 .07 | 2 .37 | 2 .44 | (0 .07) | – | (0 .07) | 14 .04 |
2009 | 12.38 | 0 .09 | (0 .74) | (0 .65) | (0 .06) | – | (0 .06) | 11 .67 |
2008 | 18.93 | 0 .08 | (5 .18) | (5 .10) | (0 .12) | (1 .33) | (1 .45) | 12 .38 |
2007 | 19.34 | 0 .12 | 0 .42 | 0 .54 | (0 .06) | (0 .89) | (0 .95) | 18 .93 |
2006 | 17.56 | 0 .07 | 3 .02 | 3 .09 | (0 .03) | (1 .28) | (1 .31) | 19 .34 |
R-5 shares | ||||||||
2011(c) | 14.12 | 0 .01 | 2 .43 | 2 .44 | (0 .09) | – | (0 .09) | 16 .47 |
2010 | 11.73 | 0 .09 | 2 .39 | 2 .48 | (0 .09) | – | (0 .09) | 14 .12 |
2009 | 12.44 | 0 .10 | (0 .75) | (0 .65) | (0 .06) | – | (0 .06) | 11 .73 |
2008 | 19.02 | 0 .10 | (5 .21) | (5 .11) | (0 .14) | (1 .33) | (1 .47) | 12 .44 |
2007 | 19.42 | 0 .13 | 0 .45 | 0 .58 | (0 .09) | (0 .89) | (0 .98) | 19 .02 |
2006 | 17.63 | 0 .10 | 3 .02 | 3 .12 | (0 .05) | (1 .28) | (1 .33) | 19 .42 |
62
FINANCIAL HIGHLIGHTS (Continued) | |||||
PRINCIPAL FUNDS, INC. | |||||
(unaudited) | |||||
Ratio of Gross | Ratio of Net | ||||
Net Assets, | Expenses to | Investment Income | |||
End of Period | Ratio of Expenses to | Average Net | to Average Net | Portfolio | |
Total Return | (in thousands) | Average Net Assets | Assets(b) | Assets | Turnover Rate |
17.19%(d),(e) | $47,172 | 1.31%(f) | 1 .44%(f) | (0 .10)%(f) | 112 .7%(f) |
20.69 (e) | 41,296 | 1.40 | 1 .47 | 0 .28 | 77 .9 |
(5 .59) (e) | 36,827 | 1.46 | 1 .51 | 0 .47 | 97 .2 |
(29 .08) (e) | 43,601 | 1.38 | – | 0 .30 | 101 .9 |
2.57 (e) | 70,236 | 1.41 | – | 0 .32 | 112 .8 (g) |
18.12 (e) | 67,102 | 1.47 | 1 .47 | 0 .07 | 97 .9 |
17.38 (d) | 246,015 | 0.80 (f),(h) | – | 0.40 (f) | 112 .7 (f) |
21.47 | 196,946 | 0.80 | – | 0 .87 | 77 .9 |
(5 .01) | 304,482 | 0.78 | – | 1 .14 | 97 .2 |
(28 .61) | 329,103 | 0.76 | – | 0 .91 | 101 .9 |
3.17 | 443,376 | 0.75 | – | 0 .92 | 112 .8 (g) |
18.99 | 105,863 | 0.75 | – | 0 .79 | 97 .9 |
17.01 (d) | 2,186 | 1.64 (f) | – | (0 .44) (f) | 112 .7 (f) |
20.42 | 1,863 | 1.64 | – | 0 .03 | 77 .9 |
(5 .79) | 1,637 | 1.64 | – | 0 .27 | 97 .2 |
(29 .23) | 1,261 | 1.64 | – | 0 .03 | 101 .9 |
2.29 | 1,431 | 1.63 | – | 0 .10 | 112 .8 (g) |
17.90 | 1,058 | 1.63 | – | (0 .09) | 97 .9 |
16.98 (d) | 4,238 | 1.51 (f) | – | (0 .28) (f) | 112 .7 (f) |
20.60 | 5,960 | 1.51 | – | 0 .17 | 77 .9 |
(5 .67) | 5,538 | 1.51 | – | 0 .41 | 97 .2 |
(29 .14) | 5,716 | 1.51 | – | 0 .17 | 101 .9 |
2.40 | 8,117 | 1.50 | – | 0 .24 | 112 .8 (g) |
18.07 | 6,641 | 1.50 | – | 0 .04 | 97 .9 |
17.13 (d) | 9,730 | 1.33 (f) | – | (0 .11) (f) | 112 .7 (f) |
20.88 | 10,952 | 1.33 | – | 0 .36 | 77 .9 |
(5 .47) | 15,143 | 1.33 | – | 0 .55 | 97 .2 |
(29 .08) | 9,695 | 1.33 | – | 0 .35 | 101 .9 |
2.62 | 14,069 | 1.32 | – | 0 .40 | 112 .8 (g) |
18.30 | 9,385 | 1.32 | – | 0 .21 | 97 .9 |
17.28 (d) | 5,039 | 1.14 (f) | – | 0.06 (f) | 112 .7 (f) |
21.01 | 4,073 | 1.14 | – | 0 .55 | 77 .9 |
(5 .26) | 6,368 | 1.14 | – | 0 .79 | 97 .2 |
(28 .90) | 7,085 | 1.14 | – | 0 .53 | 101 .9 |
2.76 | 8,026 | 1.13 | – | 0 .60 | 112 .8 (g) |
18.52 | 4,406 | 1.13 | – | 0 .39 | 97 .9 |
17.32 (d) | 13,738 | 1.02 (f) | – | 0.19 (f) | 112 .7 (f) |
21.23 | 15,602 | 1.02 | – | 0 .65 | 77 .9 |
(5 .17) | 23,867 | 1.02 | – | 0 .90 | 97 .2 |
(28 .84) | 25,204 | 1.02 | – | 0 .66 | 101 .9 |
2.93 | 37,447 | 1.01 | – | 0 .70 | 112 .8 (g) |
18.64 | 18,180 | 1.01 | – | 0 .53 | 97 .9 |
(a) Calculated based on average shares outstanding during the period. |
(b) Excludes expense reimbursement from Manager and/or Distributor. |
(c) Six months ended April 30, 2011. |
(d) Total return amounts have not been annualized. |
(e) Total return is calculated without the contingent deferred sales charge. |
(f) Computed on an annualized basis. |
(g) Portfolio turnover rate excludes portfolio realignment from the acquisition of WM SmallCap Value Fund. |
(h) Reflects Manager's contractual expense limit. |
63
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FINANCIAL STATEMENTS |
The financial statements of the Acquiring Fund and the Acquired Funds included in PFI’s Annual Report to Shareholders for the |
fiscal year ended October 31, 2010 have been incorporated by reference into the Statement of Additional Information and have |
been so incorporated by reference in reliance on the report of Ernst & Young LLP, Independent Registered Public Accounting |
Firm. The unaudited financial statements of the Acquiring Funds and the Acquired Funds included in PFI’s Semi-Annual Report |
to Shareholders for the six-month period ended April 30, 2011 have also been incorporated by reference into the Statement of |
Additional Information. Copies of these reports are available on request as described above. |
LEGAL MATTERS |
Certain matters concerning the issuance of shares of the Acquiring Fund will be passed upon by Michael D. Roughton, Esq., |
Counsel to PFI. Certain tax consequences of the Reorganization will be passed upon for the Acquiring Fund by Randy Lee |
Bergstrom, Esq., Assistant Tax Counsel to PFI, and for the Acquired Funds by Carolyn F. Kolks, Esq., Assistant Tax Counsel to |
PFI. |
OTHER INFORMATION |
PFI is not required to hold annual meetings of shareholders and, therefore, it cannot be determined when the next meeting of |
shareholders will be held. Shareholder proposals to be presented at any future meeting of shareholders of any PFI Fund must |
be received by PFI a reasonable time before its solicitation of proxies for that meeting in order for such proposals to be |
considered for inclusion in the proxy materials related to that meeting. |
BY ORDER OF THE BOARD OF DIRECTORS |
December 15, 2011 |
Des Moines, Iowa |
65
Appendix A |
FORMS OF PLANS OF ACQUISITION |
PLAN OF ACQUISITION |
SmallCap Value Fund and |
SmallCap Blend Fund |
The Board of Directors of Principal Funds, Inc., a Maryland corporation (the “Fund”), deems it advisable that SmallCap |
Blend Fund series of the Fund (“SmallCap Blend”) acquire all of the assets of SmallCap Value Fund series of the Fund |
(“SmallCap Value”) in exchange for the assumption by SmallCap Blend of all of the liabilities of SmallCap Value and shares |
issued by SmallCap Blend which are thereafter to be distributed by SmallCap Value pro rata to its shareholders in complete |
liquidation and termination of SmallCap Value and in exchange for all of SmallCap Value ’s outstanding shares. |
SmallCap Value will transfer to SmallCap Blend, and SmallCap Blend will acquire from SmallCap Value , all of the |
assets of SmallCap Value on the Closing Date and will assume from SmallCap Value all of the liabilities of SmallCap Value in |
exchange for the issuance of the number of shares of SmallCap Blend determined as provided in the following paragraphs, which |
shares will be subsequently distributed pro rata to the shareholders of SmallCap Value in complete liquidation and termination of |
SmallCap Value and in exchange for all of SmallCap Value ’s outstanding shares. SmallCap Value will not issue, sell or transfer |
any of its shares after the Closing Date, and only redemption requests received by SmallCap Value in proper form prior to the |
Closing Date shall be fulfilled by SmallCap Value. Redemption requests received by SmallCap Value thereafter will be treated as |
requests for redemption of those shares of SmallCap Blend allocable to the shareholder in question. |
SmallCap Value will declare, and SmallCap Blend 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, SmallCap Blend will issue to SmallCap Value a number of full and fractional shares of SmallCap |
Blend, taken at their then net asset value, having an aggregate net asset value equal to the aggregate value of the net assets of |
SmallCap Value. The aggregate value of the net assets of SmallCap Value and SmallCap Blend 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, 650 8th Street, Des Moines, Iowa 50392 at 3:00 p.m. Central Time on ________, 2011, 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 SmallCap Blend or SmallCap Value 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, SmallCap Value shall (a) distribute on a pro rata basis to the shareholders of |
record of SmallCap Value at the close of business on the Closing Date the shares of SmallCap Blend received by SmallCap Value |
at the Closing in exchange for all of SmallCap Value’s outstanding shares (the holders of Class A, Class B, Class C, Class J, |
Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and the Institutional Class shares of SmallCap Value will receive, |
respectively, Class A, Class B, Class C, Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class |
shares of SmallCap Blend. |
For purposes of the distribution of shares of SmallCap Blend to shareholders of SmallCap Value, SmallCap Blend shall |
credit its books an appropriate number of its shares to the account of each shareholder of SmallCap Value. No certificates will be |
issued for shares of SmallCap Blend. After the Closing Date and until surrendered, each outstanding certificate, if any, which, prior |
to the Closing Date, represented shares of SmallCap Value, shall be deemed for all purposes of the Fund’s Articles of |
Incorporation and Bylaws to evidence the appropriate number of shares of SmallCap Blend to be credited on the books of |
SmallCap Blend in respect of such shares of SmallCap Value as provided above. |
A-1
Prior to the Closing Date, SmallCap Value shall deliver to SmallCap Blend a list setting forth the assets to be assigned, | |
delivered and transferred to SmallCap Blend, including the securities then owned by SmallCap Value and the respective federal | |
income tax bases (on an identified cost basis) thereof, and the liabilities to be assumed by SmallCap Blend pursuant to this Plan. | |
All of SmallCap Value ’s portfolio securities shall be delivered by SmallCap Value ’s custodian on the Closing Date to | |
SmallCap Blend 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 SmallCap Blend or its custodian | |
with said depository. All cash to be delivered pursuant to this Plan shall be transferred from SmallCap Value’s Fund at its | |
custodian to SmallCap Blend’ Fund at its custodian. If on the Closing Date SmallCap Value is unable to make good delivery to | |
SmallCap Blend’ custodian of any of SmallCap Value ’s portfolio securities because such securities have not yet been delivered to | |
SmallCap Value ’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 SmallCap Value shall deliver to SmallCap Blend’ 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 SmallCap | |
Blend, 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 SmallCap Blend. | |
This Plan may be abandoned and terminated, whether before or after action thereon by the shareholders of SmallCap | |
Value 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 SmallCap Value 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 SmallCap Value. | |
Except as expressly provided otherwise in this Plan, Principal Management Corporation will pay all out-of-pocket costs in | |
connection with the transaction contemplated under this Plan, including, but not limited to, accountant’s fees, legal fees, and proxy | |
related costs. | |
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 | th day of __________, 2011. |
PRINCIPAL FUNDS, INC. |
on behalf of the following Acquired Fund: |
SmallCap Value Fund |
By: |
Nora M. Everett, President |
PRINCIPAL FUNDS, INC. |
on behalf of the following Acquiring Fund: |
SmallCap Blend Fund |
By: |
Michael J. Beer, Executive Vice President |
Agreed and accepted: |
PRINCIPAL MANAGEMENT CORPORATION |
By: |
A-2
PLAN OF ACQUISITION |
SmallCap Growth Fund and |
SmallCap Blend Fund |
The Board of Directors of Principal Funds, Inc., a Maryland corporation (the “Fund”), deems it advisable that SmallCap |
Blend Fund series of the Fund (“SmallCap Blend”) acquire all of the assets of SmallCap Growth Fund series of the Fund |
(“SmallCap Growth”) in exchange for the assumption by SmallCap Blend of all of the liabilities of SmallCap Growth and shares |
issued by SmallCap Blend which are thereafter to be distributed by SmallCap Growth pro rata to its shareholders in complete |
liquidation and termination of SmallCap Growth and in exchange for all of SmallCap Growth ’s outstanding shares. |
SmallCap Growth will transfer to SmallCap Blend, and SmallCap Blend will acquire from SmallCap Growth , all of the |
assets of SmallCap Growth on the Closing Date and will assume from SmallCap Growth all of the liabilities of SmallCap Growth |
in exchange for the issuance of the number of shares of SmallCap Blend determined as provided in the following paragraphs, |
which shares will be subsequently distributed pro rata to the shareholders of SmallCap Growth in complete liquidation and |
termination of SmallCap Growth and in exchange for all of SmallCap Growth ’s outstanding shares. SmallCap Growth will not |
issue, sell or transfer any of its shares after the Closing Date, and only redemption requests received by SmallCap Growth in |
proper form prior to the Closing Date shall be fulfilled by SmallCap Growth. Redemption requests received by SmallCap Growth |
thereafter will be treated as requests for redemption of those shares of SmallCap Blend allocable to the shareholder in question. |
SmallCap Growth will declare, and SmallCap Blend 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, SmallCap Blend will issue to SmallCap Growth a number of full and fractional shares of SmallCap |
Blend, taken at their then net asset value, having an aggregate net asset value equal to the aggregate value of the net assets of |
SmallCap Growth. The aggregate value of the net assets of SmallCap Growth and SmallCap Blend 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, 650 8th Street, Des Moines, Iowa 50392 at 3:00 p.m. Central Time on ________, 2011, 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 SmallCap Blend or SmallCap Growth 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, SmallCap Growth shall (a) distribute on a pro rata basis to the shareholders of |
record of SmallCap Growth at the close of business on the Closing Date the shares of SmallCap Blend received by SmallCap |
Growth at the Closing in exchange for all of SmallCap Growth’s outstanding shares (the holders of Class A, Class B, Class C, |
Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and the Institutional Class shares of SmallCap Growth will |
receive, respectively, Class A, Class B, Class C, Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional |
Class shares of SmallCap Blend. |
For purposes of the distribution of shares of SmallCap Blend to shareholders of SmallCap Growth, SmallCap Blend shall |
credit its books an appropriate number of its shares to the account of each shareholder of SmallCap Growth. No certificates will be |
issued for shares of SmallCap Blend. After the Closing Date and until surrendered, each outstanding certificate, if any, which, prior |
to the Closing Date, represented shares of SmallCap Growth, shall be deemed for all purposes of the Fund’s Articles of |
Incorporation and Bylaws to evidence the appropriate number of shares of SmallCap Blend to be credited on the books of |
SmallCap Blend in respect of such shares of SmallCap Growth as provided above. |
Prior to the Closing Date, SmallCap Growth shall deliver to SmallCap Blend a list setting forth the assets to be assigned, |
delivered and transferred to SmallCap Blend, including the securities then owned by SmallCap Growth and the respective federal |
income tax bases (on an identified cost basis) thereof, and the liabilities to be assumed by SmallCap Blend pursuant to this Plan. |
A-3
All of SmallCap Growth ’s portfolio securities shall be delivered by SmallCap Growth ’s custodian on the Closing Date to | |
SmallCap Blend 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 SmallCap Blend or its custodian | |
with said depository. All cash to be delivered pursuant to this Plan shall be transferred from SmallCap Growth’s Fund at its | |
custodian to SmallCap Blend’ Fund at its custodian. If on the Closing Date SmallCap Growth is unable to make good delivery to | |
SmallCap Blend’ custodian of any of SmallCap Growth ’s portfolio securities because such securities have not yet been delivered | |
to SmallCap Growth ’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 SmallCap Growth shall deliver to SmallCap Blend’ 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 | |
SmallCap Blend, 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 SmallCap Blend. | |
This Plan may be abandoned and terminated, whether before or after action thereon by the shareholders of SmallCap | |
Growth 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 SmallCap Growth 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 SmallCap Growth. | |
Except as expressly provided otherwise in this Plan, Principal Management Corporation will pay all out-of-pocket costs in | |
connection with the transaction contemplated under this Plan, including, but not limited to, accountant’s fees, legal fees, and proxy | |
related costs. | |
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 | th day of __________, 2011. |
PRINCIPAL FUNDS, INC. |
on behalf of the following Acquired Fund: |
SmallCap Growth Fund |
By: |
Nora M. Everett, President |
PRINCIPAL FUNDS, INC. |
on behalf of the following Acquiring Fund: |
SmallCap Blend Fund |
By: |
Michael J. Beer, Executive Vice President |
Agreed and accepted: |
PRINCIPAL MANAGEMENT CORPORATION |
By: |
A-4
PART B | |
INFORMATION REQUIRED IN | |
A STATEMENT OF ADDITIONAL INFORMATION | |
PRINCIPAL FUNDS, INC. | |
650 8th Street | |
Des Moines, Iowa 50392-2080 | |
STATEMENT OF ADDITIONAL INFORMATION | |
Dated: December 15, 2011 | |
This Statement of Additional Information is available to the shareholders of the SmallCap Value and SmallCap Growth | |
Funds (the "Acquired Funds"), in connection with the proposed reorganization of the Acquired Funds into the SmallCap | |
Blend 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 December 15, 2011 relating to the Special Meeting of Shareholders of the Acquired Funds to be | |
held on February 6, 2012. The Proxy Statement/Prospectus, which describes the proposed Reorganization, may be obtained | |
without charge by writing to Principal Management Corporation, 650 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, 2011, as supplemented. |
(2) | Audited Financial Statements of the Acquired Funds and the Acquiring Fund included in PFI's Annual Report to |
Shareholders for the fiscal year ended October 31, 2010. | |
(3) | The unaudited financial statements of the Acquired Funds and the Acquiring Fund included in PFI’s Semi-Annual |
Report to Shareholders for the six-month period ended April 30, 2011. | |
(4) | Pro Forma Financial Statements for the combination of the Acquired Funds 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, 2011, (including |
Supplements dated March 14, 2011, June 16, 2011, July 20, 2011, September 16, 2011, September 21, 2011, and | |
October 31, 2011,and also filed via EDGAR on those dates). | |
(2) | The financial statements of the Acquired Funds and the Acquiring Fund included in PFI's Annual Report to |
Shareholders for the fiscal year ended October 31, 2010, which have been audited by Ernst & Young LLP, | |
Independent Registered Public Accounting Firm, as filed on Form N-CSR on December 29, 2010. | |
(3) | The unaudited financial statements of the Acquired Funds and Acquiring Fund included in PFI’s Semi-Annual Report |
to Shareholders for the six-month period April 30, 2011, as filed on Form N-CSRS on June 30, 2011. | |
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 |
On September 13, 2011, the Board of Directors of PFI approved a Plan of Acquisition whereby, the SmallCap Blend Fund |
(the "Acquiring Fund") will acquire all the assets of the SmallCap Value and SmallCap Growth Funds (the "Acquired |
Funds"), subject to the liabilities of the Acquired Funds, in exchange for a number of shares equal in value to the pro rata net |
assets of shares of the Acquired Funds (the "Reorganization"). |
Shown below are unaudited pro forma financial statements for the combined Acquiring Fund, assuming the Reorganization |
had been consummated as of April 30, 2011. The first table presents pro forma Statements of Assets and Liabilities for the |
combined Acquiring Fund. The second table presents pro forma Statements of Operations for the combined Acquiring Fund. |
The third table presents a pro forma Schedule of Investments for the Acquiring Fund. |
Please see the accompanying notes for additional information about the pro forma financial statements. The pro forma |
schedules of investments and statements of assets and liabilities and operations should be read in conjunction with the |
historical financial statements of the Acquired Funds and the Acquiring Fund incorporated by reference in the Statement of |
Additional Information. |
Statements of Assets and Liabilities | ||||||||
Principal Funds, Inc. | ||||||||
April 30, 2011 (unaudited) | ||||||||
Amounts in thousands | ||||||||
SmallCap | SmallCap | SmallCap | Pro Forma | Pro Forma | ||||
Growth Fund | Value Fund | Blend Fund | Adjustments | SmallCap Blend Fund | ||||
Investment in securities--at cost | $ 72,965 | $ 289,296 | $ 187,953 | $ - | $ 550,214 | |||
Assets | ||||||||
Investment in securities--at value | $ 101,577 | $ 359,380 | $ 250,023 | $ - | $ 710,980 | |||
Cash | 50 | 10 | 79 | - | 139 | |||
Receivables: | ||||||||
Dividends and interest | 9 | 91 | 42 | - | 142 | |||
Expense reimbursement from Manager | 11 | 3 | 3 | - | 17 | |||
Expense reimbursement from Distributor | 4 | 6 | 12 | - | 22 | |||
Fund shares sold | 121 | 174 | 138 | - | 433 | |||
Investment securities sold | 112 | 6,245 | 160 | - | 6,517 | |||
Variation margin on futures contracts | 5 | - | 10 | 15 | ||||
Other assets | - | - | 1 | 1 | ||||
Prepaid directors' expenses | 1 | 1 | 1 | 3 | ||||
Total Assets | 101,890 | 365,910 | 250,469 | - | 718,269 | |||
Liabilities | ||||||||
Accrued management and investment advisory fees | 61 | 213 | 149 | - | 423 | |||
Accrued administrative service fees | - | 2 | - | - | 2 | |||
Accrued distribution fees | 25 | 30 | 61 | - | 116 | |||
Accrued service fees | 1 | 7 | 2 | - | 10 | |||
Accrued transfer agent fees | 89 | 58 | 142 | - | 289 | |||
Accrued other expenses | 43 | 48 | 40 | - | 131 | |||
Payables: | ||||||||
Fund shares redeemed | 110 | 164 | 66 | 187,267 (c) | 187,607 | |||
Investment securities purchased | - | 12,513 | - | - | 12,513 | |||
Total Liabilities | 329 | 13,035 | 460 | 187,267 | 201,091 | |||
Net Assets Applicable to Outstanding Shares | $ 101,561 | $ 352,875 | $ 250,009 | $ (187,267) | $ 517,178 | |||
Net Assets Consist of: | ||||||||
Capital Shares and additional paid-in-capital | $ 109,838 | $ 422,282 | $ 237,523 | $ (187,267) (c) | $ 582,376 | |||
Accumulated undistributed (overdistributed) net investment income (operating loss) | (383) | (197) | (394) | (974) | ||||
Accumulated undistributed (overdistributed) net realized gain (loss) | (36,589) | (139,294) | (49,367) | - | (225,250) | |||
Net unrealized appreciation (depreciation) of investments | 28,695 | 70,084 | 62,247 | -�� | 161,026 | |||
Total Net Assets | $ 101,561 | $ 352,875 | $ 250,009 | $ (187,267) | $ 517,178 | |||
Capital Stock (par value: $.01 a share): | ||||||||
Shares authorized | 705,000 | 830,000 | 455,000 | - | 455,000 | |||
Net Asset Value Per Share: | ||||||||
Class A: Net Assets | $ 46,496 | $ 18,816 | $ 88,326 | $ 153,638 | ||||
Shares issued and outstanding | 5,217 | 1,155 | 5,605 | (2,228) (b) | 9,749 | |||
Net asset value per share | $ 8.91 | $ 16.29 | $ 15.76 | $ 15.76 | ||||
Maximum Offering Price | $ 9.43 | $ 17.24 | $ 16.68 | $ - | $ 16.68 | |||
Class B: Net Assets | $ 2,166 | $ 2,505 | $ 5,367 | $ 10,038 | ||||
Shares issued and outstanding | 253 | 159 | 361 | (98) (b) | 675 | |||
Net asset value per share | $ 8.56 | (a) | $ 15.78 | (a) | $ 14.87 | (a) | $ - | $ 14.87 |
Class C: Net Assets | $ 2,899 | $ 3,436 | $ 2,718 | $ 9,053 | ||||
Shares issued and outstanding | 334 | 214 | 178 | (135) (b) | 591 | |||
Net asset value per share | $ 8.69 | (a) | $ 16.03 | (a) | $ 15.31 | (a) | $ - | $ 15.31 |
Class J: Net Assets | $ 30,739 | $ 47,172 | $ 101,006 | $ 178,917 | ||||
Shares issued and outstanding | 3,647 | 2,992 | 6,645 | (1,514) (b) | 11,770 | |||
Net asset value per share | $ 8.43 | (a) | $ 15.77 | (a) | $ 15.20 | (a) | $ - | $ 15.20 |
Institutional: Net Assets | $ 12,997 | $ 246,015 | $ 43,509 | $ (187,267) (c) | $ 115,254 | |||
Shares issued and outstanding | 1,407 | 15,089 | 2,675 | (12,087) (b)(c) | 7,084 | |||
Net asset value per share | $ 9.24 | $ 16.30 | $ 16.27 | $ - | $ 16.27 | |||
R-1: Net Assets | $ 587 | $ 2,186 | $ 257 | $ 3,030 | ||||
Shares issued and outstanding | 68 | 136 | 17 | (25) (b) | 196 | |||
Net asset value per share | $ 8.70 | $ 16.09 | $ 15.48 | $ - | $ 15.48 | |||
R-2: Net Assets | $ 402 | $ 4,238 | $ 1,248 | $ 5,888 | ||||
Shares issued and outstanding | 45 | 263 | 81 | (9) (b) | 380 | |||
Net asset value per share | $ 8.87 | $ 16.11 | $ 15.50 | $ - | $ 15.50 | |||
R-3: Net Assets | $ 663 | $ 9,730 | $ 1,081 | $ 11,474 | ||||
Shares issued and outstanding | 73 | 597 | 68 | (12) (b) | 726 | |||
Net asset value per share | $ 9.03 | $ 16.29 | $ 15.79 | $ - | $ 15.79 | |||
R-4: Net Assets | $ 305 | $ 5,039 | $ 2,464 | $ 7,808 | ||||
Shares issued and outstanding | 33 | 307 | 153 | (8) (b) | 485 | |||
Net asset value per share | $ 9.28 | $ 16.39 | $ 16.08 | $ - | $ 16.08 | |||
R-5: Net Assets | $ 4,307 | $ 13,738 | $ 4,033 | $ 22,078 | ||||
Shares issued and outstanding | 459 | 834 | 248 | (183) (b) | 1,358 | |||
Net asset value per share | $ 9.38 | $ 16.47 | $ 16.26 | $ - | $ 16.26 |
(a) | Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. |
(b) Reflects new shares issued, net of retired shares of SmallCap Growth Fund and SmallCap Value Fund. | |
(c) | Reflects the redemption of PFI's SAM Portfolios from SmallCap Value Fund at April 30, 2011 values. |
See accompanying notes. |
STATEMENT OF OPERATIONS | ||||||
Principal Funds, Inc. | ||||||
Twelve Months Ended April 30, 2011 (unaudited) | ||||||
SmallCap Growth | SmallCap Blend | Pro Forma | Pro Forma SmallCap | |||
Amounts in thousands | Fund | SmallCap Value Fund | Fund | Adjustments | Blend Fund | |
Net Investment Income (Loss) | ||||||
Income: | ||||||
Dividends | $ 1,068 | $ 4,801 | $ 2,278 | $ - | $ 8,147 | |
Interest | 9 | 17 | 12 | - | 38 | |
Total Income | 1,077 | 4,818 | 2,290 | - | 8,185 | |
Expenses: | ||||||
Management and investment advisory fees | 1,383 | 2,480 | 1,617 | (44) (a) | 5,436 | |
Distribution Fees - Class A | 93 | 40 | 187 | - | 320 | |
Distribution Fees - Class B | 22 | 25 | 59 | - | 106 | |
Distribution Fees - Class C | 21 | 31 | 18 | - | 70 | |
Distribution Fees - Class J | 116 | 191 | 399 | - | 706 | |
Distribution Fees - R-1 | 2 | 7 | 1 | - | 10 | |
Distribution Fees - R-2 | 2 | 17 | 4 | - | 23 | |
Distribution Fees - R-3 | 3 | 26 | 2 | - | 31 | |
Distribution Fees - R-4 | - | 5 | 2 | - | 7 | |
Administrative service fees - R-1 | 2 | 5 | 1 | - | 8 | |
Administrative service fees - R-2 | 2 | 11 | 2 | - | 15 | |
Administrative service fees - R-3 | 1 | 6 | 1 | - | 8 | |
Administrative service fees - R-4 | - | 2 | - | - | 2 | |
Administrative service fees - R-5 | - | 3 | - | - | 3 | |
Registration fees - Class A | 19 | 19 | 11 | (30) (b) | 19 | |
Registration fees - Class B | 17 | 20 | 17 | (34) (b) | 20 | |
Registration fees - Class C | 14 | 20 | 14 | (28) (b) | 20 | |
Registration fees - Class J | 13 | 16 | 13 | (26) (b) | 16 | |
Registration fees - Institutional | 17 | 21 | 17 | (34) (b) | 21 | |
Service Fees - R-1 | 2 | 5 | 1 | - | 8 | |
Service Fees - R-2 | 1 | 14 | 4 | - | 19 | |
Service Fees - R-3 | 3 | 26 | 2 | - | 31 | |
Service Fees - R-4 | 1 | 12 | 5 | - | 18 | |
Service Fees - R-5 | 9 | 47 | 9 | - | 65 | |
Shareholder reports - Class A | 36 | 6 | 19 | - | 61 | |
Shareholder reports - Class B | 4 | 2 | 3 | - | 9 | |
Shareholder reports - Class C | 1 | 1 | - | - | 2 | |
Shareholder reports - Class J | 11 | 16 | 32 | - | 59 | |
Shareholder reports - Institutional | 22 | 26 | - | - | 48 | |
Transfer agent fees - Class A | 180 | 62 | 285 | (25) (b) | 502 | |
Transfer agent fees - Class B | 19 | 18 | 39 | (4) (b) | 72 | |
Transfer agent fees - Class C | 10 | 14 | 8 | (3) (b) | 29 | |
Transfer agent fees - Class J | 41 | 71 | 126 | (12) (b) | 226 | |
Transfer agent fees - Institutional | 65 | 59 | 2 | (13) (b) | 113 | |
Custodian fees | 13 | 10 | 7 | (23) (b) | 7 | |
Directors' expenses | 4 | 7 | 7 | - | 18 | |
Professional fees | 18 | 17 | 17 | (35) (b) | 17 | |
Other expenses | 5 | 10 | 7 | - | 22 | |
Total Gross Expenses | 2,172 | 3,368 | 2,938 | (311) | 8,167 | |
Less: Reimbursement from Manager - Class A | 11 | 33 | - | - | 44 | |
Less: Reimbursement from Manager - Class B | 25 | 27 | 12 | - | 64 | |
Less: Reimbursement from Manager - Class C | 16 | 25 | 16 | - | 57 | |
Less: Reimbursement from Manager - Institutional | 72 | - | 6 | - | 78 | |
Less: Reimbursement from Distributor - Class J | 29 | 46 | 98 | - | 173 | |
Total Net Expenses | 2,019 | 3,237 | 2,806 | (311) | 7,751 | |
Net Investment Income (Loss) | (942) | 1,581 | (516) | 311 | 434 | |
Net Realized and Unrealized Gain (Loss) on Investments | ||||||
Net realized gain (loss) from: | ||||||
Investment transactions | 57,127 | 37,311 | 25,531 | - | 119,969 | |
Futures contracts | 639 | 278 | 447 | - | 1,364 | |
Change in unrealized appreciation/depreciation of: | ||||||
Investments | (26,264) | (7,792) | 15,159 | - | (18,897) | |
Futures contracts | (91) | - | 33 | - | (58) | |
Net Realized and Unrealized Gain (Loss) on Investments | 31,411 | 29,797 | 41,170 | - | 102,378 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | $ 30,469 | $ 31,378 | $ 40,654 | $ 311 | $ 102,812 |
(a) | Management and investment advisory fees decreased to reflect the breakpoints of the Combined Funds net assets. |
(b) | To adjust expenses to reflect the Combined Fund's estimated fees and expenses, based on elimination of duplicate services. |
See accompanying notes.
Pro Forma Notes to Financial Statements |
April 30, 2011 |
(unaudited) |
1. Description of the Funds |
SmallCap Growth Fund, SmallCap Value Fund, and SmallCap Blend Fund are series of Principal Funds, Inc. (the “Fund”). The Fund |
is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. |
2. Basis of Combination |
On September 13, 2011, the Board of Directors of Principal Funds, Inc., SmallCap Growth Fund and SmallCap Value Fund approved |
an Agreement and Plan of Reorganization (the “Reorganization”) whereby, SmallCap Blend Fund will acquire all the assets of |
SmallCap Growth Fund and SmallCap Value Fund subject to the liabilities of such funds, in exchange for a number of shares equal to |
the pro rata net assets of SmallCap Blend Fund. |
The Reorganization will be accounted for as a tax-free reorganization of investment companies. The pro forma combined financial |
statements are presented for the information of the reader and may not necessarily be representative of what the actual combined |
financial statements would have been had the Reorganization occurred at April 30, 2011. The unaudited pro forma schedules of |
investments and statements of assets and liabilities reflect the financial position of SmallCap Growth Fund, SmallCap Value Fund, and |
SmallCap Blend Fund at April 30, 2011. The unaudited pro forma statements of operations reflect the results of operations of |
SmallCap Growth Fund, SmallCap Value Fund, and SmallCap Blend Fund for the twelve months ended April 30, 2011. The |
statements have been derived from the Funds’ respective books and records utilized in calculating daily net asset value at the dates |
indicated above for SmallCap Growth Fund, SmallCap Value Fund, and SmallCap Blend Fund under U.S. generally accepted |
accounting principles. The historical cost of investment securities will be carried forward to the surviving entity and results of |
operations of SmallCap Blend Fund for pre-combination periods will not be restated. |
Principal Management Corporation 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 $88,956. SmallCap Growth Fund and |
SmallCap Value Fund will pay any trading costs associated with disposing of any portfolio securities that would not be compatible |
with the investment objectives and strategies of SmallCap Blend Fund and reinvesting the proceeds in securities that would be |
compatible. These trading costs are estimated to be $99,000 for SmallCap Value Fund and $62,000 for SmallCap Growth Fund. The |
estimated gain would be $12,936,000 ($1.12 per share) for SmallCap Growth Fund and an estimated gain of $33,326,000($1.53 per |
share) for SmallCap Value Fund, on a U.S. GAAP basis. |
The pro forma schedules of investments and statements of assets and liabilities and operations should be read in conjunction with the |
historical financial statements of the Funds incorporated by reference in the Statements of Additional Information. |
3. Significant Accounting Policies |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to |
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and |
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual |
results could differ from those estimates. |
4. Operating Policies |
Futures Contracts |
The Funds are subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing |
their investment objectives. The Funds may enter into futures contracts to hedge against changes in or to gain exposure to, change in |
the value of equities, interest rates and foreign currencies. Initial margin deposits are made by cash deposits or segregation of specific |
securities as may be required by the exchange on which the transaction was conducted. Pursuant to the contracts, a fund agrees to |
receive from or pay to the broker, an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or |
payments are known as “variation margin” and are recorded by the fund as a variation margin receivable or payable on futures |
contracts. During the period the futures contracts are open, daily changes in the value of the contracts are recognized as unrealized |
gains or losses. These unrealized gains or losses are included as a component of net unrealized appreciation (depreciation) of |
investments on the statements of assets and liabilities. When the contracts are closed, the Fund recognizes a realized gain or loss equal |
to the difference between the proceeds from, or cost of, the closing transaction and the fund’s cost basis in the contract. There is |
minimal counterparty credit risk to the Funds because futures are exchange traded and the exchange’s clearinghouse, as counterparty |
to all exchange traded futures, guarantees the futures against default. |
Pro Forma Notes to Financial Statements |
April 30, 2011 |
(unaudited) |
4. Operating Policies (Continued) |
Repurchase Agreements |
The Funds may invest in repurchase agreements that are fully collateralized, typically by U.S. government or U.S. government agency |
securities. It is the Funds’ policy that its custodian takes possession of the underlying collateral securities. The fair value of the |
collateral is at all times at least equal to the total amount of the repurchase obligation. In the event of default on the obligation to |
repurchase, the Funds have the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event the |
seller of a repurchase agreement defaults, the Funds could experience delays in the realization of the collateral. |
5. Security Valuation |
SmallCap Growth Fund, SmallCap Value Fund, and SmallCap Blend Fund value securities for which market quotations are readily |
available at market value, which is determined using the last reported sale price. If no sales are reported, as is regularly the case for |
some securities traded over-the-counter, securities are valued using the last reported bid price or an evaluated bid price provided by a |
pricing service. Pricing services use modeling techniques that incorporate security characteristics, market conditions and dealer- |
supplied valuations to determine an evaluated bid price. When reliable market quotations are not considered to be readily available, |
which may be the case, for example, with respect to restricted securities, certain debt securities, preferred stocks, and foreign |
securities, the investments are valued at their fair value as determined in good faith by Principal Management Corporation (the |
“Manager”) under procedures established and periodically reviewed by the Fund’s Board of Directors. |
The value of foreign securities used in computing the net asset value per share is generally determined as of the close of the foreign |
exchange where the security is principally traded. Events that occur after the close of the applicable foreign market or exchange but |
prior to the calculation of the fund’s net asset value are ordinarily not reflected in the fund’s net asset value. If the Manager reasonably |
believes events that occur after the close of the applicable foreign market or exchange but prior to the calculation of the fund’s net |
asset value will materially affect the value of a foreign security, then the security is valued at its fair value as determined in good faith |
by the Manager under procedures established and periodically reviewed by the Fund’s Board of Directors. Many factors are reviewed |
in the course of making a good faith determination of a security’s fair value, including, but not limited to, price movements in ADRs, |
futures contracts, industry indices, general indices and foreign currencies. |
To the extent each fund invests in foreign securities listed on foreign exchanges which trade on days on which the fund does not |
determine its net asset value, for example weekends and other customary national U.S. holidays, each fund’s net asset value could be |
significantly affected on days when shareholders cannot purchase or redeem shares. |
Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any given point in |
time, sometimes referred to as a "local" price and a "premium" price. The premium price is often a negotiated price, which may not |
consistently represent a price at which a specific transaction can be effected. It is the policy of the Funds to value such securities at |
prices at which it is expected those shares may be sold, and the Manager or any sub-advisor is authorized to make such determinations |
subject to such oversight by the Fund’s Board of Directors as may occasionally be necessary. |
Short-term securities purchased with less than 60 days until maturity are valued at amortized cost, which approximates market. Under |
the amortized cost method, a security is valued by applying a constant yield to maturity of the difference between the principal amount |
due at maturity and the cost of the security to the fund. |
Fair value is defined as the price that the Funds would receive upon selling a security in a timely transaction to an independent buyer |
in the principal or most advantageous market of the security at the measurement date. In determining fair value, the Funds use various |
valuation approaches, including market, income and/or cost approaches. A hierarchy for inputs is used in measuring fair value that |
maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be |
used when available. |
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed |
based on market data obtained from sources independent of the Funds. Unobservable inputs are inputs that reflect the Funds own |
estimates about the estimates market participants would use in pricing the asset or liability developed based on the best information |
available in the circumstances. |
Pro Forma Notes to Financial Statements |
April 30, 2011 |
(unaudited) |
5. Security Valuation (Continued) |
The three-tier hierarchy of inputs is summarized in the three broad levels listed below. |
--- Level 1 – Quoted prices are available in active markets for identical securities as of the reporting date. The type of securities |
included in Level 1 includes listed equities and listed derivatives. |
--- Level 2 – Other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments speeds, |
credit risk, etc.). Investments which are generally included in this category include corporate bonds, senior floating rate interests, and |
municipal bonds. |
--- Level 3 – Significant unobservable inputs (including the Funds’ assumptions in determining the fair value of investments). |
Investments which are generally included in this category include certain corporate bonds and certain mortgage backed securities. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for |
example, the type of security, whether the security is new and not yet established in the market place, and other characteristics |
particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the |
market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Funds in |
determining fair value is greatest for instruments categorized in Level 3. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for |
disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined |
based on the lowest level input that is significant to the fair value measurement in its entirety. |
Fair value is a market based measure considered from the perspective of a market participant who holds the asset rather than an entity |
specific measure. Therefore, even when market assumptions are not readily available, the Fund’s own assumptions are set to reflect |
those that market participants would use in pricing the asset or liability at the measurement date. The Funds use prices and inputs that |
are current as of the measurement date. |
Investments which are generally included in the Level 3 category are primarily valued using quoted prices from brokers and dealers |
participating in the market for these investments. These investments are classified as Level 3 investments due to the lack of market |
transparency and market corroboration to support these quoted prices. Valuation models may be used as the pricing source for other |
investments classified as Level 3. Valuation models rely on one or more significant unobservable inputs. Frequently, fair value of |
these investments is determined in good faith by the Manager under procedures established and periodically reviewed by the Fund’s |
Board of Directors. |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those |
instruments. |
The beginning of the period timing recognition is being adopted for the significant transfers between levels of each Fund’s assets and |
liabilities. Certain transfers may occur as a result of the Fund’s valuation policies for international securities which involve fair value |
estimates based on observable market inputs when significant events occur between the local close and the time the net asset value of |
the Fund is calculated. As of April 30, 2011, there were no significant transfers between Levels 1 and 2 or into/out of Level 3. |
Pro Forma Notes to Financial Statements |
April 30, 2011 |
(unaudited) |
5. Security Valuation (Continued) |
The following is a summary of the inputs used as of April 30, 2011 in valuing the Funds’ securities carried at value (amounts shown in |
thousands): |
Level 2 - Other | |||||
Level 1 - Quoted | Significant Observable | Level 3 - Significant | |||
Fund | Prices | Inputs | Unobservable Inputs | Totals (Level 1,2,3) | |
SmallCap Blend Fund | |||||
Common Stocks* | $ 244,645 | $ — | $ — | $ 244,645 | |
Repurchase Agreements | — | 5,378 | — | 5,378 | |
Total investments in securities | $ 244,645 | $ 5,378 | $ — | $ 250,023 | |
Assets | |||||
Equity Contracts** | |||||
Futures | $ 177 | $ — | $ — | $ 177 | |
SmallCap Growth Fund | |||||
Common Stocks* | $ 99,082 | $ — | $ — | $ 99,082 | |
Repurchase Agreements | — | 2,495 | — | 2,495 | |
Total investments in securities | $ 99,082 | $ 2,495 | $ — | $ 101,577 | |
Assets | |||||
Equity Contracts** | |||||
Futures | $ 83 | $ — | $ — | $ 83 | |
SmallCap Value Fund | |||||
Common Stocks* | $ 347,931 | $ — | $ — | $ 347,931 | |
Repurchase Agreements | — | 11,449 | — | 11,449 | |
Total investments in securities | $ 347,931 | $ 11,449 | $ — | $ 359,380 |
* For additional detail regarding sector classifications, please see the Schedule of Investments. |
** Futures are valued at the unrealized appreciation/(depreciation) on the instrument. |
6. Capital Shares |
The pro forma net asset value per share assumes issuance of shares of SmallCap Blend Fund that would have been issued at April 30, |
2011, in connection with the Reorganization. The number of shares assumed to be issued is equal to the net assets of SmallCap |
Growth Fund and SmallCap Value Fund, as of April 30, 2011, divided by the net asset value per share of SmallCap Blend Fund as of |
April 30, 2011. The pro forma number of shares outstanding, by class, for the combined fund can be found on the statement of assets |
and liabilities. |
7. Pro Forma Adjustments |
The accompanying pro forma financial statements reflect changes in fund shares as if the Reorganization had taken place on April 30, |
2011. The expenses of SmallCap Growth Fund and SmallCap Value Fund were adjusted assuming the fee structure of SmallCap |
Blend Fund was in effect for the twelve months ended April 30, 2011. |
8. Federal Income Taxes |
No provision for federal income taxes is considered necessary because each fund is qualified as a “regulated investment company” |
under the Internal Revenue Code and intends to distribute each year substantially all of its net investment income and realized capital |
gains to shareholders. |
Schedule of Investments | ||||||||
April 30, 2011 | ||||||||
SmallCap Value | SmallCap Value | SmallCap | SmallCap | SmallCap Blend | SmallCap Blend | Combined | Combined | |
Fund Shares | Fund Value | Growth Fund | Growth Fund | Fund Shares | Fund Value | Portfolio Shares | Portfolio Value | |
COMMON STOCKS - 98.19% | Held | (000's) | Shares Held | Value (000's) | Held | (000's) | Held | (000's) |
Aerospace & Defense - 3.05% | ||||||||
Esterline Technologies Corp (a) * | 50,110 $ | 3,598 | 18,354 | $ 1,318 | 24,599 $ | 1,766 | 93,063 | $ 6,682 |
HEICO Corp * | — | — | 34,125 | 1,643 | 34,413 | 1,658 | 68,538 | 3,301 |
LMI Aerospace Inc (a) * | 127,830 | 2,563 | — | — | 17,840 | 358 | 145,670 | 2,921 |
Moog Inc (a) * | 71,810 | 3,168 | — | — | 49,120 | 2,167 | 120,930 | 5,335 |
Triumph Group Inc * | 27,880 | 2,401 | — | — | 10,220 | 880 | 38,100 | 3,281 |
$ 11,730 | $ 2,961 | $ 6,829 | $ 21,520 | |||||
Airlines - 0.81% | ||||||||
Alaska Air Group Inc (a) | 47,930 | 3,157 | — | — | 38,230 | 2,518 | 86,160 | 5,675 |
Apparel - 1.98% | ||||||||
Deckers Outdoor Corp (a) * | — | — | 6,000 | 509 | — | — | 6,000 | 509 |
Iconix Brand Group Inc (a) * | 137,030 | 3,356 | — | — | — | — | 137,030 | 3,356 |
Perry Ellis International Inc (a) * | 88,680 | 2,499 | 25,700 | 724 | 42,520 | 1,198 | 156,900 | 4,421 |
Steven Madden Ltd (a) * | — | — | 19,020 | 1,011 | 28,544 | 1,517 | 47,564 | 2,528 |
Warnaco Group Inc/The (a) * | — | — | 19,657 | 1,265 | 29,052 | 1,870 | 48,709 | 3,135 |
$ 5,855 | $ 3,509 | $ 4,585 | $ 13,949 | |||||
Automobile Parts & Equipment | ||||||||
- 1.43% | ||||||||
Dana Holding Corp (a) * | 115,920 | 2,106 | 55,200 | 1,003 | 92,950 | 1,689 | 264,070 | 4,798 |
Tenneco Inc (a) * | 60,960 | 2,817 | 22,600 | 1,044 | 31,280 | 1,445 | 114,840 | 5,306 |
$ 4,923 | $ 2,047 | $ 3,134 | $ 10,104 | |||||
Banks - 7.65% | ||||||||
Bancfirst Corp * | 63,510 | 2,558 | — | — | — | — | 63,510 | 2,558 |
Bank of the Ozarks Inc * | 65,100 | 2,899 | — | — | — | — | 65,100 | 2,899 |
CapitalSource Inc | — | — | — | — | 228,580 | 1,527 | 228,580 | 1,527 |
Cathay General Bancorp * | 165,570 | 2,823 | — | — | — | — | 165,570 | 2,823 |
Chemical Financial Corp | — | — | — | — | 15,770 | 318 | 15,770 | 318 |
Community Bank System Inc * | 132,980 | 3,327 | — | — | 42,170 | 1,055 | 175,150 | 4,382 |
Community Trust Bancorp Inc * | 122,111 | 3,456 | — | — | 12,310 | 349 | 134,421 | 3,805 |
Eagle Bancorp Inc (a) | — | — | — | — | 22,130 | 307 | 22,130 | 307 |
East West Bancorp Inc * | 149,050 | 3,149 | — | — | 60,665 | 1,282 | 209,715 | 4,431 |
Financial Institutions Inc * | 108,820 | 1,850 | — | — | 17,726 | 301 | 126,546 | 2,151 |
First of Long Island Corp/The | — | — | — | — | 10,660 | 288 | 10,660 | 288 |
Independent Bank Corp/Rockland | 130,531 | 3,826 | — | — | — | — | 130,531 | 3,826 |
MA * | ||||||||
MainSource Financial Group Inc * | 230,674 | 2,221 | — | — | — | — | 230,674 | 2,221 |
Nara Bancorp Inc (a) * | 278,360 | 2,736 | — | — | — | — | 278,360 | 2,736 |
National Penn Bancshares Inc * | 207,210 | 1,701 | — | — | — | — | 207,210 | 1,701 |
NBT Bancorp Inc | — | — | — | — | 32,980 | 745 | 32,980 | 745 |
Prosperity Bancshares Inc * | 53,110 | 2,435 | — | — | — | — | 53,110 | 2,435 |
Signature Bank/New York NY (a) * | 50,940 | 2,965 | 18,100 | 1,054 | 39,190 | 2,281 | 108,230 | 6,300 |
Southside Bancshares Inc * | 112,394 | 2,445 | — | — | — | — | 112,394 | 2,445 |
Southwest Bancorp Inc/Stillwater | — | — | — | — | 26,110 | 370 | 26,110 | 370 |
OK (a) | ||||||||
Washington Banking Co | — | — | — | — | 23,410 | 328 | 23,410 | 328 |
Webster Financial Corp * | 143,080 | 3,079 | — | — | 76,810 | 1,653 | 219,890 | 4,732 |
West Coast Bancorp/OR (a) | — | — | — | — | 158,430 | 567 | 158,430 | 567 |
$ 41,470 | $ 1,054 | $ 11,371 | $ 53,895 | |||||
Biotechnology - 1.32% | ||||||||
Acorda Therapeutics Inc (a) * | — | — | 21,600 | 606 | 29,730 | 833 | 51,330 | 1,439 |
Arqule Inc (a) * | — | — | 51,850 | 366 | 82,560 | 583 | 134,410 | 949 |
Cytokinetics Inc (a) * | — | — | 153,628 | 229 | 245,104 | 365 | 398,732 | 594 |
Exelixis Inc (a) * | — | — | 32,220 | 395 | 67,280 | 825 | 99,500 | 1,220 |
Human Genome Sciences Inc (a) * | — | — | 19,336 | 570 | 37,857 | 1,116 | 57,193 | 1,686 |
Incyte Corp (a) * | — | — | 26,563 | 491 | 45,030 | 832 | 71,593 | 1,323 |
InterMune Inc (a) * | — | — | 5,300 | 236 | — | — | 5,300 | 236 |
Ligand Pharmaceuticals Inc (a) | — | — | 1 | — | — | — | 1 | — |
Momenta Pharmaceuticals Inc (a) * | — | — | 38,000 | 717 | 61,108 | 1,153 | 99,108 | 1,870 |
XOMA Ltd (a) | — | — | 1 | — | — | — | 1 | — |
$ — | $ 3,610 | $ 5,707 | $ 9,317 | |||||
Chemicals - 2.66% | ||||||||
Arch Chemicals Inc * | 51,769 | 2,002 | — | — | — | — | 51,769 | 2,002 |
KMG Chemicals Inc * | 108,950 | 2,243 | — | — | — | — | 108,950 | 2,243 |
Kraton Performance Polymers Inc | 52,435 | 2,420 | — | — | 37,694 | 1,740 | 90,129 | 4,160 |
(a) | ||||||||
PolyOne Corp * | 157,470 | 2,280 | 44,600 | 646 | — | — | 202,070 | 2,926 |
Sensient Technologies Corp * | 48,530 | 1,839 | — | — | — | — | 48,530 | 1,839 |
WR Grace & Co (a) | 53,150 | 2,411 | — | — | 70,067 | 3,178 | 123,217 | 5,589 |
$ 13,195 | $ 646 | $ 4,918 | $ 18,759 | |||||
Commercial Services - 5.91% | ||||||||
Geo Group Inc/The (a) * | 112,900 | 3,012 | — | — | — | — | 112,900 | 3,012 |
Kenexa Corp (a) * | 115,828 | 3,408 | 29,173 | 858 | 47,997 | 1,412 | 192,998 | 5,678 |
On Assignment Inc (a) * | 340,580 | 3,736 | — | — | 45,520 | 499 | 386,100 | 4,235 |
Parexel International Corp (a) * | 115,110 | 3,195 | 66,900 | 1,857 | 124,520 | 3,457 | 306,530 | 8,509 |
Rent-A-Center Inc/TX * | 93,800 | 2,856 | — | — | 62,890 | 1,915 | 156,690 | 4,771 |
SmallCap Value | SmallCap Value | SmallCap | SmallCap | SmallCap Blend | SmallCap Blend | Combined | Combined | |
COMMON STOCKS | Fund Shares | Fund Value | Growth Fund | Growth Fund | Fund Shares | Fund Value | Portfolio Shares | Portfolio Value |
(continued) | Held | (000's) | Shares Held | Value (000's) | Held | (000's) | Held | (000's) |
Commercial Services | ||||||||
(continued) | ||||||||
RSC Holdings Inc (a) * | 182,040 | $ 2,398 | — | $ — | 105,630 | $ 1,391 | 287,670 | $ 3,789 |
SFN Group Inc (a) * | 129,130 | 1,360 | — | — | 42,050 | 443 | 171,180 | 1,803 |
Sotheby's * | — | — | 31,000 | 1,566 | 43,240 | 2,185 | 74,240 | 3,751 |
Team Inc (a) | — | — | — | — | 46,840 | 1,169 | 46,840 | 1,169 |
TeleTech Holdings Inc (a) * | — | — | 68,700 | 1,365 | 70,920 | 1,409 | 139,620 | 2,774 |
Valassis Communications Inc (a) * | — | — | 25,200 | 727 | 48,850 | 1,408 | 74,050 | 2,135 |
$ 19,965 | $ 6,373 | $ 15,288 | $ 41,626 | |||||
Computers - 1.94% | ||||||||
CACI International Inc (a) | 23,610 | 1,443 | — | — | 36,270 | 2,216 | 59,880 | 3,659 |
Fortinet Inc (a) * | — | — | 29,400 | 1,432 | 51,800 | 2,523 | 81,200 | 3,955 |
Manhattan Associates Inc (a) * | — | — | 42,000 | 1,518 | 56,780 | 2,053 | 98,780 | 3,571 |
Riverbed Technology Inc (a) * | — | — | 8,100 | 285 | — | — | 8,100 | 285 |
Syntel Inc * | — | — | 16,000 | 875 | 23,980 | 1,311 | 39,980 | 2,186 |
$ 1,443 | $ 4,110 | $ 8,103 | $ 13,656 | |||||
Consumer Products - 1.12% | ||||||||
Helen of Troy Ltd (a) * | 75,220 | 2,341 | — | — | 24,960 | 777 | 100,180 | 3,118 |
Prestige Brands Holdings Inc (a) * | 187,810 | 2,169 | — | — | 74,380 | 859 | 262,190 | 3,028 |
Tupperware Brands Corp * | — | — | 12,200 | 777 | 15,560 | 991 | 27,760 | 1,768 |
$ 4,510 | $ 777 | $ 2,627 | $ 7,914 | |||||
Cosmetics & Personal Care - | ||||||||
0.07% | ||||||||
Inter Parfums Inc * | — | — | 11,400 | 217 | 15,820 | 301 | 27,220 | 518 |
Distribution & Wholesale - | ||||||||
0.21% | ||||||||
Brightpoint Inc (a) * | — | — | 50,800 | 514 | 93,290 | 944 | 144,090 | 1,458 |
Diversified Financial Services - | ||||||||
1.49% | ||||||||
Calamos Asset Management Inc | — | — | — | — | 65,520 | 1,066 | 65,520 | 1,066 |
MarketAxess Holdings Inc * | — | — | 62,100 | 1,512 | 51,410 | 1,252 | 113,510 | 2,764 |
MF Global Holdings Ltd (a) * | 367,900 | 3,094 | — | — | — | — | 367,900 | 3,094 |
National Financial Partners Corp | 172,700 | 2,779 | — | — | — | — | 172,700 | 2,779 |
(a) * | ||||||||
optionsXpress Holdings Inc | — | — | — | — | 44,570 | 822 | 44,570 | 822 |
$ 5,873 | $ 1,512 | $ 3,140 | $ 10,525 | |||||
Electric - 3.19% | ||||||||
Ameresco Inc (a) * | 138,945 | 2,238 | 48,200 | 776 | 89,200 | 1,437 | 276,345 | 4,451 |
Avista Corp * | 115,600 | 2,815 | — | — | 72,340 | 1,762 | 187,940 | 4,577 |
El Paso Electric Co * | 111,380 | 3,451 | — | — | — | — | 111,380 | 3,451 |
IDACORP Inc | — | — | — | — | 23,650 | 927 | 23,650 | 927 |
NorthWestern Corp * | 92,000 | 2,995 | — | — | 45,450 | 1,479 | 137,450 | 4,474 |
Unisource Energy Corp * | 75,470 | 2,802 | — | — | 48,830 | 1,813 | 124,300 | 4,615 |
$ 14,301 | $ 776 | $ 7,418 | $ 22,495 | |||||
Electrical Components & | ||||||||
Equipment - 0.99% | ||||||||
Belden Inc * | — | — | 42,000 | 1,597 | 41,510 | 1,579 | 83,510 | 3,176 |
EnerSys (a) * | 81,640 | 3,093 | — | — | 19,190 | 727 | 100,830 | 3,820 |
$ 3,093 | $ 1,597 | $ 2,306 | $ 6,996 | |||||
Electronics - 2.61% | ||||||||
Brady Corp * | 85,470 | 3,223 | — | — | 36,570 | 1,379 | 122,040 | 4,602 |
CTS Corp | — | — | — | — | 42,800 | 470 | 42,800 | 470 |
Cymer Inc (a) * | 53,550 | 2,576 | — | — | — | — | 53,550 | 2,576 |
FEI Co (a) * | — | — | 21,400 | 695 | — | — | 21,400 | 695 |
LaBarge Inc (a) | — | — | — | — | 20,825 | 399 | 20,825 | 399 |
OSI Systems Inc (a) * | 62,420 | 2,397 | — | — | 33,120 | 1,271 | 95,540 | 3,668 |
Rofin-Sinar Technologies Inc (a) * | — | — | 33,299 | 1,442 | 51,420 | 2,227 | 84,719 | 3,669 |
Watts Water Technologies Inc * | 59,120 | 2,288 | — | — | — | — | 59,120 | 2,288 |
$ 10,484 | $ 2,137 | $ 5,746 | $ 18,367 | |||||
Engineering & Construction - | ||||||||
0.85% | ||||||||
MasTec Inc (a) * | 182,280 | 4,134 | — | — | 82,070 | 1,861 | 264,350 | 5,995 |
Entertainment - 0.34% | ||||||||
Shuffle Master Inc (a) * | 222,000 | 2,426 | — | — | — | — | 222,000 | 2,426 |
Environmental Control - 0.08% | ||||||||
Tetra Tech Inc (a) | — | — | — | — | 24,960 | 590 | 24,960 | 590 |
Food - 0.65% | ||||||||
Fresh Del Monte Produce Inc | — | — | — | — | 31,030 | 841 | 31,030 | 841 |
Fresh Market Inc/The (a ) * | — | — | 19,600 | 820 | 28,720 | 1,201 | 48,320 | 2,021 |
TreeHouse Foods Inc (a) | — | — | — | — | 28,470 | 1,728 | 28,470 | 1,728 |
$ — | $ 820 | $ 3,770 | $ 4,590 | |||||
Forest Products & Paper - | ||||||||
0.22% | ||||||||
Domtar Corp | — | — | — | — | 16,380 | 1,524 | 16,380 | 1,524 |
SmallCap Value | SmallCap Value | SmallCap | SmallCap | SmallCap Blend | SmallCap Blend | Combined | Combined | |
COMMON STOCKS | Fund Shares | Fund Value | Growth Fund | Growth Fund | Fund Shares | Fund Value | Portfolio Shares | Portfolio Value |
(continued) | Held | (000's) | Shares Held | Value (000's) | Held | (000's) | Held | (000's) |
Gas - 0.66% | ||||||||
Southwest Gas Corp * | 81,280 | $ 3,233 | — | $ — | 35,260 | $ 1,402 | 116,540 | $ 4,635 |
Hand & Machine Tools - 0.96% | ||||||||
Franklin Electric Co Inc * | 73,120 | 3,298 | 31,500 | 1,421 | 44,480 | 2,006 | 149,100 | 6,725 |
Healthcare - Products - 2.07% | ||||||||
Bruker BioSciences Corp (a) * | — | — | 53,100 | 1,048 | 28,620 | 565 | 81,720 | 1,613 |
Cantel Medical Corp | — | — | — | — | 30,970 | 803 | 30,970 | 803 |
Cooper Cos Inc/The * | 39,860 | 2,985 | 9,000 | 674 | — | — | 48,860 | 3,659 |
Haemonetics Corp (a) * | — | — | 13,800 | 969 | — | — | 13,800 | 969 |
Hill-Rom Holdings Inc * | 53,490 | 2,408 | 16,700 | 752 | — | — | 70,190 | 3,160 |
Orthofix International NV (a) * | 63,861 | 2,176 | 24,273 | 827 | 39,938 | 1,361 | 128,072 | 4,364 |
$ 7,569 | $ 4,270 | $ 2,729 | $ 14,568 | |||||
Healthcare - Services - 4.06% | ||||||||
Air Methods Corp (a) * | 32,630 | 2,206 | — | — | — | — | 32,630 | 2,206 |
AMERIGROUP Corp (a) * | 51,050 | 3,487 | 16,300 | 1,113 | 30,120 | 2,057 | 97,470 | 6,657 |
Centene Corp (a) | — | — | — | — | 19,010 | 689 | 19,010 | 689 |
Ensign Group Inc/The * | 59,280 | 1,640 | 26,400 | 730 | 39,614 | 1,096 | 125,294 | 3,466 |
Gentiva Health Services Inc (a) * | — | — | 30,993 | 868 | 49,252 | 1,379 | 80,245 | 2,247 |
Healthsouth Corp (a) * | — | — | 54,845 | 1,406 | 95,760 | 2,454 | 150,605 | 3,860 |
Kindred Healthcare Inc (a) * | 114,590 | 2,890 | — | — | 63,900 | 1,611 | 178,490 | 4,501 |
Magellan Health Services Inc (a) * | 56,890 | 2,959 | — | — | 38,230 | 1,989 | 95,120 | 4,948 |
$ 13,182 | $ 4,117 | $ 11,275 | $ 28,574 | |||||
Insurance - 1.56% | ||||||||
Delphi Financial Group Inc * | 102,560 | 3,277 | — | — | 39,624 | 1,266 | 142,184 | 4,543 |
Montpelier Re Holdings Ltd ADR | — | — | — | — | 132,750 | 2,401 | 132,750 | 2,401 |
OneBeacon Insurance Group Ltd | — | — | — | — | 19,210 | 270 | 19,210 | 270 |
Primerica Inc | — | — | — | — | 40,680 | 941 | 40,680 | 941 |
Selective Insurance Group Inc * | 162,260 | 2,862 | — | — | — | — | 162,260 | 2,862 |
$ 6,139 | $ — | $ 4,878 | $ 11,017 | |||||
Internet - 1.68% | ||||||||
Ancestry.com Inc (a) * | — | — | 20,779 | 950 | 36,596 | 1,673 | 57,375 | 2,623 |
comScore Inc (a) * | — | — | 29,400 | 876 | 48,990 | 1,460 | 78,390 | 2,336 |
Liquidity Services Inc (a) * | — | — | 41,000 | 798 | 69,310 | 1,348 | 110,310 | 2,146 |
Responsys Inc (a) * | — | — | 8,335 | 133 | — | — | 8,335 | 133 |
TIBCO Software Inc (a) * | — | — | 63,300 | 1,898 | 90,410 | 2,711 | 153,710 | 4,609 |
$ — | $ 4,655 | $ 7,192 | $ 11,847 | |||||
Investment Companies - 0.29% | ||||||||
PennantPark Investment Corp * | 138,396 | 1,708 | — | — | 25,862 | 319 | 164,258 | 2,027 |
Iron & Steel - 0.94% | ||||||||
Schnitzer Steel Industries Inc * | 33,160 | 2,058 | 7,800 | 484 | 19,060 | 1,183 | 60,020 | 3,725 |
Universal Stainless & Alloy (a) * | 79,987 | 2,900 | — | — | — | — | 79,987 | 2,900 |
$ 4,958 | $ 484 | $ 1,183 | $ 6,625 | |||||
Leisure Products & Services - | ||||||||
0.65% | ||||||||
Polaris Industries Inc * | — | — | 14,700 | 1,550 | 28,620 | 3,017 | 43,320 | 4,567 |
Machinery - Diversified - 1.11% | ||||||||
Altra Holdings Inc (a) * | — | — | 65,100 | 1,653 | 65,680 | 1,668 | 130,780 | 3,321 |
Applied Industrial Technologies | — | — | 41,470 | 1,462 | 34,010 | 1,199 | 75,480 | 2,661 |
Inc * | ||||||||
Chart Industries Inc (a) | — | — | — | — | 37,060 | 1,801 | 37,060 | 1,801 |
$ — | $ 3,115 | $ 4,668 | $ 7,783 | |||||
Media - 0.41% | ||||||||
Sinclair Broadcast Group Inc * | 251,360 | 2,888 | — | — | — | — | 251,360 | 2,888 |
Metal Fabrication & Hardware - | ||||||||
0.90% | ||||||||
CIRCOR International Inc | — | — | — | — | 25,510 | 1,159 | 25,510 | 1,159 |
LB Foster Co * | 62,550 | 2,662 | — | — | 19,700 | 838 | 82,250 | 3,500 |
RBC Bearings Inc (a) * | — | — | 21,500 | 844 | 22,000 | 864 | 43,500 | 1,708 |
$ 2,662 | $ 844 | $ 2,861 | $ 6,367 | |||||
Mining - 1.03% | ||||||||
Hecla Mining Co (a) * | 187,130 | 1,761 | 108,200 | 1,018 | 158,370 | 1,490 | 453,700 | 4,269 |
Kaiser Aluminum Corp | — | — | — | — | 19,400 | 972 | 19,400 | 972 |
Thompson Creek Metals Co Inc(a) * | 160,870 | 1,983 | — | — | — | — | 160,870 | 1,983 |
$ 3,744 | $ 1,018 | $ 2,462 | $ 7,224 | |||||
Miscellaneous Manufacturing - | ||||||||
2.56% | ||||||||
Actuant Corp * | — | — | 44,100 | 1,224 | 70,650 | 1,961 | 114,750 | 3,185 |
AO Smith Corp * | 51,410 | 2,261 | — | — | — | — | 51,410 | 2,261 |
CLARCOR Inc * | — | — | 22,300 | 1,008 | 38,140 | 1,724 | 60,440 | 2,732 |
Colfax Corp (a) * | — | — | 47,712 | 1,042 | 52,210 | 1,141 | 99,922 | 2,183 |
ESCO Technologies Inc | — | — | — | — | 20,470 | 751 | 20,470 | 751 |
Fabrinet (a) * | — | — | 26,100 | 602 | — | — | 26,100 | 602 |
Koppers Holdings Inc * | 67,360 | 3,080 | 26,884 | 1,229 | 44,350 | 2,028 | 138,594 | 6,337 |
$ 5,341 | $ 5,105 | $ 7,605 | $ 18,051 | |||||
Office Furnishings - 0.96% | ||||||||
Knoll Inc * | — | — | 72,000 | 1,413 | — | — | 72,000 | 1,413 |
SmallCap Value | SmallCap Value | SmallCap | SmallCap | SmallCap Blend | SmallCap Blend | Combined | Combined | |
COMMON STOCKS | Fund Shares | Fund Value | Growth Fund | Growth Fund | Fund Shares | Fund Value | Portfolio Shares | Portfolio Value |
(continued) | Held | (000's) | Shares Held | Value (000's) | Held | (000's) | Held | (000's) |
Office Furnishings (continued) | ||||||||
Steelcase Inc | 271,320 | $ 3,134 | — | $ — | 191,540 | $ 2,212 | 462,860 | $ 5,346 |
$ 3,134 | $ 1,413 | $ 2,212 | $ 6,759 | |||||
Oil & Gas - 4.28% | ||||||||
Berry Petroleum Co * | 61,020 | 3,242 | — | — | 42,570 | 2,262 | 103,590 | 5,504 |
Bill Barrett Corp (a) * | 47,640 | 1,988 | — | — | — | — | 47,640 | 1,988 |
Callon Petroleum Co (a) * | — | — | 156,179 | 1,070 | 292,080 | 2,001 | 448,259 | 3,071 |
Clayton Williams Energy Inc (a) * | 20,010 | 1,812 | 13,100 | 1,186 | 18,440 | 1,670 | 51,550 | 4,668 |
Georesources Inc (a) * | 93,510 | 2,714 | — | — | 60,720 | 1,762 | 154,230 | 4,476 |
Gulfport Energy Corp (a) * | — | — | 49,400 | 1,682 | 74,685 | 2,542 | 124,085 | 4,224 |
Rosetta Resources Inc (a) * | 57,250 | 2,630 | — | — | — | — | 57,250 | 2,630 |
Swift Energy Co (a) | 43,210 | 1,693 | — | — | 47,605 | 1,866 | 90,815 | 3,559 |
$ 14,079 | $ 3,938 | $ 12,103 | $ 30,120 | |||||
Oil & Gas Services - 1.77% | ||||||||
CARBO Ceramics Inc * | — | — | 10,300 | 1,658 | 19,700 | 3,171 | 30,000 | 4,829 |
Complete Production Services Inc | 82,640 | 2,805 | — | — | — | — | 82,640 | 2,805 |
(a) * | ||||||||
Oil States International Inc (a) * | 29,430 | 2,443 | — | — | — | — | 29,430 | 2,443 |
Superior Energy Services Inc (a) * | 61,600 | 2,366 | — | — | — | — | 61,600 | 2,366 |
$ 7,614 | $ 1,658 | $ 3,171 | $ 12,443 | |||||
Packaging & Containers - 0.79% | ||||||||
Rock-Tenn Co * | 46,850 | 3,236 | 9,100 | 628 | 24,660 | 1,703 | 80,610 | 5,567 |
Pharmaceuticals - 1.87% | ||||||||
Array BioPharma Inc (a) * | — | — | 95,200 | 294 | 112,870 | 349 | 208,070 | 643 |
Catalyst Health Solutions Inc (a ) * | — | — | 20,056 | 1,195 | 39,790 | 2,370 | 59,846 | 3,565 |
Cornerstone Therapeutics Inc (a) * | — | — | — | — | 34,577 | 242 | 34,577 | 242 |
Herbalife Ltd * | — | — | 8,770 | 788 | — | — | 8,770 | 788 |
Impax Laboratories Inc (a) * | — | — | 21,300 | 583 | 33,270 | 911 | 54,570 | 1,494 |
Keryx Biopharmaceuticals Inc (a) * | — | — | 107,900 | 571 | — | — | 107,900 | 571 |
Par Pharmaceutical Cos Inc (a) * | 82,230 | 2,832 | — | — | 35,540 | 1,224 | 117,770 | 4,056 |
Pharmasset Inc (a) * | — | — | 5,000 | 507 | — | — | 5,000 | 507 |
XenoPort Inc (a) * | — | — | 60,047 | 491 | 102,622 | 839 | 162,669 | 1,330 |
$ | $ 4,429 | $ 5,935 | $ 13,196 | |||||
Private Equity - 0.60% | ||||||||
American Capital Ltd (a) * | 240,720 | 2,472 | — | — | 168,250 | 1,728 | 408,970 | 4,200 |
Publicly Traded Investment | ||||||||
Fund - 0.33% | ||||||||
iShares Russell 2000 Value Index | 24,800 | 1,898 | — | — | — | — | 24,800 | 1,898 |
Fund * | ||||||||
THL Credit Inc | — | — | — | — | 31,190 | 447 | 31,190 | 447 |
$ 1,898 | $ — | $ 447 | $ 2,345 | |||||
REITS - 8.09% | ||||||||
Agree Realty Corp * | 67,690 | 1,583 | — | — | 11,500 | 269 | 79,190 | 1,852 |
Ashford Hospitality Trust Inc * | 283,110 | 3,530 | — | — | 129,420 | 1,614 | 412,530 | 5,144 |
Entertainment Properties Trust * | 61,923 | 2,948 | — | — | 31,886 | 1,518 | 93,809 | 4,466 |
Extra Space Storage Inc * | 160,280 | 3,470 | — | — | — | — | 160,280 | 3,470 |
First Potomac Realty Trust | — | — | — | — | 43,750 | 710 | 43,750 | 710 |
Hersha Hospitality Trust | — | — | — | — | 310,223 | 1,843 | 310,223 | 1,843 |
Highwoods Properties Inc | — | — | — | — | 39,450 | 1,456 | 39,450 | 1,456 |
Kilroy Realty Corp | 50,760 | 2,129 | — | — | 74,630 | 3,130 | 125,390 | 5,259 |
LTC Properties Inc * | 71,290 | 2,097 | — | — | — | — | 71,290 | 2,097 |
MFA Financial Inc * | 241,020 | 1,923 | — | — | — | — | 241,020 | 1,923 |
Mid-America Apartment | 40,800 | 2,728 | — | — | — | — | 40,800 | 2,728 |
Communities Inc * | ||||||||
Post Properties Inc * | 105,850 | 4,298 | — | — | 72,150 | 2,929 | 178,000 | 7,227 |
PS Business Parks Inc * | 50,330 | 3,033 | — | — | 17,350 | 1,046 | 67,680 | 4,079 |
RAIT Financial Trust | — | — | — | — | 838,500 | 2,046 | 838,500 | 2,046 |
Saul Centers Inc * | 68,640 | 3,006 | 14,500 | 635 | — | — | 83,140 | 3,641 |
Sunstone Hotel Investors Inc (a) * | 194,030 | 2,030 | — | — | — | — | 194,030 | 2,030 |
Urstadt Biddle Properties Inc * | 147,749 | 2,908 | — | — | — | — | 147,749 | 2,908 |
Washington Real Estate | 71,180 | 2,306 | — | — | 55,230 | 1,789 | 126,410 | 4,095 |
Investment Trust | ||||||||
$ 37,989 | $ 635 | $ 18,350 | $ 56,974 | |||||
Retail - 7.52% | ||||||||
ANN Inc (a) * | — | — | 36,600 | 1,142 | 42,060 | 1,313 | 78,660 | 2,455 |
Ascena Retail Group Inc (a) * | 74,830 | 2,342 | — | — | — | — | 74,830 | 2,342 |
Bravo Brio Restaurant Group Inc | — | — | 41,060 | 847 | 52,576 | 1,085 | 93,636 | 1,932 |
(a) * | ||||||||
Cash America International Inc * | 45,600 | 2,164 | — | — | — | — | 45,600 | 2,164 |
Childrens Place Retail Stores | 36,240 | 1,927 | — | — | — | — | 36,240 | 1,927 |
Inc/The (a) * | ||||||||
Coinstar Inc (a) * | — | — | 19,150 | 1,034 | 23,640 | 1,276 | 42,790 | 2,310 |
Dillard's Inc | 70,700 | 3,395 | — | — | 50,130 | 2,407 | 120,830 | 5,802 |
DSW Inc (a) * | — | — | 25,000 | 1,187 | 31,670 | 1,504 | 56,670 | 2,691 |
Einstein Noah Restaurant Group | — | — | — | — | 19,985 | 323 | 19,985 | 323 |
Inc | ||||||||
Finish Line Inc/The * | 111,630 | 2,399 | 61,770 | 1,327 | 30,520 | 656 | 203,920 | 4,382 |
First Cash Financial Services Inc | — | — | 22,900 | 899 | 31,990 | 1,255 | 54,890 | 2,154 |
(a) * |
SmallCap Value | SmallCap Value | SmallCap | SmallCap | SmallCap Blend | SmallCap Blend | Combined | Combined | |
COMMON STOCKS | Fund Shares | Fund Value | Growth Fund | Growth Fund | Fund Shares | Fund Value | Portfolio Shares | Portfolio Value |
(continued) | Held | (000's) | Shares Held | Value (000's) | Held | (000's) | Held | (000's) |
Retail (continued) | ||||||||
Men's Wearhouse Inc | — | $ — | — | $ — | 34,020 $ | 949 | 34,020 | $ 949 |
Pier 1 Imports Inc (a) | 194,780 | 2,372 | 79,000 | 962 | 169,300 | 2,062 | 443,080 | 5,396 |
Ruby Tuesday Inc (a) | 166,340 | 1,748 | — | — | 147,960 | 1,555 | 314,300 | 3,303 |
Ruth's Hospitality Group Inc (a) * | — | — | 133,200 | 654 | — | — | 133,200 | 654 |
Sally Beauty Holdings Inc (a) * | 143,860 | 2,128 | — | — | 77,120 | 1,140 | 220,980 | 3,268 |
Sonic Automotive Inc * | 140,870 | 1,986 | — | — | — | — | 140,870 | 1,986 |
Sonic Corp (a) * | 234,880 | 2,635 | 73,100 | 820 | 130,320 | 1,462 | 438,300 | 4,917 |
Vera Bradley Inc (a) * | — | — | 13,600 | 662 | 14,550 | 708 | 28,150 | 1,370 |
World Fuel Services Corp * | 67,330 | 2,665 | — | — | — | — | 67,330 | 2,665 |
$ 25,761 | $ 9,534 | $ 17,695 | $ 52,990 | |||||
Savings & Loans - 3.16% | ||||||||
Dime Community Bancshares Inc | 149,750 | 2,315 | — | — | — | — | 149,750 | 2,315 |
* | ||||||||
ESSA Bancorp Inc | — | — | — | — | 19,183 | 241 | 19,183 | 241 |
Investors Bancorp Inc (a) * | 189,970 | 2,857 | — | — | 53,590 | 806 | 243,560 | 3,663 |
Northwest Bancshares Inc | 163,600 | 2,060 | — | — | 132,420 | 1,667 | 296,020 | 3,727 |
OceanFirst Financial Corp * | 140,710 | 2,040 | — | — | — | — | 140,710 | 2,040 |
Oritani Financial Corp * | 219,640 | 2,693 | — | — | 79,080 | 969 | 298,720 | 3,662 |
Provident Financial Services Inc * | 222,240 | 3,227 | — | — | 85,600 | 1,243 | 307,840 | 4,470 |
United Financial Bancorp Inc * | 108,300 | 1,770 | — | — | 24,180 | 395 | 132,480 | 2,165 |
$ 16,962 | $ — | $ 5,321 | $ 22,283 | |||||
Semiconductors - 3.57% | ||||||||
Cabot Microelectronics Corp (a) * | — | — | 15,252 | 745 | 31,140 | 1,521 | 46,392 | 2,266 |
Diodes Inc (a) * | 61,820 | 2,116 | 39,100 | 1,338 | 52,000 | 1,780 | 152,920 | 5,234 |
Entegris Inc (a) | — | — | 82,900 | 716 | 218,820 | 1,888 | 301,720 | 2,604 |
Hittite Microwave Corp (a) * | — | — | 15,640 | 1,007 | 24,780 | 1,596 | 40,420 | 2,603 |
IXYS Corp (a) | — | — | — | — | 59,640 | 946 | 59,640 | 946 |
Lattice Semiconductor Corp (a) * | 377,040 | 2,560 | 148,000 | 1,005 | 210,200 | 1,427 | 735,240 | 4,992 |
Microsemi Corp (a) * | — | — | 32,681 | 771 | 70,040 | 1,653 | 102,721 | 2,424 |
MKS Instruments Inc * | 73,610 | 2,089 | — | — | — | — | 73,610 | 2,089 |
TriQuint Semiconductor Inc (a) * | 141,120 | 1,943 | — | — | — | — | 141,120 | 1,943 |
$ 8,708 | $ 5,582 | $ 10,811 | $ 25,101 | |||||
Software - 2.37% | ||||||||
Cornerstone OnDemand Inc (a) | — | — | 11,764 | 225 | — | — | 11,764 | 225 |
Digi International Inc (a) * | — | — | 32,100 | 379 | 40,670 | 480 | 72,770 | 859 |
Medidata Solutions Inc (a) * | — | — | 21,800 | 560 | — | — | 21,800 | 560 |
MicroStrategy Inc (a) * | — | — | 6,880 | 972 | 11,800 | 1,667 | 18,680 | 2,639 |
Progress Software Corp (a) * | — | — | 40,700 | 1,207 | — | — | 40,700 | 1,207 |
Quest Software Inc (a) | 81,130 | 2,090 | — | — | 57,760 | 1,488 | 138,890 | 3,578 |
SYNNEX Corp (a) * | 80,990 | 2,715 | — | — | 40,720 | 1,366 | 121,710 | 4,081 |
Taleo Corp (a) * | — | — | 28,100 | 1,019 | 50,060 | 1,816 | 78,160 | 2,835 |
VeriFone Systems Inc (a) * | — | — | 12,600 | 691 | — | — | 12,600 | 691 |
$ 4,805 | $ 5,053 | $ 6,817 | $ 16,675 | |||||
Telecommunications - 3.29% | ||||||||
Anixter International Inc * | 38,530 | 2,895 | — | — | — | — | 38,530 | 2,895 |
Arris Group Inc (a) * | 185,950 | 2,231 | 102,800 | 1,234 | 160,181 | 1,922 | 448,931 | 5,387 |
Consolidated Communications * | 135,870 | 2,499 | — | — | 48,980 | 901 | 184,850 | 3,400 |
Holdings Inc | ||||||||
InterDigital Inc * | — | — | 35,410 | 1,639 | 30,890 | 1,430 | 66,300 | 3,069 |
PAETEC Holding Corp (a) * | — | — | 167,600 | 603 | 190,890 | 687 | 358,490 | 1,290 |
Plantronics Inc * | 57,690 | 2,139 | 27,000 | 1,001 | 43,350 | 1,607 | 128,040 | 4,747 |
RF Micro Devices Inc (a) * | — | — | 122,200 | 814 | 235,020 | 1,565 | 357,220 | 2,379 |
$ 9,764 | $ 5,291 | $ 8,112 | $ 23,167 | |||||
Transportation - 2.14% | ||||||||
Atlas Air Worldwide Holdings Inc | 44,980 | 3,100 | — | — | 18,800 | 1,295 | 63,780 | 4,395 |
(a) * | ||||||||
Bristow Group Inc | — | — | — | — | 27,750 | 1,288 | 27,750 | 1,288 |
Celadon Group Inc (a) * | — | — | 44,600 | 659 | 27,960 | 413 | 72,560 | 1,072 |
Heartland Express Inc | — | — | — | — | 76,460 | 1,319 | 76,460 | 1,319 |
HUB Group Inc (a) * | 56,140 | 2,261 | 25,400 | 1,023 | 40,920 | 1,648 | 122,460 | 4,932 |
Swift Transportation Co (a) * | 145,050 | 2,035 | — | — | — | — | 145,050 | 2,035 |
$ 7,396 | $ 1,682 | $ 5,963 | $ 15,041 | |||||
TOTAL COMMON STOCKS | $ 347,931 | $ 99,082 | $ 244,645 | $ 691,658 | ||||
SmallCap | Combined | |||||||
SmallCap Value | SmallCap Value | Growth Fund | SmallCap | SmallCap Blend | SmallCap Blend | Portfolio | Combined | |
REPURCHASE | Fund Maturity | Fund Value | Maturity | Growth Fund | Fund Maturity | Fund Value | Maturity | Portfolio Value |
AGREEMENTS - 2.74% | Amount (000's) | (000's) | Amount (000's) | Value (000's) | Amount (000's) | (000's) | Amount (000's) | (000's) |
Banks - 2.74% | ||||||||
Investment in Joint Trading | $ 2,313 | $ 2,313 | 504 | 504 | 1,086 | 1,087 | $ 3,903 | $ 3,904 |
Account; Credit Suisse Repurchase | ||||||||
Agreement; 0.03% dated 04/29/11 | ||||||||
maturing 05/02/11 (collateralized | ||||||||
by US Treasury Strips; | ||||||||
$3,981,430; 0.00%; dated 08/15/14 | ||||||||
- 08/15/37) |
SmallCap | Combined | |||||||||
SmallCap Value | SmallCap Value | Growth Fund | SmallCap | SmallCap Blend | SmallCap Blend | Portfolio | Combined | |||
REPURCHASE | Fund Maturity | Fund Value | Maturity | Growth Fund | Fund Maturity | Fund Value | Maturity | Portfolio Value | ||
AGREEMENTS (continued) | Amount (000's) | (000's) | Amount (000's) | Value (000's) | Amount (000's) | (000's) | Amount (000's) | (000's) | ||
Banks (continued) | ||||||||||
Investment in Joint Trading | $ 3,433 | $3,433 | $ 748 | $ 748 | $ 1,613 | $ 1,613 | $ 5,794 | $ 5,794 | ||
Account; Deutsche Bank | ||||||||||
Repurchase Agreement; 0.03% | ||||||||||
dated 04/29/11 maturing 05/02/11 | ||||||||||
(collateralized by Sovereign | ||||||||||
Agency Issues; $5,909,937; 0.00% | ||||||||||
- 4.38%; dated 09/15/12 - | ||||||||||
10/15/29) | ||||||||||
Investment in Joint Trading | 1,265 | 1,265 | 276 | 276 | 594 | 594 | 2,135 | 2,135 | ||
Account; JP Morgan Repurchase | ||||||||||
Agreement; 0.02% dated 04/29/11 | ||||||||||
maturing 05/02/11 (collateralized | ||||||||||
by Sovereign Agency Issues; | ||||||||||
$2,177,345; 0.00% - 9.80%; dated | ||||||||||
06/15/11 - 09/26/19) | ||||||||||
Investment in Joint Trading | 3,173 | 3,173 | 691 | 691 | 1,490 | 1,490 | 5,354 | 5,354 | ||
Account; Merrill Lynch | ||||||||||
Repurchase Agreement; 0.03% | ||||||||||
dated 04/29/11 maturing 05/02/11 | ||||||||||
(collateralized by Sovereign | ||||||||||
Agency Issues; $5,461,327; 0.00% | ||||||||||
- 8.13%; dated 05/11/11 - | ||||||||||
09/15/39) | ||||||||||
Investment in Joint Trading | 1,265 | 1,265 | 276 | 276 | 594 | 594 | 2,135 | 2,135 | ||
Account; Morgan Stanley | ||||||||||
Repurchase Agreement; 0.02% | ||||||||||
dated 04/29/11 maturing 05/02/11 | ||||||||||
(collateralized by Sovereign | ||||||||||
Agency Issues; $2,177,345; 1.11% | ||||||||||
- 2.38%; dated 06/22/12 - | ||||||||||
07/28/15) | ||||||||||
$ 11,449 | $ 2,495 | $ 5,378 | $ 19,322 | |||||||
TOTAL REPURCHASE | ||||||||||
AGREEMENTS | $ 11,449 | $ 2,495 | $ 5,378 | $ 19,322 | ||||||
Total Investments | $ 359,380 | $ 101,577 | $ 250,023 | $ 710,980 | ||||||
Liabilities in Excess of Other | ||||||||||
Assets, Net - (0.93)% | $ (6,505) | $ (16) | $ (14) | $ (6,535) | ||||||
Pro Forma Adjustment | (187,267) | |||||||||
TOTAL NET ASSETS - | ||||||||||
100.00% | $ 352,875 | $ 101,561 | $ 250,009 | $ 517,178 | ||||||
(a) | Non-Income Producing Security | |||||||||
* | Security or a portion of the security will be disposed of in order to meet the investment strategies and/or restrictions of the Acquiring Fund. |
Unrealized Appreciation (Depreciation) | ||||
The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments | ||||
held as of the period end were as follows: | ||||
SmallCap Value | SmallCap Growth | SmallCap Blend | ||
Fund | Fund | Fund | Combined Portfolio | |
Unrealized Appreciation | $ 71,692 | $ 29,127 | $ 64,847 | $ 165,666 |
Unrealized Depreciation | (2,744) | (1,029) | (2,955) | (6,728) |
Net Unrealized Appreciation (Depreciation) | $ 68,948 | $ 28,098 | $ 61,892 | $ 158,938 |
Cost for federal income tax purposes | $ 290,432 | $ 73,479 | $ 188,131 | $ 552,042 |
All dollar amounts are shown in thousands (000's) | ||||
Portfolio Summary (unaudited) | ||||
SmallCap Value | SmallCap Growth | SmallCap Blend | ||
Sector/Country | Fund | Fund | Fund | Combined Portfolio |
Financial | 35.15% | 5.61% | 20.38% | 25.65% |
Consumer, Non-cyclical | 13.62% | 24.21% | 19.04% | 17.08% |
Industrial | 14.55% | 19.20% | 16.85% | 16.04% |
Consumer, Cyclical | 12.83% | 18.30% | 13.65% | 13.90% |
Technology | 4.24% | 14.52% | 10.29% | 7.87% |
Communications | 3.59% | 9.79% | 6.12% | 5.38% |
Energy | 6.15% | 5.51% | 6.11% | 6.04% |
Basic Materials | 6.20% | 2.12% | 4.04% | 4.85% |
Utilities | 4.97% | 0.76% | 3.53% | 3.85% |
Exchange Traded Funds | 0.54% | 0.00% | 0.00% | 0.27% |
Liabilities in Excess of Other Assets, Net | (1.84)% | (0.02)% | (0.01)% | (0.93)% |
TOTAL NET ASSETS | 100.00% | 100.00% | 100.00% | 100.00% |
Combined Portfolio Futures Contracts | |||||
Unrealized | |||||
Type | Long/Short | Contracts | Notional Value | Current Market Value | Appreciation/(Depreciation) |
Russell 2000 Mini; June 2011 | Long | 33 $ | 2,591 | $ 2,851 | $ 260 |
$ 260 | |||||
All dollar amounts are shown in thousands (000's) |
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 | ||
(1) a. | 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) | ||
b. | Articles of Amendment dated 5/23/05 -- Filed as Ex-99.A on 09/08/05 (Accession No. 0000898786-05- | |
000254) | ||
c. | Articles of Amendment dated 9/30/05 -- Filed as Ex-99.A on 11/22/05 (Accession No. 0000870786-05- | |
000263) | ||
d. | 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) | ||
e. | Articles of Amendment -- Filed as Ex-99.B1 on 09/12/97 (Accession No. 0000898745-97-000023) | |
f. | Articles of Amendment dated 06/04/08 -- Filed as Ex-99.A on 07/17/08 (Accession No. 0000009713-08- | |
000060) | ||
g. | Articles of Amendment dated 06/30/09 – Filed as Ex-99.A(1)h on 10/07/09 (Accession No. 0000898745- | |
09-000489) | ||
h. | Articles of Amendment dated 09/30/09 – Filed as Ex-99.A(1)h on 10/29/10 (Accession No. 0000898745-10- | |
000490) | ||
i. | Articles Supplementary dated 9/25/02 -- Filed as Ex-99.A.4.D on 12/30/02 (Accession No. 0001126871-02- | |
000036) | ||
j. | Articles Supplementary dated 2/5/03 – Filed as Ex-99.A on 02/25/03 (Accession No. 0000870786-03- | |
000031) | ||
k. | Articles Supplementary dated 4/30/03 -- Filed as Ex-99.A4F on 09/11/03 (Accession No. 0000870786-03- | |
000169) | ||
l. | Articles Supplementary dated 6/10/03 -- Filed as Ex-99.A4G on 09/11/03 (Accession No. 0000870786-03- | |
000169) | ||
m. | Articles Supplementary dated 9/9/03 -- Filed as Ex-99.A4H on 09/11/03 (Accession No. 0000870786-03- | |
000169) | ||
n. | Articles Supplementary dated 11/6/03 – Filed as Ex-99.A on 12/15/03 (Accession No. 0000870786-03- | |
000202) | ||
o. | Articles Supplementary dated 1/29/04-- Filed as Ex-99.A on 02/26/04 (Accession No. 0001127048-04- | |
000033) | ||
p. | Articles Supplementary dated 3/8/04-- Filed as Ex-99.A on 07/27/04 (Accession No. 0000870786-04- | |
000163) | ||
q. | Articles Supplementary dated 6/14/04 – Filed as Ex-99.A on 09/27/2004 (Accession No. 0000870786-04- | |
000207) | ||
r. | Articles Supplementary dated 9/13/04 – Filed as Ex-99.A on 12/13/04 (Accession No. 0000870786-04- | |
000242) | ||
s. | Articles Supplementary dated 10/1/04 – Filed as Ex-99.A on 12/13/04 (Accession No. 0000870786-04- | |
000242) | ||
t. | Articles Supplementary dated 12/13/04 -- Filed as Ex-99.A on 02/28/05 (Accession No. 0000870786-05- | |
000065) | ||
u. | Articles Supplementary dated 2/4/05 – Filed as Ex-99.A on 05/16/05 (Accession No. 0000870786-05- | |
000194) | ||
v. | Articles Supplementary dated 2/24/05 – Filed as Ex-99.A on 05/16/05 (Accession No. 0000870786-05- | |
000194) | ||
w. | Articles Supplementary dated 5/6/05 – Filed as Ex-99.A on 09/08/05 (Accession No. 0000870786-05- | |
000254) |
x. | 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) | |||
y. | Articles Supplementary dated 1/12/07 -- Filed as Ex-99.A on 01/16/07 (Accession No. 0000898745-07- | ||
000011) | |||
z. | Articles Supplementary dated 1/22/07 -- Filed as Ex-99.A on 07/18/07 (Accession No. 0000898745-07- | ||
000086) | |||
aa. | Articles Supplementary dated 7/24/07 -- Filed as Ex-99.A on 09/28/07 (Accession No. 0000898745-07- | ||
000152) | |||
bb. | Articles Supplementary dated 09/13/07 -- Filed as Ex-99.A on 12/14/07 (Accession No. 0000898745-07- | ||
000184) | |||
cc. | Articles Supplementary dated 1/3/08 -- Filed as Ex-99.A.4.Y on 02/20/08 (Accession No. 0000950137-08- | ||
002501 | |||
dd. | Articles Supplementary dated 3/13/08 -- Filed as Ex-99.A4Z on 05/01/08 (Accession No. 0000950137-08- | ||
006512) | |||
ee. | Articles Supplementary dated 06/23/08 -- Filed as Ex-99.A on 07/17/08 (Accession No. 0000009713-08- | ||
000060) | |||
ff. | 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) | |||
gg. | Articles Supplementary dated 10/31/08 – Filed as Ex-99.A.4 on 12/12/08 (Accession No. 0000898745-08- | ||
000166) | |||
hh. | Articles Supplementary dated 01/13/09 – Filed as Ex-99.A(4)dd on 10/07/09 (Accession No. 0000898745- | ||
09-000489) | |||
ii. | Articles Supplementary dated 03/10/09 – Filed as Ex-99.A(4)ee on 10/07/09 (Accession No. 0000898745- | ||
09-000489) | |||
jj. | Articles Supplementary dated 05/01/09 – Filed as Ex-99.A(4)ff on 10/07/09 (Accession No. 0000898745-09- | ||
000489) | |||
kk. | Articles Supplementary dated 06/19/09 – Filed as Ex-99.A(4)gg on 10/07/09 (Accession No. 0000898745- | ||
09-000489) | |||
ll. | Articles Supplementary dated 09/25/09 – Filed as Ex-99.A(2)ee on 10/29/10 (Accession No. 0000898745- | ||
10-000490) | |||
mm. | Articles Supplementary dated 01/28/10 – Filed as Ex-99.A(2)ff on 10/29/10 (Accession No. 0000898745-10- | ||
000490) | |||
nn. | Articles Supplementary dated 05/03/10 – Filed as Ex-99(a)(2)(gg) on 07/29/10 (Accession No. | ||
0000898745-10-000394) | |||
oo. | Articles Supplementary dated 08/05/10 – Filed as Ex-99.(a)(2)hh on 07/11/11 Accession No.: 0000898745- | ||
11-000480 | |||
pp. | Articles Supplementary dated 09/29/10 – Filed as Ex-99.(a)(2)ii on 07/11/11 Accession No.: 0000898745- | ||
11-000480 | |||
qq. | Articles Supplementary dated 11/02/10 – Filed as Ex-99.(a)(2)jj on 07/11/11 Accession No.: 0000898745- | ||
11-000480 | |||
rr. | Articles Supplementary dated 01/28/11 – Filed as Ex-99.(a)(2)kk on 07/11/ Accession No.: 0000898745-11- | ||
000480 | |||
ss. | Articles Supplementary dated 03/09/11 – Filed as Ex-99.(a)(2)ll on 07/11/11 Accession No.: 0000898745- | ||
11-000480 | |||
tt. | Articles Supplementary dated 06/21/11 – Filed as Ex-99.(a)(2)mm on 07/11/11 Accession No.: | ||
0000898745-11-000480 | |||
(2) | By-laws dtd 06/26/11 – Filed as Ex-99.(b)(1) on 07/11/11 Accession No.: 0000898745-11-000480 | ||
(3) | N/A | ||
(4) | Forms of Plans of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus) | ||
(5) | Included in Exhibits 1 and 2 hereto. | ||
(6) | (1) | a. | Amended and Restated Management Agreement dated 09/06/2011 – Filed as Ex-(d)(1)g on |
10/12/2011 (Accession Number: 0000898745-11-000711) | |||
(2) | a. | Amended & Restated Sub-Advisory Agreement with PGI dtd 09/12/11 – Filed as Ex-(d)(29)a on | |
10/12/2011 (Accession Number: 0000898745-11-000711) |
(7) | (1) | a. | Amended & Restated Distribution Agreement for A, B, C, J, P, R-1, R-2, R-3, R-4, R-5 and Institutional | |
Classes dtd 09/27/10 – Filed as Ex-99.(e)(1)a on 07/11/11 Accession No. 0000898745-11-000480 | ||||
(2) | a. | Selling Agreement--Advantage Classes – Filed as Ex-99.(e)(2)a on 11/04/10 (Accession No. | ||
0000898745-10-000494). | ||||
b. | Selling Agreement—A, C, J, Institutional, R-1, R-2, R-3, R-4 and R-5 Class Shares – Filed as Ex- | |||
99.(e)(2)b on 11/04/10 (Accession No. 0000898745-10-000494). | ||||
(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) | a. | Class A Plan – Amended & Restated dtd 06/06/11 – Filed as Ex-99.(m)(1)g on 07/11/11 Accession No.: | ||
0000898745-11-000480 | ||||
(2) | a. | Class B Plan – Amended & Restated dtd 12/14/10 – Filed as Ex-99.(m)(2)c on 07/11/11 Accession No.: | ||
0000898745-11-000480 | ||||
(3) | a. | Class C Plan – Amended & Restated dtd 12/14/10 – Filed as Ex-99.(m)(3)d on 07/11/11 Accession No.: | ||
0000898745-11-000480 | ||||
(4) | a. | Class J Plan – Amended & Restated dtd 12/14/10 – Filed as Ex-99.(m)(4)e on 07/11/11 Accession No.: | ||
0000898745-11-000480 | ||||
(5) | a. | Class R-1 Plan – Amended & Restated Distribution Plan and Agreement dtd 12/14/10 10 – Filed as Ex- | ||
99.(m)(5)b on 07/11/11 Accession No.: 0000898745-11-000480 | ||||
(6) | a. | Class R-2 Plan – Amended & Restated Distribution Plan and Agreement dtd 12/14/10 – Filed as Ex- | ||
99.(m)(6)b on 07/11/11 Accession No.: 0000898745-11-000480 | ||||
(7) | a. | Class R-3 Plan – Amended & Restated Distribution Plan and Agreement dtd 12/14/10 – Filed as Ex- | ||
99.(m)(7)b on 07/11/11 Accession No.: 0000898745-11-000480 | ||||
(8) | a. | Class R-4 Plan – Amended & Restated Distribution Plan and Agreement dtd 12/14/10 – Filed as Ex- | ||
99.(m)(8)b on 07/11/11 Accession No.: 0000898745-11-000480 | ||||
(11) | Opinion and Consent of counsel, regarding legality of issuance of shares and other matters (previously filed as | |||
Exhibit to Form N-14 filed on December 18, 2011 Accession # 0000898745-11-000786) | ||||
(12) | Opinion and Consent of __________________________________ on tax matters ** | |||
(13) | N/A | |||
(14) | Consent of Independent Registered Public Accountants | |||
(a) | Consent of Ernst & Young LLP * | |||
(15) | N/A | |||
(16) | (a) | Powers of Attorney (previously filed as Exhibit to Form N-14 filed on December 18, 2011 Accession # | ||
0000898745-11-000786) |
(17) | (a) | Prospectuses dated 03/01/11, as supplemented | |
(1) | The Prospectus for Class A, B, and C shares, dated March 1, 2011, included in Post-Effective | ||
Amendment No. 90 to the registration statement on Form N-1A (File No. 33-59474) filed on | |||
February 23, 2011; | |||
(2) | The Prospectus for Institutional Class shares, dated March 1, 2011, included in Post-Effective | ||
Amendment No. 91 to the registration statement on Form N-1A (File No. 33-59474) filed on | |||
February 23, 2011; | |||
(3) | The Prospectus for Class J shares, dated March 1, 2011, included in Post-Effective Amendment No. | ||
89 to the registration statement on Form N-1A (File No. 33-59474) filed on February 23, 2011; | |||
(4) | The Prospectus for R-1, R-2, R-3, R-4, and R-5 Class shares, dated March 1, 2011, included in Post- | ||
Effective Amendment No. 92 to the registration statement on Form N-1A (File No. 33-59474) filed on | |||
February 23, 2011; | |||
(5) | Supplements to the Class A, B, and C shares Prospectus dated and filed March 14, 2011, March 15, | ||
2011, and June 16, 2011, and July 20, 2011; | |||
(6) | Supplements to the Institutional Class shares Prospectus dated and filed March 14, 2011, June 16, | ||
2011; July 20, 2011, August 29, 2011, September 16, 2011, and October 31, 2011; | |||
(7) | Supplements to the Class J shares Prospectus dated and filed March 14, 2011, June 16, 2011; July 20, | ||
2011, August 29, 2011, September 16, 2011, and October 31, 2011; | |||
(8) | Supplements to the R-1, R-2, R-3, R-4, and R-5 Class shares Prospectus dated and filed March 14, | ||
2011, June 16, 2011; July 20, 2011, August 29, 2011, September 16, 2011, and October 31, 2011 | |||
(b) | Statement of Additional Information dated March 1, 2011, included in Post-Effective Amendment No. 89 to | ||
the registration statement on Form N-1A (File No. 33-59474) filed on February 23, 2011; and supplements | |||
thereto dated and filed on March 14, 2011, June 16, 2011, July 20, 2011, September 16, 2011, | |||
September 21, 2011, and October 31, 2011. | |||
(c) | (1) | Semi-Annual Report of Principal Funds, Inc. for the semi-annual period ended April 30, 2011 (filed on | |
Form N-CSRS on June 30, 2011) | |||
(2) | Annual Report of Principal Funds, Inc. for the fiscal year ended October 31, 2010 (filed on Form N- | ||
CSR on December 29, 2010) | |||
* | Filed herein. | ||
** | To be filed by amendment. | ||
Item 17. | Undertakings | ||
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered | |||
through the use of a prospectus which is a part of this Registration Statement by any person or party who | |||
is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the | |||
reoffering prospectus will contain the information called for by the applicable registration form for re- | |||
offerings by persons who may be deemed underwriters, in addition to the information called for by the | |||
other items of the applicable form. | |||
(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above | |||
will be filed as part of an amendment to the Registration Statement and will not be used until the | |||
amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post- | |||
effective amendment shall be deemed to be a new registration statement for the securities offered therein, | |||
and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. | |||
(3) The undersigned Registrant agrees to file a post-effective amendment to this Registration | |||
Statement which will include an opinion of counsel regarding the tax consequences of the proposed | |||
reorganization. |
SIGNATURES |
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the |
Registrant has duly caused this Amendement to the Registration Statement to be signed on its behalf by |
the undersigned, duly authorized in the City of Des Moines and State of Iowa, on the 9th of December, |
2011. |
Principal Funds, Inc. |
(Registrant) |
/s/ N. M. Everett |
N. M. Everett |
President, Chief Executive Officer and Director |
Attest: |
/s/ Beth C. Wilson |
Beth C. Wilson |
Vice President and Secretary |
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement | ||
has been signed below by the following persons in the capacities and on the dates indicated. | ||
Signature | Title | Date |
December 9, 2011 | ||
Chairman of the Board | ||
R. C. Eucher | ||
/s/ N. M. Everett | December 9, 2011 | |
President, Chief Executive | ||
N. M. Everett | Officer and Director (Principal | |
Executive Officer) | ||
/s/ L. A. Rasmussen | December 9, 2011 | |
Vice President, Controller and | ||
L. A. Rasmussen | Chief Financial Officer | |
(Principal Financial Officer | ||
and Controller) | ||
/s/ M. J. Beer | December 9, 2011 | |
Executive Vice President | ||
M. J. Beer | ||
(E. Ballantine)* | December 9, 2011 | |
Director | ||
E. Ballantine | ||
(K. Blake)* | December 9, 2011 | |
Director | ||
K. Blake | ||
(C. Damos)* | December 9, 2011 | |
Director | ||
C. Damos | ||
(R. W. Gilbert)* | December 9, 2011 | |
Director | ||
R. W. Gilbert | ||
(M. A. Grimmett)* | December 9, 2011 | |
Director | ||
M. A. Grimmett | ||
(F. S. Hirsch)* | December 9, 2011 | |
Director | ||
F. S. Hirsch | ||
(W. C. Kimball)* | December 9, 2011 | |
Director | ||
W. C. Kimball | ||
(B. A. Lukavsky)* | December 9, 2011 | |
Director | ||
B. A. Lukavsky |
(W. G. Papesh)* | December 9, 2011 | |
Director | ||
W. G. Papesh | ||
(D. Pavelich)* | December 9, 2011 | |
Director | ||
D. Pavelich |
/s/ M. J. Beer | |
*By | |
M. J. Beer | |
Executive Vice President | |
* Pursuant to Powers of Attorney filed herewith |
EXHIBIT INDEX | ||
Exhibit No. | Description | |
4 | Forms of Plans of Reorganization (filed herewith as Appendix A to the Proxy | |
Statement/Prospectus) | ||
12 | Opinion and Consent of _____________________________ on tax matters** | |
14(a) | Consent of Ernst & Young LLP, Independent Registered Public Accountants | |
** to be filed by amendment |