As filed with the Securities and Exchange Commission on September 28, 2006
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
[ ] Pre-Effective Amendment No. __
[ ] Post-Effective Amendment No. __
PRINCIPAL INVESTORS FUND, INC.
(Exact name of Registrant as specified in charter)
680 8th Street, Des Moines, Iowa 50392-0200
(Address of Registrant's Principal Executive Offices)
800-247-4123
(Registrant's Telephone Number, Including Area Code)
Michael D. Roughton
Counsel, Principal Investors Fund, Inc.
711 High Street, Suite 405 West
Des Moines, Iowa 50392-0200
(Name and Address of Agent for Service)
Copies of all communications to:
John W. Blouch Dykema Gossett
PLLC 1300 I Street, N.W.
Washington, D.C. 20005-3353
202-906-8714; 202-906-8669 (Fax)
Approximate date of proposed public offering: As soon as practicable after this
Registration Statement becomes effective.
Title of Securities Being Registered: Class A and Class B 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 October 28, 2006,
pursuant to Rule 488.
PRINCIPAL INVESTORS FUND, INC.
680 8th Street
Des Moines, Iowa 50392-0200
October ___, 2006
Dear Shareholder:
A Special Meeting of Shareholders of Principal Investors Fund, Inc. ("PIF")
will be held at 680 8th Street, Des Moines, Iowa 50392-0200, on December 15,
2006 at ______ a.m., Central Time.
At the Meeting, shareholders of each Acquired Fund of PIF listed below
(the "Acquired Funds") will be asked to consider and approve a proposed Plan of
Reorganization (the "Plan") pursuant to which the Acquired Fund will be combined
into the corresponding Acquiring Fund of PIF listed below (the "Acquiring
Funds"):
Acquired Funds Acquiring Funds
-------------- ---------------
Equity Income Fund Equity Income Fund I
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
Under the Plan: (i) each Acquiring Fund will acquire all the assets,
subject to all the liabilities, of its corresponding 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 (each, a "Reorganization"). As a result of the
Reorganizations, each shareholder of an Acquired Fund will become a shareholder
of its corresponding Acquiring Fund. The total value of all shares of each
Acquiring Fund issued in the Reorganization will equal the total value of the
net assets of its corresponding Acquired Fund. The number of full and fractional
shares of an 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 on
the closing date of the Reorganization. Holders of Class A and Class B shares of
an Acquired Fund will receive, respectively, Class A and Class B shares of the
corresponding Acquiring Fund. If approved by shareholders of the Acquired Funds,
the Reorganizations are expected to occur immediately after the close of
regularly scheduled trading on the New York Stock Exchange on January 12, 2007.
All share classes of each Acquired Fund will vote in the aggregate and not by
class with respect to the proposed Reorganization.
As you may know, on July 25, 2006, Principal Financial Group, Inc. and
its subsidiary, Principal Management Corporation ("PMC"), the investment advisor
to the Acquired and Acquiring Funds, entered into an agreement with Washington
Mutual, Inc. to acquire all the outstanding stock of its subsidiary, WM
Advisors, Inc. ("WMA"), and WMA's two subsidiaries, WM Funds Distributor, Inc.
and WM Shareholder Services, Inc. (the "Transaction"). The Reorganizations arise
out of the Transaction, which contemplates combining the series of WM Trust I,
WM Trust II and WM Strategic Asset Management Portfolios, LLC, each of which is
advised by WMA, into PIF. This includes the reorganization of (i) the WM Equity
Income Fund into the Equity Income Fund I, a newly-created series of PIF that
was set up as one of the Acquiring Funds involved in the Reorganization
described in the enclosed Proxy Statement/Prospectus to acquire the assets of
both the WM Equity Income Fund and the Equity Income Fund of PIF and (ii) the WM
Tax-Exempt Bond Fund into the Tax-Exempt Bond Fund I, the other newly-created
Acquiring Fund involved in the Reorganization described in the enclosed Proxy
Statement/Prospectus (collectively, the "WM Fund Reorganizations") (the WM
Equity Income Fund and the WM Tax-Exempt Bond Fund are referred to collectively
as the "WM Acquired Funds" and individually as a "WM Acquired Fund"). The
closing of the Transaction is expected to occur in the fourth quarter of this
calendar year, subject to certain regulatory and other approvals.
The reorganization of the Equity Income Fund into the Equity Income
Fund I will not be effected unless the Equity Income Fund I first acquires
substantially all of the assets of the WM Equity Income Fund. Likewise, the
reorganization of the Tax-Exempt Bond Fund into the Tax-Exempt Bond Fund I will
not be effected unless the Tax-Exempt Bond Fund I first acquires substantially
all the assets of the WM Tax-Exempt Bond Fund.
The Board of Directors of PIF has unanimously approved each of the
Reorganizations and concluded that each Reorganization is in the best interests
of each Acquired Fund and that the interests of existing shareholders of each
Acquired Fund will not be diluted as a result of the Reorganizations. Each
Acquiring Fund is a new fund, which has investment objectives and strategies
that are identical to those of its corresponding WM Acquired Fund and
substantially similar to those of its corresponding Acquired Fund. Accordingly,
after the Reorganizations, it should be reasonable for shareholders to have the
same investment expectations. Shareholders in each Acquired Fund may benefit
from the Acquiring Fund's larger asset base resulting from the addition of the
WM Acquired Fund's assets. As a result of the Reorganizations, each Acquiring
Fund may have improved prospects for growth, may operate more efficiently and
may have greater potential for attendant reductions in overall expenses.
The value of your investment will not be affected by the
Reorganizations. 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 Reorganizations. Finally, none of the Acquired Funds, the
Acquiring Funds or their shareholders will incur any fees or expenses in
connection with the Reorganizations (other than trading costs associated with
disposing of any portfolio securities that would not be compatible with the
investment objectives and strategies of an Acquiring Fund and reinvesting the
proceeds in securities that would be compatible).
* * *
Enclosed you will find a Notice of Special Meeting of Shareholders, a
Proxy Statement/ Prospectus, and a proxy ballot for shares of each Acquired Fund
you owned as of October 6, 2006, the record date for the Meeting. The Proxy
Statement/Prospectus provides background information and describes in detail the
matters to be voted on at the Meeting.
The Board of Directors of PIF has unanimously voted in favor of each
proposed Reorganization and recommends that you vote FOR the Proposal that
pertains to your Acquired Fund.
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 ballot(s) in
the enclosed postage-paid envelope, allowing sufficient time for its receipt by
_____________, 2006. To vote by touch-tone telephone or via the Internet, follow
the instructions on the proxy ballot.
We appreciate your taking the time to respond to this important matter.
Your vote is important. If you have any questions regarding the Reorganizations,
please call our shareholder services department toll free at 1-800-247-4123.
Sincerely,
/s/ RALPH C. EUCHER
Ralph C. Eucher
President and Chief Executive Officer
PRINCIPAL INVESTORS FUND, INC.
680 8th Street
Des Moines, Iowa 50392-0200
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of the Equity Income Fund and Tax-Exempt Bond Fund:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the Equity Income Fund and Tax-Exempt Bond Fund, each a separate
series of Principal Investors Fund, Inc. ("PIF"), will be held at 680 8th
Street, Des Moines, Iowa 50392-0200, on December 15, 2006 at _____ 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 the following 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 Reorganization providing for the
reorganization of the Equity Income Fund into the Equity
Income Fund I.
(Only shareholders of the Equity Income Fund will
vote on the Proposal)
Proposal 2 Approval of a Plan of Reorganization providing for the
reorganization of the Tax-Exempt Bond Fund into the
Tax-Exempt Bond Fund I.
(Only shareholders of the Tax-Exempt Bond Fund will
vote on the Proposal)
Any other business that may properly come before the Meeting.
The Board of Directors of PIF recommends that shareholders of each Fund
vote FOR the Proposal that pertains to their Fund.
Approval of each 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 Acquired Fund.
Each shareholder of record at the close of business on October 6, 2006
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
/s/ RALPH C. EUCHER
Ralph C. Eucher
President and Chief Executive Officer
October ___, 2006
Des Moines, Iowa
PRINCIPAL INVESTORS FUND, INC.
680 8th Street
Des Moines, Iowa 50392-0200
- --------------------------------------------------------------------------------
PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 15, 2006
RELATING TO THE REORGANIZATIONS OF:
(1) THE EQUITY INCOME FUND INTO THE EQUITY INCOME FUND I; AND
(2) THE TAX-EXEMPT BOND FUND INTO THE TAX-EXEMPT BOND FUND I
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors (the "Board" or "Directors") of Principal
Investors Fund, Inc. ("PIF") of proxies to be used at a Special Meeting of
Shareholders of PIF to be held at 680 8th Street, Des Moines, Iowa 50392-0200,
on December 15, 2006, at _______ a.m., Central Time (the "Meeting").
At the Meeting, shareholders of each Acquired Fund of PIF listed below
(the "Acquired Funds") will be asked to consider and approve a proposed Plan of
Reorganization (the "Plan") providing for the reorganization of the Acquired
Fund into the corresponding Acquiring Fund of PIF listed below (the "Acquiring
Funds").
Acquired Funds Acquiring Funds
Equity Income Fund Equity Income Fund I
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
Under the Plan: (i) each Acquiring Fund will acquire all the assets,
subject to all the liabilities, of its corresponding 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 (each, a "Reorganization"). As a result of the
Reorganizations, each shareholder of an Acquired Fund will become a shareholder
of its corresponding Acquiring Fund. The total value of all shares of each
Acquiring Fund issued in the Reorganization will equal the total value of the
net assets of the corresponding Acquired Fund. The number of full and fractional
shares of the Acquiring Fund received by a shareholder of the Acquired Fund will
be equal in value to the value of that shareholder's shares of the Acquired Fund
as of the close of regularly scheduled trading on the New York Stock Exchange on
the closing date of the Reorganization. Holders of Class A and Class B shares of
an Acquired Fund will receive, respectively, Class A and Class B shares of the
corresponding Acquiring Fund. If approved by shareholders of an Acquired Fund,
the Reorganization is expected to occur with respect to that Fund immediately
after the close of regularly scheduled trading on the New York Stock Exchange on
January 12, 2007 (the "Effective Time"). All share classes of each Acquired Fund
will vote in the aggregate and not by class. The consummation of the
reorganization of one Acquired Fund into its corresponding Acquiring Fund may
occur regardless of whether the consummation of the other Reorganization occurs.
As described more fully below, each Reorganization is contingent on the
Acquiring Fund first acquiring substantially all of the assets of its
corresponding WM Acquired Fund (as defined below). The terms and conditions of
each Reorganization are more fully described below in this Proxy
Statement/Prospectus and in each Plan of Reorganization, which is attached
hereto as Appendix A.
This Proxy Statement/Prospectus contains information shareholders
should know before voting on a Reorganization. Please read it carefully and
retain it for future reference. The Annual and Semi-Annual Reports to
Shareholders of PIF contain additional information about the investments of the
Acquired Funds, and the Annual Report contains discussions of the market
conditions and investment strategies that significantly affected those Funds
during their fiscal year ended October 31, 2005. Copies of these reports may be
obtained at no charge by calling our shareholder services department toll free
at 1-800-247-4123.
A Statement of Additional Information dated October ___, 2006 (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.
The Prospectuses and Statement of Additional Information of PIF (the "PIF
Prospectus" and the "PIF SAI," respectively), each dated March 1, 2006 and as
supplemented, have been filed with the SEC and, insofar as they relate to the
Acquired Funds, are incorporated by reference into this Proxy
Statement/Prospectus. PIF's Semi-Annual Report to Shareholders for the six-month
period ended April 30, 2006, which contains, among other information, financial
highlights for the Acquired Funds, is incorporated by reference into this Proxy
Statement/Prospectus. Copies of these documents may be obtained without charge
by writing to PIF at the address noted above or by calling our shareholder
services department toll free at 1-800-247-4123. You may also call our
shareholder services department toll fee at 1-800-247-4123 if you have any
questions regarding the Reorganization.
PIF 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., Room 1580, 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 October ___, 2006.
TABLE OF CONTENTS
Page
Introduction ....................................................................................
Overview of the Proposed Reorganizations...............................................................
Proposal 1 Approval of a Plan of Reorganization providing for the reorganization of the
Equity Income Fund into the Equity Income Fund I....................................
Proposal 2 Approval of a Plan of Reorganization providing for the
reorganization of the Tax-Exempt Bond Fund into the
Tax-Exempt Bond Fund I...........................
Risks of Investing in the Funds.........................................................................
Hedging and Other Strategic Transactions................................................................
Information About the Reorganizations...................................................................
Plans of Reorganization.............................................................
Reasons for the Reorganizations.....................................................
Board Consideration of the Reorganizations..........................................
Description of Securities to Be Issued..............................................
Federal Income Tax Consequences.....................................................
Capitalization ....................................................................................
Additional Information About the Funds .................................................................
Differences Between the Share Classes of the Acquired and Acquiring Funds......
Shareholder Rights..................................................................
Dividends and Distributions.........................................................
Purchases, Redemptions and Exchanges of Shares......................................
Frequent Purchases and Redemptions..................................................
Voting Information......................................................................................
Outstanding Shares and Share Ownership..................................................................
Financial Statements....................................................................................
Legal Matters...........................................................................................
Other Information.......................................................................................
Appendix A Forms of Plans of Reorganization................................................... A-1
Appendix B Debt Security Ratings.............................................................. B-1
Appendix C Certain Investment Strategies and Related Risks of the Acquiring Funds........... C-1
Appendix D Costs of Investing in the Acquiring Funds.......................................... D-1
Appendix E Additional Information About Fund Performance...................................... E-1
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by PIF's Board of Directors (the "Board" or "Directors") of proxies
to be used at a Special Meeting of Shareholders of the Acquired Funds to be held
at 680 8th Street, Des Moines, Iowa 50392-0200, on December 15, 2006, at _____
a.m., Central Time (the "Meeting"). The purpose of the Meeting is for
shareholders of each Acquired Fund to consider and vote upon the proposed
reorganization of the Acquired Fund into its corresponding Acquiring Fund, each
a series of PIF. All shareholders of record of an Acquired Fund at the close of
business on October 6, 2006 (the "Record Date") are entitled to one vote for
each share (and fractional votes for fractional shares) of the Acquired Fund
held on the Record Date.
Principal Investors Fund, Inc. and the Acquired and Acquiring Funds.
PIF is a Maryland corporation and an open-end management investment company
registered with the SEC under the 1940 Act. PIF currently offers 55 separate
series (the "PIF Funds"), including the Equity Income Fund and the Tax-Exempt
Bond Fund. PIF has filed with the SEC a post-effective amendment to its
registration statement on Form N-1A relating to the Equity Income Fund I and the
Tax-Exempt Bond Fund I. These Acquiring Funds will commence operations at the
Effective Time of the Reorganizations. The shares of the Acquired Funds are
currently offered in two classes. The sponsor of PIF is Principal Life Insurance
Company ("Principal Life"), the investment advisor to each of the Acquired Funds
and the Acquiring Funds is Principal Management Corporation ("PMC") and the
principal underwriter for PIF is Princor Financial Services Corporation
("Princor"). Principal Life, an insurance company organized in 1879 under the
laws of Iowa, PMC and Princor are indirect, wholly-owned subsidiaries of
Principal Financial Group, Inc. ("PFG"). Their address is the Principal
Financial Group, Des Moines, Iowa 50392-0200.
Pursuant to an investment advisory agreement with PIF 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 sub-advisors with respect to each of the Acquired
and Acquiring Funds as follows:
Acquired Fund Sub-Advisor(s)
Equity Income Fund Principal Global Investors LLC ("Principal Global")
Tax-Exempt Bond Fund Principal Global and Nuveen Asset Management ("NAM")
Acquiring Fund Sub-Advisor
Equity Income Fund I Washington Mutual Advisors, Inc. ("WMA")
Tax-Exempt Bond Fund I Van Kampen Asset Management ("Van Kampen")
Each of PMC and the sub-advisors is registered with the SEC as an
investment adviser under the Investment Advisers Act of 1940. Under its
sub-advisory agreement, each sub-advisor assumes the obligations of PMC to
provide investment advisory services for a specific Fund. Sub-advisors to the
Acquired and Acquiring Funds are compensated by PMC, not by the Funds.
Principal Global is an indirect wholly-owned subsidiary of PFG. NAM is
a wholly-owned subsidiary of Nuveen Investments, Inc., which, together with its
affiliates, had approximately $136 billion in assets under management as of
December 31, 2005. NAM's address is 333 West Wacker Drive, Chicago, Illinois
60606. Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley, a
publicly-held global financial services company and, together with its
affiliates, had aggregate assets under management or supervision, as of June 30,
2006, of approximately $438 billion. Van Kampen's address is 1221 Avenue of the
Americas, New York, New York 10020. WMA presently is an indirect wholly-owned
subsidiary of Washington Mutual, Inc. ("WaMu"), a publicly-owned financial
services company, and is located at 1201 Third Avenue, 22nd Floor, Seattle,
Washington 98101. As described in greater detail below, PFG has entered into an
agreement to acquire WMA.
The WMA Acquisition. On July 25, 2006, PFG and its subsidiary, PMC,
entered into an agreement with WaMu and New American Capital, Inc. ("NAC"), a
wholly-owned subsidiary of WaMu and the immediate parent of WMA, to acquire all
the outstanding stock of WMA and WMA's two subsidiaries, WM Funds Distributor,
Inc. ("WMFD") and WM Shareholder Services, Inc. ("WMSS") (the "Transaction").
The Reorganizations described in this Proxy Statement/Prospectus arise out of
the Transaction, which contemplates, among other things, the reorganization of
(i) the WM Equity Income Fund, a series of WM Trust I that is advised by WMA,
into the Equity Income Fund I and (ii) the WM Tax-Exempt Bond Fund, also a
series of WM Trust I that is advised by WMA, into the Tax-Exempt Bond Fund I
(collectively, the "WM Fund Reorganizations") (the WM Equity Income Fund and the
WM Tax-Exempt Bond Fund are referred to collectively as the "WM Acquired Funds"
and individually as a "WM Acquired Fund"). The closing of the Transaction is
expected to occur in the fourth quarter of this calendar year, subject to
certain regulatory and other approvals. After the Transaction, each of WMA, WMFD
and WMSS will be an indirect wholly-owned subsidiary of PFG.
The reorganization of the Equity Income Fund into the Equity Income
Fund I will not be effected unless the Equity Income Fund I first acquires
substantially all of the assets of the WM Equity Income Fund. Likewise, the
reorganization of the Tax-Exempt Bond Fund into the Tax-Exempt Bond Fund I will
not be effected unless the Tax-Exempt Bond Fund I first acquires substantially
all the assets of the WM Tax-Exempt Bond Fund. In other words, completion of the
Reorganization proposed for each Acquired Fund is contingent upon the
consummation of the reorganization proposed for the corresponding WM Acquired
Fund pursuant to the WM Fund Reorganization.
The impact of the WM Fund Reorganizations on the Acquiring Funds is
reflected in the information under the heading "Fees and Expenses of the Funds"
under Proposals 1 and 2 as well as under the heading "Capitalization" below.
OVERVIEW OF THE PROPOSED REORGANIZATIONS
At its meeting held on September 11, 2006, the Board of Directors,
including all the Directors who are not "interested persons" (as defined in the
1940 Act) of PIF (the "Independent Directors"), approved a Plan of
Reorganization (the "Plan") providing for the reorganization of each of the
Acquired Funds into the corresponding Acquiring Fund. The Reorganizations
contemplate: (i) the transfer of all the assets, subject to all of the
liabilities, of each Acquired Fund to its corresponding Acquiring Fund in
exchange for shares of the Acquiring Fund; (ii) the distribution to shareholders
of the Acquired Funds of the Acquiring Fund shares; and (ii) the liquidation and
termination of the Acquired Funds.
As a result of each Reorganization, each shareholder of an Acquired
Fund will become a shareholder of its corresponding Acquiring Fund. In each
Reorganization, the Acquiring Fund will issue a number of shares with a total
value equal to the total value of the net assets of its corresponding 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 New York Stock Exchange on the closing date of the
Reorganization (the "Effective Time"). The closing date for each Reorganization
is expected to be January 12, 2007. Holders of Class A and Class B shares of an
Acquired Fund will receive, respectively, Class A and Class B shares of the
corresponding Acquiring Fund.
All share classes of each Acquired Fund will vote in the aggregate and
not by class. The consummation of the reorganization of one Acquired Fund into
its corresponding Acquiring Fund may occur regardless of whether the
consummation of the other Reorganization occurs. The terms and conditions of
each Reorganization are more fully described below in this Proxy
Statement/Prospectus and in each Plan of Reorganization, which is attached
hereto as Appendix A.
The Reorganizations will permit PIF to substitute for the Acquired
Funds corresponding Acquiring Funds that the Board believes will better serve
the interests of shareholders. Each Acquiring Fund is a new fund, which has
investment objectives and strategies that are identical to those of its
corresponding WM Acquired Fund and are substantially similar to those of its
corresponding Acquired Fund. Accordingly, after the Reorganizations, it should
be reasonable for shareholders to have the same investment expectations. The
persons responsible for the day-to-day management of the WM Acquired Funds will
be responsible for the day-to-day management of the Acquiring Funds. This is
important to keep in mind because, for each of the 1, 5 and 10 year periods
ended December 31, 2005, the WM Equity Income Fund has generated performance
results that are superior to the returns of the Equity Income Fund. Similarly,
the WM Tax-Exempt Bond Fund has produced results that are comparable to or
exceed the performance of the Tax-Exempt Bond Fund over the same time periods.
Although past performance is no guarantee of future results, shareholders may
want to compare the performance records of each Acquired Fund and its
corresponding WM Acquired Fund because that information will provide an
indication of the risks of investing in the Acquired Funds versus their
corresponding Acquiring Funds. Moreover, shareholders in each Acquired Fund may
benefit from the Acquiring Fund's larger asset base resulting from the addition
of the WM Acquired Fund's assets. As a result of the Reorganizations, the
Acquiring Funds may have improved prospects for growth, may operate more
efficiently and may have greater potential for attendant reductions in overall
expenses.
The factors that the Board considered in deciding to approve each of
the Reorganizations are discussed below under "Information About the
Reorganizations - Board Consideration of the Reorganizations."
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 any Acquired or Acquiring Fund shareholders. See
"Information About the Reorganizations -- Federal Income Tax Consequences."
The Reorganizations will not result in any material change in the
purchase and redemption procedures followed with respect to the distribution of
shares. See "Additional Information About the Funds - Purchases, Redemptions and
Exchanges of Shares."
None of the Acquired Funds, Acquiring Funds or their shareholders will
incur any fees or expenses in connection with the Reorganizations (other than
trading costs associated with disposing of any portfolio securities that would
not be compatible with the investment objectives and strategies of an Acquiring
Fund and reinvesting the proceeds in securities that would be compatible).
PROPOSAL 1
APPROVAL OF A PLAN OF REORGANIZATION PROVIDING FOR
THE REORGANIZATION OF THE EQUITY INCOME FUND
INTO THE EQUITY INCOME FUND I
Overview of the Reorganization
Shareholders of the Equity Income Fund (the "Acquired Fund") are being
asked to approve the reorganization of the Acquired Fund into the Equity Income
Fund I (the "Acquiring Fund"). For a summary discussion of the form and
consequences of, and the reasons for, the Reorganization, see "Overview of the
Proposed Reorganizations."
The Acquiring Fund is a new series of PIF that will commence operations
at the Effective Time of the Reorganization. Pursuant to the related WM Fund
Reorganization described under "Introduction" above, it is proposed that an
existing WM Acquired Fund, the WM Equity Income Fund, will be reorganized into
the Acquiring Fund immediately before the Acquired Fund. Consummation of the
reorganization of the Acquired Fund into the Acquiring Fund is contingent upon
the consummation of the reorganization of the WM Equity Income Fund into the
Acquiring Fund.
Comparison of Acquired and Acquiring Funds
Equity Income Fund Equity Income Fund I
(Acquired Fund) (Acquiring Fund)
Approximate Net Assets as of 4/30/06 (unaudited):
$109,872,644 None*
*The Acquiring Fund will commence operations upon the
consummation of the Reorganization, which will occur
immediately after consummation of the related WM Fund
Reorganization. At 4/30/06, the WM Equity Income Fund
had net assets of $3,468,912,000 (unaudited).
Investment Adviser:
PMC PMC
Sub-Advisor and Portfolio Manager(s):
Principal Global WMA
Portfolio manager: Portfolio manager:
--Dirk Laschanzky, CFA; Portfolio Manager; joined --Joseph T. Suty, CFA, Vice President and Senior
Principal Global in 1997. Portfolio Manager, WMA; prior to joining WMA in
2005, a portfolio manager for Washington Capital
Management, Inc.
Investment Objective:
The Acquired Fund seeks to achieve high current The Acquiring Fund seeks to provide a relatively
income and long-term growth of income and capital. high level of current income and long-term growth
of income and capital.
Principal Investment Strategies:
The Acquired Fund seeks to achieve its objective by The Acquiring Fund invests primarily (normally at
investing primarily in equity securities (such as least 80% of its net assets, plus any borrowings
common stocks, preferred securities, which may be for investment purposes) in dividend-paying common
convertible, and shares of real estate investment stocks and preferred stocks.
trusts (REITs)). In selecting securities,
Principal Global, places an emphasis on securities In selecting investments for the Acquiring Fund,
with potentially high dividend yields. Under normal WMA looks for investments that provide regular
market conditions, the Acquired Fund invests at income in addition to some opportunity for capital
least 80% of its assets in equity securities. The appreciation. Equity investments are typically
Acquired Fund may invest up to 20% of its assets in made in "value" stocks currently selling for less
securities of foreign companies. than WMA believes they are worth.
When determining how to invest the Acquired Fund's The Acquiring Fund may:
assets in common stocks, Principal Global seeks
stocks that it believes are undervalued in the --invest in fixed-income securities of any
marketplace at the time of purchase. Securities maturity, including mortgage-backed securities,
for the Acquired Fund are selected by consideration U.S. government securities, and asset-backed
of the quality and price of individual issuers securities;
rather than forecasting stock market trends. The
selection process focuses on: --invest up to 20% of its assets in
below-investment-grade fixed-income securities
-- the determination that a stock is selling below (sometimes called "junk bonds");
its fair market value;
--purchase or sell U.S. government securities or
-- an early recognition of changes in a company's collateralized mortgage obligations on a
underlying fundamentals; "when-issued" or "delayed-delivery" basis in an
aggregate of up to 20% of the market value of its
-- an evaluation of the sustainability of total net assets;
fundamental changes; and
--invest up to 20% of its assets in REIT
-- monitoring a stock's behavior in the market. securities; and
The equity investment philosophy of Principal --invest up to 25% of its assets in U.S.
Global is based on the belief that superior stock dollar-denominated securities of foreign issuers.
selection is the key to consistent out-performance.
Principal Global believes The Acquiring Fund may write (sell) covered call
superior stock selection may be achieved by a options.
combination of systematically evaluating company
fundamentals and in-depth original research.
Principal Global focuses on four critical drivers
of stock performance: improving business
fundamentals; sustainable competitive advantages;
rising investor expectations; and attractive relative
valuation. To leverage its stock selection skills as
the primary drivers of relative
performance, Principal Global seeks to maximize global
information advantages and neutralize unintended
portfolio risks.
Principal Global focuses its stock selection on
established companies that
it believes have a sustainable competitive advantage.
Principal Global constructs a portfolio that is
"benchmark aware" in that it is sensitive
to the sector (companies with similar characteristics)
and security weightings of its benchmark. However,
the Acquired Fund is actively managed and prepared to
over- and/or under-weight sectors and industries
differently from the benchmark.
Portfolio Turnover Rates:
The Acquired Fund's portfolio turnover rates were: The WM Equity Income Fund's
portfolio turnover rates were:*
-- 90% for the six months ended 4/30/06 (unaudited) -- 36% for the six months ended 4/30/06 (unaudited);
(annualized); -- 32% for the fiscal year ended 10/31/05; and
-- 88.4% for the fiscal year ended 10/31/05; and -- 20% for the fiscal year ended 10/31/04.
-- 134.7% for the fiscal year ended 10/31/04.
*The Acquiring Fund will commence
operations upon the consummation of the
Reorganization, which will occur
immediately after consummation of the
related WM Fund Reorganization. The
investment objectives and strategies of the
Acquiring Fund will be identical to
those of the WM Acquired Fund.
Hedging and Other Strategic Transactions:
Both the Acquired and the Acquiring Fund are authorized to use derivative
instruments (financial arrangements the value of which is based on, or
derived from, a security, asset or market index) such as futures, options,
future contracts, options on future contracts and swaps to hedge against
changing interest rates, security prices or currency exchange rates and
for other strategic purposes.
Temporary Defensive Investing:
For temporary defensive purposes in times of unusual or adverse market
conditions, both the Acquired Fund and the Acquiring Fund may invest in
cash and cash equivalents. In taking such defensive measures, either Fund
may fail to achieve its investment objective.
Comparison of Investment Objectives and Strategies
The investment objectives and principal investment strategies of the
Acquired and Acquiring Funds are substantially similar. Both seek high current
income and long-term growth of income and capital. Both Funds pursue their
objectives by investing primarily in equity securities, such as common and
preferred stock and shares of real estate investment trusts, that provide for
regular income and the potential for capital appreciation. Both the Acquired and
Acquiring Funds employ a value investing approach, seeking out investment
opportunities that their respective sub-advisors believe are undervalued in the
marketplace. While the Acquired Fund may invest up to 20% of its assets in
foreign companies, the Acquiring Fund may invest up to 25% of its assets in U.S.
dollar denominated securities of foreign issuers. In addition, the Acquiring
Fund may invest up to 20% of its assets in fixed-income securities of any
maturity, including below-investment grade fixed-income securities.
Additional information about the investment strategies and the types of
securities in which the Acquired and Acquiring Funds may invest is contained in,
respectively, the PIF SAI and the Statement of Additional Information.
The investment objective of each Fund may be changed by the Board
without shareholder approval.
The PIF SAI and the Statement of Additional Information provide further
information about the portfolio manager(s) for the respective Funds, including
information about compensation, other accounts managed and ownership of fund
shares.
The various hedging strategies available to the Funds are described in
more detail below under "Hedging and Other Strategic Transactions."
For an explanation of debt security ratings, see Appendix B to this
Proxy Statement/Prospectus.
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 substantially similar investment objectives and
strategies as described above, they have substantially the same risks. These
include, in addition to credit and counterparty risk, liquidity risk, market
risk and management risk, which are common to all funds, the following risks:
Risks Applicable to Both Funds:
- -- Equity Securities Risk -- Value Stock Risk -- Foreign Securities Risk
- -- Exchange Rate Risk -- Real Estate Securities Risk -- Derivatives Risk
- -- Prepayment or Call Risk
Additional Risks Applicable to the Acquiring Fund:
- -- Fixed-Income Securities Risk -- U.S. Government Securities Risk -- High Yield Securities Risk
- -- Fund-of-Funds Risk
All of the above named risks are more fully described below under
"Risks of Investing in the Funds."
Certain risks of investing in the Acquiring Fund are more fully
described in Appendix C to this Proxy Statement/Prospectus and the Statement of
Additional Information. The risks of investing in the Acquired Fund are more
fully described in the PIF Prospectus and the PIF SAI.
Fees and Expenses of the Funds
The tables below compare the fees and expenses of the shares of the
Acquired and Acquiring Funds. If shareholders of the Acquired Fund approve the
Reorganization and the reorganization of the Acquired and Acquiring Funds takes
place, holders of Class A and Class B shares of the Acquired Fund will receive,
respectively, Class A and Class B shares of the Acquiring Fund. The fees and
expenses of the Acquired and Acquiring Funds are more fully described in,
respectively, the PIF Prospectus and Appendix D ("Costs of Investing in the
Acquiring Funds") to this Proxy Statement/Prospectus.
Shareholder Fees (fees paid directly from your investment)
The following table shows the fees and expenses you may pay when you
buy and hold shares of the Acquired Fund and the Acquiring Fund.
Equity Income Fund Equity Income Fund I
(Acquired Fund) (Acquiring Fund)
Class A Class B Class A Class B Class B
------- ------- ------- ------- -------
(issued in connection (issued after
with Reorganization)(7) Reorganization)(7)
Maximum sales charge
(load) imposed on purchases 5.75%(1) None 5.50%(1) None None
(as a % of offering price)
Maximum Contingent Deferred
Sales Charge 0.75%(2) 4.00%(3) 1.00%(2) 4.00%(5) 5.00%(6)
(CDSC) (as a % of dollars
subject to charge)
Redemption or Exchange
Fee (as a % of amount redeemed/ 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
exchanged)
<FN>
- -----------------------
(1) Sales charges are reduced or eliminated for purchases of $50,000 or more.
(2) A CDSC applies on certain redemptions of Class A shares made within 18
months following purchases of $1 million or more made without a sales charge.
(3) CDSCs are reduced after two years and eliminated after 7 years.
(4) Excessive trading fees are charged when $30,000 or more of shares are
redeemed or exchanged for another PIF Fund within 30 days after they are
purchased. Excessive trading fees will not be applied to shares acquired in
connection with the Reorganization.
(5) CDSCs are reduced after two years and eliminated after 6 years. (6) CDSCs
are reduced after two years and eliminated after 5 years.
(7) For a discussion of the differences between Class B shares to be issued in
connection with the Reorganization and after the Reorganization, see "Additional
Information about the Funds - Differences between the Share Classes of the
Acquired and Acquiring Funds."
</FN>
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 Class A and Class B shares of the Acquired Fund for the fiscal
year ended October 31, 2005; (b) the estimated expense ratios of the Class A and
Class B shares of the Acquiring Fund for the fiscal year ending October 31,
2007; and (c) the pro forma combined expense ratios of the Class A and Class B
shares of the Acquiring Fund for the fiscal year ending October 31, 2007
assuming both the Reorganization and the related WM Fund Reorganization. The
Acquiring Fund is a new series of PIF that will commence operations at the
Effective Time of the Reorganization.
Annual Fund Operating Expenses
Management 12b-1 Other Total Fund Fee Waiver / Net
Fees Fees Expenses Operating Expense Expenses
Expenses Reimbursement
(a) Equity Income Fund Class A 0.60% 0.24% 0.44% 1.28% -- 1.28%
(Acquired Fund) Class B 0.60% 0.92% 0.71% 2.23% -- 2.23%
(b) Equity Income Class A 0.51% 0.25% 0.10% 0.86% -- 0.86%
Fund I (1) (2)
(Acquiring Fund) Class B 0.51% 1.00% 0.23% 1.74% 0.01% 1.73%
(Estimated)
(c) Equity Income Class A 0.51% 0.25% 0.10% 0.86% -- 0.86%
Fund I (1) (2)
(Acquiring Fund) Class B 0.51% 1.00% 0.23% 1.74% 0.01% 1.73%
(Pro forma estimated
expenses assuming WM
Fund Reorganization)
<FN>
- -----------------------
(1) PMC has contractually agreed to limit the Acquiring Fund's expenses
attributable to Class A and Class B shares and, if necessary, pay expenses
normally payable by the Fund through the period ending February 28, 2008. The
expense limits will maintain for each such share class a total level of
operating expenses (expressed as a percentage of average net assets on an
annualized basis) not to exceed the following level of such expenses: Class A -
0.87%; and Class B - 1.73%.
(2) The Acquiring Fund will not issue shares prior to the Effective Time of the
related WM Fund Reorganization, which is scheduled to occur immediately before
the Reorganization. The estimated expenses for the year ending October 31, 2007
shown in the table are based on the fees which will be in effect and on the
other expenses which it is estimated the Acquiring Fund will incur subsequent to
the Effective Time of the Reorganization. The fees and expenses shown in the
table are intended to reflect those that will be in effect on an ongoing basis
after the Reorganization. They are likely to be different from the expenses of
the Acquiring Fund for financial reporting purposes for the fiscal year ending
October 31, 2007 because, assuming the related WM Fund Reorganization is
approved, the Acquiring Fund will carry forward the financial statements of the
WM Equity Income Fund and report historical information of the WM Equity Income
Fund for periods prior to the Effective Time of the Reorganization as its own.
</FN>
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. The examples should not be considered
a representation of future expenses of the Acquired or Acquiring Fund. Actual
expenses may be greater or less than those shown.
1 Year 3 Years 5 Years 10 Years
If you sell your shares at the end of the period:
Equity Income Fund Class A $698 $958 $1,237 $2,031
(Acquired Fund) Class B $626 $997 $1,395 $2,212
Equity Income Fund I Class A $633 $809 $1,001 $1,552
(Acquiring Fund) (Estimated) Class B(1) $576 $746 $1,042 $1,602
Equity Income Fund I Class A $633 $809 $1,001 $1,552
(Acquiring Fund) Class B(1) $576 $746 $1,042 $1,602
(Pro forma estimated expenses assuming
WM Fund Reorganization)
If you do not sell your shares at the end of the period:
Equity Income Fund Class B $226 $697 $1,195 $2,212
(Acquired Fund)
Equity Income Fund I Class B(1) $176 $546 $942 $1,602
(Acquiring Fund)
Equity Income Fund I Class B(1) $176 $546 $942 $1,602
(Acquiring Fund)
(Pro forma estimated expenses assuming
WM Fund Reorganization)
- ------------------
<FN>
(1) These expense examples are for Class B shares that will be issued to you in
the Reorganization. If you purchase Class B shares after the
Reorganization, based on the assumptions stated above, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
If you sell your shares at the end $676 $946 $1,142 $1,817
of the period:
If you do not sell your shares at $176 $546 $942 $1,817
the end of the period:
</FN>
Investment Management Fees/Sub-Advisory Arrangements
The Acquired Fund and the Acquiring Fund each pay their investment
advisor, PMC, an advisory fee, which is calculated as a percentage of each
Fund's average daily net assets pursuant to the following fee schedules:
Equity Income Fund Equity Income Fund I
(Acquired Fund) (Acquiring Fund)
0.60% of the first $500 million; 0.60% of the first $250 million;
0.58% of the next $500 million; 0.55% of the next $250 million;
0.56% of the next $500 million; and 0.50% of the excess over $500 million
0.55% of the excess over $1.5 billion of average daily net assets.
of average daily net assets.
Principal Global directly manages the assets of the Acquired Fund as
its sub-advisor. Assuming approval of the related WM Fund Reorganization, WMA
will manage the assets of the Acquiring Fund as its sub-advisor. For its
services as sub-advisor to the Acquiring Fund, WMA will be paid a sub-advisory
fee by PMC, not by the Acquiring Fund.
A discussion of the basis of the Board of Directors' approval of the
advisory and sub-advisory agreements with respect to the Acquired Fund is
available in PIF's Annual Report to Shareholders for the fiscal year ended
October 31, 2005.
Performance
The following table shows, for the indicated periods ended December 31,
2005, the annual total returns of the Class A and Class B shares of the Acquired
Fund. Performance information for the Acquiring Fund is not presented because
the Acquiring Fund has not yet commenced operations. Assuming the related WM
Fund Reorganization is approved, the Acquiring Fund, after the Reorganization,
will assume the historical performance of the Class A and Class B shares of the
WM Equity Income Fund as the historical performance of, respectively, the Class
A and Class B shares of the Acquiring Fund for periods prior to the Effective
Time of the Reorganization. Accordingly, for comparison purposes, the table
below also shows performance information for the Class A and Class B shares of
the WM Equity Income Fund. Appendix E to this Proxy Statement/Prospectus
contains additional performance information for the Acquired Fund and the WM
Equity Income Fund.
Average Annual Total Returns (%) for periods ended December 31, 2005
Past Past Past 10
1 Year 5 Years Years
Equity Income Fund (Acquired Fund) (1)
- --Class A (before taxes) 2.02% -3.14% 5.51%
(after taxes on distributions) (2) 1.15% -3.98% 3.89%
(after taxes on distributions and 1.58% -3.07% 4.05%
sale of shares)
- --Class B (3) 3.10% -3.20% 5.55%
Past Past Past 10
1 Year 5 Years Years
WM Equity Income Fund
- --Class A (before taxes) 3.43% 8.25% 10.03%
(after taxes on distributions) (2) 2.64% 7.38% 8.04%
(after taxes on distributions and 3.25% 6.73% 7.62%
sale
of shares)
- --Class B (3) 3.55% 8.21% 9.90%
<FN>
- ------------------
(1) Class A and Class B shares began operations on June 30, 2005 when the
Acquired Fund succeeded to the operations, and assumed the historical
performance, of the Class A and Class B shares of a predecessor fund. For
periods prior to the date on which those classes succeeded to the operations of
the Class A and Class B shares of the predecessor fund, the returns of the Class
A and Class B shares of the Acquired Fund are based on the performance of the
Class A and Class B shares of the predecessor fund. The predecessor fund's Class
A shares commenced operations on December 16, 1992, and its Class B shares
commenced operations on December 9, 1994.
(2) After-tax returns 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 will depend on an investor's tax situation
and may differ from those shown. 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.
(3) After-tax performance is shown for Class A shares only. The after-tax
returns for Class B shares will vary.
</FN>
PROPOSAL 2
APPROVAL OF A PLAN OF REORGANIZATION PROVIDING FOR
THE REORGANIZATION OF THE TAX-EXEMPT BOND FUND
INTO THE TAX-EXEMPT BOND FUND I
Overview of the Reorganization
Shareholders of the Tax-Exempt Bond Fund (the "Acquired Fund") are
being asked to approve the reorganization of the Acquired Fund into the
Tax-Exempt Bond Fund I (the "Acquiring Fund"). For a summary discussion of the
form and consequences of, and the reasons for, the Reorganization, see "Overview
of the Proposed Reorganizations."
The Acquiring Fund is a new series of PIF that will commence operations
at the Effective Time of the Reorganization. Pursuant to the related WM Fund
Reorganization described under "Introduction" above, it is proposed that an
existing WM Acquired Fund, the WM Tax-Exempt Bond Fund, will be reorganized into
the Acquiring Fund immediately before the Acquired Fund. Consummation of the
reorganization of the Acquired Fund into the Acquiring Fund is contingent upon
the consummation of the reorganization of the WM Tax-Exempt Bond Fund into the
Acquiring Fund.
Comparison of Acquired and Acquiring Funds
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
(Acquired Fund) (Acquiring Fund)
Approximate Net Assets as of 4/30/06 (unaudited):
$156,270,835 None *
* The Acquiring Fund will commence
operations upon the consummation of the
Reorganization, which will occur
immediately after consummation of the
related WM Fund Reorganization. At
4/30/06, the WM Tax-Exempt Bond Fund
had net assets of $199,139,000 (unaudited).
Investment Adviser:
PMC PMC
Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Van Kampen
NAM
Portfolio managers: Portfolio manager:
--Thomas V. Catus, CFA; Portfolio Analyst; joined --Thomas M. Bryon, Vice President, Van Kampen;
Principal Global in 2000. joined Van Kampen in 1981.
--John V. Miller, CFA; Vice President; joined NAM
in 1996.
Investment Objective:
The Acquired Fund seeks as high a level of current The Acquiring Fund seeks to provide a high level of
income exempt from federal income tax as is income that is exempt from federal income tax while
consistent with preservation of capital. protecting investors capital.
Principal Investment Strategies:
The Acquired Fund seeks to achieve its objective The Acquiring Fund invests primarily in municipal
primarily through the purchase of investment grade obligations issued by states, counties, cities or
quality, tax-exempt fixed-income obligations. The other governmental entities. Under normal market
Acquired Fund invests in a diversified portfolio of conditions, the Acquiring Fund invests at least 80%
securities issued by or on behalf of state or local of its net assets in municipal obligations,
governments and other public authorities. In the including inverse floating rate obligations. The
opinion of the issuer's bond counsel, interest on Acquiring Fund specifically limits these
these obligations is exempt from federal income investments to municipal bonds, municipal notes and
tax. Under normal market conditions, the Fund securities of unaffiliated tax-exempt mutual funds.
invests at least 80% of its assets in municipal
obligations and not more than 20% of its assets in The Acquiring Fund may also invest up to 20% of its
securities that do not meet the criteria stated assets in high yield, non-investment grade
above (taxable securities; or municipal obligations fixed-income securities (commonly known as "junk
the interest on which is treated as a tax bonds").
preference item for purposes of the federal
alternative minimum tax). The Acquired Fund may In adverse markets, the Acquiring Fund may seek to
also invest in taxable securities that mature one protect its investment position by investing up to
year or less from the time of purchase. These 50% of its assets in taxable short-term investments
taxable investments are generally made for such as:
liquidity purposes or as a temporary investment of
cash pending investment in municipal obligations. --U.S. government securities;
Under unusual market or economic conditions and for
temporary defensive purposes, the Fund may invest --commercial paper rated in the highest grade by
more than 20% of its assets in taxable securities. either S&P, Moody's or Fitch;
Principal Global selects securities, which at the --obligations of U.S. banks;
time they are purchased, are: municipal bonds which
are rated in the four highest grades by Moody's --time or demand deposits in U.S. banks; and
Investors Service, Inc. ("Moody's"); municipal
notes rated in the highest grade by Moody's; --repurchase agreements relating to municipal
municipal commercial paper rated in the highest securities or any of the foregoing taxable
grade by Moody's or Standard & Poor's Rating instruments.
Service ("S&P"), or if unrated, are of comparable
quality in the opinion of Principal Global. Interest income from these investments that is
distributed to shareholders by the Acquiring Fund
NAM may invest up to 20% of the Acquired Fund's net may be taxable.
assets in medium- to low-quality bonds (BBB/Baa or
lower) as rated by at least one independent rating The Acquiring Fund may also:
agency, or if unrated, judged to be of comparable
quality by the NAM. NAM uses a research-intensive --purchase and sell interest rate futures and
investment process to identify high-yielding options; and
municipal bonds that offer attractive value in
terms of their current yields, prices, credit --invest up to 20% of its assets in AMT-subject
quality, liquidity and future prospects. The bonds.
Acquired Fund may buy securities that pay interest
at rates that float inversely with changes in The Acquiring Fund is classified as a
prevailing interest rates. The Acquired Fund may non-diversified investment company under the 1940
also make forward commitments in which the Acquired Act.
Fund agrees to buy a security in the future at a
price agreed upon today.
The Acquired Fund is classified as a diversified
investment company under the 1940 Act.
Portfolio Turnover Rates:
The Acquired Fund's portfolio turnover rates were: The WM Tax-Exempt Bond Fund's portfolio turnover rates
were:*
-- 105.7% for the six months ended 4/30/06 -- 11% for the six months ended 4/30/06 (unaudited);
(unaudited) (annualized); -- 28% for the fiscal year ended 10/31/05; and
-- 54.2% for the fiscal year ended 10/31/05; and -- 25% for the fiscal year ended 10/31/04.
-- 70.3% for the fiscal year ended 10/31/04.
*The Acquiring Fund will commence
operations upon the consummation of the
Reorganization, which will occur
immediately after consummation of the
related WM Fund Reorganization. The
investment objectives and strategies of the
Acquiring Fund will be identical to
those of the WM Acquired Fund.
Hedging and Other Strategic Transactions:
Both the Acquired and the Acquiring Fund are authorized to use derivative
instruments (financial arrangements the value of which is based on, or
derived from, a security, asset or market index) such as futures, options,
future contracts, options on future contracts and swaps to hedge against
changing interest rates, security prices or currency exchange rates and
for other strategic purposes.
Temporary Defensive Investing:
For temporary defensive purposes in times of unusual or adverse market
conditions, the Acquiring Fund may invest in cash and cash equivalents. In
taking such defensive measures, the Acquiring Fund may fail to achieve its
investment objective.
Comparison of Investment Objectives and Strategies
The investment objectives and principal strategies of the Acquired and
Acquiring Funds are substantially similar as both Funds seek a high level of
income that is exempt from federal income tax while protecting investors'
capital. Both Funds seek to achieve their objectives by investing primarily in
investment-grade municipal securities but both may invest up to 20% of their
assets in non-investment-grade debt securities (commonly known as "junk bonds").
The two Funds differ primarily in that the Acquired Fund, under unusual market
or economic conditions and for temporary defensive purposes, may invest up to
20% of its assets in taxable securities while the Acquiring Fund may, in adverse
markets, invest up to 50% of its assets in such securities. Moreover, the
Acquired Fund is diversified while the Acquiring Fund is non-diversified. This
means that a relatively high percentage of assets of the Acquiring Fund may be
invested in the obligations of a limited number of issuers.
Additional information about the investment strategies and the types of
securities in which the Acquired and Acquiring Funds may invest is contained in,
respectively, the PIF SAI and the Statement of Additional Information.
The investment objective of each Fund may be changed by the Board
without shareholder approval.
The PIF SAI and the Statement of Additional Information provide further
information about the portfolio manager(s) for the respective Funds, including
information about compensation, other accounts managed and ownership of fund
shares.
The various hedging strategies available to the Funds are described in
more detail below under "Hedging and Other Strategic Transactions."
For an explanation of debt security ratings, see Appendix B to this
Proxy Statement/Prospectus.
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 both Funds invest primarily in tax-exempt municipal securities, they
have substantially similar risks. These include, in addition to credit and
counterparty risk, liquidity risk, market risk and management risk, which are
common to all funds, the following risks:
Risks Applicable to Both Funds:
- -- Fixed-Income Securities Risk -- Municipal Securities Risk -- High Yield Securities Risk
- -- Derivatives Risk
Risk Applicable to the Acquiring Fund:
- -- Non-Diversification Risk
All of the above named risks are more fully described below under
"Risks of Investing in the Funds."
Certain risks of investing in the Acquiring Fund are more fully described
in Appendix C to this Proxy Statement/Prospectus and the Statement of Additional
Information. The risks of investing in the Acquired Fund are more fully
described in the PIF Prospectus and the PIF SAI.
Fees and Expenses of the Funds
The tables below compare the fees and expenses of the shares of the
Acquired and Acquiring Funds. If shareholders of the Acquired Fund approve the
Reorganization and the reorganization of the Acquired and Acquiring Funds takes
place, holders of Class A and Class B shares of the Acquired Fund will receive,
respectively, Class A and Class B shares of the Acquiring Fund. The fees and
expenses of the Acquired Fund are more fully described in the Acquired Fund
Prospectus. The fees and expenses of the Acquired and Acquiring Funds are more
fully described in, respectively, the PIF Prospectus and Appendix D ("Costs of
Investing in the Acquiring Funds") to this Proxy Statement/Prospectus.
Shareholder Fees (fees paid directly from your investment)
The following table shows the fees and expenses you may pay when you
buy and hold shares of the Acquired Fund and the Acquiring Fund.
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
(Acquired Fund) (Acquiring Fund)
Class A Class B Class A Class B Class B
------- ------- ------- ------- -------
(issued in connection (issued after
with Reorganization)(7) Reorganization)(7)
Maximum sales charge
(load) imposed on purchases 4.75%(1) None 4.50%(1) None None
(as a % of offering price)
Maximum Contingent Deferred
Sales Charge 0.75%(2) 4.00%(3) 1.00%(2) 4.00%(5) 5.00%(6)
(CDSC) (as a % of dollars
subject to charge)
Redemption or Exchange
Fee (as a % of amount redeemed/ 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
exchanged)
<FN>
- -----------------------
(1) Sales charges are reduced or eliminated for purchases of $50,000 or more.
(2) A CDSC applies on certain redemptions of Class A shares made within 18
months following purchases of $1 million or more made without a sales charge.
(3) CDSCs are reduced after two years and eliminated after 7 years.
(4) Excessive trading fees are charged when $30,000 or more of shares are
redeemed or exchanged for another PIF Fund within 30 days after they are
purchased. Excessive trading fees will not be applied to shares acquired in
connection with the Reorganization.
(5) CDSCs are reduced after two years and eliminated after 6 years.
(6) CDSCs are reduced after two years and eliminated after 5 years.
(7) For a discussion of the differences between Class B shares to be issued in
connection with the Reorganization and after the Reorganization, see "Additional
Information about the Funds - Differences between the Share Classes of the
Acquired and Acquiring Funds."
</FN>
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 Class A and Class B shares of the Acquired Fund for the fiscal
year ended October 31, 2005; (b) the estimated expense ratios of the Class A and
Class B shares of the Acquiring Fund for the fiscal year ending October 31,
2007; and (c) the pro forma combined expense ratios of the Class A and Class B
shares of the Acquiring Fund for the fiscal year ending October 31, 2007
assuming both the Reorganization and the related WM Fund Reorganization. The
Acquiring Fund is a new series of PIF that will commence operations at the
Effective Time of the Reorganization.
Annual Fund Operating Expenses
Management 12b-1 Other Total Fund Fee Waiver / Net
Fees Fees Expenses Operating Expense Expenses
Expenses Reimbursement
(a) Tax-Exempt Bond Class A 0.50% 0.21% 0.07% 0.78% 0.02% 0.76%
Fund (1)
(Acquired Fund) Class B 0.50% 0.40% 0.37% 1.27% 0.12% 1.15%
(b) Tax-Exempt Bond Class A 0.50% 0.25% 0.06% 0.81% 0.05% 0.76%
Fund I (2) (3)
(Acquiring Fund) Class B 0.50% 1.00% 0.15% 1.65% 0.50% 1.15%
(Estimated)
(c) Tax-Exempt Bond Class A 0.50% 0.25% 0.06% 0.81% 0.05% 0.76%
Fund I (2) (3)
(Acquiring Fund) Class B 0.50% 1.00% 0.15% 1.65% 0.50% 1.15%
(Pro forma estimated
expenses assuming WM
Fund Reorganization)
<FN>
- -----------------------
(1) PMC has contractually agreed to limit the Acquired Fund's expenses and, if
necessary, pay expenses normally payable by the Fund through the period ending
June 30, 2008. The expense limit will maintain a total level of operating
expenses (expressed as a percent of average net assets attributable to Class A
and Class B shares on an annualized basis) not to exceed 0.76% for Class A and
1.15% for Class B.
(2) PMC has contractually agreed to limit the Acquiring Fund's expenses and, if
necessary, pay expenses normally payable by the Fund through the period ending
June 30, 2008. The expense limit will maintain a total level of operating
expenses (expressed as a percent of average net assets attributable to Class A
and Class B shares on an annualized basis) not to exceed 0.76% for Class A and
1.15% for Class B.
(3) The Acquiring Fund will not issue shares prior to the Effective Time of the
related WM Fund Reorganization, which is scheduled to occur immediately before
the Reorganization. The estimated expenses for the year ending October 31, 2007
shown in the table are based on the fees which will be in effect and on the
other expenses which it is estimated the Acquiring Fund will incur subsequent to
the Effective Time of the Reorganization. The fees and expenses shown in the
table are intended to reflect those that will be in effect on an ongoing basis
after the Reorganization. They are likely to be different from the expenses of
the Acquiring Fund for financial reporting purposes for the fiscal year ending
October 31, 2007 because, assuming the related WM Fund Reorganization is
approved, the Acquiring Fund will carry forward the financial statements of the
WM Tax-Exempt Bond Fund and report historical information of the WM Tax-Exempt
Bond Fund for periods prior to the Effective Time of the Reorganization as its
own.
</FN>
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. The examples should not be considered
a representation of future expenses of the Acquired or Acquiring Fund. Actual
expenses may be greater or less than those shown.
1 Year 3 Years 5 Years 10 Years
If you sell your shares at the end of the period:
Tax-Exempt Bond Fund Class A $549 $707 $883 $1,391
(Acquired Fund) Class B $517 $672 $867 $1,307
Tax-Exempt Bond Fund I Class A $524 $685 $867 $1,395
(Acquiring Fund) (Estimated) Class B(1) $517 $593 $874 $1,409
Tax-Exempt Bond Fund I Class A $524 $685 $867 $1,395
(Acquiring Fund) Class B(1) $517 $593 $874 $1,409
(Pro forma estimated expenses assuming
WM Fund Reorganization)
If you do not sell your shares at the end of the period:
Tax-Exempt Bond Fund Class B $117 $372 $667 $1,307
(Acquired Fund)
Tax-Exempt Bond Fund I Class B(1) $117 $393 $774 $1,409
(Acquiring Fund)
Tax-Exempt Bond Fund I Class B(1) $117 $393 $774 $1,409
(Acquiring Fund)
(Pro forma estimated expenses assuming
WM Fund Reorganization)
<FN>
- ------------------
(1) These expense examples are for Class B shares that will be issued to you in
the Reorganization. If you purchase Class B shares after the
Reorganization, based on the assumptions stated above, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
If you sell your shares at the end $617 $793 $974 $1,617
of the period:
If you do not sell your shares at $117 $393 $774 $1,617
the end of the period:
</FN>
Investment Management Fees/Sub-Advisory Arrangements
The Acquired Fund and the Acquiring Fund each pay their investment
advisor, PMC, an advisory fee, which is calculated as a percentage of each
Fund's average daily net assets pursuant to the following fee schedules:
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
(Acquired Fund) (Acquiring Fund)
0.50% of the first $500 million; 0.50% of the first $500 million;
0.48% of the next $500 million; 0.48% of the next $500 million;
0.46% of the next $500 million; and 0.46% of the next $500 million; and
0.45% of the excess over $1.5 billion 0.45% of the excess over $1.5 billion of
of average daily net assets. average daily net assets.
Principal Global and NAM directly manage the assets of the Acquired
Fund as its sub-advisors. Assuming approval of the WM Fund Reorganization, Van
Kampen will manage the assets of the Acquiring Fund as its sub-advisor. For its
services as sub-advisor to the Acquiring Fund, Van Kampen will be paid a
sub-advisory fee by PMC, not by the Acquiring Fund.
A discussion of the basis of the Board of Directors' approval of the
advisory and sub-advisory agreements with respect to the Acquired Fund is
available in PIF's Annual Report to Shareholders for the fiscal year ended
October 31, 2005.
Performance
The following table shows, for the indicated periods ended December 31,
2005, the annual total returns of the Class A and Class B shares of the Acquired
Fund. Performance information for the Acquiring Fund is not presented because
the Acquiring Fund has not yet commenced operations. Assuming the related WM
Fund Reorganization is approved, the Acquiring Fund, after the Reorganization,
will assume the historical performance of the Class A and Class B shares of the
WM Tax-Exempt Bond Fund as the historical performance of, respectively, the
Class A and Class B shares of the Acquiring Fund for periods prior to the
Effective Time of the Reorganization. Accordingly, for comparison purposes, the
table below also shows performance information for the Class A and Class B
shares of the WM Tax-Exempt Bond Fund. Appendix E to this Proxy
Statement/Prospectus contains additional performance information for the
Acquired Fund and the WM Tax-Exempt Bond Fund.
Average Annual Total Returns (%) for periods ended December 31, 2005
Past Past Past 10
1 Year 5 Years Years
Tax-Exempt Bond Fund (Acquired Fund) (1)
- --Class A (before taxes) -2.22% 4.09% 4.36%
(after taxes on distributions) (2) -2.45% 3.96% 4.27%
(after taxes on distributions and 0.05% 4.05% 4.34%
sale of shares)
- --Class B (3) -1.59% 4.19% 4.44%
Past Past Past 10
1 Year 5 Years Years
WM Tax-Exempt Bond Fund
- --Class A (before taxes) -1.50% 4.19% 4.35%
(after taxes on distributions) (2) -1.81% 3.98% 4.25%
(after taxes on distributions and 0.81% 4.17% 4.36%
sale of shares)
- --Class B (3) -2.63% 4.05% 4.19%
<FN>
- ------------------
(1) Class A and Class B shares began operations on June 30, 2005 when the
Acquired Fund succeeded to the operations, and assumed the historical
performance, of the Class A and Class B shares of a predecessor fund. For
periods prior to the date on which those classes succeeded to the operations of
the Class A and Class B shares of the predecessor fund, the returns of the Class
A and Class B shares of the Acquired Fund are based on the performance of the
Class A and Class B shares of the predecessor fund. The predecessor fund's Class
A shares commenced operations on March 20, 1986, and its Class B shares
commenced operations on December 9, 1994.
(2) After-tax returns 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 will depend on an investor's tax situation
and may differ from those shown.
(3) After-tax performance is shown for Class A shares only. The after-tax
returns for Class B shares will vary.
</FN>
RISKS OF INVESTING IN THE FUNDS
The principal risks of investing in the Acquired Funds and the
Acquiring Funds are stated above as to each Fund in the proposal relating to the
Reorganization involving that Fund. Each of these risks is summarized below. The
risks of investing in the Acquiring Funds are further described in Appendix C to
this Proxy Statement/Prospectus and the Statement of Additional Information. The
risks of investing in the Acquired Funds are more fully described in the PIF
Prospectus and the PIF SAI.
Credit and Counterparty Risk (All Funds)
Each of the funds is subject to the risk that the issuer or guarantor
of a fixed-income security or other obligation, the counterparty to a
derivatives contract or repurchase agreement, or the borrower of a portfolio's
securities will be unable or unwilling to make timely principal, interest, or
settlement payments, or otherwise to honor its obligations.
Derivatives Risk (All Funds)
The funds may use certain derivative instruments (such as options,
futures and swaps) which could produce disproportionate gains or losses.
Derivatives are generally considered riskier than direct investments and, in a
down market, could become harder to value or sell at a fair price.
Equity Securities Risk (Equity Income Fund and Equity Income Fund I)
Equity securities include common, preferred and convertible preferred
stocks and securities the values of which are tied to the price of stocks, such
as rights, warrants and convertible debt securities. Common and preferred stocks
represent equity ownership in a company. Stock markets are volatile, and the
price of equity securities (and their equivalents) will fluctuate. The value of
equity securities purchased by a fund could decline if the financial condition
of the companies in which the fund invests decline or if overall market and
economic conditions deteriorate.
Exchange Rate Risk (Equity Income Fund and Equity Income Fund I)
Because foreign securities are generally denominated in foreign
currencies, the value of the net assets of a fund as measured in U.S. dollars
will be affected by changes in exchange rates. To protect against future
uncertainties in foreign currency exchange rates, the funds are authorized to
enter into certain foreign currency exchange transactions. In addition, the
fund's foreign investments may be less liquid and their price more volatile than
comparable investments in U.S. securities. Settlement periods may be longer for
foreign securities and portfolio liquidity may be affected.
Fixed-Income Securities Risk (Both Acquiring Funds and Tax-Exempt Bond Fund)
Fixed-income securities are generally subject to two principal types of
risks: interest rate risk and credit quality risk.
Interest Rate Risk. Fixed-income securities are affected by changes in
interest rates. When interest rates decline, the market value of the
fixed-income securities generally can be expected to rise. Conversely, when
interest rates rise, the market value of fixed-income securities generally can
be expected to decline.
Credit Quality Risk. Fixed-income securities are subject to the risk
that the issuer of the security will not repay all or a portion of the principal
borrowed and will not make all interest payments. If the credit quality of a
fixed income security deteriorates after a fund has purchased the security, the
market value of the security may decrease and lead to a decrease in the value of
the fund's investments. Lower quality and longer maturity bonds will be subject
to greater credit risk and price fluctuations than higher quality and shorter
maturity bonds. Bonds held by a fund may be affected by unfavorable political,
economic, or government developments that could affect the repayment of
principal or the payment of interest.
Foreign Securities Risk (Equity Income Fund and Equity Income Fund I)
Foreign securities carry risks that are not generally found in
securities of U.S. companies. These risks include the loss of value as a result
of political instability and financial and economic events in foreign countries.
In addition, nationalization, expropriation or confiscatory taxation and foreign
exchange restrictions could adversely affect a fund's investments in a foreign
country. Foreign securities may be subject to less stringent reporting,
accounting and disclosure standards than are required of U.S. companies, and
foreign countries may also have problems associated with and causing delays in
the settlement of sales.
Fund-of-Funds Risk (Equity Income Fund I)
In connection with the WM Fund Reorganizations, PIF will acquire other
funds that operate as funds-of-funds (the "PIF SAM Funds"), which will invest
principally in other PIF Funds, including the Equity Income Fund I. In addition,
PIF has six series, the LifeTime Funds, that operate as funds-of-funds and
invest principally in other PIF Funds. From time to time, an underlying fund,
such as the Equity Income Fund I, may experience relatively large investments or
redemptions by a fund of funds due to reallocations or rebalancings of its
assets. These transactions may have adverse effects on underlying fund
performance to the extent an underlying fund is required to sell portfolio
securities to meet such redemptions, or to invest cash from such investments, at
times it would not otherwise do so. This may be particularly important when a
fund of funds owns a significant portion of an underlying fund. These
transactions may also accelerate the realization of taxable income if sales of
portfolio securities result in gains, and could increase transaction costs. In
addition, when a fund of funds reallocates or redeems significant assets away
from an underlying fund, the loss of assets to the underlying fund could result
in increased expenses for that fund.
WMA currently serves as advisor to the WM SAM Funds and will serve as
sub-advisor to the PIF SAM Funds after the WM Fund Reorganizations. WMA is
committed to minimizing the potential impact of fund-of-funds risk on underlying
funds to the extent consistent with pursuing the investment objectives of the
funds-of-funds which it manages. To the extent WMA manages, as advisor or
sub-advisor, both a fund-of-funds and certain of its underlying funds, WMA may
face conflicts of interest in fulfilling its responsibilities to all such funds.
As of October 31, 2005, the five WM SAM Funds owned, in the aggregate, 51% of
the outstanding shares of the WM Equity Income Fund. As of October 31, 2005,
none of the PIF LifeTime Funds owned any of the outstanding shares of either
Acquired Fund.
High Yield Securities Risk (Both Acquiring Funds and Tax-Exempt Bond Fund)
Fixed-income securities that are not investment grade are commonly
referred to as high yield securities or "junk bonds." While these securities
generally provide greater income potential than investments in higher rated
fixed-income securities, there is a greater risk that principal and interest
payments will not be made. Issuers of these securities may even go into default
or become bankrupt. High yield securities generally involve greater price
volatility and may be less liquid than higher rated fixed-income securities.
High yield securities are considered speculative by the major credit rating
agencies.
Liquidity Risk (All Funds)
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. Exposure to liquidity risk may be heightened for funds that
invest in emerging markets and related derivatives that are not widely traded
and that may be subject to purchase and sale restrictions.
Management Risk (All Funds)
The Acquired and Acquiring Funds are actively managed by their
sub-advisors. The performance of a fund that is actively managed will reflect in
part the ability of its portfolio manager(s) to make investment decisions that
are suited to achieving the fund's investment objective. If the sub-advisor's
investment strategies do not perform as expected, the fund could underperform
other mutual funds with similar investment objectives or lose money.
Market Risk (All Funds)
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.
Municipal Securities Risk (Tax-Exempt Bond Fund and Tax-Exempt Bond Fund I)
Principal and interest payments of municipal securities may not be
guaranteed by the issuing body and may be payable only from a particular source.
If the source does not perform as expected, principal and income payments may
not be made on time or at all. In addition, the market for municipal securities
is often thin and may be temporarily affected by large purchases and sales,
including those of funds investing in such securities. Funds that invest in
municipal securities are also subject to the risk that some or all of the
interest they receive from such securities might become taxable by law or
determined by the Internal Revenue Service (or the relevant state's tax
authority) to be taxable, in which event the value of such funds' investments
would likely decline.
The Tax-Exempt Bond Fund may invest without limit in obligations of
issuers located in the same state. It may also invest in debt obligations that
are repayable out of revenue from economically related projects or facilities.
This represents a risk to the Fund since an economic, business or political
development or change affecting one security could also affect others.
Non-Diversification Risk (Tax-Exempt Bond Fund I)
The Tax-Exempt Bond Fund I is classified as a non-diversified
investment company under the 1940 Act, which means that a relatively high
percentage of assets of the Fund may be invested in the obligations of a limited
number of issuers. The value of the shares of the Fund may be more susceptible
to a single economic, political or regulatory occurrence than the shares of a
diversified investment company.
Prepayment or Call Risk (Equity Income Fund and Equity Income Fund I)
Some investments give the issuer the option to call, or redeem, its
securities before their maturity date. If an issuer calls its security during a
time of declining interest rates, a fund may have to reinvest the proceeds in
securities with lower rates. In addition, a fund's appreciation may be limited
by issuer call options having more value during times of declining interest
rates.
Real Estate Securities Risk (Equity Income Fund and Equity Income Fund I)
Real estate investments trusts (REITs) or other real estate-related
securities are subject to the risks associated with direct ownership of real
estate, including declines in the value of real estate, risks related to general
and local economic conditions, increases in property taxes and operating
expenses, changes in zoning laws, changes in interest rates, and liabilities
resulting from environmental problems. Equity and mortgage REITs are dependent
on management skills and generally are not diversified. Equity REITs are
affected by the changes in the value of the properties owned by the trust.
Mortgage REITs are affected by the quality of the credit extended. Both equity
and mortgage REITs:
o may not be diversified with regard to the types of tenants (thus subject to
business developments of the tenant(s));
o may not be diversified with regard to the geographic locations of the
properties (thus subject to regional economic developments);
o are subject to cash flow dependency and defaults by borrowers; and
o could fail to qualify for tax-free pass-through of income under the
Internal Revenue Code.
U.S. Government Securities Risk (Equity Income Fund I)
U.S. government securities do not involve the degree of credit risk
associated with investments in lower quality fixed-income securities. As a
result, the yields available from U.S. government securities are generally lower
than the yields available from many other fixed-income securities. Like other
fixed-income securities, the values of U.S. government securities change as
interest rates fluctuate. Fluctuations in the value of a fund's securities do
not affect interest income on securities already held by the fund but are
reflected in the fund's price per share. Since the magnitude of these
fluctuations generally is greater at times when a fund's average maturity is
longer, under certain market conditions a fund may invest in short-term
investments yielding lower current income rather than investing in higher
yielding longer term securities.
Value Stock Risk (Equity Income Fund and Equity Income Fund I)
A fund's investments in value stocks carries the risk that the market
will not recognize a security's intrinsic value for a long time or that a stock
judged to be undervalued may actually be appropriately priced. A value stock may
not increase in price if other investors fail to recognize the company's value
and bid up the price or invest in markets favoring faster growing companies. A
fund's strategy of investing in value stocks also carries the risk that in
certain markets value stocks will underperform growth stocks.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
Each of the Acquired and Acquiring Funds is authorized to use a variety
of investment strategies. These strategies will be used primarily for hedging
purposes, including hedging various market risks (such as interest rates,
currency exchange rates and broad or specific market movements) and managing the
effective maturity or duration of debt instruments held by the Fund. Hedging
refers to protecting against possible changes in the market value of securities
a Fund already owns or plans to buy or protecting unrealized gains in the Fund.
These strategies may also be used to gain exposure to a particular securities
market. The hedging and other strategic transactions which may be used are
described below:
o exchange-listed and over-the-counter put and call options on securities,
financial futures contracts and fixed income indices and other financial
instruments,
o financial futures contracts (including stock index futures),
o interest rate transactions,* and
o currency transactions.**
* A Fund's interest rate transactions may take the form of swaps, caps, floors
and collars.
** A Fund's currency transactions may take the form of currency forward
contracts, currency futures contracts, currency swaps and options on
currencies or currency futures contracts.
Collectively, these transactions are referred to in this Proxy
Statement/Prospectus as "Hedging and Other Strategic Transactions." Hedging and
Other Strategic Transactions may be used for the following purposes:
o to attempt to protect against possible changes in the market value
of securities held or to be purchased by a Fund resulting from
securities markets or currency exchange rate fluctuations,
o to protect a Fund's unrealized gains in the value of its securities,
o to facilitate the sale of a Fund's securities for investment purposes,
o to manage the effective maturity or duration of a Fund's securities,
o to establish a position in the derivatives markets as a substitute for
purchasing or selling securities in a particular market, or
o to increase exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another.
The ability of a Fund to utilize Hedging and Other Strategic
Transactions successfully will depend in part on its sub-advisor's ability to
predict pertinent market movements, which cannot be assured. The skills required
to successfully utilize Hedging and Other Strategic Transactions are different
from those needed to select a Fund's securities. While a sub-advisor will use
Hedging and Other Strategic Transactions in a Fund primarily for hedging
purposes or to gain exposure to a particular securities market, if the
transaction is not successful it could result in a loss to the Fund. These
transactions may also increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risks assumed. The potential
loss from the use of futures can exceed a Fund's initial investment in such
contracts. In addition, these transactions could result in a loss to the Fund if
the counterparty to the transaction does not perform as promised.
INFORMATION ABOUT THE REORGANIZATIONS
Plans of Reorganization
Each Acquired Fund has entered into a Plan with its corresponding
Acquiring Fund. The Plans are the same in all material respects, except for the
Acquired and Acquiring Funds to which they apply. The terms of the Plans are
summarized below. The summary is qualified in its entirety by reference to the
Plans, copies of which are attached as Appendix A to this Proxy
Statement/Prospectus.
Under each Plan, the Acquiring Fund will acquire all the assets and
assume all the liabilities of the Acquired Fund and will issue to the Acquired
Fund the number of shares of common stock of each share class of the Acquiring
Fund that has a net asset value equal to the net asset value attributable to
each corresponding share class of the Acquired Fund. We expect that the closing
date will be January 12, 2007, assuming shareholder approval of the Plans, 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 Funds and their
corresponding Acquiring Funds are identical). Each 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 of the Reorganization.
Immediately after the Effective Time of the Reorganizations, each
Acquired Fund will distribute to its shareholders Acquiring Fund shares of the
same class as the Acquired Fund shares you own in exchange for all your Acquired
Fund shares of that class. Acquired Fund shareholders will receive a number of
full and fractional shares of the Acquiring Fund that are equal in value to the
value of the shares of the Acquired Fund that are surrendered in the exchange.
In connection with the exchange, the Acquiring Fund will credit on its books an
appropriate number of its shares to the account of each Acquired Fund
shareholder, and the Acquired Fund will cancel on its books all its shares
registered to the account of that shareholder. After the Effective Time of the
Reorganization, the Acquired Fund will be dissolved in accordance with
applicable law.
The consummation of the transactions contemplated by each Plan is
subject to the approval of the Plan by the shareholders of the Acquired Fund.
The Plans may be amended, but no amendment may be made which in the opinion of
the Board of Directors would materially adversely affect the interests of the
shareholders of the Acquired Fund after they have approved the Plan. The Board
of Directors may terminate a Plan at any time before the Effective Time of the
Reorganization if it believes that consummation of the transactions contemplated
by the Plan would not be in the best interests of the shareholders.
The reorganization of the Equity Income Fund into the Equity Income
Fund I will not be effected unless the Equity Income Fund I first acquires
substantially all of the assets of the WM Equity Income Fund. Likewise, the
reorganization of the Tax-Exempt Bond Fund into the Tax-Exempt Bond Fund I will
not be effected unless the Tax-Exempt Bond Fund I first acquires substantially
all the assets of the WM Tax-Exempt Bond Fund.
Under the Plan, the expenses of the Reorganizations (other than trading
costs associated with disposing of any portfolio securities that would not be
compatible with the investment objectives and strategies of an Acquiring Fund
and reinvesting the proceeds in securities that would be compatible) will be
borne by PMC. The portfolio repositioning may result in the realization of
taxable capital gains which will be distributed to shareholders of the affected
Acquired Fund prior to its Reorganization. Expenses expected to be incurred in
connection with the Reorganizations include, but are not limited to,
accountants' fees, legal fees, registration fees, printing expenses, transfer
taxes (if any) and the fees of banks and transfer agents.
If the Plan is not approved by the shareholders of an Acquired Fund or
is not consummated for any other reason, the Board will consider other possible
courses of action. The Board, including all the Independent Directors,
recommends that shareholders approve the Plans under Proposals 1 and 2.
Reasons for the Reorganizations
The Reorganization will permit PIF to substitute for the Acquired Funds
corresponding Acquiring Funds that the Board believes will better serve the
interests of shareholders. Each Acquiring Fund is a new fund, which has
investment objectives and strategies that are identical to those of its
corresponding WM Acquired Fund and are substantially similar to those of its
corresponding Acquired Fund. Accordingly, after the Reorganization, it should be
reasonable for shareholders to have the same investment expectations. The
persons responsible for the day-to-day management of the WM Acquired Funds will
be responsible for the day-to-day management of the Acquiring Funds. This is
important to keep in mind because, for each of the 1, 5 and 10 year periods
ended December 31, 2005, the WM Equity Income Fund has generated performance
results that are superior to the returns of the Equity Income Fund. Similarly,
the WM Tax-Exempt Bond Fund has produced results that are comparable to or
exceed the performance of the Tax-Exempt Bond Fund over the same time periods.
Although past performance is no guarantee of future results, it does provide an
indication of the risks of investing in the Acquired Funds and their
corresponding Acquiring Funds. Moreover, shareholders in each Acquired Fund may
benefit from the Acquiring Fund's larger asset base resulting from the addition
of the WM Acquired Fund's assets. As a result of the Reorganizations, the
Acquiring Funds may have improved prospects for growth, may operate more
efficiently and may have greater potential for attendant reductions in overall
expenses.
Board Consideration of the Reorganizations
The Board of Directors, including the Directors who are not "interested
persons" (as defined in the 1940 Act) of each Acquired Fund (the "Independent
Directors"), considered the Reorganizations at meetings held on August 16, 2006,
August 25, 2006 and September 11, 2006. The Board considered information about
the Reorganizations presented by PMC, and the Independent Directors were
assisted by independent legal counsel and an independent consultant. The Board
requested and evaluated such information as it deemed necessary to consider each
Reorganization. At the September 11, 2006 meeting, the Board of Directors
unanimously approved the Reorganizations after concluding that each Acquired
Fund's participation in the Reorganization is in the best interests of each
Acquired Fund and that the interests of existing shareholders of each Acquired
Fund will not be diluted as a result of the Reorganization.
In determining whether to approve each Reorganization and recommend its
approval to shareholders, the Board of Directors made inquiry into a number of
matters and considered, among others, the following factors, in no order of
priority:
(1) the substantial similarity of the investment objectives, strategies and
risks of the Acquired Fund and its corresponding Acquiring Fund and any
changes with respect thereto that will result from the Reorganization;
(2) the Acquiring Funds have the same fundamental policies as the Acquired
Funds;
(3) where applicable, estimated explicit trading costs associated with
disposing of any 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;
(4) expense ratios and available information regarding the fees and
expenses of the Acquired Fund and its corresponding Acquiring Fund,
including information regarding the impact of PMC's agreement to cap
the total expenses of each Class A and Class B shares of the Acquiring
Funds (through February 28, 2008 in the case of the Equity Income Fund
I and through June 30, 2008 in the case of the Tax-Exempt Bond Fund I)
so that shareholders of the Acquired Funds will be subject to the same
or lower expense ratios than those to which they were subject at June
30, 2006;
(5) comparative investment performance of and other information pertaining
to the Acquired Fund and the corresponding WM Acquired Fund, which is
expected to be the survivor of the Reorganization for accounting and
performance reporting purposes;
(6) the potential effect on the Acquired Fund's shareholders of investing
in a larger asset pool with potentially greater diversification, and
the potential effect on the portfolio management of the corresponding
Acquiring Fund of such a larger asset base;
(7) the differences between the sales charge schedules and types of Rule
12b-1 plans of the Acquired and Acquiring Funds as well as the longer
period of time it takes for the Acquiring Fund's Class B shares to
convert to Class A shares (see "Additional Information About the Funds
- Differences between the Share Classes of the Acquired and Acquiring
Funds" below);
(8) the sales charge structures and distribution arrangements, including
the prospects for growth and for achieving economies of scale, of the
Acquired Fund in combination with the corresponding Acquiring Fund as
combined with the corresponding WM Acquired Fund;
(9) the absence of any material differences in the rights of shareholders
of the Acquired Funds and the Acquiring Funds;
(10) the financial strength, investment experience and resources of the
sub-advisors to the Acquiring Funds;
(11) the fact that all costs of the Reorganization, other than trading costs
associated with portfolio securities transactions, would be borne by
PMC;
(12) any direct or indirect benefits expected to be derived by PMC and its
affiliates from the Reorganization;
(13) the direct or indirect federal income tax consequences of each
Reorganization, including the expected tax-free nature of the
Reorganization, the impact of any federal income tax loss carryforwards
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, where applicable;
(14) the fact that neither Reorganization will result in any dilution of
Acquired Fund shareholder values;
(15) the terms and conditions of the Plan, including the provision that
terminates the Reorganization in the event that the WM Acquired Fund
does not first reorganize into the Acquiring Fund pursuant to the
related WM Fund Reorganization; and
(16) possible alternatives to the Reorganization.
The Board's decision to recommend approval of the particular
Reorganization was based on a number of factors, including the following:
Reorganization of the Equity Income Fund into the Equity Income Fund I
(1) it should be reasonable for shareholders to have the same investment
expectations after the Reorganization because the investment
objectives, policies and risks of the Acquired and Acquiring Fund are
substantially similar;
(2) WMA, as sub-advisor to the Acquiring Fund, may be expected to provide
investment advisory services and personnel of at least the same quality
as those provided by Principal Global, the sub-advisor to the Acquired
Fund;
(3) the WM Equity Income Fund, which has a substantially larger asset base
than the Acquired Fund and is expected to be reorganized into the
Acquiring Fund pursuant to the related WM Fund Reorganization, has
investment objectives and strategies that are identical to those of the
Acquiring Fund and has produced performance results that are comparable
to those of the Acquired Fund for the one-year period ended June 30,
2006 and significantly outperformed the Acquired Fund over the three-
and five-year time periods ended June 30, 2006, although no assurance
can be given that the Acquiring Fund will achieve any particular level
of performance after the Reorganization; and
(4) the Acquiring Fund has a lower advisory fee rate and, with a larger
asset base assuming consummation of the related WM Fund Reorganization,
is expected to have lower overall expense ratios than the Acquired
Fund.
Reorganization of the Tax-Exempt Bond Fund into the Tax-Exempt Bond Fund I
(1) it should be reasonable for shareholders to have the same investment
expectations after the Reorganization because the investment objectives,
policies and risks of the Acquired and Acquiring Fund are substantially
similar;
(2) Van Kampen, as sub-advisor to the Acquiring Fund, may be expected to
provide investment advisory services and personnel of at least the same
quality as those provided by Principal Global and NAM, the sub-advisors
to the Acquired Fund; and
(3) the WM Tax-Exempt Bond Fund, which has a larger asset base than the
Acquired Fund and is expected to be reorganized into the Acquiring Fund
pursuant to the related WM Fund Reorganization, has investment
objectives and strategies that are identical to those of the Acquiring
Fund and has outperformed the Acquired Fund over the one-, three-, and
five-year periods ended June 30, 2006, although no assurance can be
given that the Acquiring Fund will achieve any particular level of
performance after the Reorganization; and
(4) the Acquiring Fund has the same advisory fee rate and is expected to
have the same expense ratios as the Acquired Fund as a result of an
expense limitation agreement that runs through June 30, 2008.
Description of the Securities to Be Issued
PIF is a Maryland corporation that is authorized to issue its shares of
common stock in separate series and separate classes of series. Each Acquiring
Fund is a separate series of PIF, and the Class A and Class B shares of each
Acquiring Fund to be issued in connection with each Reorganization, along with
the other classes of shares of that Acquiring Fund, 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 PIF 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 of
Directors has determined affects the interests of only a particular series or
class.
Shares of the Acquiring Funds, when issued, have no cumulative voting
rights, are fully paid and non-assessable, have no preemptive or conversion
rights and are freely transferable. Each fractional share has proportionately
the same rights as are provided for a full share.
Federal Income Tax Consequences
As a condition to the consummation of the Reorganizations, PIF will
have received an opinion from Dykema Gossett PLLC substantially to the effect
that, based upon the facts and assumptions stated therein and with respect to
each Reorganization, for federal income tax purposes: (1) the Reorganization
will constitute a reorganization within the meaning of Section 368(a) of the
Code; (2) no gain or loss will be recognized by the Acquired Fund or the
Acquiring Fund upon the transfer of the assets and liabilities, if any, of the
Acquired Fund to the Acquiring Fund solely in exchange for shares of the
Acquiring Fund; (3) no gain or loss will be recognized by shareholders of the
Acquired Fund upon the exchange of such Acquired Fund's shares solely for shares
of the Acquiring Fund; (4) the holding period and tax basis of the shares of the
Acquiring Fund received by each holder of shares of the Acquired Fund pursuant
to the Reorganization will be the same as the holding period and tax basis of
the shares of the Acquired Fund held by the shareholder (provided the shares of
the Acquired Fund were held as a capital asset on the date of the
Reorganization) immediately prior to the Reorganization; and (5) the holding
period and tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the holding period and tax basis of those
assets to the Acquired Fund immediately prior to the Reorganization.
Capital Loss Carryforwards. As of October 31, 2005, the Acquired Funds
had accumulated capital loss carryforwards in the approximate amounts indicated:
Acquired Fund Capital Loss Carryforward
------------- -------------------------
Equity Income Fund $16,398,000
Tax-Exempt Bond Fund --
After the Reorganizations, these loss carryforwards will be available to the
corresponding Acquiring Funds to offset their capital gains, although the
amounts of offsetting loss carryforwards available in any given year may be
limited. As a result of this limitation, it is possible that the corresponding
Acquiring Funds may not be able to use these loss carryforwards as rapidly as
the Acquired Funds might have, and part of these loss carryforwards may not be
useable at all. The ability of each Acquiring Fund to utilize the accumulated
capital loss carryforward in the future depends upon a variety of factors that
cannot be known in advance, including the existence of capital gains against
which these loss carryforwards may be offset. In addition, the benefits of any
capital loss carryforward currently are available only to shareholders of the
Acquired Fund. After each Reorganization, however, these benefits will inure to
the benefit of all shareholders of its corresponding Acquiring Fund.
Distribution of Income and Gains. Prior to the Reorganizations, each
Acquired Fund whose taxable year will end as a result of the Reorganization
generally is required to 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 such
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 Reorganizations 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 advisers 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
As to each Reorganization, the following tables show as of April 30,
2006: (i) the capitalization of the Acquired Fund; (ii) the capitalization of
the WM Acquired Fund that is proposed to be reorganized into the Acquiring Fund
pursuant to the related WM Fund Reorganization; (iii) the capitalization of the
Acquiring Fund; and (iv) pro forma combined capitalization of the Acquired Fund,
the Acquiring Fund and the WM Acquired Fund as if the Reorganization had
occurred as of that date. As of April 30, 2006, each of the Acquired Funds had
outstanding Class A and Class B shares. Effective September 30, 2006, all
outstanding Class R-1 shares of the WM Equity Income Fund were re-designated
Class A shares. Each Acquiring Fund will commence operations at the Effective
Time of the Reorganization and will first issue its shares in connection with
the Reorganization.
Net Assets Net Asset Shares
Proposal 1 (000s Value Outstanding
- ----------
omitted) Per Share (000s omitted)
-------- --------- ------------
(1) Equity Income Fund --Class A 96,515 12.39 7,788
(Acquired Fund) --Class B 13,358 12.34 1,083
--Total 109,873 8,871
(2) WM Equity Income Fund --Class A 1,270,674 21.48 59,158
(WM Acquired Fund) --Class B 293,220 21.32 13,752
--Class C 203,788 21.16 9,631
--Class I 1,700,951 21.48 79,175
--Class R-1 279 21.48 13
--Total 3,468,912 161,729
(3) Equity Income Fund I --Class A -- -- --
(Acquiring Fund) --Class B -- -- --
--Class C -- -- --
--Class I -- -- --
(Institutional) -- --
--Total
(4) Equity Income Fund I --Class A 1,367,468 21.48 63,664
(Acquiring Fund) --Class B 306,578 21.32 14,379
(Pro forma assuming combination --Class C 203,778 21.16 9,631
of (1), (2) and (3)) --Class I 1,700,951 21.48 79,175
(Institutional) 3,578,785 166,849
--Total
Net Assets Net Asset Shares
Proposal 2 (000s Value Outstanding
- ---------- -----
omitted) Per Share (000s omitted)
--------- ------------
(1) Tax-Exempt Bond Fund --Class A 149,074 11.81 12,628
(Acquired Fund) --Class B 7,197 11.88 606
--Total 156,271 13,234
(2) WM Tax-Exempt Bond Fund --Class A 169,423 7.55 22,448
(WM Acquired Fund) --Class B 26,964 7.55 3,572
--Class C 2,752 7.55 365
--Total 199,139 26,385
(3) Tax-Exempt Bond Fund I --Class A -- -- --
(Acquiring Fund) --Class B -- -- --
--Class C -- -- --
--Total -- --
(4) Tax-Exempt Bond Fund I --Class A 318,497 7.55 42,193
(Acquiring Fund) --Class B 34,161 7.55 4,525
(Pro forma assuming combination --Class C 2,752 7.55 365
of (1), (2) and (3)) --Total 355,410 47,083
ADDITIONAL INFORMATION ABOUT THE FUNDS
Differences Between the Share Classes of the Acquired and Acquiring Funds
The Class A and Class B shares of each Acquired Fund generally have the
same rights and preferences as the Class A and Class B shares of the
corresponding Acquiring Fund. However, there are differences that you should
understand. Each Acquiring Fund will issue in the Reorganization Class A and
Class B shares that differ from the Class A and Class B shares of the Acquired
Fund. Each class of the Acquired Funds differs from the corresponding class of
the Acquiring Funds in that: (i) the Class A shares of each Acquiring Fund have
a different front-end sales charge schedule; (ii) the Class B shares of each
Acquiring Fund have a different contingent deferred sales charge ("CDSC")
schedule; (iii) the Class A and Class B shares of each Acquiring Fund have
different Distribution Plans pursuant to Rule 12b-1 under the 1940 Act; and (iv)
the Class B shares of the Acquiring Fund convert to Class A shares after
different periods.
Differences in the Front-End Sales Charge Schedule for Class A Shares. The
following tables show the differences in the front-end sales charge schedules
for the Class A shares of each Acquired Fund and the Class A shares of its
corresponding Acquiring Fund:
Equity Income Fund (Acquired Fund) Equity Income Fund I (Acquiring Fund)
Sales Charge as a % of: Dealer Allowance as a Sales Charge as a % of: Dealer Allowance as a
Amount of Purchase % of Offering Price % of Offering Price
------------------ ------------------- -------------------
Offering Price Amount Invested Offering Amount Invested
-------------- --------------- --------- ---------------
Price
Less than $50,000 5.75% 6.10% 5.00% 5.50% 5.82% 4.75%
$50,000 but less 4.75% 4.99% 4.00% 4.75% 4.99% 4.00%
than $100,000
$100,000 but less 3.75% 3.90% 3.00% 3.75% 3.90% 3.00%
than $250,000
$250,000 but less 2.75% 2.83% 2.25% 3.00% 3.09% 2.50%
than $500,000
$500,000 but less 2.00% 2.04% 1.50% 2.00% 2.04% 1.75%
than $1,000,000
$1,000,000 or more 0.00% 0.00% 0.75% 0.00% 0.00% 0.00%*
Tax-Exempt Bond Fund (Acquired Fund) Tax-Exempt Bond Fund I (Acquiring Fund)
------------------------------------ --------------------------------------
Sales Charge as a % of: Dealer Allowance as a Sales Charge as a % of: Dealer Allowance as a
Amount of Purchase % of Offering Price % of Offering Price
------------------ ------------------- -------------------
Offering Price Amount Invested Offering Amount Invested
-------------- --------------- --------- ---------------
Price
Less than $50,000 4.75% 4.99% 4.00% 4.50% 4.71% 4.00%
$50,000 but less 4.25% 4.44% 3.75% 4.00% 4.17% 3.50%
than $100,000
$100,000 but less 3.75% 3.90% 3.25% 3.50% 3.63% 3.00%
than $250,000
$250,000 but less 2.50% 2.56% 2.00% 2.50% 2.56% 2.00%
than $500,000
$500,000 but less 1.50% 1.52% 1.25% 2.00% 2.04% 1.75%
than $1,000,000
$1,000,000 or more 0.00% 0.00% 0.75% 0.00% 0.00% 0.00%*
<FN>
* Princor, the distributor for the Acquired and Acquiring Funds, may pay
authorized dealers commissions on purchases of Class A shares over $1
million calculated as follows: 1.00% on purchases between $1 million and $3
million, 0.50% on purchases over $3 million but less than $5 million, 0.35%
on purchases over $5 million but less than $10 million, and 0.25% on
amounts over $10 million. The commission rate is determined based on the
purchase amount combined with the current market value of existing
investments in Class A, B and C shares.
</FN>
Differences in CDSC Schedule for Class B Shares. The following tables show the
differences among the CDSC schedules for (i) the Class B shares of the Acquired
Funds, (ii) the Class B shares of the Acquiring Funds to be issued in connection
with the Reorganizations, and (iii) the Class B shares of the Acquiring Funds to
be issued after the Reorganizations.
For Class B shares issued in connection with the Reorganizations, Princor agreed
to a reduced CDSC schedule. For purposes of calculating the CDSC, the length of
time you held Class B shares of an Acquired Fund prior to the Reorganization
will count toward your holding period for Class B shares of the corresponding
Acquiring Fund issued in connection with the Reorganization.
Equity Income Fund and Tax-Exempt Bond Fund (Acquired Funds)
Certain Sponsored Plans Established After
Years Since Purchase Made CDSC as a % of Dollar Amount 02/01/1998 and Before 03/01/2002
------------------------- ---------------------------- --------------------------------
2 years or less 4.00% 3.00%
More than 2 years, up to 4 years 3.00% 2.00%
More than 4 years, up to 5 years 2.00% 1.00%
More than 5 years, up to 6 years 1.00% None
More than 6 years None None
Equity Income Fund I and Tax-Exempt Bond
Fund I (Acquiring Funds) (for shares to be issued by
the Acquiring Funds in connection with the
Reorganizations)
Certain Sponsored Plans Established After
Years Since Purchase Made CDSC as a % of Dollar Amount 02/01/1998 and Before 03/01/2002
------------------------- ---------------------------- --------------------------------
2 years or less 4.00% 3.00%
More than 2 years, up to 4 years 2.00% 2.00%
More than 4 years, up to 5 years 1.00% 1.00%
More than 5 years, up to 6 years 1.00% None
More than 6 years None None
Equity Income Fund I and Tax-Exempt Bond
Fund I (Acquiring Funds) (for shares to be
issued by the Acquiring Funds after the
Reorganizations)
Certain Sponsored Plans Established After
Years Since Purchase Made CDSC as a % of Dollar Amount 02/01/1998 and Before 03/01/2002
------------------------- ---------------------------- --------------------------------
2 years or less 5.00% 3.00%
More than 2 years, up to 3 years 4.00% 2.00%
More than 3 years, up to 4 years 3.00% 2.00%
More than 4 years, up to 5 years 2.00% 1.00%
More than 5 years None None
Differences in the Distribution (12b-1) Plans Each of the Acquired Funds has
adopted a Distribution Plan under Rule 12b-1 under the 1940 Act (each, a "12b-1
Plan") for the Class A and Class B shares of the Fund, and each of the Acquiring
Funds has adopted a 12b-1 Plan for the Class A and Class B shares of the Fund.
Under the 12b-1 Plans, each Fund may make payments from its assets attributable
to the particular share class to its distributor, Princor, 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.
As shown in the table below, the Acquired and Acquiring Funds have the
same maximum annualized Rule 12b-1 distribution and/or service fee (as a
percentage of average daily net assets) for each of their Class A and Class B
shares:
Maximum Annualized Rule 12b-1 Fee
Share Class Acquired Funds Acquiring Funds
Class A 0.25% 0.25%
Class B 1.00% 1.00%
The primary difference between the 12b-1 Plans of the Acquired and
Acquiring Funds is that the Acquired Funds' 12b-1 Plans are "reimbursement"
plans and the Acquiring Funds' 12b-1 Plans are "compensation" plans. Under the
Acquiring Fund's 12b-1 Plan, the amounts payable by the Acquiring Funds need not
be directly related to expenses. Thus, if Princor's actual expenses are less
than the fees it receives, Princor will keep the full amount of the fees. Under
the Acquired Fund's 12b-1 Plans, a Fund pays 12b-1 fees only to the extent
Princor incurs expenses covered by the Fund's 12b-1 Plan. The effect of this
difference is that the Acquiring Funds would pay a higher Rule 12b-1 fee than
the Acquired Funds if the dollar amount of authorized expenses under an Acquired
Fund's 12b-1 Plan in any given year is less than 0.25% of the average daily net
assets attributable to the Fund's Class A shares or less than 1.00% of the
average daily net assets attributable to the Fund's Class B shares.
The Acquiring Funds have adopted for their Class A and Class B shares
12b-1 Plans that are the same in all material respects as those of the
corresponding WM Acquired Funds, which are proposed to be combined with the
Acquiring Funds pursuant to the WM Fund Reorganization. The table below shows
the amount of 12b-1 fees (expressed as a percentage of average daily net assets)
paid by the Acquired Funds and WM Acquired Funds for the last fiscal year. This
comparison is designed to assist shareholders in understanding the impact of the
difference between the 12b-1 Plans of the Acquired and Acquiring Funds.
PIF Equity Income WM Equity Income Fund PIF Tax-Exempt Bond WM Tax-Exempt Bond Fund
Fiscal Year Fund Fund
Ending 10/31
- ------------------
- ------------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
2005 0.24% 0.92% 0.25% 1.00% 0.21% 0.40% 0.25% 1.00%
The remainder of this section summarizes the terms and features of the
12b-1 Plans of the Acquired and the Acquiring Funds.
12b-1 Plans of the Acquired Funds. For each of the Acquired Funds, the 12b-1
plan for Class A shares provides that the Fund makes payments to Princor to
compensate Princor and other selling dealers for providing shareholder services
to existing Fund shareholders and rendering assistance in the distribution and
promotion of the Class A shares to the public. Each Fund pays Princor a fee
after the end of each month at an annual rate no greater than 0.25% of the
Fund's average net assets attributable to Class A shares. Princor retains such
amounts as are appropriate to compensate for actual expenses incurred in
distributing and promoting the sale of the Fund shares to the public but may
remit on a continuous basis up to 0.25% to registered representatives and other
selected dealers (including for this purpose, certain financial institutions) as
a trail fee in recognition of their services and assistance.
For each of the Acquired Funds, the 12b-1 Plans for Class B shares
provide for payments by the Fund to Princor at the annual rate of up to 1.00% of
the Fund's average net assets attributable to Class B shares. Princor also
receives the proceeds of any CDSC imposed on redemptions of Class B shares.
For each of the Acquired Funds, the 12b-1 Plans for Class A and Class B
shares issued authorize Princor to enter into service agreements with other
selling dealers and with banks and other financial institutions to provide
shareholder services to existing Class A and Class B shareholders, including
services such as furnishing information as to the status of shareholder
accounts, responding to shareholder written and telephone inquiries and
assisting shareholders with tax information. Princor makes payments to dealers
on accounts for which such dealer is designated dealer of record. Payments are
based on the average net asset value of the accounts invested in Class A and
Class B shares.
Under the 12b-1 Plans for the shares of the Acquired Funds, a Fund pays
12b-1 fees only to the extent Princor incurs expenses covered by the Fund's
12b-1 Plan.
12b-1 Plans of the Acquiring Funds. Under the 12b-1 Plans for the Class A and
Class B shares of the Acquiring Funds, Princor receives a service fee at an
annual rate of 0.25% of the average daily net assets of each class. In addition,
Princor is paid distribution fees as compensation in connection with the
offering and sale of Class B shares at an annual rate of 0.75% of the average
daily net assets of such shares. The amounts payable by the Acquiring Funds
under the 12b-1 Plans need not be directly related to expenses. If Princor's
actual expenses are less than the fees it receives, Princor will keep the full
amount of the fees.
Service Fees. Princor may pay service fees to dealers and other
intermediaries at the annual rate of 0.25% of the average daily net assets of
such shares for which they are the dealers of record. To receive service fees
from Princor, dealers or other intermediaries must be the dealer of record for
shares with average daily net assets of at least $100,000. Class A shares must
be held for three months before these fees are paid. In the case of Class B
shares, these fees are not paid until such shares have been held for twelve
months.
Distribution Fees. The proceeds from the distribution fees paid by
Class B of the Acquiring Funds, together with any applicable sales charge, are
paid to Princor. Princor generally uses distribution 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.
Payments to Investment Representatives and Their Firms. Financial
intermediaries market and sell shares of the Acquiring Funds. These financial
intermediaries receive compensation from Princor and its affiliates for selling
shares of the Funds and/or providing services to the Funds' shareholders.
Financial intermediaries may include, among others, broker/dealers, registered
investment advisors, banks, pension plan consultants, and insurance companies.
Investment representatives who deal with investors on an individual basis are
typically associated with a financial intermediary. Princor and its affiliates
may fund this compensation from various sources, including any sales charge
and/or Rule 12b-1 fee that the Funds pay to Princor. Individual investment
representatives may receive some or all of the amounts paid to the financial
intermediary with which he or she is associated.
Commissions, Finder's Fees, and Ongoing Payments. In the case of Class
A shares, all or a portion of the initial sales charge for such shares may be
paid by Princor to financial intermediaries selling Class A shares. Princor may
pay these financial intermediaries a fee of up to 1.00% on purchases of $1
million or more. Princor may pay financial intermediaries a finder's fee of up
to 1.00% on initial investments of $500,000 or more by qualified retirement or
benefit plans in omnibus accounts, which are not subject to initial sales
charges. Additionally, Princor generally makes ongoing payments to financial
intermediaries for services provided to Class A shareholders at an annual rate
of 0.25% of average net assets attributable to a shareholder's investment in
Class A shares.
In the case of Class B shares, Princor will pay, at the time of
purchase of such shares, a commission to the purchaser's financial intermediary
in an amount equal to 4.00% of the investment. Additionally, Princor generally
makes ongoing payments to financial intermediaries for services provided to
Class B shareholders at an annual rate of 0.25% of average net assets
attributable to a shareholder's investment in Class B shares.
Other Payments to Intermediaries. In addition to the commissions paid
at the time of sale, ongoing payments, and the reimbursement of costs associated
with education, training and marketing efforts, conferences, ticket charges, and
other general marketing expenses, some or all of which may be paid to financial
intermediaries (and, in turn, to a shareholder's investment representative),
Princor and its affiliates, at their expense, currently provide additional
payments to financial intermediaries that sell shares of the Funds for
distribution services. Although payments made to each qualifying financial
intermediary in any given year may vary, such payments will generally not exceed
(a) 0.25% of the current year's sales of Fund shares by that financial
intermediary and/or (b) 0.25% of average daily net assets of Fund shares
serviced by that financial intermediary over the year.
Additionally, Princor may provide payments to reimburse directly or
indirectly the costs incurred by these financial intermediaries and their
associated investment representatives in connection with educational seminars
and training and marketing efforts related to the PIF Funds for the firms'
employees and/or their clients and potential clients. The costs and expenses
associated with these efforts may include travel, lodging, entertainment, and
meals. Princor may also provide payment or reimbursement for expenses associated
with qualifying dealers' conferences, transactions ("ticket") charges, and
general marketing expenses.
Differences in Class B Conversion Periods. Class B shares of the PIF Funds,
including the Acquired and Acquiring Funds, convert to Class A shares after a
specified number of years. This is beneficial to Class B shareholders because
Class B shares generally have higher 12b-1 fees and "other expenses" than Class
A shares. The Acquired Funds' Class B shares convert to Class A shares seven
years after purchase. As described below, the Class B shares to be issued in
connection with the Reorganizations and after the Reorganizations have different
conversion periods than the Class B shares of the Acquired Funds.
Acquiring Fund Shares Issued in Connection with the Reorganizations. Princor has
agreed to a reduced conversion period for Class B shares issued in connection
with the Reorganizations. Class B shares of the Acquiring Funds issued in
connection with the Reorganizations will convert to Class A shares six years
after purchase. As a result, if you acquire Class B shares of an Acquiring Fund
in the Reorganization, those shares will be subject to that Class' higher 12b-1
fee and "other expenses" for a period that is one year shorter than the period
applicable to the Class B shares of the corresponding Acquired Fund. Moreover,
the length of time you held Class B shares of an Acquired Fund prior to the
Reorganization will count toward your conversion period for the corresponding
Acquiring Fund's Class B shares issued in the Reorganization.
Acquiring Fund Shares Issued After the Reorganizations. The Class B shares of
the Acquiring Fund issued after the Reorganizations will convert to Class A
shares eight years after purchase. If you acquire Class B shares after the
Reorganizations, those shares will be subject to Class B's higher 12b-1 fee and
"other expenses" for a period that is one year longer than the period applicable
to the Class B shares of the Acquired Fund.
Shareholder Rights
There are no material differences between the rights of the holders of
the Class A shares of the Acquired Fund and the Acquiring Fund or between the
rights of the holders of the Class B shares of the Acquired Fund and the
Acquiring Fund.
Dividends and Distributions
The Equity Income Fund and the Equity Income Fund I declare and
distribute dividends from net investment income (which is essentially interest
and dividends, if any, earned from securities, minus expenses) on a quarterly
basis. The Tax-Exempt Bond Fund declares and distributes dividends from net
investment income on a monthly basis. The Tax-Exempt Bond Fund I declares
dividends daily and pays them monthly. Payments are made to shareholders of
record on the business day prior to the payment date. The payment date for the
Equity Income Fund and the Equity Income Fund I is the last business day of
March, June, September and December. The payment date for the Tax-Exempt Bond
Fund and the Tax-Exempt Bond Fund I is the last business day of each month.
The Acquired and Acquiring Funds distribute net realized capital gains,
if any, at least annually. Generally, the distribution is made on the fourth
business day of December. Payments are made to shareholders of record on the
business day prior to the payment date.
Generally, unless a shareholder chooses another option, dividends and
capital gains distributions are reinvested, without any sales charge, in
additional shares of the Acquired or Acquiring Fund from which the distribution
is made.
Immediately prior to the Effective Time of the Reorganizations, each
Acquired Fund will pay a dividend or dividends that, together with all previous
dividends, will have the effect of distributing to its shareholders all of its
investment company taxable income for taxable years ending on or prior to the
Reorganization (computed without regard to any deduction for dividends paid) and
all of its net capital gains, if any, realized in taxable years ending on or
prior to the Reorganization (after reduction for any available capital loss
carryforward). Such dividends will be included in the taxable income of the
Acquired Funds' shareholders.
Purchases, Redemptions and Exchanges of Shares
The purchase, redemption and exchange procedures with respect to shares
of the Acquired and Acquiring Funds are the same.
Purchases. Shares of the Funds are offered for sale through Princor, a
broker-dealer that is also the principal underwriter for PIF, or other dealers
which Princor selects.
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 (shares are not priced on the days on which the NYSE
is closed for trading). The share price is determined at the close of business
of the NYSE (normally 3:00 p.m. Central Time). When an order to buy or sell
shares is received, the share price used to fill the order is the next price
calculated after the order is received.
For both Funds, the share price is calculated by:
o taking the current market value of the total assets of the Fund
o subtracting liabilities of the Fund
o dividing the remainder proportionately into the classes of the Fund
o subtracting the liability of each class
o dividing the remainder by the total number of shares owned in that
class.
If current market values are not readily available for a security owned
by a Fund, its fair value is determined in good faith under procedures
established by and under the supervision of the Fund's Board of Directors.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, foreign securities trading generally or in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading may take place in various foreign markets on days which are not business
days in New York and on which a Fund's net asset value is not calculated. A Fund
calculates its net asset value per class per share, and therefore effects sales,
redemptions and repurchases of its shares as of the close of the NYSE once each
day on which the NYSE is open. Such calculation may not take place
contemporaneously with the determination of the prices of the foreign portfolio
securities used in such calculation.
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. Each of the Funds has a policy to value such
securities at prices at which it is expected those shares may be sold, and PMC
or any sub-advisor is authorized to make such determinations subject to the
oversight of the Fund's Board as may from time to time be necessary.
Redemptions. Shares of each Fund may be redeemed at a price equal to
the net asset value of the shares next computed following the receipt of a
request for redemption in proper form. The amount you receive will be reduced by
any applicable CDSC or excessive trading fee. Generally, the sale proceeds are
sent out on the next business day after the sell order has been placed.
Payment for shares tendered for redemption is ordinarily made in cash.
The Board of Directors may determine, however, that it would be detrimental to
the remaining shareholders to make payment of a redemption order wholly or
partly in cash. Each of the Funds may, therefore, 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 the 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 above.
The right to require the Funds to redeem their shares may be suspended,
or the date of payment may be postponed, whenever: (1) trading on the NYSE is
restricted, as determined by the SEC, or the NYSE is closed except for holidays
and weekends; (2) the SEC permits such suspension and so orders; or (3) an
emergency exists as determined by the SEC so that disposal of securities or
determination of net asset value is not reasonably practicable.
Exchanges. Class A and Class B shares of each Fund may be exchanged,
without payment of a sales charge or a CDSC, for shares of the same class of
other PIF Funds. An excessive trading fee may apply, as described below.
Excessive Trading Fee. Currently, the Acquired and Acquiring Funds
impose an excessive trading fee on redemptions or exchanges of $30,000 or more
of Class A or Class B shares redeemed or exchanged within 30 days after they are
purchased. The fee is equal to 1.00% of the total redemption 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 fee will not be applied to shares acquired in connection with a
Reorganization.
Frequent Purchases and Redemptions
The PIF 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:
o Disrupt the management of the Funds by (i) 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 (ii)
causing unplanned portfolio turnover;
o Hurt the portfolio performance of the Funds; and
o Increase expenses of the Funds due to (i) increased broker-dealer
commissions; and (ii) 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.
PIF has 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 has also adopted policies
and procedures with respect to frequent purchases and redemptions of shares of
the Funds. The Funds monitor trading activity to identify and take action
against abuses. While PIF's policies and procedures are designed to identify and
protect against abusive trading practices, there can be no certainty that PIF
will identify and prevent abusive trading in all instances. When PIF does
identify abusive trading, PIF will apply its policies and procedures in a fair
and uniform manner. If PIF is not able to identify such abusive trading
practices, the abuses described above may negatively impact the Funds.
Currently, the Funds impose an excessive trading fee on redemptions or
exchanges of $30,000 or more of Class A or Class B shares redeemed or exchanged
within 30 days after they are purchased. The fee is equal to 1.00% of the total
redemption 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.
In addition, if PMC, or a Fund, deem frequent trading and redemptions to be
occurring, action will be taken that may include, but is not limited to:
o Increasing the excessive trading fee to 2%, or such higher amount as may be
permitted by law;
o Increasing the excessive trading fee period from 30 days to as much as 90
days;
o Applying the excessive trading fee to redemptions or exchanges of less than
$30,000;
o Limiting the number of permissible exchanges available to shareholders
identified as "excessive traders";
o Limit exchange requests to be in writing and submitted through the United
States Postal Service (in which case, requests for exchanges by fax or
telephone will not be accepted); and
o 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, PIF will
reverse the exchange and return the account holdings to the positions held prior
to the exchange. PIF will give the shareholder that requested the exchange
notice in writing in this instance.
VOTING INFORMATION
Voting procedures. If you complete and return the enclosed proxy
ballot, the persons named as proxies will vote your shares as you indicate or
for approval of each matter for which there is no indication. You may revoke
your proxy at any time prior to the proxy's exercise by: (i) sending written
notice to the Secretary of Principal Investors Fund, Inc. at Principal Financial
Group, Des Moines, Iowa 50392-0200, 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
October 6, 2006 (the "Record Date") are entitled to vote. The shareholders of
each class of shares of an Acquired Fund will vote together on the proposed
Reorganization relating to that Fund and on any other matter submitted to such
shareholders. You are entitled to one vote on each matter submitted to the
shareholders of an 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 with respect to an Acquired Fund, the
affirmative vote of the lesser of (1) 67% or more of the voting securities of
the Fund present at the meeting of the Fund, if the holders of more than 50% of
the outstanding voting securities of the Fund are present in person or by proxy,
or (2) more than 50% of the outstanding voting securities of the Fund.
The number of votes eligible to be cast at the meeting as of the Record
Date and other share ownership information are set forth below under the heading
"Outstanding Shares and Share Ownership" in this Proxy Statement/Prospectus.
Quorum requirements. A quorum must be present at the Meeting for the
transaction of business. The presence in person or by proxy of one-third of the
shares of 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 a Proposal or any other
matter will require the affirmative vote of the holders of a majority of the
shares of the affected 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. PIF intends to solicit proxies by mail.
Officers or employees of PIF, 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. PIF
has retained the services of a professional proxy soliciting firm, Computershare
Fund Services, to assist in soliciting proxies and estimate that the cost of
such services will be approximately $_________________.
Expenses of the Meetings. The expenses of the Meeting for each Acquired
Fund will be treated as an expense related to the Reorganizations and will be
paid by PMC.
OUTSTANDING SHARES AND SHARE OWNERSHIP
The following table shows as of the Record Date the number of Class A
and Class B shares of each Acquired Fund outstanding and entitled to vote.
Share Number of Shares
Acquired Fund Class Outstanding
Equity Income Fund Class A
Class B
Tax-Exempt Bond Fund Class A
Class B
As of the Record Date, the Directors and officers of PIF together owned
less than 1% of the outstanding shares of any class of any Acquired Fund.
As of the Record Date, the following persons owned of record, or were
known by PIF to own beneficially, 5% or more of the outstanding shares of any
class of shares of the Acquired Funds:
Share Percentage of
Acquired Fund Name/Address of Shareholder Class Ownership
Equity Income Fund
Class _
Tax-Exempt Bond Fund
Class _
FINANCIAL STATEMENTS
The financial highlights of the Acquired Funds contained in the PIF
Prospectus are incorporated by reference into this Proxy Statement/Prospectus,
and the financial statements of the Acquired Funds incorporated by reference
into the Statement of Additional Information, have been so incorporated by
reference in reliance on the report of Ernst & Young LLP, Independent Registered
Public Accounting Firm.
The unaudited financial highlights of the Acquired Funds as of April
30, 2006 are incorporated by reference to the Semi-Annual Report to Shareholders
of the PIF Funds for the six-month period ended April 30, 2006.
LEGAL MATTERS
Certain matters concerning the issuance of shares of the Acquiring
Funds will be passed upon by Michael D. Roughton, Esq., Counsel to PIF. Certain
tax consequences of the Reorganizations will be passed upon by Dykema Gossett
PLLC, 400 Renaissance Center, Detroit, Michigan 48243.
OTHER MATTERS
The Board does not know of any matters to be presented at the Meeting
other than those mentioned in this Proxy Statement/Prospectus. If any other
matters properly come before the Meeting, the shares represented by proxies will
be voted in accordance with the best judgment of the person or persons voting
the proxies.
PIF 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 PIF Fund must be received by PIF 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
October ___, 2006
Des Moines, Iowa
It is important that proxies be returned promptly. Therefore, shareholders who
do not expect to attend the Meeting in person are urged to complete, sign and
date the proxy card and return it in the enclosed envelope.
APPENDIX A
FORMS OF PLANS OF REORGANIZATION
PROPOSAL 1
PLAN OF REORGANIZATION
Equity Income Fund I and
Equity Income Fund
The Board of Directors of Principal Investors Fund, Inc., a Maryland
corporation (the "Fund"), deems it advisable that the Equity Income Fund I of
the Fund (the "Acquiring Fund") and the Equity Income Fund of the Fund (the
"Acquired Fund") engage in the reorganization described below.
The Acquired Fund will transfer to the Acquiring Fund, and the
Acquiring Fund will acquire from the Acquired Fund, all of the assets of the
Acquired Fund on the Closing Date and will assume from the Acquired Fund all of
the liabilities of the Acquired Fund in exchange for the issuance of the number
of shares of the Acquiring Fund determined as provided in the following
paragraphs, which shares will be subsequently distributed pro rata to the
shareholders of the Acquired Fund in complete liquidation and termination of the
Acquired Fund and in exchange for all of the Acquired Fund's outstanding shares.
The Acquired Fund will not issue, sell or transfer any of its shares after the
Closing Date, and only redemption requests received by the Acquired Fund in
proper form prior to the Closing Date shall be fulfilled by the Acquired Fund.
Redemption requests received by the Acquired Fund thereafter will be treated as
requests for redemption of those shares of the Acquiring Fund allocable to the
shareholder in question.
The Acquired Fund will 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, for the
current taxable year through the Closing Date.
On the Closing Date, the Acquiring Fund will issue to the Acquired Fund
a number of full and fractional shares of each corresponding class of the
Acquiring Fund, taken at their then net asset value, having an aggregate net
asset value equal to the aggregate value of the net assets of the corresponding
class of shares of the Acquired Fund. The aggregate value of the net assets of
the Acquired Fund and the Acquiring Fund shall be determined in accordance with
the then current Prospectus of the Acquiring Fund as of close of regularly
scheduled trading on the New York Stock Exchange on the Closing Date. Class A
shares of the Acquiring Fund correspond to Class A shares of the Acquired Fund,
and Class B shares of the Acquiring Fund correspond to Class B shares of the
Acquired Fund.
The transactions contemplated in this Plan shall not be effected unless
the Acquiring Fund has previously acquired substantially all the assets of the
Equity Income Fund of WM Trust I (the "WM Acquisition") and shall be effected
immediately after the WM Acquisition. For purposes of the preceding paragraph,
the aggregate net assets of the Acquiring Fund shall mean the aggregate net
assets of the Acquiring Fund after the WM Acquisition.
The closing of the transactions contemplated in this Plan (the
"Closing") shall be held at the offices of Principal Management Corporation, 680
8th Street, Des Moines, Iowa 50392-2080 at 3:00 p.m. Central Time on January 12,
2007, 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 the Acquiring Fund or the Acquired Fund 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 or to such other date determined by fund management.
As soon as practicable after the Closing, the Acquired Fund shall (a)
distribute on a pro rata basis to the shareholders of record of each class of
shares of the Acquired Fund at the close of business on the Closing Date the
shares of the corresponding class of the Acquiring Fund received by the Acquired
Fund at the Closing in exchange for all of the Acquired Fund's outstanding
shares, and (b) be liquidated in accordance with applicable law and the Fund's
Articles of Incorporation.
For purposes of the distribution of shares of the Acquiring Fund to
shareholders of the Acquired Fund, the Acquiring Fund shall credit on its books
an appropriate number of shares to the account of each shareholder of the
Acquired Fund. No certificates will be issued for shares of the Acquiring Fund.
After the Closing Date and until surrendered, each outstanding certificate, if
any, which, prior to the Closing Date, represented shares of the Acquired Fund,
shall be deemed for all purposes of the Fund's Articles of Incorporation and
Bylaws to evidence the appropriate number of shares of the Acquiring Fund to be
credited on the books of the Acquiring Fund in respect of such shares of the
Acquired Fund as provided above.
Prior to the Closing Date, the Acquired Fund shall deliver to the
Acquiring Fund a list setting forth the assets to be assigned, delivered and
transferred to the Acquiring Fund, including the securities then owned by the
Acquired Fund and the respective federal income tax bases (on an identified cost
basis) thereof, and the liabilities to be assumed by the Acquiring Fund pursuant
to this Plan.
All of the Acquired Fund's portfolio securities shall be delivered by
the Acquired Fund's custodian on the Closing Date to the Acquiring Fund 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 account
in the name of the Acquiring Fund or its custodian with said depository. All
cash to be delivered pursuant to this Plan shall be transferred from the
Acquired Fund's account at its custodian to the Acquiring Fund's account at its
custodian. If on the Closing Date the Acquired Fund is unable to make good
delivery to the Acquiring Fund's custodian of any of the Acquired Fund's
portfolio securities because such securities have not yet been delivered to the
Acquired Fund'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 the Acquired Fund shall deliver to the Acquiring Fund's custodian
on or by said Closing Date with respect to said undelivered securities executed
copies of an agreement of assignment in a form satisfactory to the Acquiring
Fund, 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 the Acquiring Fund.
This Plan may be abandoned and terminated, whether before or after
action thereon by the shareholders of the Acquired Fund 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 the Acquired Fund 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 the Acquired Fund.
Except as expressly provided otherwise in this Plan, Principal
Management Corporation will pay or cause to be paid all out-of-pocket fees and
expenses incurred by the Acquired Fund and the Acquiring Fund in connection with
the transactions contemplated under this Plan, including, but not limited to,
accountants' fees, legal fees, registration fees, printing expenses, transfer
taxes (if any) and the fees of banks and transfer agents.
IN WITNESS WHEREOF, each of the parties hereto has caused this Plan to
be executed by its President or Vice President as of the ___ day of _________,
2006.
PRINCIPAL INVESTORS FUND, INC. PRINCIPAL INVESTORS FUND, INC.
on behalf of the following Acquired Fund: on behalf of the following Acquiring Fund:
Equity Income Fund Equity Income Fund I
By: ________________________________ By: ________________________________
Ralph C. Eucher Michael J. Beer
President Executive Vice President
Principal Management Corporation agrees to the provisions set forth in the last
paragraph of this Plan.
PRINCIPAL MANAGEMENT CORPORATION
By:_________________________________
Ralph C. Eucher
President
PROPOSAL 2
PLAN OF REORGANIZATION
Tax-Exempt Bond Fund I and
Tax-Exempt Bond Fund
The Board of Directors of Principal Investors Fund, Inc., a Maryland
corporation (the "Fund"), deems it advisable that the Tax-Exempt Bond Fund I of
the Fund (the "Acquiring Fund") and the Tax-Exempt Bond Fund of the Fund (the
"Acquired Fund") engage in the reorganization described below.
The Acquired Fund will transfer to the Acquiring Fund, and the
Acquiring Fund will acquire from the Acquired Fund, all of the assets of the
Acquired Fund on the Closing Date and will assume from the Acquired Fund all of
the liabilities of the Acquired Fund in exchange for the issuance of the number
of shares of the Acquiring Fund determined as provided in the following
paragraphs, which shares will be subsequently distributed pro rata to the
shareholders of the Acquired Fund in complete liquidation and termination of the
Acquired Fund and in exchange for all of the Acquired Fund's outstanding shares.
The Acquired Fund will not issue, sell or transfer any of its shares after the
Closing Date, and only redemption requests received by the Acquired Fund in
proper form prior to the Closing Date shall be fulfilled by the Acquired Fund.
Redemption requests received by the Acquired Fund thereafter will be treated as
requests for redemption of those shares of the Acquiring Fund allocable to the
shareholder in question.
The Acquired Fund will 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, for the
current taxable year through the Closing Date.
On the Closing Date, the Acquiring Fund will issue to the Acquired Fund
a number of full and fractional shares of each corresponding class of the
Acquiring Fund, taken at their then net asset value, having an aggregate net
asset value equal to the aggregate value of the net assets of the corresponding
class of shares of the Acquired Fund. The aggregate value of the net assets of
the Acquired Fund and the Acquiring Fund shall be determined in accordance with
the then current Prospectus of the Acquiring Fund as of close of regularly
scheduled trading on the New York Stock Exchange on the Closing Date. Class A
shares of the Acquiring Fund correspond to Class A shares of the Acquired Fund,
and Class B shares of the Acquiring Fund correspond to Class B shares of the
Acquired Fund.
The transactions contemplated in this Plan shall not be effected unless
the Acquiring Fund has previously acquired substantially all the assets of the
Tax-Exempt Bond Fund of WM Trust I (the "WM Acquisition") and shall be effected
immediately after the WM Acquisition. For purposes of the preceding paragraph,
the aggregate net assets of the Acquiring Fund shall mean the aggregate net
assets of the Acquiring Fund after the WM Acquisition.
The closing of the transactions contemplated in this Plan (the
"Closing") shall be held at the offices of Principal Management Corporation, 680
8th Street, Des Moines, Iowa 50392-2080 at 3:00 p.m. Central Time on January 12,
2007, 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 the Acquiring Fund or the Acquired Fund 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 or to such other date determined by fund management.
As soon as practicable after the Closing, the Acquired Fund shall (a)
distribute on a pro rata basis to the shareholders of record of each class of
shares of the Acquired Fund at the close of business on the Closing Date the
shares of the corresponding class of the Acquiring Fund received by the Acquired
Fund at the Closing in exchange for all of the Acquired Fund's outstanding
shares, and (b) be liquidated in accordance with applicable law and the Fund's
Articles of Incorporation.
For purposes of the distribution of shares of the Acquiring Fund to
shareholders of the Acquired Fund, the Acquiring Fund shall credit on its books
an appropriate number of shares to the account of each shareholder of the
Acquired Fund. No certificates will be issued for shares of the Acquiring Fund.
After the Closing Date and until surrendered, each outstanding certificate, if
any, which, prior to the Closing Date, represented shares of the Acquired Fund,
shall be deemed for all purposes of the Fund's Articles of Incorporation and
Bylaws to evidence the appropriate number of shares of the Acquiring Fund to be
credited on the books of the Acquiring Fund in respect of such shares of the
Acquired Fund as provided above.
Prior to the Closing Date, the Acquired Fund shall deliver to the
Acquiring Fund a list setting forth the assets to be assigned, delivered and
transferred to the Acquiring Fund, including the securities then owned by the
Acquired Fund and the respective federal income tax bases (on an identified cost
basis) thereof, and the liabilities to be assumed by the Acquiring Fund pursuant
to this Plan.
All of the Acquired Fund's portfolio securities shall be delivered by
the Acquired Fund's custodian on the Closing Date to the Acquiring Fund 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 account
in the name of the Acquiring Fund or its custodian with said depository. All
cash to be delivered pursuant to this Plan shall be transferred from the
Acquired Fund's account at its custodian to the Acquiring Fund's account at its
custodian. If on the Closing Date the Acquired Fund is unable to make good
delivery to the Acquiring Fund's custodian of any of the Acquired Fund's
portfolio securities because such securities have not yet been delivered to the
Acquired Fund'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 the Acquired Fund shall deliver to the Acquiring Fund's custodian
on or by said Closing Date with respect to said undelivered securities executed
copies of an agreement of assignment in a form satisfactory to the Acquiring
Fund, 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 the Acquiring Fund.
This Plan may be abandoned and terminated, whether before or after
action thereon by the shareholders of the Acquired Fund 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 the Acquired Fund 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 the Acquired Fund.
Except as expressly provided otherwise in this Plan, Principal
Management Corporation will pay or cause to be paid all out-of-pocket fees and
expenses incurred by the Acquired Fund and the Acquiring Fund in connection with
the transactions contemplated under this Plan, including, but not limited to,
accountants' fees, legal fees, registration fees, printing expenses, transfer
taxes (if any) and the fees of banks and transfer agents.
IN WITNESS WHEREOF, each of the parties hereto has caused this Plan to
be executed by its President or Vice President as of the ___ day of _________,
2006.
PRINCIPAL INVESTORS FUND, INC. PRINCIPAL INVESTORS FUND, INC.
on behalf of the following Acquired Fund: on behalf of the following Acquiring Fund:
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
By: ________________________________ By: ________________________________
Ralph C. Eucher Michael J. Beer
President Executive Vice President
Principal Management Corporation agrees to the provisions set forth in the last
paragraph of this Plan.
PRINCIPAL MANAGEMENT CORPORATION
By:_________________________________
Ralph C. Eucher
President
APPENDIX B
DEBT SECURITY RATINGS
Standard & Poor's Ratings Group ("S&P")
Commercial Paper:
A-1 The rating A-1 is the highest rating assigned by S&P to
commercial paper. This designation indicates that the degree
of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high
for issuers designated "A-1."
Bonds:
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher
rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB-B-CCC
-CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance
with the terms of the obligations. BB indicates the lowest
degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D Bonds rated D are in default. The D category is used when
interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired.
The D rating is also used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus
or minus to show relative standing within the major rating categories.
Moody's Investors Service, Inc. ("Moody's")
Commercial Paper:
P-1 The rating P-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated P-1 (or related
supporting institutions) have a superior capacity for
repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following
characteristics: (1) leading market positions
in established industries; (2) high rates of return on
funds employed; (3) conservative capitalization
structures with moderate reliance on debt and ample asset
protection; (4) broad margins in earnings coverage
of fixed financial charges and high internal cash generation;
and (5) well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated P-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
Bonds:
Aaa Bonds which are rated Aaa by Moody's are judged to be of the
best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds which are rated Aa by Moody's are judged to be of high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa by Moody's are considered as medium
grade obligations, that is, they are neither highly protected
nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance and other terms of the contract
over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers "1," "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
APPENDIX C
CERTAIN INVESTMENT STRATEGIES AND
RELATED RISKS OF THE ACQUIRING FUNDS
This Appendix provides information about certain investment strategies
and related risks of the Acquiring Funds. The Statement of Additional
Information contains additional information about investment strategies and
their related risks.
Securities and Investment Practices
Market Volatility. Equity securities include common stocks, preferred
stocks, convertible securities, depositary receipts, rights and warrants. Common
stocks, the most familiar type, represent an equity (ownership) interest in a
corporation. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its management or
lower demand for the company's products or services. A stock's value may also
fall because of factors affecting not just the company, but also companies in
the same industry or in a number of different industries, such as increases in
production costs. The value of a company's stock may also be affected by changes
in financial markets that are relatively unrelated to the company or its
industry, such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the company
invests in its own business and makes required payments to holders of its bonds
and other debt. For this reason, the value of a company's stock will usually
react more strongly than its bonds and other debt to actual or perceived changes
in the company's financial condition or prospects. Stocks of smaller companies
may be more vulnerable to adverse developments than those of larger companies.
Fixed-income securities include bonds and other debt instruments that
are used by issuers to borrow money from investors. The issuer generally pays
the investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.
Interest Rate Changes. Fixed-income securities are sensitive to changes
in interest rates. In general, fixed-income security prices rise when interest
rates fall and fall when interest rates rise. Longer term bonds and zero coupon
bonds are generally more sensitive to interest rate changes.
Credit Risk. Fixed-income security prices are also affected by the
credit quality of the issuer. Investment grade debt securities are medium and
high quality securities. Some bonds, such as lower grade or "junk" bonds, may
have speculative characteristics and may be particularly sensitive to economic
conditions and the financial condition of the issuers.
Repurchase Agreements and Loaned Securities
Although not a principal investment strategy, each of the funds may
invest a portion of its assets in 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 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.
Each of the funds may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions. These
transactions involve risk of loss to a fund if the counterparty should fail to
return such securities to the fund upon demand or if the counterparty's
collateral invested by the fund declines in value as a result of investment
losses.
Reverse Repurchase Agreements
A fund may use reverse repurchase agreements to obtain cash to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities, or to earn additional
income on portfolio securities, such as Treasury bills or notes. In a reverse
repurchase agreement, a fund sells a portfolio security to another party, such
as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, a fund will maintain cash and appropriate liquid assets to cover
its obligation under the agreement. The fund will enter into reverse repurchase
agreements only with parties that the sub-advisor deems creditworthy. Using
reverse repurchase agreements to earn additional income involves the risk that
the interest earned on the invested proceeds is less than the expense of the
reverse repurchase agreement transaction. This technique may also have a
leveraging effect on the fund, although the fund's intent to segregate assets in
the amount of the repurchase agreement minimizes this effect.
Currency Contracts
The funds may each enter into forward currency contracts, currency
futures contracts and options, and options on currencies for hedging purposes
and not as a principal investment strategy. A forward currency contract involves
a privately negotiated obligation to purchase or sell a specific currency at a
future date at a price set in the contract. A fund will not hedge currency
exposure to an extent greater than the aggregate market value of the securities
held or to be purchased by the fund (denominated or generally quoted or
currently convertible into the currency).
Hedging is a technique used in an attempt to reduce risk. If a fund's
sub-advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the fund's investment strategy, these techniques could
result in a loss. These techniques may increase the volatility of a fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the other party
to the transaction does not perform as promised. There is also a risk of
government action through exchange controls that would restrict the ability of
the fund to deliver or receive currency.
Forward Commitments
Although not a principal investment strategy, each of the funds may
enter into forward commitment agreements. These agreements call for the Fund to
purchase or sell a security on a future date at a fixed price. Each of these
Funds may also enter into contracts to sell its investments either on demand or
at a specific interval.
Warrants
Each of the funds may invest in warrants though none of the funds use
such investments as a principal investment strategy. A warrant is a certificate
granting its owner the right to purchase securities from the issuer at a
specified price, normally higher than the current market price.
High Yield Securities
The Acquiring Funds may invest in debt securities rated lower than BBB
by S&P or Baa by Moody's or, if not rated, determined to be of equivalent
quality by PMC or the sub-advisor. Such securities are sometimes referred to as
high yield or "junk" bonds and are considered speculative.
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 PMC or the
sub-advisor thinks it is in the best interest of shareholders.
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.
Derivatives
To the extent permitted by its investment objectives and policies, each
of the funds may invest in securities that are commonly referred to as
derivative securities. Generally, a derivative is a financial arrangement, the
value of which is derived from, or based on, a security, asset, or market index.
Certain derivative securities are described more accurately as index/structured
securities. Index/structured securities are derivative securities whose value or
performance is linked to other equity securities (such as depositary receipts),
currencies, interest rates, indices or other financial indicators (reference
indices).
Some derivatives, such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways
to use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities. The funds may enter into put or
call options, future contracts, options on futures contracts and
over-the-counter swap contracts (e.g., interest rate swaps, total return swaps
and credit default swaps) for both hedging and non-hedging purposes.
Generally, 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. The return on a derivative security may increase or decrease,
depending upon changes in the reference index or instrument to which it relates.
The risks associated with derivative investments include:
-- the risk that the underlying security, interest rate, market index
or other financial asset will not move in the direction PMC or the sub-advisor
anticipated;
-- the possibility that there may be no liquid secondary market which
may make it difficult or impossible to close out a position when desired;
--the risk that adverse price movements in an instrument can result in
a loss substantially greater than a fund's initial investment; and
--the counterparty may fail to perform its obligations.
Convertible Securities
Convertible securities are fixed-income securities that a fund has the
right to exchange for equity securities at a specified conversion price. The
option allows the fund to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, the fund may hold
fixed-income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the fund could realize an additional $2 per share by
converting its fixed-income securities.
Convertible securities have lower yields than comparable fixed-income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed-income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The funds treat convertible securities as both fixed-income and equity
securities for purposes of investment policies and limitations because of their
unique characteristics. The funds may invest in convertible securities without
regard to their ratings.
Foreign Investing
The funds may invest in securities of foreign companies but not as a
principal investment strategy. For the purpose of this restriction, foreign
companies are:
-- companies with their principal place of business or principal office
outside the U.S.; and
-- companies for which the principal securities
trading market is outside the U.S.
Foreign companies may not be subject to the same uniform accounting,
auditing and financial reporting practices as are required of U.S. companies. In
addition, there may be less publicly available information about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges, although each fund seeks the most favorable net results on
its portfolio transactions.
Foreign markets also have different clearance and settlement procedures
than those in U.S. markets. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct these transactions. Delays in
settlement could result in temporary periods when a portion of fund assets is
not invested and earning no return. If a fund is unable to make intended
security purchases due to settlement problems, the fund may miss attractive
investment opportunities. In addition, a fund may incur a loss as a result of a
decline in the value of its portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect a fund's investments in those
countries. In addition, a fund may also suffer losses due to nationalization,
expropriation or differing accounting practices and treatments. Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign investments. Changes of governments or of economic
or monetary policies, in the U.S. or abroad, changes in dealings between
nations, currency convertibility or exchange rates could result in investment
losses for a fund. Finally, even though certain currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to fund investors.
Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than is the case with many U.S.
securities. Brokerage commissions, custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the funds intend to acquire the securities of foreign issuers where there
are public trading markets, economic or political turmoil in a country in which
a fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may negatively impact the
liquidity of a fund's portfolio. A fund may have difficulty meeting a large
number of redemption requests. Furthermore, there may be difficulties in
obtaining or enforcing judgments against foreign issuers.
A fund may choose to invest in a foreign company by purchasing
depositary receipts. Depositary receipts are certificates of ownership of shares
in a foreign-based issuer held by a bank or other financial institution. They
are alternatives to purchasing the underlying security but are subject to the
foreign securities to which they relate.
Investments in companies of developing countries may be subject to
higher risks than investments in companies in more developed countries. These
risks include:
-- increased social, political and economic instability;
-- a smaller market for these securities and low or nonexistent volume
of trading that results in a lack of liquidity and in greater price volatility;
-- lack of publicly available information, including reports of
payments of dividends or interest on outstanding securities;
-- foreign government policies that may restrict opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests;
-- relatively new capital market structure or market-oriented economy;
-- the possibility that recent favorable economic developments may be
slowed or reversed by unanticipated political or social events in these
countries;
-- restrictions that may make it difficult or impossible for the fund
to vote proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts; and
-- possible losses through the holding of securities in domestic and
foreign custodial banks and depositories.
In addition, many developing countries have experienced substantial,
and in some periods, extremely high rates of inflation for many years. Inflation
and rapid fluctuations in inflation rates have had and may continue to have
negative effects on the economies and securities markets of those countries.
Repatriation of investment income, capital and proceeds of sales by
foreign investors may require governmental registration and/or approval in some
developing countries. A fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade.
Small and Medium Capitalization Companies
The Equity Income Fund I may hold securities of small and medium
capitalization companies. Market capitalization is defined as total current
market value of a company's outstanding common stock.
Investments in companies with smaller market capitalizations may
involve greater risks and price volatility (wide, rapid fluctuations) than
investments in larger, more mature companies. Small companies may be less
significant within their industries and may be at a competitive disadvantage
relative to their larger competitors. While smaller companies may be subject to
these additional risks, they may also realize more substantial growth than
larger or more established companies.
Smaller companies may be less mature than larger companies. At this
earlier stage of development, the companies may have limited product lines,
reduced market liquidity for their shares, limited financial resources or less
depth in management than larger or more established companies. Unseasoned
issuers are companies with a record of less than three years continuous
operation, including the operation of predecessors and parents. Unseasoned
issuers by their nature have only a limited operating history that can be used
for evaluating the company's growth prospects. As a result, investment decisions
for these securities may place a greater emphasis on current or planned product
lines and the reputation and experience of the company's management and less
emphasis on fundamental valuation factors than would be the case for more mature
growth companies.
Temporary Defensive Measures
From time to time, as part of its investment strategy, each fund may
invest without limit in cash and cash equivalents for temporary defensive
purposes in response to adverse market, economic or political conditions. To the
extent that a 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, a fund may fail to achieve its
investment objective.
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 with high turnover rates (more than 100%) often have higher
transaction costs (that are paid by the fund) that may have an adverse impact on
fund performance and may generate short-term capital gains (on which taxes may
be imposed even if no shares of the fund are sold during the year).
Please consider all the factors when you compare the turnover rates of
different funds. A fund with consistently higher total returns and higher
turnover rates than another fund may actually be achieving better performance
precisely because the managers are active traders. You should also be aware that
the "total return" line in the Financial Highlights section already includes
portfolio turnover costs.
APPENDIX D
COSTS OF INVESTING IN THE ACQUIRING FUNDS
This Appendix describes the sales charges, contingent deferred sales
charges ("CDSCs"), and redemption and exchange fees that apply variously to the
Class A and Class B shares of the Acquiring Funds.
Shareholder Fees (fees paid directly from your investment)
The following table describes the fees and expenses you may pay if you
buy and hold shares of the Acquiring Funds.
Equity Income Fund I Tax-Exempt Bond Fund I
Class A Class B Class A Class B
Maximum sales charge imposed on purchases 5.50%(1) None 4.50%(1) None
(as a % of offering price):
Maximum Contingent Deferred Sales Charge 1.00%(2) 5.00%(3) 1.00%(2) 5.00%(3)
(CDSC) (as a % of dollars subject to charge):
Redemption or Exchange Fee 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
(as a % of amount redeemed/exchanged):
<FN>
- ------------------
(1) Sales charges are reduced or eliminated for purchases of $50,000 or more.
See "Front-end Sales Charge - Class A shares."
(2) A CDSC may apply on certain redemptions made within 18 months following
purchases of $1 million or more made without a sales charge.
(3) This maximum CDSC applies to Class B shares issued after the
Reorganizations. The CDSCs applicable to these Class B shares are reduced
after two years and eliminated after five years. The maximum CDSC
applicable to Class B shares issued in the Reorganizations is 4.00%. The
CDSCs applicable to these Class B shares are reduced after two years and
eliminated after six years.
(4) Excessive trading fees are charged when $30,000 or more of shares are
redeemed or exchanged to another PIF Fund within 30 days after they are
purchased. Excessive trading fees will not be applied to shares acquired
pursuant to the Reorganization.
</FN>
Fees and expenses are important because they lower your earnings.
However, low 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
o You may pay a one-time sales charge for each purchase (Class A shares) or
redemption (Class B shares).
o 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 CDSC at the time of redemption.
o Class B 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.
o An excessive trading fee* of 1.00% is charged on redemptions or exchanges
of Class A, Class B or Class C shares of $30,000 or more if the shares were
purchased within 30 days of the redemption or exchange. The fee does not
apply to redemptions made: through a periodic withdrawal plan; due to a
shareholder's death or disability (as defined in the Internal Revenue
Code); or to satisfy minimum distribution rules imposed by the Internal
Revenue Code. The fee is calculated as a percentage of market value of the
shares redeemed at the time of redemption.
* The excessive trading fee does not apply to shares redeemed/exchanged
from the PIF Money Market Fund.
Choosing a Share Class
Class A, B and C Shares. You may purchase Class A, Class B or Class C
shares of each Fund with certain limitations.* Your decision to purchase a
particular class depends on a number of factors including:
o the dollar amount you are investing;
o the amount of time you plan to hold the investment; and
o any plans to make additional investments in the Principal Investors
Funds.
*--If you are making an initial purchase of the Funds of $100,000 or more and
have selected Class B shares, the purchase will be of Class A shares of the
Fund(s) you have selected.
--If you are making a subsequent purchase into your existing Class B share
accounts and the amount of the purchase combined with the value of your Class A,
Class B, and Class C share accounts reaches $100,000 or more, the subsequent
investment will be applied to purchase Class A shares of the Fund(s) you have
selected.
In addition, you might consider:
o Class A shares if you are making an investment that qualifies for a
reduced sales charge;
o Class B shares if you prefer not to pay an initial sales charge and
you plan to hold your investment for at least five years; or
o Class C shares if you do not intend to own the shares for a long
period of time.
Class A Shares
o You generally pay a sales charge on an investment in Class A shares, which
varies based on the amount invested and the Fund selected.
o If you invest $50,000 or more, the sales charge is reduced.
o You are not assessed a sales charge on purchases of Class A shares of $1
million or more. A deferred sales charge may be imposed if you sell those
shares within 18 months of purchase.
o Class A shares generally have lower annual operating expenses than Class B
shares.
o You might be eligible for a reduced sales charge. See "Sales Charge waiver
or redemption (Class A shares)."
o Sales charges might be reduced under the rights of accumulation or
statement of intention as described below.
Class B Shares
o You do not pay a sales charge on an investment in Class B shares.
o If you sell your Class B shares within five years from the date of purchase
(six years in the case of Class B shares acquired in the Reorganizations),
you may pay a deferred sales charge.
o If you keep your Class B shares for eight years (six years in the case of
Class B shares acquired in the Reorganizations), your Class B shares
automatically convert to Class A shares without a charge.
o Class B shares generally have higher annual operating expenses and pay
lower dividends than Class A shares.
o Class B shares may not be suitable for large investments. Due to the higher
expenses associated with Class B shares, it may be more advantageous for
investors currently purchasing, intending to purchase or with existing
assets in amounts that may qualify for a reduced sales charge on Class A
shares, including through rights of accumulation and/or a statement of
intention, to purchase Class A shares.
Class C Shares
o You do not pay a sales charge on an investment in Class C shares.
o If you sell your Class C shares within 12 months of purchase, you may pay a
deferred sales charge.
o Unlike Class B shares, Class C shares do not convert to Class A shares and
thus the distribution fee is not reduced over time.
o Class C shares may not be suitable for large investments. Due to the higher
expenses associated with Class C shares, it may be more advantageous for
investors currently purchasing, intending to purchase or with existing
assets in amounts that may qualify for a reduced sales charge on Class A
shares, including through rights of accumulation and/or a statement of
intention, to purchase Class A shares.
Front-End Sales Charge: Class A Shares
Class A shares of the Acquiring Funds are purchased with a sales charge
that is a variable percentage based on the amount of the purchase. There is no
sales charge on shares of an Acquiring Fund purchased with reinvested dividends
or other distributions. Your sales charge may be reduced for larger purchases as
indicated below.
Equity Income Fund I
Sales Charge as % of
Offering Amount Dealer Allowance
Amount of Purchase Price Invested as % of Offering Price
Less than $50,000 5.50% 5.82% 4.75%
$50,000 but less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.00%
$250,000 but less than $500,000 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%*
Tax-Exempt Bond Fund I
Sales Charge as % of
Offering Amount Dealer Allowance
Amount of Purchase Price Invested as % of Offering Price
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%*
--------------------
* Princor, the distributor for the Acquired and Acquiring Funds, may pay
authorized dealers commissions on purchases of Class A shares over $1
million calculated as follows: 1.00% on purchases between $1 million
and $3 million, 0.50% on purchases over $3 million but less than $5
million, 0.35% on purchases over $5 million but less than $10 million,
and 0.25% on amounts over $10 million. The commission rate is
determined based on the purchase amount combined with the current
market value of existing investments in Class A, B and C shares.
There is no front-end sales charge on an investment of $1 million or
more in Class A shares. There may be a CDSC on shares sold within 18 months of
the purchase date. The CDSC does not apply to shares purchased with reinvested
dividends or other distributions. The CDSC is calculated as 1.00% of the lesser
of the market value at the time of the redemption or the initial purchase price
of the shares sold. The CDSC is waived on shares sold:
o to satisfy IRS minimum distribution rules; and
o using a periodic withdrawal plan. (You may sell up to 1% per month
(measured cumulatively for non-monthly plans) of the value of the Fund
account at the time, and beginning on the date, the periodic withdrawal
plan is established, without paying the CDSC.)
In the case of selling some, but not all, of the shares in an account,
the shares not subject to a CDSC are redeemed first. Other shares are redeemed
in the order purchased (first in, first out). Shares subject to the CDSC which
are exchanged from one PIF Fund to another continue to be subject to the CDSC
until the CDSC expires.
Broker-dealers that sell PIF Fund shares are paid a certain percentage
of the sales charge in exchange for their services. At the option of Princor
Financial Services Corporation ("Princor"), the amount paid to a dealer may be
more or less than that shown in the chart above. The amount paid depends on the
services provided. Amounts paid to dealers on purchases without a front-end
sales charge are determined by and paid for by Princor. Dealers may charge their
customers a processing or service fee in connection with the purchase or
redemption of Fund shares. The amount and applicability of such a fee is
determined and disclosed to its customers by each individual dealer. Processing
or service fees typically are fixed, nominal dollar amounts and are in addition
to the sales and other charges described herein.
Princor may, from time-to-time, at its expense or through use of
amounts it receives from a Fund through a distribution plan adopted pursuant to
Rule 12b-1 of the Investment Company Act of 1940, if applicable, pay a bonus or
other consideration or incentive to dealers who have sold or may sell
significant amounts of shares. Any such bonus or incentive program will not
change the price paid by investors for the purchase of the Funds' shares or the
amount that any particular Fund receives as the proceeds from such sales. In
addition, Princor or its affiliates may provide financial support to dealers
that sell shares of the Funds. This support is based primarily on the amount of
sales of fund shares and/or total assets in the Funds. The amount of support may
be affected by total sales; net sales; levels of redemptions; the dealers'
support of, and participation in, Princor's marketing programs and the extent of
a dealer's marketing programs relating to the Funds. Financial support to
dealers may be made from payments from Princor's resources, from its retention
of underwriting concessions and, in the case of share classes that have 12b-1
fees, from payments to Princor under such plans.
Sales Charge Waiver Or Reduction (Class A Shares)
Class A shares of the Funds may be purchased without a sales charge or
at a reduced sales charge. The Funds reserve the right to change or stop
offering shares in this manner at any time for new accounts and with a 60-day
notice to shareholders of existing accounts.
Waiver of sales charge (Class A shares)
A Fund's Class A shares may be purchased without a sales charge:
o by its current and former Directors, member companies of the Principal
Financial Group, and their employees, officers, directors (active or
retired), brokers or agents. This also includes their immediate family
members (spouse, domestic partner, children (regardless of age) and
parents) and trusts for the benefit of these individuals;
o by the Premier Credit Union;
o by non-ERISA clients of Principal Global Investors LLC;
o by any employee or registered representative (and their immediate
family members and employees) of an authorized broker-dealer or
company that has entered into a selling agreement with Princor;
o through a "wrap account" offered by Princor or through broker-dealers,
investment advisors and other financial institutions that have entered
into an agreement with Princor which includes a requirement that such
shares be sold for the benefit of clients participating in a "wrap
account" or similar program under which clients pay a fee to the
broker-dealer, investment advisor or financial institution;
o to fund non-qualified plans administered by a member company of the
Principal Financial Group pursuant to a written service agreement;
o to the extent that the purchase proceeds represent a distribution from
a terminating 401(a) plan, if (1) such purchase is made through a
representative of Princor, the terminating plan is not administered by
a member company of the Principal Financial Group, and the employer or
plan trustee has entered into a written agreement with Princor
permitting the group solicitation of active employees and/or plan
participants, or (2) such purchase is made through a registered
representative of a broker-dealer other than Princor, the purchase
proceeds represent a distribution from any terminating 401(a) plan and
the employer or plan trustee has entered into a written agreement with
Princor permitting the group solicitation of active employees and/or
plan participants. Such purchases are subject to the CDSC which
applies to purchases of $1 million or more as described above;
o by any investor who buys Class A shares through an omnibus account
with certain financial intermediaries, such as a bank or other
financial institution, that does not accept or charge the initial
sales charges. In addition, the CDSC will not be imposed on
redemptions of shares purchased through such omnibus accounts to the
extent that no sales charge payments were advanced for purchases made
through these entities;
o by employees of Boston Financial Data Services and PFPC, Inc. and
their immediate family members;
o by current and retired Washington Mutual employees and their immediate
family members, including children up to age 25;
o by current or former Washington Mutual employees who establish IRAs
involving assets from a Washington Mutual retirement or benefit plan,
and subsequent investments into such accounts;
o by participants in, or by purchases through, employer-sponsored
retirement or benefit plans which were eligible to purchase shares
without payment of a sale charge of an Acquired Fund prior to the
Combination Date; and
o by clients of registered investment advisors that have entered into
arrangements with Princor providing for the shares to be used in
particular investment products made available to such clients and for
which such registered investment advisors may charge a separate fee.
Reduction of sales charge (Class A shares)
(1) Dollar amount of purchase. The sales charge varies with the size of your
purchase. Purchases made by you, your spouse or domestic partner, or the
children of you, your spouse or domestic partner under the age of 25 and/or a
trust primarily for the benefit of such persons (together "a Qualified
Purchaser") will be combined along with Class A, B, and C shares of PIF owned by
such persons, to determine the applicable sales charge. Reduced charges apply to
the total of PIF Funds" (excluding Money Market Fund) shares purchased (and
still owned) by any Qualified Purchaser. If the total amount being invested in
PIF Funds is near a sales charge breakpoint, you should consider increasing the
amount invested to take advantage of a lower sales charge.
(2) Statement of Intention ("SOI"). Qualified Purchasers may obtain reduced
sales charges by signing an SOI. The SOI is a nonbinding obligation on the
Qualified Purchaser to purchase the full amount indicated in the SOI. The sales
charge is based on the total amount to be invested in a 13 month period (24
months if the intended investment is $1 million or more). If the intended
investment is not made, sufficient shares will be sold to pay the additional
sales charge due. A 401(a) plan trustee must submit the SOI at the time of the
first plan purchase.
(3) Rights of accumulation. The Class A, Class B, and Class C accounts already
owned by a Qualified Purchaser are added to the amount of the new purchase to
determine the applicable sales charge percentage. The balance of the existing
accounts as of the date of the subsequent purchase(s) is used in this
calculation. Class A shares of the Money Market Funds are not included in the
calculation unless they were acquired in exchange for other PIF Fund shares.
(4) Certain Qualified Plans. The sales charge tables below apply to purchases of
Class A shares by qualified plans administered by Expertplan, Inc. that were
previously converted from B share plans.
Equity Income Fund I
Sales Charge as % of
Offering Net Amount Dealer Allowance
Amount of Purchase Price Invested as % of Offering Price
Less than $500,000 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
$1,000,000 or more no sales charge 0.75%
Sales Charge: Class B shares
No front-end sales charge applies to the purchase of Class B shares.
However, a CDSC may be imposed on Class B shares sold within five years of
purchase (six years in the case of Class B shares acquired in the
Reorganizations). Class B shares automatically convert into Class A shares
(based on share prices, not number of shares) eight years (five years for
certain sponsored plans and six years in the case of Class B shares acquired in
the Reorganizations) after purchase. Class B shares provide you the benefit of
putting all your dollars to work from the time of investment, but (until
conversion) have higher ongoing fees and lower dividends than Class A shares.
The Class B share CDSC, if any, is determined by multiplying the lesser
of the market value at the time of redemption or the initial purchase price of
the shares sold by the appropriate percentage from the table below:
Years Since Purchase Payments Made CDSC as a % of Dollar Amount
- ---------------------------------- ----------------------------
For shares to be issued For shares to be issued
after the Reorganization in the Reorganization
2 years or less 5.00% 4.00%
More than 2 years, up to 3 years 4.00% 2.00%
More than 3 years, up to 4 years 3.00% 2.00%
More than 4 years, up to 5 years 2.00% 1.00%
More than 5 years, up to 6 years None 1.00%
More than 6 years None None
The CDSC does not apply to shares purchased with reinvested dividends
or other distributions. The CDSC is not charged on exchanges. However, the
original purchase date of the exchanged shares is used to determine if the newly
acquired shares are subject to the CDSC when sold. The Fund from which the
shares are sold is used to determine the percentage of CDSC, if any.
In the case of selling some but not all of the shares in an account,
the shares not subject to a sales charge are redeemed first. Other Class B
shares are redeemed in the order purchased (first in, first out). Using a
periodic withdrawal plan, you may sell up to 1% per month (measured cumulatively
for non-monthly plans) of the value of the Fund account at the time, and
beginning on the date, the periodic withdrawal plan is established, without
paying the CDSC.
Waiver of the Sales Charge (Class B shares)
The CDSC is waived on Class B shares which are sold:
o due to a shareholder's death;
o due to the shareholder's disability, as defined in the Internal Revenue Code;
o from retirement plans to satisfy minimum distribution rules under the Code;
o to pay surrender charges;
o to pay retirement plan fees;
o involuntarily from small balance accounts;
o through a systematic withdrawal plan (certain limits apply);
o from a retirement plan to assure the plan complies with Sections 401(k), 401(m), 408(k) or 415 of the Code.
NOTE: To have your Class B CDSC waived, you must let your advisor or the Fund
know at the time you redeem shares that you qualify for such a waiver.
Class B shares are not available to qualified retirement plans.
Ongoing Fees
Each Fund pays ongoing fees to PMC, Princor and others who provide services to
the Fund. They reduce the value of each share you own.
Distribution (12b-1) Fees
Each of the Acquiring Funds has adopted a Distribution Plan under Rule 12b-1
under the 1940 Act. Under the Plan, the Fund pays a fee to Princor based on the
average daily net asset value of the Fund. These ongoing fees pay distribution
and other expenses for the sale of Fund shares and for services provided to
shareholders. Because they are ongoing fees, over time they will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
Maximum Annualized
12b-1 Fee
Class A shares 0.25%
Class B shares 1.00%
APPENDIX E
ADDITIONAL INFORMATION ABOUT FUND PERFORMANCE
PROPOSAL 1
The following tables contain additional information with respect to the
performance of the PIF Equity Income Fund and the WM Equity Income Fund. Both
the PIF Equity Income Fund and the WM Equity Income Fund are proposed to be
combined into the Equity Income Fund I, the Acquiring Fund in the
Reorganization. Assuming the related WM Fund Reorganization is consummated, the
Acquiring Fund will report the historical performance information of WM Equity
Income Fund as its own.
PIF Equity Income Fund
Class A and Class B shares began operations on June 30, 2005 when the Fund
succeeded to the operations, and assumed the historical performance of the Class
A and Class B shares of a predecessor fund. The bar chart below shows how the
Fund's total return has varied year-by-year, while the table below shows
performance of Class A and Class B shares over time (along with the returns of a
broad-based market index and an index of funds with similar investment
objectives for reference). This information may help provide an indication of
the Fund's risks. Past performance does not indicate future results.
Year-By-Year Total Return (%) as of 12/31 Each Year
[INSERT BAR CHART]
- ------ ------- ------- ------- ------ -------- ------- ------- ------- -------
4.56 29.58 22.50 2.25 18.23 -28.20 -12.73 13.62 17.35 8.23
- ------ ------- ------- ------- ------ -------- ------- ------- ------- -------
- ------ ------- ------- ------- ------ -------- ------- ------- ------- -------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
- ------ ------- ------- ------- ------ -------- ------- ------- ------- -------
The year-to-date return as of June 30, 2006 is 6.89%
Highest return for a quarter during the period of the bar chart above:
Q4 '97 19.24%
Lowest return for a quarter during the period of the bar chart above:
Q3 '01 -17.03%
The bar chart above shows year-by-year total returns for the Class A shares. For
periods prior to the first full calendar year of operations of the Fund's Class
A shares, the annual returns are based on the performance of the Fund's Class A
shares of the Fund's predecessor fund. The annual returns in the bar chart do
not reflect sales charges; if sales charges were reflected, results would be
lower. Each class of shares of the Fund invests in the same portfolio of
securities, and the annual returns of each class will differ only to the extent
the classes do not have the same expenses. The performance table below shows,
for the indicated periods, the average annual total returns for the Class A and
Class B shares. For periods prior to the date on which those classes succeeded
to the operations of the Class A and Class B shares of the Fund's predecessor
fund, the returns of the Class A and Class B shares of the Fund are based on the
performance of the Class A and Class B shares of the predecessor fund. The
predecessor fund's Class A shares commenced operations on December 16, 1992, and
its Class B shares commenced operations on December 9, 1994.
Average Annual Total Returns (%) for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (before taxes) 2.02 -3.14 5.51
(after taxes on distributions) 1.15 -3.98 3.89
(after taxes on distributions and sale 1.58 -3.07 4.05
of shares)
Class B 3.10 -3.20 5.55
Russell 1000 Value Index 7.05 5.28 10.94
Morningstar Large Value Category Average 5.88 3.96 8.85
Index performance does not reflect deductions for fees, expenses or taxes.
After-tax returns are shown for Class A shares only and would be different for
Class B shares. 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 ,
may differ from those shown, and are not relevant to investors who hold Fund
shares through tax-deferred arrangements, such as 401(k) plans or individual
retirement accounts. After-tax returns for other share classes will vary.
WM Equity Income Fund
The bar chart and tables below provide some indication of the risks of investing
in the Fund by showing changes in performance from year to year and showing how
the Fund's average annual returns compare with those of a broad measure of
market performance. The Fund's past performance is not necessarily an indication
of how the Fund will perform in the future.
Year-By-Year Total Return (%) as of 12/31 Each Year
[INSERT BAR CHART]
- -------- ------- ------- ------- ------- ------- ------- ------- ------ -------
13.60 19.89 6.93 4.83 14.64 7.41 -12.82 29.22 18.72 9.46
- -------- ------- ------- ------- ------- ------- ------- ------- ------ -------
- -------- ------- ------- ------- ------- ------- ------- ------- ------ -------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
- -------- ------- ------- ------- ------- ------- ------- ------- ------ -------
Sales charges are not included in the returns shown above. If those charges were
included, the returns shown would be lower.
The year-to-date return as of June 30, 2006 is 5.42%.
Highest return for a quarter during the period of the bar chart above:
Q2 '03 15.73%
Lowest return for a quarter during the period of the bar chart above:
Q3 '02 -14.83%
The following table shows, for the indicated periods ended December 31, 2005,
the average annual total returns of the Class A and Class B shares of the Fund.
Average Annual Total Returns (%) for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (before taxes) 3.43 8.25 10.03
(after taxes on distributions) (1) 2.64 7.38 8.04
(after taxes on distributions and sale of 3.25 6.73 7.62
shares) (1)
Class B 3.55 8.21 9.90
S&P 500 (2) 4.91 0.54 9.07
S&P 500/Bara Value Index (3) 6.33 2.53 9.44
- ----------------------------
(1) After-tax returns are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation , may differ from those shown and are not relevant to investors
who hold Fund shares through tax-deferred arrangements, such as 401(k)
plans or individual retirement accounts. After-tax returns for other share
classes will vary.
(2) The S&P 500 is a broad-based index intended to represent the U.S. equity
market. Indices are unmanaged and individuals cannot invest directly in an
index. Index performance information reflects no deduction for fees,
expenses or taxes.
(3) The S&P 500/Barra Value Index is constructed by ranking securities in the
S&P 500 by price-to-book ratio and including those securities with the
lowest price-to-book ratios that represent approximately half of the market
capitalization of the S&P 500. Indices are unmanaged and individuals cannot
invest directly in an index. Index performance reflects no deduction for
fees, expenses or taxes.
PROPOSAL 2
The following tables contain additional information with respect to the
performance of the PIF Tax-Exempt Bond Fund and the WM Tax-Exempt Bond Fund.
Both the PIF Tax-Exempt Bond Fund and the WM Tax-Exempt Bond Fund are proposed
to be combined into the Tax-Exempt Bond Fund I, the Acquiring Fund in the
Reorganization. Assuming the WM Fund Reorganization is consummated, the
Acquiring Fund will report the historical performance information of WM Equity
Income Fund as its own.
PIF Tax-Exempt Bond Fund
Class A and Class B shares began operations on June 30, 2005 when the Fund
succeeded to the operations, and assumed the historical performance of the Class
A and Class B shares of a predecessor fund. The bar chart below shows how the
Fund's total return has varied year-by-year, while the table below shows
performance of Class A and Class B shares over time (along with the returns of a
broad-based market index and an index of funds with similar investment
objectives for reference). This information may help provide an indication of
the Fund's risks. Past performance does not indicate future results.
Year-By-Year Total Return (%) as of 12/31 Each Year
[INSERT BAR CHART]
- ------- ------ ------ -------- ------- ------ -------- ------- --------- -------
4.60 9.19 5.08 -3.17 7.96 5.68 9.20 4.51 3.56 2.64
- ------- ------ ------ -------- ------- ------ -------- ------- --------- -------
- ------- ------ ------ -------- ------- ------ -------- ------- --------- -------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
- ------- ------ ------ -------- ------- ------ -------- ------- --------- -------
The year-to-date return as of June 30, 2006 is 0.14%
Highest return for a quarter during the period of the bar chart above:
Q3 '02 5.21%
Lowest return for a quarter during the period of the bar chart above:
Q2 '04 -2.25%
The bar chart above shows year-by-year total returns for the Class A shares. For
periods prior to the first full calendar year of operations of the Fund's Class
A shares, the annual returns are based on the performance of the Fund's Class A
shares of the Fund's predecessor fund. The annual returns in the bar chart do
not reflect sales charges; if sales charges were reflected, results would be
lower. Each class of shares of the Fund invests in the same portfolio of
securities, and the annual returns of each class will differ only to the extent
the classes do not have the same expenses. The performance table below shows,
for the indicated periods, the average annual total returns for the Class A and
Class B shares. For periods prior to the date on which those classes succeeded
to the operations of the Class A and Class B shares of the Fund's predecessor
fund, the returns of the Class A and Class B shares of the Fund are based on the
performance of the Class A and Class B shares of the predecessor fund. The
predecessor fund's Class A shares commenced operations on March 20, 1986, and
its Class B shares commenced operations on December 9, 1994.
Average Annual Total Returns (%) for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (before taxes) -2.22 4.09 4.36
(after taxes on distributions) -2.45 3.96 4.27
(after taxes on distributions and sale 0.05 4.05 4.34
of shares)
Class B -1.59 4.19 4.44
Lehman Brothers Municipal Bond Index 3.51 5.58 5.71
Morningstar Muni National Long Category Average 3.10 4.81 4.79
Index performance does not reflect deductions for fees, expenses or taxes.
After-tax returns are shown for Class A shares only and would be different for
Class B shares. 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.
WM Tax-Exempt Bond Fund
The bar chart and tables below provide some indication of the risks of investing
in the Fund by showing changes in performance from year to year. The Fund's past
performance is not necessarily an indication of how the Fund will perform in the
future.
Year-By-Year Total Return (%) as of 12/31 Each Year
[INSERT BAR CHART]
- -------- ------ ------- --------- ------- ------ ------- ------- ------- -------
2.52 8.59 5.08 -4.40 11.49 3.92 9.81 5.19 3.89 3.14
- -------- ------ ------- --------- ------- ------ ------- ------- ------- -------
- -------- ------ ------- --------- ------- ------ ------- ------- ------- -------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
- -------- ------ ------- --------- ------- ------ ------- ------- ------- -------
Sales charges are not included in the returns shown above. If those charges were
included, the returns shown would be lower.
The year-to-date return as of June 30, 2006 is 0.55%.
Highest return for a quarter during the period of the bar chart above:
Q3 '02 5.22%
Lowest return for a quarter during the period of the bar chart above:
Q2 '04 -2.58%
The following table shows, for the indicated periods ended December 31, 2005,
the annual total returns of the Class A and Class B shares of the Fund.
Average Annual Total Returns (%) for periods ended December 31, 2005 (1)
1 Year 5 Years 10 Years
Class A (before taxes) -1.50 4.19 4.35
(after taxes on distributions) (2) -1.81 3.98 4.25
(after taxes on distributions and sale of 0.81 4.17 4.36
shares)
Class B -2.63 4.05 4.19
Lehman Brothers Municipal Bond Index (3) 3.53 5.58 5.71
- ------------------
(1) The Fund's performance in 2000 benefited from the agreement of WMA and its
affiliates to limit the Fund's expenses.
(2) After-tax returns 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 will depend on an investor's tax
situation and may differ from those shown. After-tax returns are shown for
only one share class offered by this prospectus. After tax returns for
other share classes will vary.
(3) The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment grade, tax-exempt bond market.
Indices are unmanaged and individuals cannot invest directly in an index.
Index performance information reflects no deduction for fees, expenses or
taxes.
[FORM OF PROXY CARD]
Principal Investors Fund, Inc.
Des Moines, Iowa 50392-0200
The accompanying Proxy Statement outlines important issues affecting your [NAME
OF FUND]. Help us save time and postage by voting on the Internet. The Internet
voting site is generally available 24 hours a day and will ensure that your vote
is confirmed and posted immediately. DO NOT MAIL THE PROXY CARD IF YOU ARE
VOTING BY INTERNET.
VOTING ON THE INTERNET
o Read the Proxy Statement and have this card at hand.
o Log onto https://vote.proxy-direct.com.
o Enter your Control Number and follow the on-screen instructions.
o Do not return this paper ballot.
VOTE YOUR PROXY TODAY!
SPECIAL MEETING OF SHAREHOLDERS DECEMBER 15, 2006
PRINCIPAL INVESTORS FUND, INC.
[NAME OF FUND]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder appoints Jill R. Brown, Ernest H. Gillum and Michael
J. Beer, and each of them separately, Proxies, with power of substitution, and
authorizes them to represent and to vote as designated on this ballot, at the
meeting of shareholders of the Fund to be held December 15, 2006 at _____ a.m.,
Central Daylight Time, and any adjournments thereof, all the shares of the Fund
that the undersigned shareholder would be entitled to vote if personally
present.
Check the appropriate box on the ballot, date the ballot and sign exactly as
your name appears. Your signature acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Proxy Statement, both dated October __, 2006.
Shares will be voted as you instruct. If no direction is made, the proxy will be
voted FOR the proposals listed. In their discretion, the Proxies will also be
authorized to vote upon such other matters that may properly come before the
meeting.
Date________________, 2006
_____________________________________
Signature of Shareholder(s) (if held jointly)
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS BALLOT. PLEASE MARK,
SIGN, DATE AND MAIL YOUR PROXY BALLOT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If
shares are held jointly, either party may sign. If executed by a corporation, an
authorized officer must sign. Executors, administrators and trustees should so
indicate when signing.
Please fill in boxes as shown using black or blue ink. PLEASE DO NOT USE FINE
POINT PENS.
The Board of Directors unanimously recommends that shareholders vote FOR all
Proposals. Sign the proxy ballot and return it as soon as possible in the
enclosed envelope.
PROPOSALS
For Against Abstain
1. Approval of a Plan of Reorganization [ ] [ ] [ ]
providing for the reorganization of the Equity Income
Fund into the Equity Income Fund I.
(Only shareholders of the Equity Income Fund
will vote on the Proposal)
2 Approval of a Plan of Reorganization [ ] [ ] [ ]
providing for the reorganization of the Tax-Exempt Bond
Fund into the Tax-Exempt Bond Fund I.
(Only shareholders of the Tax-Exempt Bond Fund
will vote on the Proposal)
PART B
INFORMATION REQUIRED IN
A STATEMENT OF ADDITIONAL INFORMATION
PRINCIPAL INVESTORS FUND, INC.
680 8th Street
Des Moines, Iowa 50392-0200
STATEMENT OF ADDITIONAL INFORMATION
Dated: October __, 2006
This Statement of Additional Information is available to the
shareholders of the "Acquired Funds" listed below, in connection with the
proposed reorganization of each Acquired Fund into the corresponding "Acquiring
Fund" listed below, each of which is a separate series of Principal Investors
Fund, Inc. ( the "Reorganizations").
Acquired Fund Acquiring Fund
Equity Income Fund Equity Income Fund I
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Proxy Statement/Prospectus dated October __,
2006, relating to the Special Meeting of Shareholders of the Acquired Funds to
be held on December 15, 2006. The Proxy Statement/Prospectus, which describes
the proposed Reorganizations, may be obtained without charge by writing to
Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080,
or by calling toll free at 1-800-247-4123.
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:
(1) The Statement of Additional Information of Principal Investors
Fund, Inc. ("PIF") dated October __, 2006, as filed on Form N-14 on
September 20, 2006, except the pro forma financial statements and
accompanying notes that are included in this Statement of Additional
Infromation;
(2) The financial statements of the Acquired Funds of PIF included in
its Annual Report to Shareholders for the fiscal year ended October 31,
2005, which have been audited by Ernst & Young LLP, Independent
Registered Public Accounting Firm, as filed on Form N-CSR on December
21, 2005; and
(3) The unaudited financial statements of the Acquired Funds of PIF
included in its Semi-Annual Report to Shareholders for the six-month
period ended April 30, 2006, as filed on Form N-CSRS on June 28, 2006.
The Annual and Semi-Annual Reports to Shareholders of PIF are available
upon request and without charge by calling toll-free at 1-800-247-4123.
Pro Forma Financial Statements
Introductory Paragraph
On September 11, 2006, the Board of Directors of Principal Investors
Fund, Inc. approved two Plans of Reorganization whereby, subject to approval by
the shareholders of each Acquired Fund, the Acquiring Fund will acquire all the
assets of its corresponding Acquired Fund subject to the liabilities of such
Acquired Fund, in exchange for a number of shares equal in value to the pro rata
net assets of shares of the Acquired Fund (each, a "Reorganization"). The
Acquired and Acquiring Funds in each Reorganization are:
- --------------------------------- ---------------------------------
Acquired Funds Acquiring Funds
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
Equity Income Fund Equity Income Fund I
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
- --------------------------------- ---------------------------------
Each Reorganization is contingent upon the Acquiring Fund first
acquiring substantially all of the assets of a series of WM Trust I (each, a "WM
Acquired Fund") as follows:
--------------------------------- ---------------------------------
WM Acquired Funds Acquiring Funds
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Equity Income Fund Equity Income Fund I
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Tax-Exempt Bond Fund Tax-Exempt Bond Fund I
--------------------------------- ---------------------------------
Shown below are unaudited pro forma financial statements for each of
the combined Acquiring Funds, assuming the Reorganization had been consummated
as of April 30, 2006. For each Reorganization, 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 combined Acquiring Fund.
The unaudited pro forma schedules of investments and statements of
assets and liabilities reflect the financial position of the WM Acquired Funds,
the Acquired Funds, and the Acquiring Funds at April 30, 2006. The unaudited pro
forma statements of operations reflect the results of operations of the WM
Acquired Funds, the Acquired Funds and the Acquiring Funds for the twelve months
ended April 30, 2006. 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
Reorganizations occurred at April 30, 2006.
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 Funds incorporated by reference in the Statement of Additional
Information.
Statements of Assets and Liabilities
April 30, 2006 (unaudited)
(in thousands)
-----------------------------------------------------------------------------------------------
Combined
WM Equity PIF Equity PIF Equity Pro Forma PIF Equity
Income Fund Income Fund Income Fund I Adjustments Income Fund I
---------------------- -------------- -------------- ---------- -------------------
Investment in securities--at cost $ 3,082,440 $ 112,400 $ - $ - $ 3,194,840
====================== ============== ============== ========== =================
Assets
$
Investment in securities--at value $ 3,657,330 (a) $ 122,497 (a) $ - $ - 3,779,827(a)
Cash 1 109 - - 110
Receivables:
Capital Shares sold 17,577 37 - - 17,614
Dividends and interest 6,141 372 - - 6,513
Investment securities sold 52,082 1,388 - - 53,470
Other assets - 2 - - 2
Prepaid expenses 48 2 - - 50
---------------------- -------------- -------------- ---------- -----------------
Total Assets
3,733,179 124,407 - - 3,857,586
Liabilities
Accrued management and investment
advisory fees 1,415 11 - - 1,426
Accrued distribution fees 647 6 - - 653
Accrued transfer and
administrative fees 99 31 - - 130
Accrued other expenses 445 - - - 445
Payables:
Capital Shares reacquired 2,469 64 - - 2,533
Indebtedness - 100 - - 100
Investment securities purchased 58,477 1,023 - - 59,500
Collateral obligation on
securities loaned, at value 200,715 13,299 - - 214,014
---------------------- -------------- -------------- ---------- -----------------
Total Liabilities
264,267 14,534 - - 278,801
---------------------- -------------- -------------- ---------- -----------------
Net Assets Applicable to
Outstanding Shares $ 3,468,912 $ 109,873 $ - $ - $ 3,578,785
====================== ============== ============== ========== =================
Net Assets Consist of:
Capital Shares and additional
paid-in-capital $ 2,803,338 $ 111,579 $ - $ - $ 2,914,917
Accumulated undistributed
(overdistributed) net investment
income (operating loss) 3,276 236 - - 3,512
Accumulated undistributed
(overdistributed) net realized
gain (loss) 87,408 (12,047) - - 75,361
Net unrealized appreciation
(depreciation) of investments 574,890 10,097 - - 584,987
Net unrealized appreciation
(depreciation) on translation
of assets and liabilities in
foreign currencies - 8 - - 8
---------------------- -------------- -------------- ---------- -----------------
Total Net Assets $ 3,468,912 $ 109,873 $ - $ - $ 3,578,785
====================== ============== ============== ========== =================
Capital Stock (par value: $.01 a
share):
Shares authorized - 100,000 650,000 - 650,000
Net Asset Value Per Share:
Class A: Net Assets $ 1,270,674 $ 96,515 $ - $ - $ 1,367,189(e)
Shares issued and outstanding 59,158 7,788 - (3,295) (f) 63,651(e)
Net asset value per share $ 21.48 $ 12.39 $ 21.48
Maximum offering price per share $ 22.73 (c) $ 13.15 (d) $ 22.73(c)
====================== ============== ============== ========== =================
Class B: Net Assets $ 293,220 $ 13,358 $ - $ - $ 306,578
Shares issued and outstanding 13,752 1,083 - (456) (f) 14,379
Net asset value per share (b) $ 21.32 $ 12.34 $ 21.32
====================== ============== ============== ========== =================
$
Class C: Net Assets 203,788 N/A $ - $ - $ 203,788
Shares issued and outstanding 9,631 - - 9,631
Net asset value per share (b) $ 21.16 $ 21.16
====================== ============== ============== ========== =================
Institutional (Class I): Net Assets $ 1,700,951 N/A $ - $ - $ 1,700,951
Shares issued and outstanding 79,175 - 79,175
Net asset value per share $ 21.48 $ 21.48
====================== ============== ============== ========== =================
R-1: Net Assets $ 279 N/A $ - $ - 279(e)
Shares issued and outstanding 13 - - 13(e)
$
Net asset value per share 21.48 $ 21.48
====================== ============== ============== ========== =================
R-2: Net Assets $ - N/A $ - $ - $ -
Shares issued and outstanding - - - -
Net asset value per share $ 21.48 $ 21.48
====================== ============== ============== ========== =================
<FN>
(a) Includes fair market value of securities loaned, see "Securities Lending" in Pro Forma Notes to Financial Statements.
(b) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
(c) Maximum offering price is equal to net asset value plus a front-end sales charge of 5.50% of the offering price.
(d) Maximum offering price is equal to net asset value plus a front-end sales charge of 5.75% of the offering price.
(e) Class A shares of WM Equity Income Fund will acquire the net assets of
Class R-1 and Class R-2 shares prior to the Reorganization.
(f) Reflects new shares issued, net of retired shares of PIF Equity Income Fund.
</FN>
Statements of Assets and Liabilities
April 30, 2006 (unaudited)
(in thousands)
-----------------------------------------------------------------------------------
Combined
WM Tax-Exempt PIF Tax-Exempt PIF Tax-Exempt Pro Forma PIF Tax-Exempt
Bond Fund Bond Fund Bond Fund I Adjustments Bond Fund I
----------------- ----------------- ------------ ------------------------------
Investment in securities--at cost $ 186,281 $ 151,205 $ $ - $ 337,486
-
================= ================= ============ ======= ==============
Assets
Investment in securities--at value $ 197,097 $ 151,635 $ - $ - $ 348,732
Cash 945 810 - - 1,755
Receivables:
Capital Shares sold 772 399 - - 1,171
Dividends and interest 3,144 2,189 - - 5,333
Expense reimbursement from Manager - 3 3
Investment securities sold - 6,703 - - 6,703
Other assets - 9 - - 9
Prepaid expenses 3 1 - - 4
----------------- ----------------- ------------ ------- --------------
Total Assets 363,710
201,961 161,749 - -
Liabilities
Accrued management and investment advisory fees 82 13 - - 95
Accrued distribution fees 60 7 - - 67
Accrued transfer and administrative fees 6 13 - - 19
Accrued other expenses 50 - - - 50
Payables:
Capital Shares reacquired 358 15 - - 373
Dividends payable 245 489 - - 734
Investment securities purchased 2,000 4,941 - - 6,941
Varation margin on futures contracts 21 - - - 21
----------------- ----------------- ------------ ------- --------------
Total Liabilities 8,300
2,822 5,478 - -
----------------- ----------------- ------------ ------- --------------
Net Assets Applicable to Outstanding Shares $ 199,139 $ 156,271 $ - $ - $ 355,410
================= ================= ============ ======= ==============
Net Assets Consist of:
Capital Shares and additional paid-in-capital $ 187,746 $ 154,765 $ - $ - $ 342,511
Accumulated undistributed (overdistributed) net
investment income (operating loss) 217 514 - - 731
Accumulated undistributed (overdistributed) net
realized gain (loss) 272 562 - - 834
Net unrealized appreciation (depreciation) of
investments 10,904 430 - - 11,334
----------------- ----------------- ------------ ------- --------------
Total Net Assets $ 199,139 $ 156,271 $ - $ - $ 355,410
================= ================= ============ ======= ==============
Capital Stock (par value: $.01 a share):
Shares authorized - 100,000 300,000 - 300,000
Net Asset Value Per Share:
Class A: Net Assets $ 169,423 $ 149,074 $ - $ - $ 318,497
Shares issued and outstanding 22,448 12,628 - 7,117 (d) 42,193
$
Net asset value per share 7.55 $ 11.81 $ 7.55
Maximum offering price per share $ 7.91 (a) $ 12.40 (c) $ 7.91
================= ================= ============ ======= ==============
Class B: Net Assets $ 26,964 $ 7,197 $ - $ - $ 34,161
Shares issued and outstanding 3,572 606 - 347 (d) 4,525
Net asset value per share (b) $ 7.55 $ 11.88 $ 7.55
================= ================= ============ ======= ==============
Class C: Net Assets $ 2,752 N/A $ - $ - $ 2,752
Shares issued and outstanding 365 - - 365
Net asset value per share (b) $ 7.55 $ 7.55
================= ================= ============ ======= ==============
<FN>
(a) Maximum offering price is equal to net asset value plus a front-end sales charge of 4.50% of the offering price.
(b) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
(c) Maximum offering price is equal to net asset value plus a front-end sales charge of 4.75% of the offering price.
(d) Reflects new shares issued, net of retired shares of PIF Tax-Exempt Bond Fund.
</FN>
STATEMENT OF OPERATIONS
Twelve Months Ended April 30, 2006 (unaudited)
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
WM PIF PIF Pro Forma Combined
PIF
Equity Equity Equity Equity
Income Income Income Income
Fund Fund Fund I Adjustments Fund I
- ------------ ------------------------------------------------------- ---------- ---------- -------- ------------ ---------
Net Investment Income (Operating Loss)
Income:
$ $ $ $
Dividends 57,299 4,067 - $ - 61,366
Withholding tax on foreign dividends (299) (92) - - (391)
Interest 11,377 292 - - 11,669
Securities Lending 997 - - - 997
---------- ---------- -------- ------------ ----------
Total Income $
69,374 4,267 - - 73,641
Expenses:
Management and investment advisory fees 13,598 616 - (12) (b) 14,202
Custodian fees 70 - - (44) (c) 26
Directors' fees - - - 41 (c) 41
Legal and audit fees 75 - - (63) (c) 12
Registration and filing fees 185 - - (185) (c) -
Printing and postage expense 786 - - (786) (c) -
Distribution fees - Class A 2,278 226 - (3) (c) 2,501
Distribution fees - Class B 2,346 121 - 10 (c) 2,477
Distribution fees - Class C 1,317 - - - 1,317
Registration fees - Class A - 28 - - 28
Registration fees - Class B - 28 - - 28
Registration fees - Class C - - - 20 (c) 20
Shareholder meeting expense - Class A - 8 (a) - (8) (e) -
Shareholder meeting expense - Class B - 2 (a) - (2) (e) -
Shareholder reports - Class A - 6 - 54 (c) 60
Shareholder reports - Class B - 1 - 29 (c) 30
Shareholder reports - Class C - - - 10 (c) 10
Transfer and administrative fees - Class A 687 225 - (100) (c) 812
Transfer and administrative fees - Class B 442 62 - (10) (c) 494
Transfer and administrative fees - Class C 129 - - 4 (c) 133
Auditing and legal fees - 2 (a) - (2) (e) -
Custodian fees - 4 (a) - (4) (e) -
Registration fees - 4 (a) - (4) (e) -
Shareholder meeting expense - 4 (a) - (4) (e) -
Transfer and administrative fees - 42 (a) - (42) (e) -
Other expenses 343 2 (342) (c) 3
---------- ---------- -------- ------------ ----------
Total Gross Expenses
22,256 1,381 - (1,443) 22,194
Less Reimbursement from Manager - Class B - 3 (a) - 22 (d) 25
Less: Fees reduced by custodian credits 18 (18) -
-------- ------------ ----------
---------- ----------
Total Net Expenses
22,238 1,378 - (1,447) 22,169
---------- ---------- -------- ------------ ----------
Net Investment Income (Operating Loss)
47,136 2,889 - 1,447 51,472
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currencies
Net realized gain (loss) from:
Investment transactions 152,138 8,625 - - 160,763
Foreign currency transactions - (1) - (1)
Change in unrealized appreciation/depreciation of:
Investments 252,862 4,791 - - 257,653
Translation of assets and liabilities in foreign currencies - 7 - 7
---------- ---------- -------- ------------ ----------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currencies 405,000 13,422 - - 418,422
---------- ---------- -------- ------------ ----------
Net Increase (Decrease) in Net Assets Resulting from $ $ $ $
Operations 452,136 16,311 - $ 1,447 469,894
========== ========== ======== ============ ==========
<FN>
(a) The amounts shown are those of Principal Equity Income Fund, Inc. (predecessor to PIF Equity Income Fund).
(b) Management and investment advisory fees decreased to reflect annual percentage rate of Acquiring Fund.
(c) To adjust expenses to reflect the Combined Fund's estimated fees and expenses, based on contractual rates or elimination of
duplicate services.
(d) The Manager has agreed to contractually reduce expenses in order to reduce total operating expenses of the Acquiring Fund.
(e) Elimination of expense of Principal Equity Income Fund, Inc. (predecessor to PIF Equity Income Fund).
</FN>
STATEMENT OF OPERATIONS
Twelve Months Ended April 30, 2006 (unaudited)
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
WM PIF PIF Pro Forma Combined PIF
Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt
Bond Fund Bond Fund Bond Fund I Adjustments Bond Fund I
- ----- -------------------------------------------------------------------------------- ------ ---------------- ---------
Net Investment Income (Operating Loss)
Income:
$ $ $ $
Interest 10,732 7,660 - - $ 18,392
------------- --------- ----------- ------------ ----------
Total Income
10,732 7,660 - - 18,392
Expenses:
Management and investment advisory fees 1,044 817 - - 1,861
Custodian fees 11 - - (7) (b) 4
Directors' fees - - - 4 (b) 4
Legal and audit fees 33 - - (21) (b) 12
Registration and filing fees 40 - - (40) (b) -
Printing and postage expense 22 - - (22) (b) -
Distribution Fees - Class A 441 363 - 30 (b) 834
Distribution Fees - Class B 302 35 - 43 (b) 380
Distribution Fees - Class C 25 - - - 25
Registration Fees - Class A - 30 - - 30
Registration Fees - Class B - 28 - - 28
Registration Fees - Class C - - - 20 (b) 20
Shareholder Reports - Class A - 1 - 6 (b) 7
Shareholder Reports - Class B - - - 1 (b) 1
Transfer and administrative fees - Class A 73 68 - (8) (b) 133
Transfer and administrative fees - Class B 15 16 - (12) (b) 19
Transfer and administrative fees - Class C 1 - - 1 (b) 2
Auditing and legal fees - 1 (a) - (1) (c) -
Custodian fees - 1 (a) - (1) (c) -
Directors' expenses - 1 (a) - (1) (c) -
Registration fees - 5 (a) - (5) (c) -
Shareholder meeting expense - 1 (a) - (1) (c) -
Transfer and administrative fees - 7 (a) - (7) (c) -
Other expenses 29 2 - (26) (b) 5
------------- --------- ----------- ------------ ----------
Total Gross Expenses
2,036 1,376 - (47) 3,365
Less Reimbursement from Manager - Class A - 57 - 109 (d) 166
Less Reimbursement from Manager - Class B - 33 - 156 (d) 189
Less Reimbursement from Manager - Class C - - - 27 (d) 27
Less: Fees reduced by custodian credits 6 - - (6) (b) -
------------- --------- ----------- ----------
------------
Total Net Expenses
2,030 1,286 - (333) 2,983
------------- --------- ----------- ------------ ----------
Net Investment Income (Operating Loss)
8,702 6,374 - 333 15,409
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currencies
Net realized gain (loss) from:
Investment transactions 2,154 611 - - 2,765
Futures contracts 273 - - - 273
Change in unrealized appreciation/depreciation of:
Investments (6,034) (4,037) - - (10,071)
Futures contracts 229 - - - 229
------------- --------- ----------- ------------ ----------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currencies (3,378) (3,426) - - (6,804)
------------- --------- ----------- ------------ ----------
Net Increase (Decrease) in Net Assets Resulting from $
Operations 5,324 $ 2,948 $ - $ 333 $ 8,605
============= ========= =========== ============ ==========
<FN>
(a) Amounts shown are those of Principal Tax-Exempt Bond Fund, Inc. (predecessor to PIF Tax-Exempt Bond Fund).
(b) To adjust expenses to reflect the Combined Fund's estimated fees and
expenses, based on contractual rates or elimination of duplicate services.
(c) Elimination of expense of Principal Tax-Exempt Bond Fund, Inc. (predecessor to PIF Tax-Exempt Bond Fund).
(d) The Manager has agreed to contractually reduce expenses in order to reduce total operating expenses of the Acquiring Fund.
</FN>
Schedule of Investments
April 30, 2006 (unaudited)
WM Equity PIF Equity PIF Equity WM Equity PIF Equity PIF Equity
Income Income Income Income Income Income
Fund Fund Fund I Combined Fund Fund Fund I Combined
Shares Shares Shares Shares Value Value Value Value
Held Held Held Held (000s) (000s) (000s) (000s)
94.90% COMMON STOCKS
1.47% Advertising Services
266,000 - - 266,000 Boeing Co 22,198 - - 22,198
121,200 - - 121,200 General Dynamics Corp 7,953 - - 7,953
329,500 - - 329,500 Northrop Grumman Corp (a) 22,043 - - 22,043
- 2,898 - 2,898 PagesJaunes Groupe SA - 84 - 84
52,194 84 - 52,278
0.02% Aerospace & Defense Equipment
- 8,300 - 8,300 United Technologies Corp - 521 - 521
0.02% Appliances
- 5,500 - 5,500 Whirlpool Corp - 494 - 494
0.68% Applications Software
989,300 18,000 - 1,007,300 Microsoft Corp 23,891 435 - 24,326
0.65% Athletic Footwear
283,000 - - 283,000 Nike Inc Class B 23,161 - - 23,161
0.01% Auto - Car & Light Trucks
- 5,038 - 5,038 DaimlerChrysler AG - 277 - 277
0.68% Auto - Medium & Heavy Duty
Trucks
340,000 - - 340,000 Paccar Inc (a) 24,456 - - 24,456
0.92% Auto/Truck Parts & Equipment -
Original
- 22,627 - 22,627 GKN PLC - 129 - 129
401,500 - - 401,500 Johnson Controls Inc 32,742 - - 32,742
32,742 129 - 32,871
0.18% Beverages - Non-alcoholic
- 12,000 - 12,000 Coca-Cola Co/The - 503 - 503
290,300 - - 290,300 Coca-Cola Enterprises Inc 5,670 - - 5,670
- 4,100 - 4,100 PepsiCo Inc - 238 - 238
5,670 741 - 6,411
0.74% Beverages - Wine & Spirits
- 14,108 - 14,108 Diageo PLC - 232 - 232
396,300 - - 396,300 Diageo PLC ADR (a) 26,255 - - 26,255
26,255 232 - 26,487
1.13% Brewery
906,600 - - 906,600 Anheuser-Busch Cos Inc 40,416 - - 40,416
0.01% Building - Heavy Construction
- 8,103 - 8,103 NCC AB - 203 - 203
- 3,559 - 3,559 Severfield-Rowen PLC - 81 - 81
- 284 - 284
0.00% Building - Residential & Commercial
- 960 - 960 Hyundai Development Co - 56 - 56
0.00% Building & Construction Products -
Miscellaneous
- 15,662 - 15,662 CSR Ltd - 48 - 48
- 8,917 - 8,917 Fletcher Building Ltd - 51 - 51
- 99 - 99
1.04% Building Products
550,000 - - 550,000 Cemex SA de CV ADR 37,136 - 37,136
0.93% Cellular Telecommunications
- 51,544 - 51,544 Vodafone Group PLC - 121 - 121
1,404,200 - - 1,404,200 Vodafone Group PLC ADR 33,279 - - 33,279
33,279 121 - 33,400
0.80% Chemicals - Diversified
- 25,400 - 25,400 Lyondell Chemical Co (a) - 612 - 612
418,300 - - 418,300 PPG Industries Inc 28,076 - - 28,076
28,076 612 - 28,688
0.01% Circuit Boards
- 84,500 - 84,500 Elec & Eltek International Co Ltd - 207 - 207
0.76% Coal
- 2,400 - 2,400 Fording Canadian Coal Trust - 88 - 88
427,200 - - 427,200 Peabody Energy Corp 27,281 - - 27,281
27,281 88 - 27,369
0.02% Coatings & Paint
- 21,500 - 21,500 Valspar Corp - 608 - 608
0.87% Commercial Banks
- 5,389 - 5,389 ABN AMRO Holding NV - 161 - 161
- 1,842 - 1,842 Alpha Bank AE - 70 - 70
- 26,700 - 26,700 AmSouth Bancorp - 773 - 773
- 7,994 - 7,994 Australia & New Zealand Banking
Group Ltd - 170 - 170
- 21,893 - 21,893 Banco Santander Central Hispano SA - 339 - 339
- 23,200 - 23,200 Bank of East Asia Ltd - 97 - 97
- 6,000 - 6,000 Bank of Hawaii Corp (a) - 326 - 326
- 31,104 - 31,104 Barclays PLC - 388 - 388
- 3,730 - 3,730 BNP Paribas - 352 - 352
- 20,300 - 20,300 Colonial BancGroup Inc/The - 526 - 526
- 9,639 - 9,639 Commonwealth Bank of Australia - 344 - 344
- 3,148 - 3,148 Credit Agricole SA - 127 - 127
- 2,620 - 2,620 Daegu Bank - 49 - 49
- 5,320 - 5,320 Danske Bank A/S - 211 - 211
- 643 - 643 Deutsche Bank AG - 79 - 79
- 14,200 - 14,200 DNB NOR ASA - 197 - 197
- 5,465 - 5,465 Fortis - 205 - 205
- 4,807 - 4,807 HBOS PLC - 84 - 84
- 23,499 - 23,499 HSBC Holdings PLC - 405 - 405
- 91 - 91 Liechtenstein Landesbank - 73 - 73
- 5,201 - 5,201 Lloyds TSB Group PLC - 50 - 50
821,700 - - 821,700 North Fork Bancorporation Inc 24,758 - - 24,758
- 3,100 - 3,100 Royal Bank of Canada - 132 - 132
- 8,901 - 8,901 Sanpaolo IMI SpA - 167 - 167
- 1,240 - 1,240 Societe Generale - 189 - 189
- 2,300 - 2,300 Torinto Dominion Bank (b) - 127 - 127
- 8,700 - 8,700 UnionBanCal Corp - 609 - 609
24,758 6,250 - 31,008
0.01% Computer Services
- 42,800 - 42,800 HIQ International AB - 258 - 258
2.29% Computers
805,000 29,500 - 834,500 Hewlett-Packard Co 26,138 958 - 27,096
666,900 - - 666,900 International Business Machines Corp 54,913 - - 54,913
81,051 958 - 82,009
0.00% Computers - Peripheral Equipment
- 113,000 - 113,000 GES International Ltd - 71 - 71
0.46% Consumer Products - Miscellaneous
257,700 - - 257,700 Clorox Co 16,539 - - 16,539
2.01% Cosmetics & Toiletries
653,800 - - 653,800 Colgate-Palmolive Co 38,653 - - 38,653
573,500 - - 573,500 Procter & Gamble Co 33,383 - - 33,383
72,036 - - 72,036
0.00% Containers - Paper & Plastic
- 6,800 - 6,800 British Polythene Industries - 78 - 78
1.40% Data Processing & Management
812,600 8,300 - 820,900 Automatic Data Processing Inc 35,819 366 - 36,185
295,400 - - 295,400 First Data Corp 14,088 - - 14,088
49,907 366 - 50,273
0.02% Distribution & Wholesale
- 15,833 - 15,833 Alesco Corp Ltd - 120 - 120
- 10,600 - 10,600 Genuine Parts Co - 462 - 462
- 582 - 582
0.01% Diversified Financial Services
- 80,000 - 80,000 Acta Holding ASA - 360 - 360
- 13,000 - 13,000 Guoco Group Ltd - 162 - 162
- 522 - 522
5.40% Diversified Manufacturing Operations
674,000 - - 674,000 3M Co 57,580 - - 57,580
776,300 - - 776,300 Dover Corp 38,621 - - 38,621
- 7,220 - 7,220 Eaton Corp - 553 - 553
966,200 22,100 - 988,300 General Electric Co 33,421 764 - 34,185
499,200 14,400 - 513,600 Honeywell International Inc 21,216 612 - 21,828
716,700 - - 716,700 ITT Industries Inc 40,300 - - 40,300
- 56,247 - 56,247 Senior PLC - 70 - 70
191,138 1,999 - 193,137
0.72% Diversified Minerals
- 5,897 - 5,897 Anglo American PLC - 250 - 250
1,179,000 - - 1,179,000 Anglo American PLC ADR 25,408 - - 25,408
- 2,370 - 2,370 BHP Billiton Ltd - 53 - 53
- 33,061 - 33,061 Independence Group NL - 75 - 75
25,408 378 - 25,786
1.04% Electric - Integrated
- 1,999 - 1,999 E.ON AG - 245 - 245
- 12,100 - 12,100 Edison International - 489 - 489
- 6,351 - 6,351 Endesa SA - 211 - 211
- 15,100 - 15,100 FirstEnergy Corp - 766 - 766
637,900 18,600 - 656,500 FPL Group Inc (a) 25,261 737 - 25,998
- 6,855 - 6,855 International Power PLC - 37 - 37
- 17,600 - 17,600 PPL Corp - 511 - 511
- 5,509 - 5,509 Scottish & Southern Energy PLC - 112 - 112
- 14,800 - 14,800 TXU Corp - 734 - 734
422,800 - - 422,800 Xcel Energy Inc (a) 7,965 - 7,965
33,226 3,842 - 37,068
0.66% Electric Products - Miscellaneous
270,500 6,100 - 276,600 Emerson Electric Co 22,979 518 - 23,497
0.00% Electric-Transmission
- 30,470 - 30,470 Terna SpA - 84 - 84
1.67% Electronic Components -
Semiconductors
765,000 - - 765,000 Microchip Technology Inc (a) 28,504 - - 28,504
40,800 - - 40,800 Samsung Electronics Co Ltd GDR (c) 13,929 - - 13,929
499,800 - - 499,800 Texas Instruments Inc 17,348 - - 17,348
59,781 - - 59,781
0.00% Engineering - Research & Development
Services
- 5,304 - 5,304 ABB Ltd (b) - 75 - 75
0.99% Fiduciary Banks
545,400 - - 545,400 Bank of New York Co Inc 19,171 - - 19,171
410,700 - - 410,700 Mellon Financial Corp 15,455 - - 15,455
- 14,700 - 14,700 Wilmington Trust Corp - 651 - 651
34,626 651 - 35,277
0.01% Finance - Commercial
- 9,000 - 9,000 CIT Group Inc - 486 - 486
0.43% Finance - Credit Card
178,600 - - 178,600 Capital One Financial Corp (a) 15,474 - - 15,474
5.12% Finance - Investment Banker & Broker
1,035,333 30,686 - 1,066,019 Citigroup Inc 51,715 1,533 - 53,248
- 5,467 - 5,467 Credit Suisse Group - 342 - 342
- 12,100 - 12,100 D Carnegie AB - 268 - 268
270,600 4,600 - 275,200 Goldman Sachs Group Inc (a) 43,375 737 - 44,112
1,054,700 36,060 - 1,090,760 JPMorgan Chase & Co 47,862 1,636 - 49,498
- 15,100 - 15,100 Merrill Lynch & Co Inc (a) - 1,152 - 1,152
535,900 - - 535,900 Morgan Stanley 34,458 - - 34,458
- 727 - 727 UBS AG - 86 - 86
177,410 5,754 - 183,164
1.19% Finance - Mortgage Loan/Banker
- 15,100 - 15,100 CharterMac (a) - 291 - 291
571,300 - - 571,300 Countrywide Financial Corp 23,229 - - 23,229
310,000 - - 310,000 Freddie Mac 18,929 - - 18,929
- 2,511 - 2,511 Paragon Group of Cos PLC - 33 - 33
42,158 324 - 42,482
0.00% Financial Guarantee Insurance
- 412 - 412 Euler Hermes SA - 51 - 51
0.99% Food - Confectionery
661,700 - - 661,700 Hershey Co 35,295 - - 35,295
0.21% Food - Miscellaneous/Diversified
169,500 - - 169,500 Cadbury Schweppes PLC ADR (a) 6,773 - - 6,773
- 8,500 - 8,500 General Mills Inc - 419 - 419
- 5,500 - 5,500 Kellogg Co - 255 - 255
6,773 674 - 7,447
0.82% Food - Wholesale & Distribution
981,700 - - 981,700 Sysco Corp (a) 29,343 - - 29,343
0.61% Forestry
285,000 - - 285,000 Plum Creek Timber Co Inc 10,346 - - 10,346
164,200 - - 164,200 Weyerhaeuser Co 11,571 - - 11,571
21,917 - - 21,917
0.01% Gambling (Non-Hotel)
- 9,248 - 9,248 OPAP SA - 341 - 341
0.02% Home Decoration Products
- 26,300 - 26,300 Newell Rubbermaid Inc - 721 - 721
0.52% Hotels & Motels
689,000 - - 689,000 Hilton Hotels Corp 18,561 - - 18,561
0.00% Human Resources
- 480 - 480 USG People NV - 41 - 41
0.37% Industrial Automation & Robots
185,000 - - 185,000 Rockwell Automation Inc 13,405 - - 13,405
0.60% Insurance Brokers
- 13,200 - 13,200 AON Corp - 553 - 553
676,300 - - 676,300 Marsh & McLennan Cos Inc (a) 20,742 - - 20,742
20,742 553 - 21,295
0.56% Investment Companies
629,200 - - 629,200 Allied Capital Corp (a) 19,543 - - 19,543
- 15,300 - 15,300 American Capital Strategies Ltd (a) - 533 - 533
19,543 533 - 20,076
1.67% Investment Management & Advisory
Services
- 21,370 - 21,370 Aberdeen Asset Management PLC - 77 - 77
180,000 - - 180,000 Ameriprise Financial Inc 8,827 - - 8,827
262,500 - - 262,500 Franklin Resources Inc 24,444 - - 24,444
- 11,428 - 11,428 Record Investments Ltd - 91 - 91
311,300 - - 311,300 T. Rowe Price Group Inc 26,208 - - 26,208
59,479 168 - 59,647
1.67% Life & Health Insurance
793,000 - - 793,000 AFLAC Inc 37,699 - - 37,699
- 15,326 - 15,326 AMP Ltd - 105 - 105
240,200 - - 240,200 Lincoln National Corp 13,951 - - 13,951
- 7,100 - 7,100 Protective Life Corp - 358 - 358
96,400 - - 96,400 Prudential Financial Inc 7,532 - - 7,532
59,182 463 - 59,645
0.00% Lottery Services
- 1,853 - 1,853 Intralot SA-Integrated Lottery
Systems - 60 - 60
1.05% Machinery - Construction & Mining
490,600 - - 490,600 Caterpillar Inc 37,158 - - 37,158
- 10,400 - 10,400 Wajax Income Fund - 358 - 358
37,158 358 - 37,516
0.00% Machinery - General Industry
- 1,899 - 1,899 MAN AG - 144 - 144
5.54% Medical - Drugs
410,900 10,200 - 421,100 Abbott Laboratories 17,562 436 - 17,998
- 1,215 - 1,215 AstraZeneca PLC - 67 - 67
324,500 - - 324,500 AstraZeneca PLC ADR 17,890 - - 17,890
675,100 - - 675,100 Bristol-Myers Squibb Co 17,134 - - 17,134
285,300 - - 285,300 Eli Lilly & Co 15,098 - - 15,098
- 3,107 - 3,107 GlaxoSmithKline PLC - 88 - 88
375,600 - - 375,600 GlaxoSmithKline PLC ADR 21,364 - - 21,364
- 11,200 - 11,200 Merck & Co Inc - 386 - 386
1,615,900 31,000 - 1,646,900 Pfizer Inc 40,931 785 - 41,716
253,300 - - 253,300 Roche Holding AG ADR 19,419 - - 19,419
- 863 - 863 Sanofi-Aventis - 81 - 81
896,700 - - 896,700 Schering-Plough Corp 17,324 - - 17,324
597,900 14,500 - 612,400 Wyeth 29,100 705 - 29,805
195,822 2,548 - 198,370
1.37% Medical - HMO
982,500 - - 982,500 UnitedHealth Group Inc 48,869 - - 48,869
0.00% Medical - Hospitals
- 88,800 - 88,800 Parkway Holdings Ltd - 147 - 147
0.55% Medical - Wholesale Drug
Distribution
292,400 - - 292,400 Cardinal Health Inc 19,693 - - 19,693
2.02% Medical Products
375,000 5,000 - 380,000 Becton Dickinson & Co 23,640 315 - 23,955
818,300 6,900 - 825,200 Johnson & Johnson 47,961 405 - 48,366
71,601 720 - 72,321
0.41% Metal - Aluminum
282,600 - - 282,600 Alcan Inc (a) (f) 14,769 - - 14,769
- 2,656 - 2,656 Aluminum of Greece S.A.I.C. - 62 - 62
14,769 62 - 14,831
0.01% Metal - Diversified
- 2,255 - 2,255 Boliden AB (b) - 46 - 46
- 7,200 - 7,200 Freeport-McMoRan Copper & Gold Inc - 465 - 465
- 511 - 511
0.00% Metal Processors & Fabrication
- 4,709 - 4,709 Martinrea International Inc (b) - 36 - 36
0.00% Miscellaneous Manufacturers
- 18,060 - 18,060 Fenner Plc - 69 - 69
0.01% Mortgage Banks
- 25,225 - 25,225 Bradford & Bingley PLC - 222 - 222
7.03% Multi-line Insurance
986,000 - - 986,000 ACE Ltd (a) 54,762 - - 54,762
505,900 - - 505,900 Allstate Corp 28,578 - - 28,578
816,100 - - 816,100 American International Group Inc 53,251 - - 53,251
- 3,008 - 3,008 Assicurazioni Generali SpA - 113 - 113
- 1,569 - 1,569 Assurances Generales de France - 198 - 198
- 13,834 - 13,834 Aviva PLC - 202 - 202
- 6,046 - 6,046 AXA SA - 222 - 222
341,400 9,600 - 351,000 Hartford Financial Services Group Inc 31,385 883 - 32,268
444,100 - - 444,100 HCC Insurance Holdings Inc (a) 14,873 - - 14,873
- 279 - 279 Helvetia Patria Holding - 75 - 75
- 6,684 - 6,684 ING Groep NV - 271 - 271
550,500 - - 550,500 ING Groep NV ADR 22,339 - - 22,339
168,900 - - 168,900 Loews Corp 17,929 - - 17,929
500,700 8,800 - 509,500 Metlife, Inc 26,087 457 - 26,544
249,204 2,421 - 251,625
0.01% Multimedia
- 7,000 - 7,000 McGraw-Hill Cos Inc/The - 390 - 390
0.00% Music
4,500 - - 4,500 V2 Music Holdings PLC - Warrant(b)(c) - - - -
0.58% Non-hazardous Waste Disposal
555,000 - - 555,000 Waste Management Inc 20,790 - - 20,790
2.41% Oil - Field Services
- 3,000 - 3,000 Acergy SA (b) - 49 - 49
706,300 - - 706,300 Baker Hughes Inc (a) 57,090 - - 57,090
- 6,862 - 6,862 Peak Energy Services Trust - 78 - 78
415,600 - - 415,600 Schlumberger Ltd 28,735 - - 28,735
- 12,838 - 12,838 Trinidad Energy Services Income Trust - 210 - 210
85,825 337 - 86,162
1.21% Oil & Gas Drilling
- 5,700 - 5,700 Diamond Offshore Drilling Inc - 517 - 517
695,000 - - 695,000 GlobalSantaFe Corp (a) 42,541 - - 42,541
- 7,800 - 7,800 Rowan Cos Inc (a) - 346 - 346
42,541 863 - 43,404
0.01% Oil Company - Exploration &
Production
- 10,100 - 10,100 NAL Oil & Gas Trust - 172 - 172
- 378 - 378 Total Gabon - 348 - 348
- 520 - 520
4.15% Oil Company - Integrated
- 6,703 - 6,703 BP PLC - 82 - 82
240,500 - - 240,500 BP PLC ADR 17,730 - - 17,730
330,000 - - 330,000 Chevron Corp 20,137 - - 20,137
611,800 14,500 - 626,300 ConocoPhillips Co. 40,929 970 - 41,899
- 4,635 - 4,635 ENI SpA - 141 - 141
- 39,540 - 39,540 Exxon Mobil Corp - 2,494 - 2,494
812,300 6,900 - 819,200 Marathon Oil Corp 64,464 548 - 65,012
- 10,400 - 10,400 Occidental Petroleum Corp (a) - 1,068 - 1,068
- 116,000 - 116,000 PetroChina Co Ltd - 129 - 129
143,260 5,432 - 148,692
0.84% Oil Refining & Marketing
465,768 - - 465,768 Valero Energy Corp 30,154 - - 30,154
0.10% Paper & Related Products
80,800 - - 80,800 Tempe-Inland Inc 3,752 - - 3,752
0.50% Pharmacy Services
387,000 3,000 - 390,000 Caremark Rx Inc (b) 17,628 137 - 17,765
0.79% Pipelines
149,400 - - 149,400 Enterprise Products Partners LP (a) 3,696 - - 3,696
93,800 - - 93,800 Kinder Morgan Energy Partners LP (a) 4,355 - - 4,355
224,600 - - 224,600 Kinder Morgan Inc 19,769 - - 19,769
- 6,500 - 6,500 Questar Corp - 520 - 520
27,820 520 - 28,340
0.00% Power Converter & Supply Equipment
- 999 - 999 Schneider Electric SA - 113 - 113
0.01% Printing - Commercial
- 11,300 - 11,300 RR Donnelley & Sons Co - 381 - 381
1.31% Property & Casualty Insurance
- 4,625 - 4,625 Admiral Group Plc - 56 - 56
- 61,008 - 61,008 Brit Insurance Holdings Plc - 107 - 107
- 142,898 - 142,898 Chaucer Holdings PLC - 182 - 182
276,800 7,452 - 284,252 Chubb Corp 14,266 384 - 14,650
- 2,040 - 2,040 Dongbu Insurance Co Ltd - 51 - 51
750,000 - - 750,000 Fidelity National Financial Inc 31,485 - - 31,485
- 146,562 - 146,562 Highway Insurance Holdings PLC - 236 - 236
- 5,113 - 5,113 QBE Insurance Group Ltd - 87 - 87
- 20,984 - 20,984 Royal & Sun Alliance Insurance Group - 53 - 53
45,751 1,156 - 46,907
0.01% Property Trust
- 37,886 - 37,886 Babcock & Brown Japan Property Trust - 51 - 51
- 21,868 - 21,868 Centro Properties Group - 108 - 108
- 27,881 - 27,881 Macquarie Leisure Trust Group - 61 - 61
- 10,668 - 10,668 Stockland - 55 - 55
- 275 - 275
0.00% Publishing - Periodicals
- 1,344 - 1,344 Wolters Kluwer NV - 35 - 35
0.01% Quarrying
- 4,800 - 4,800 Vulcan Materials Co - 408 - 408
0.00% Real Estate Magagement & Services
- 504 - 504 Nexity (b) - 35 - 35
0.01% Real Estate Operator & Developer
- 35,106 - 35,106 FKP Property Group - 141 - 141
- 29,000 - 29,000 New World Development Ltd - 52 - 52
- 193 - 193
4.33% Regional Banks
901,096 16,800 - 917,896 Bank of America Corp 44,983 839 - 45,822
344,300 8,400 - 352,700 PNC Financial Services Group Inc 24,607 600 - 25,207
176,500 - - 176,500 SunTrust Banks Inc 13,649 - - 13,649
560,000 29,600 - 589,600 U.S. Bancorp 17,606 931 - 18,537
744,000 9,900 - 753,900 Wells Fargo & Co 51,105 680 - 51,785
151,950 3,050 - 155,000
0.95% REITS - Apartments
238,500 20,000 - 258,500 Archstone-Smith Trust 11,658 978 - 12,636
- 8,400 - 8,400 AvalonBay Communities Inc - 905 - 905
398,000 30,000 - 428,000 Equity Residential (a) 17,858 1,346 - 19,204
- 11,200 - 11,200 Mid-America Apartment Communities Inc - 594 - 594
- 29,300 - 29,300 United Dominion Realty Trust Inc (a) - 796 - 796
29,516 4,619 - 34,135
0.44% REITS - Diversified
131,000 - - 131,000 Duke Realty Corp (a) 4,637 - - 4,637
- 12,800 - 12,800 Summit Real Estate Investment Trust - 286 - 286
- 3,191 - 3,191 Vastned Offices/Industrial - 113 - 113
102,000 9,500 - 111,500 Vornado Realty Trust (a) 9,755 908 - 10,663
14,392 1,307 - 15,699
0.23% REITS - Healthcare
275,400 - - 275,400 Health Care Property Investors Inc(a) 7,551 - - 7,551
- 21,400 - 21,400 Ventas Inc (a) - 699 - 699
7,551 699 - 8,250
0.59% REITS - Hotels
- 25,500 - 25,500 Equity Inns Inc - 413 - 413
918,700 36,100 - 954,800 Host Hotels & Resorts Inc (a) 19,311 759 - 20,070
- 21,600 - 21,600 Sunstone Hotel Investors Inc - 621 - 621
19,311 1,793 - 21,104
0.06% REITS - Mortgage
- 23,800 - 23,800 Arbor Realty Trust Inc - 616 - 616
- 20,000 - 20,000 CapitalSource Inc (a) - 470 - 470
- 41,500 - 41,500 Gramercy Capital Corp/New York - 1,031 - 1,031
- 2,117 - 2,117
0.10% REITS - Office Property
- 24,822 - 24,822 BioMed Realty Trust Inc - 687 - 687
- 12,200 - 12,200 Boston Properties Inc (a) - 1,077 - 1,077
- 18,000 - 18,000 Equity Office Properties Trust - 581 - 581
- 13,000 - 13,000 Kilroy Realty Corp (a) - 927 - 927
- 4,400 - 4,400 SL Green Realty Corp - 436 - 436
- 3,708 - 3,708
0.70% REITS - Regional Malls
- 16,500 - 16,500 CBL & Associates Properties Inc - 660 - 660
119,600 - - 119,600 General Growth Properties Inc 5,615 - - 5,615
81,000 6,000 - 87,000 Macerich Co 5,931 439 - 6,370
127,100 24,200 - 151,300 Simon Property Group Inc (a) 10,407 1,982 - 12,389
21,953 3,081 - 25,034
0.45% REITS - Shopping Centers
123,400 17,200 - 140,600 Developers Diversified Realty Corp 6,565 915 - 7,480
177,100 26,100 - 203,200 Kimco Realty Corp (a) 6,576 969 - 7,545
- 12,000 - 12,000 Tanger Factory Outlet Centers Inc - 393 - 393
- 13,500 - 13,500 Weingarten Realty Investors - 533 - 533
13,141 2,810 - 15,951
0.27% REITS - Storage
124,100 - - 124,100 Public Storage Inc (a) 9,541 - - 9,541
0.91% REITS - Warehouse & Industrial
208,100 13,000 - 221,100 AMB Property Corp 10,403 650 - 11,053
- 8,700 - 8,700 EastGroup Properties Inc - 388 - 388
421,300 - - 421,300 ProLogis 21,158 - - 21,158
31,561 1,038 - 32,599
0.00% Rental - Auto & Equipment
- 13,084 - 13,084 Ashtead Group PLC - 56 - 56
0.98% Retail - Apparel & Shoe
1,351,600 - - 1,351,600 Gap Inc 24,450 - - 24,450
- 53,622 - 53,622 Just Group Ltd - 128 - 128
276,300 - - 276,300 Nordstrom Inc (a) 10,591 - - 10,591
- 1,973 - 1,973 Reitman's Canada Ltd - 40 - 40
35,041 168 - 35,209
0.01% Retail - Building Products
- 5,100 - 5,100 Home Depot Inc - 204 - 204
0.00% Retail - Catalog Shopping
- 8,475 - 8,475 N Brown Group PLC - 34 - 34
0.44% Retail - Drug Store
532,200 - - 532,200 CVS Corp 15,817 - - 15,817
0.33% Retail - Jewelry
336,100 - - 336,100 Tiffany & Co 11,727 - - 11,727
0.02% Retail - Major Department Store
- 9,900 - 9,900 JC Penney Co Inc - 648 - 648
0.95% Retail - Restaurants
961,200 24,445 - 985,645 McDonald's Corp 33,229 845 - 34,074
0.40% Semiconductor Component - Integrated
Circuits
- 2,339 - 2,339 CSR PLC (b) - 52 - 52
398,200 - - 398,200 Linear Technology Corp (a) 14,136 - - 14,136
14,136 52 - 14,188
0.94% Semiconductor Equipment
1,873,200 - - 1,873,200 Applied Materials Inc 33,624 - - 33,624
- 30,500 - 30,500 ASM Pacific Technology - 178 - 178
33,624 178 - 33,802
0.00% Shipbuilding
- 1,882 - 1,882 Aker Yards AS - 150 - 150
0.02% Steel - Producers
- 148,000 - 148,000 Angang New Steel Co Ltd - 129 - 129
- 420 - 420 Boehler-Uddeholm AG - 95 - 95
- 8,600 - 8,600 Rautaruukki OYJ - 301 - 301
- 11,300 - 11,300 Russel Metals - 252 - 252
- 2,576 - 2,576 Tubos Reunidos SA - 43 - 43
- 820 - 820
0.76% Telecommunication Equipment
587,000 - - 587,000 Harris Corp (a) 27,337 - - 27,337
5.36% Telephone - Integrated
957,500 - - 957,500 Alltel Corp 61,634 - - 61,634
1,606,800 74,773 - 1,681,573 AT&T Inc (a) 42,114 1,960 - 44,074
407,400 25,200 - 432,600 BellSouth Corp (a) 13,762 851 - 14,613
- 51,900 - 51,900 Citizens Communications Co (a) - 689 - 689
- 38,886 - 38,886 Royal KPN NV - 456 - 456
674,500 - - 674,500 Sprint Nextel Corp (a) 16,728 - - 16,728
1,596,900 26,814 - 1,623,714 Verizon Communications Inc (a) 52,746 886 - 53,632
186,984 4,842 - 191,826
0.10% Tobacco
- 22,383 - 22,383 Altria Group Inc - 1,638 - 1,638
- 9,267 - 9,267 British American Tobacco PLC - 236 - 236
- 6,200 - 6,200 Loews Corp - Carolina Group - 318 - 318
- 11,800 - 11,800 Reynolds American Inc (a) - 1,293 - 1,293
- 3,485 - 3,485
0.02% Tools - Hand Held
- 6,100 - 6,100 Black & Decker Corp - 571 - 571
0.02% Transport - Marine
- 1,600 - 1,600 Brostrom AB - 35 - 35
- 7,100 - 7,100 General Maritime Corp - 236 - 236
- 161,000 - 161,000 Pacific Basin Shipping Ltd - 72 - 72
- 2,997 - 2,997 Smit Internationale NV - 265 - 265
- 608 - 608
0.95% Transport - Rail
- 3,900 - 3,900 Burlington Northern Santa Fe Corp - 310 - 310
- 11,100 - 11,100 Norfolk Southern Corp - 600 - 600
361,800 - - 361,800 Union Pacific Corp 33,000 - - 33,000
33,000 910 - 33,910
1.20% Transport - Services
527,700 - - 527,700 United Parcel Service Inc Class B 42,781 - - 42,781
0.00% Trucking & Leasing
- 3,600 - 3,600 Mullen Group Income Fund - 110 - 110
0.01% Water
- 14,373 - 14,373 AWG PLC - 303 - 303
1.00% Wireless Equipment
1,553,200 - - 1,553,200 Nokia Oyj ADR 35,195 - - 35,195
TOTAL COMMON STOCKS 3,307,712 88,028 - 3,395,740
0.49% PREFERRED STOCKS
0.01% Cellular Telecommunications
- 9,894 - 9,894 US Cellular Corp - 255 - 255
0.05% Commercial Banks
- 35,300 - 35,300 Cobank ACB (c) - 1,641 - 1,641
- 10,500 - 10,500 Royal Bank of Scotland Group PLC -
Series N - 251 - 251
- 1,892 - 1,892
0.02% Diversified Financial Services
- 2,300 - 2,300 Citigroup Capital VII - 58 - 58
- 19,937 - 19,937 Citigroup Capital VIII - 498 - 498
- 556 - 556
0.05% Electric - Integrated
- 17,400 - 17,400 Alabama Power Co Series II (b) - 403 - 403
- 7,556 - 7,556 Consolidated Edison Co of New York - 190 - 190
- 9,140 - 9,140 Dte Energy Trust I - 230 - 230
- 2,185 - 2,185 Energy East Capital Trust I - 55 - 55
- 39,580 - 39,580 Entergy Louisiana LLC - 1,004 - 1,004
- 1,882 - 1,882
0.01% Finance - Consumer Loans
- 2,300 - 2,300 HSBC Finance Corp 6.000% - 52 - 52
- 11,000 - 11,000 HSBC Finance Corp 6.360% - 276 - 276
- 328 - 328
0.02% Finance - Investment Banker & Broker
- 5,000 - 5,000 JP Morgan Chase Capital X - 126 - 126
- 700 - 700 Merrill Lynch Preferred Capital Trust I - 18 - 18
- 6,100 - 6,100 Merrill Lynch Preferred Capital Trust III - 154 - 154
- 4,100 - 4,100 Merrill Lynch Preferred Capital Trust IV - 104 - 104
- 2,800 - 2,800 Merrill Lynch Preferred Capital Trust V - 71 - 71
- 8,000 - 8,000 Morgan Stanley Capital Trust VI - 194 - 194
- 2,300 - 2,300 St Paul Capital Trust I - 57 - 57
- 724 - 724
0.03% Finance - Other Services
- 2,300 - 2,300 ABN AMRO Capital Funding Trust V - 52 - 52
- 14,500 - 14,500 ABN AMRO Capital Funding Trust VII - 336 - 336
- 25,500 - 25,500 National Rural Utilities Cooperative
Finance Corp 5.950% - 570 - 570
- 2,400 - 2,400 National Rural Utilities Cooperative
Finance Corp 6.100% - 53 - 53
- 1,011 - 1,011
0.01% Financial Guarantee Insurance
- 23,000 - 23,000 Financial Security Assurance Holdings
Ltd 6.250% - 522 - 522
0.02% Gas - Distribution
- 25,385 - 25,385 AGL Capital Trust II - 633 - 633
0.00% Life & Health Insurance
- 3,400 - 3,400 PLC Capital Trust IV - 85 - 85
- 1,700 - 1,700 PLC Capital Trust V - 39 - 39
- 124 - 124
0.01% Money Center Banks
- 8,000 - 8,000 JPMChase Capital XVI - 191 - 191
0.01% Mortgage Banks
- 5,100 - 5,100 Abbey National PLC 7.250% - 128 - 128
0.05% Multi-line Insurance
- 36,000 - 36,000 Aegon NV - 861 - 861
- 7,100 - 7,100 Hartford Capital III - 178 - 178
- 10,500 - 10,500 Metlife Inc 6.500% - 264 - 264
- 19,200 - 19,200 XL Capital Ltd 8.000% - 493 - 493
- 1,796 - 1,796
0.02% Pipelines
- 33,457 - 33,457 TransCanada Pipelines Ltd - 848 - 848
0.01% Property & Casualty Insurance
- 8,100 - 8,100 Berkley W R Capital Trust - 190 - 190
0.03% Regional Banks
- 3,500 - 3,500 BAC Capital Trust III - 89 - 89
- 5,000 - 5,000 Fleet Capital Trust VII - 126 - 126
- 4,700 - 4,700 PNC Capital Trust D - 107 - 107
- 1,500 - 1,500 USB Capital V - 38 - 38
- 6,000 - 6,000 USB Capital VII - 134 - 134
- 26,100 - 26,100 Wells Fargo Capital IV - 657 - 657
- 1,151 - 1,151
0.01% Reinsurance
- 3,600 - 3,600 Everest Re Capital Trust II - 78 - 78
- 2,600 - 2,600 PartnerRe Ltd - Series C - 63 - 63
- 6,500 - 6,500 PartnerRe Ltd - Series D - 150 - 150
- 291 - 291
0.03% REITS - Diversified
- 41,547 - 41,547 Duke Realty Corp - Series L - 988 - 988
- 5,500 - 5,500 Vornado Realty Trust - Series H - 128 - 128
- 1,116 - 1,116
0.01% REITS - Office Property
- 12,800 - 12,800 HRPT Properties Trust - Series B - 327 - 327
0.02% REITS - Shopping Centers
- 15,000 - 15,000 Federal Realty Investment Trust - 380 - 380
- 1,600 - 1,600 Kimco Realty Corp - 39 - 39
- 14,800 - 14,800 Regency Centers Corp 7.25% - 371 - 371
- 790 - 790
0.01% REITS - Single Tenant
- 21,000 - 21,000 Realty Income Corp - 525 - 525
0.02% REITS - Storage
- 14,500 - 14,500 Public Storage Inc 6.450%; Seriex X - 325 - 325
- 19,000 - 19,000 Public Storage Inc 6.750% (a) - 449 - 449
- 774 - 774
0.00% REITS - Warehouse & Industrial
- 2,800 - 2,800 AMB Property Corp; Series M - 66 - 66
- 1,800 - 1,800 First Industrial Realty Trust Inc - 44 - 44
- 110 - 110
0.04% Special Purpose Entity
- 2,500 - 2,500 Corporate-Backed Trust Certificates -
Series BER - 26 - 26
- 10,500 - 10,500 Corporate-Backed Trust Certificates -
Series DCX - 242 - 242
- 5,800 - 5,800 Corporate-Backed Trust Certificates -
Series JPM - 145 - 145
- 11,700 - 11,700 CORTS Trust for Safeco Capital Trust I - 320 - 320
- 1,700 - 1,700 CORTS Trust for Southern Co Capital Tr - 46 - 46
- 5,200 - 5,200 PreferredPlus Trust GSC-3 - 112 - 112
- 6,100 - 6,100 SATURNS - Series BLS - 152 - 152
- 1,400 - 1,400 SATURNS - Series GS4; 6.00% - 31 - 31
- 5,500 - 5,500 SATURNS - Series GS6; 6.00% - 122 - 122
- 2,300 - 2,300 SATURNS - Series JPM - 57 - 57
- 3,000 - 3,000 Trust Certificates Series 2001-3 - 74 - 74
- 1,327 - 1,327
0.00% Telephone - Integrated
- 4,200 - 4,200 AT&T Inc - 106 - 106
0.00% Television
- 3,800 - 3,800 CBS Corp - 92 - 92
TOTAL PREFERRED STOCKS - 17,689 - 17,689
Principal Principal Principal Principal
Amount Amount Amount Amount Value Value Value Value
(000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
0.80% BONDS
0.32% Cable TV
EchoStar Communcations Corp
11,650 - - 11,650 5.75%, 5/15/2008 11,548 - - 11,548
0.06% Electric - Integrated
Georgia Power Capital Trust VI
- 200 - 200 4.88%, 11/1/2042 - 197 - 197
Texas-New Mexico Power Co
2,000 - - 2,000 6.25%, 1/15/2009 2,018 - - 2,018
2,018 197 - 2,215
0.01% Finance - Investment Banker & Broker
Merrill Lynch & Co Inc
500 - - 500 6.375%, 10/15/2008 513 - - 513
0.04% Medical - Drugs
American Home Products Corp.
1,250 - - 1,250 7.25%, 3/1/2023 1,362 - - 1,362
0.01% Mortgage Banks
Reilly Mortgage FHA
249 - - 249 7.43%, 8/1/2022 (e) 249 - - 249
0.01% Multi-line Insurance
Allstate Financing II
- 312 - 312 7.83%, 12/1/2045 - 327 - 327
0.03% Multimedia
Westinghouse Electric Crop.
1,000 - - 1,000 7.875%, 9/1/2023 1,055 - - 1,055
0.04% Oil Company - Integrated
Phillips 66 Capital Trust II
- 1,475 - 1,475 8.00%, 1/15/2037 - 1,553 - 1,553
0.04% Pipelines
KN Capital Trust III
- 1,350 - 1,350 7.63%, 4/15/2028 - 1,404 - 1,404
0.12% Rental - Auto & Equipment
Erac USA Finance Co
4,000 - - 4,000 7.35%, 6/15/2008 (c) 4,145 - 4,145
0.12% Telecommunication Services
TELUS Corp
4,000 - - 4,000 8.00%, 6/1/2011 4,395 - 4,395
TOTAL BONDS 25,285 3,481 - 28,766
1.23% U.S. GOVERNMENT & GOVERNMENT
AGENCY OBLIGATIONS
0.01% Federal Home Loan Mortgage Corporation
(FHLMC)
211 - - 211 6.50%, 9/1/2030 215 - - 215
103 - - 103 7.00%, 9/1/2030 106 - - 106
321 - - 321
1.22% U.S. Treasury
30,000 - - 30,000 3.00%, 12/31/2006 29,621 - - 29,621
15,000 - - 15,000 4.25%, 11/15/2014 14,184 - - 14,184
43,805 - - 43,805
TOTAL U.S. GOVERNMENT & GOVERNMENT
AGENCY OBLIGATIONS 44,126 - - 44,126
0.37% MONEY MARKET FUNDS (12.10%)
- 13,299 - 13,299 BNY Institutional Cash Reserve Fund (d) - 13,299 - 13,299
TOTAL MONEY MARKET FUNDS - 13,299 - 13,299
5.61% SHORT TERM INVESTMENTS
200,715 - - 200,715 Mellon GSL DBT II Collateral Fund (d) 200,715 - 200,715
TOTAL SHORT TERM INVESTMENTS 200,715 - - 200,715
2.22% REPURCHASE AGREEMENTS
79,492 - - 79,492 Agreement with Credit Suissse First Boston
Corp, 4.66% dated 4/28/2006, to be
repurchased at $79,523 on 5/1/2006
(collateralized by U.S. Treasury obligations,
having various interest rates and maturities,
market value $81,182)
TOTAL REPURCHASE AGREEMENTS 79,492 - - 79,492
105.62% Total Investments 3,657,330 122,497 - 3,779,827
-5.62% Liabilities in Excess of Other Assets, Net (188,418) (12,624) - (201,042)
100.00% TOTAL NET ASSETS 3,468,912 109,873 - 3,578,785
<FN>
(a) Security or portion of the security was on loan at the end of the period
(b) Non-Income Producing Security
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactionss exempt from
registration, normally to qualified institutional buyers. Unless otherwise
indicated, these securities are considered illiquid. At the end of the
period, the value of these securites totaled $19,715 (in thousands) or
0.55% of net assets
(d) Security was purchased with the cash proceeds from secuirties loans
(e) Market value is determined in accordance with procedures established in
good faith by the Board of Directors. At the end of the period, the value
of these securities totaled $249 (in thousands) or 0.01% of net assets.
(f) Foreign shares
Unrealized Appreciation (Depreciation)
Unrealized Appreciation 592,119 12,400 - 604,519
Unrealized Depreciation (17,229) (2,341) - (19,570)
Net Unrealized Appreciation (Depreciation) 574,890 10,059 - 584,949
Cost for federal income tax purposes 3,082,440 112,438 - 3,194,878
As of April 30, 2006, all securities held by the Acquired Funds would comply
with the investment restrictions of the Acquiring Fund.
</FN>
Schedule of Investments
April 30, 2006 (unaudited)
WM Tax- PIF Tax- PIF Tax- WM Tax- PIF Tax- PIF Tax-
Exempt Exempt Exempt Exempt Exempt Exempt
Bond Bond Bond Bond Bond Bond
Fund Fund Fund I Combined Fund Fund Fund I Combined
Principal Principal Principal Principal
Amount Amount Amount Amount Value Value Value Value
(000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
97.30% TAX-EXEMPT BONDS
0.28% Alabama
Birmingham Baptist Medical Center,
Special Care Facilities Financing
Authority
1,000 1,000 5.00%, 11/15/2030 976 0 0 976
- -
2.98% Alaska
Alaska Housing Finance Corp FGIC
1,000 1,000 5.25%, 12/ 1/2034 0 1047 0 1047
- -
1,000 1,000 5.25%, 12/1/2041 1041 0 0 1041
- -
City of Anchorage AK
2,000 2,000 6.375% 1/1/2020 2186 0 0 2186
- -
City of Anchorage AK MBIA
1,235 1,235 6.50%, 12/1/2013 1430 0 0 1430
- -
State of Alaska AMBAC
4,500 4,500 5.25%, 10/1/2027 4849 0 0 4849
- -
9506 1047 0 10553
2.03% Arizona
Arizona State University/AZ AMBAC
1,500 1,500 5.25%, 9/ 1/2024 0 1587 0 1587
- -
Arizona Tourism & Sports Authority MBIA
2,000 2,000 5.375%, 7/1/2019 2143 0 0 2143
- -
Maricopa County AZ
1,000 1,000 5.00%, 4/1/2035 992 0 0 992
- -
University Medical Center Corp/AZ
1,000 1,000 5.00%, 7/ 1/2022 0 1008 0 1008
- -
1,500 1,500 5.00%, 7/1/2035 1481 0 0 1481
- -
4616 2595 0 7211
0.29% Arkansas
University of Arkansas FGIC
1,000 1,000 5.00%, 3/ 1/2021 0 1048 0 1048
- -
11.45% California
Amador Water Agency/CA MBIA
3,505 3,505 5.00%, 6/ 1/2027 0 3623 0 3623
- -
California County TOB Securitization
Agency
1,000 1,000 5.125%, 6/1/2038 975 0 0 975
- -
California Educational Facilities
Authority
1,000 1,000 5.00%, 9/1/2033 1027 0 0 1027
- -
California Health Facilities Financing
Authority/CA
2,000 2,000 5.00%, 11/15/2034 2014 0 0 2014
- -
California Pollution Control Financing
AMBAC
1,750 1,750 3.13%, 1/ 1/2022 0 1750 0 1750
- -
California State Department of Water
Resources MBIA-IBC
3,000 3,000 6.466%, 5/1/2011 (a)(b) 3532 0 0 3532
- -
California Statewide Communities
Development Authority
1,000 1,000 3.85%, 11/ 1/2029 0 974 0 974
- -
1,000 1,000 5.00%, 3/1/2035 1003 0 0 1003
- -
Clovis Public Financing Authority MBIA
2,000 2,000 5.25%, 8/ 1/2030 0 2114 0 2114
- -
East Side Union High School District -
Santa Clara County MBIA
1,000 1,000 5.10%, 2/ 1/2019 0 1074 0 1074
- -
Foothill Eastern Transportation
Corridor Agency/CA MBIA
2,000 2,000 0.00%, 1/15/2018 (c) 1100 0 0 1100
- -
Fremont Unified School District/Alameda
County CA FGIC
1,000 1,000 5.00%, 8/1/2025 1033 0 0 1033
- -
Golden State Tobacco Securitization
Corp FGIC
500 500 5.50%, 6/ 1/2043 0 546 0 546
-
Jurupa Unified School District FGIC
2,700 2,700 5.125%, 8/1/2022 2842 0 0 2842
- -
Los Angeles County Public Works
Financing MBIA
1,000 1,000 5.00%, 12/ 1/2027 0 1032 0 1032
- -
Placentia-Yorba Linda Unified School
District FGIC
2,925 2,925 5.00%, 10/ 1/2023 0 3041 0 3041
- -
2,000 2,000 5.00%, 10/ 1/2030 0 2057 0 2057
- -
San Diego Redevelopment Agency/CA XLCA
1,775 1,775 5.00%, 9/ 1/2023 0 1832 0 1832
- -
San Francisco City & County
International Airports Commission FGIC
2,000 2,000 5.125%, 5/1/2020 2090 0 0 2090
- -
San Joaquin Hills Transportation
Corridor Agency MBIA
7,000 7,000 0.00%, 1/15/2034 (c) 1767 0 0 1767
- -
State of California
2,000 2,000 5.25%, 11/ 1/2025 0 2101 0 2101
- -
2,000 2,000 5.50%, 4/ 1/2028 0 2165 0 2165
- -
Tobacco Securitization Authority of
Northern California/CA
1,000 1,000 5.375%, 6/1/2038 1007 0 0 1007
- -
18390 22309 0 40699
1.82% Colorado
Colorado Health Facilities Authority
1,250 1,250 5.00%, 12/1/2035 1221 0 0 1221
- -
Denver City & County CO
555 555 4.75%, 9/ 1/2020 0 536 0 536
- -
Fort Collins CO AMBAC
2,275 2,275 5.38%, 6/ 1/2023 0 2431 0 2431
- -
Lakewood CO AMBAC
1,650 1,650 5.35%, 12/1/2017 1760 0 0 1760
- -
Park Creek Metropolitan District/CO
500 500 5.50%, 12/1/2030 512 0 0 512
- -
3493 2967 0 6460
1.34% Connecticut
Connecticut State Development Authority
3,000 3,000 5.95%, 9/ 1/2028 0 3139 0 3139
- -
State of Connecticut ACA
1,500 1,500 6.60%, 7/1/2024 1637 0 0 1637
- -
1637 3139 0 4776
0.16% District of Columbia
District of Columbia, Water & Sewer
Authority FSA
500 500 5.50%, 10/1/2017 557 0 0 557
- -
5.31% Florida
Bay Laurel Center Community Development
District
500 500 5.45%, 5/1/2037 (d) 500 0 0 500
- -
City of Gainesville FL
270 270 5.20%, 10/ 1/2026 0 277 0 277
- -
County of Orange FL AMBAC
3,000 3,000 5.50%, 10/ 1/2032 0 3201 0 3201
- -
Escambia County Health Facilities
Authority AMBAC
110 110 5.95%, 7/1/2020 116 0 0 116
- -
Escambia County Utilities Authority
FGIC
650 650 5.25%, 1/1/2029 674 0 0 674
- -
Florida Housing Finance Agency AMBAC
900 900 6.50%, 7/1/2036 920 0 0 920
- -
Florida State Board of Education FGIC
800 800 5.25%, 7/1/2017 843 0 0 843
- -
Hillsborough County Port District MBIA
1,000 1,000 5.375%, 6/1/2027 1049 0 0 1049
- -
Manatee County Housing Finance
Authority GNMA/FNMA
65 6.875%, 11/1/2026 68 0 0 68
- - 65
Orange County Housing Finance Authority
500 500 7.00%, 10/1/2025 (b) 535 0 0 535
- -
Orange County School Board MBIA
310 310 5.38%, 8/ 1/2022 0 319 0 319
- -
Orlando Utilities Commission
5,000 5,000 6.00%, 10/1/2020 5456 0 0 5456
- -
Osceola County School Board AMBAC
1,300 1,300 5.125%, 6/1/2022 1360 0 0 1360
- -
South Broward Hospital District/FL MBIA
2,000 2,000 5.00%, 5/ 1/2021 0 2093 0 2093
- -
West Villages Improvement District
160 160 5.50%, 5/ 1/2037 0 160 0 160
- -
University of Central Florida Athletics
Association Inc FGIC
1,275 1,275 5.00%, 10/01/2035 1309 0 0 1309
- -
12830 6050 0 18880
3.60% Georgia
State of Georgia
5,000 5,000 6.30%, 3/1/2009 5349 0 0 5349
- -
Monroe County Development Authority/GA
MBIA-IBC
2,500 2,500 6.70%, 1/1/2009 2684 0 0 2684
- -
3,410 3,410 6.75%, 1/1/2010 3750 0 0 3750
- -
Richmond County Development Authority
1,000 1,000 5.00%, 2/ 1/2020 0 1006 0 1006
- -
11783 1006 0 12789
0.62% Hawaii
City & County of Honolulu HI
1,270 1,270 6.00%, 1/1/2012 1402 0 0 1402
- -
730 730 6.00%, 1/1/2012 810 0 0 810
- -
2212 0 0 2212
1.42% Idaho
Idaho Health Facilities Authority/ID
2,000 2,000 6.65%, 2/15/2021 (a)(b) 2503 0 0 2503
- -
2,000 2,000 5.25%, 9/ 1/2025 0 2095 0 2095
- -
Idaho Housing & Finance Association/ID
440 440 5.90%, 1/ 1/2015 0 445 0 445
- -
2503 2540 0 5043
8.13% Illinois
Chicago Board of Education/IL MBIA
1,290 1,290 6.00%, 12/ 1/2018 0 1455 0 1455
- -
1,270 1,270 5.50%, 12/ 1/2021 0 1384 0 1384
- -
1,540 1,540 6.00%, 12/ 1/2021 0 1730 0 1730
- -
Chicago, O'Hare International
Airport/IL
1,000 1,000 6.586%, 1/1/2023 (a)(b) 1129 0 0 1129
- -
1,125 1,125 6.586, 1/1/2024 (a)(b) 1267 0 0 1267
- -
5,000 5,000 7.55%, 1/1/2020 (a)(b) 5888 0 0 5888
- -
965 965 5.50%, 1/1/2017 1027 0 0 1027
- -
City of Chicago IL
825 825 6.30%, 9/ 1/2029 0 838 0 838
- -
City of Yorkville IL
500 500 6.00%, 3/1/2036 498 0 0 498
- -
County of Cook IL MBIA
2,000 2,000 5.25%, 11/15/2028 0 2117 0 2117
- -
Illinois Finance Authority
1,500 1,500 5.25%, 11/15/2023 0 1528 0 1528
- -
500 500 6.00%, 5/15/2025 517 0 0 517
- -
500 500 5.625, 2/15/2037 505 0 0 505
- -
Illinois Finance Authority Multi-Family
Revenue
160 160 6.50%, 12/ 1/2037 0 159 0 159
- -
Illinois Health Facilities Authority
320 320 5.25%, 8/15/2008 0 333 0 333
- -
145 145 7.00%, 2/15/2009 0 153 0 153
- -
1,500 1,500 6.00%, 7/ 1/2017 0 1605 0 1605
- -
720 720 7.00%, 2/15/2018 0 849 0 849
- -
Metropolitan Pier & Exposition
Authority/IL FGIC
5,055 5,055 0.00%, 6/15/2009 (c) 4482 0 0 4482
- -
Village of Bolingbrook IL
500 500 0.00%, 1/1/2024 (c) 455 0 0 455
- -
Village of Pingree Grove
800 800 5.25%, 3/1/2015 805 0 0 805
- -
Yorkville IL United City Special
Services Area Special Tax
160 160 6.00%, 3/ 1/2036 0 159 0 159
- -
16573 12310 0 28883
2.94% Indiana
County of St Joseph IN
230 230 6.00%, 5/15/2026 240 0 0 240
- -
100 100 6.00%, 5/15/2038 0 103 0 103
- -
Hendricks County Building Facilities Co
2,500 2,500 5.50%, 7/15/2020 0 2702 0 2702
- -
Indiana Housing Finance Authority
895 895 3.60%, 1/ 1/2032 0 882 0 882
- -
Indiana Municipal Power Agency/IN MBIA
6,000 6,000 6.125%, 1/1/2013 6520 0 0 6520
- -
6760 3687 0 10447
1.79% Iowa
Chillicothe IA
1,100 1,100 3.60%, 11/ 1/2023 0 1079 0 1079
- -
Eddyville IA
1,000 1,000 5.63%, 12/ 1/2013 0 1002 0 1002
- -
Iowa Higher Education Loan Authority/IA
2,235 2,235 5.50%, 10/ 1/2031 0 2290 0 2290
- -
Lansing IA
1,000 1,000 3.60%, 11/ 1/2008 0 970 0 970
- -
Tobacco Settlement Authority Iowa/IA
1,000 1,000 5.50%, 6/1/2042 1009 0 0 1009
- -
1009 5341 0 6350
2.23% Kansas
City of Topeka KS XLCA
5,490 5,490 5.25%, 8/ 1/2035 0 5835 0 5835
- -
Sedgwick & Shawnee Counties KS
1,955 1,955 5.65%, 6/ 1/2037 0 2080 0 2080
- -
0 7915 0 7915
0.80% Kentucky
Adair County School District Finance Co
2,745 2,745 5.10%, 9/ 1/2020 0 2861 0 2861
- -
2.18% Louisiana
Ernest N Morial-New Orleans Exhibit
Hall Authority/LA AMBAC
2,000 2,000 5.00%, 7/15/2033 2021 0 0 2021
- -
Lafayette LA MBIA
2,680 2,680 5.25%, 11/1/2023 2847 0 0 2847
- -
Louisiana Public Facilities Authoriy
1,500 1,500 0.00%, 12/1/2019 (c) 800 0 0 800
- -
Louisiana State Citizens Property
Insurance AMBAC
2,000 2,000 5.00%, 6/ 1/2022 0 2080 0 2080
- -
5668 2080 0 7748
1.08% Maryland
City of Baltimore MD
2,000 2,000 6.50%, 10/1/2011 2091 0 0 2091
- -
County of Prince Georges MD
500 500 5.20%, 7/1/2034 502 0 0 502
- -
Maryland State Economic Development
Corp
1,150 1,150 5.625%, 6/1/2035 1257 0 0 1257
- -
3850 0 0 3850
1.46% Massachusetts
Massachusetts Bay Transportation
Authority
2,000 2,000 5.00%, 7/1/2035 2048 0 0 2048
- -
Massachusetts State Development
Finance Agency
1,000 1,000 6.375%, 7/1/2029 1007 0 0 1007
- -
Massachusetts State Health &
Educational Facilities Authority
1,000 1,000 6.00%, 7/1/2031 1056 0 0 1056
- -
1,100 1,100 5.00%, 7/1/2033 1091 0 0 1091
- -
5202 0 0 5202
3.74% Michigan
Kent Hospital Finance Authority/MI
1,000 1,000 5.25%, 7/1/2030 995 0 0 995
- -
Michigan State Hospital Finance
Authority
1,275 1,275 6.00%, 12/ 1/2013 0 1390 0 1390
- -
160 160 5.25%, 8/15/2023 0 152 0 152
- -
Michigan State Housing Development
Authority MBIA
2,290 2,290 5.13%, 6/ 1/2011 0 2341 0 2341
- -
Michigan State Trunk Line/MI FSA
1,000 1,000 5.25%, 10/ 1/2021 0 1059 0 1059
- -
Michigan State Strategic Fund
2,000 2,000 5.45%, 9/ 1/2029 0 2045 0 2045
- -
Michigan State Strategic Fund XLCA
1,000 1,000 5.45%, 12/15/2032 1048 0 0 1048
- -
Midland County Economic Development
Corp
160 160 6.88%, 7/23/2009 0 160 0 160
- -
Saginaw Hospital Finance Authority/MI
Covenant Medical Center
2,050 2,050 6.50%, 7/ 1/2030 0 2235 0 2235
- -
Summit Academy North
160 160 5.00%, 11/ 1/2015 0 154 0 154
- -
Walled Lake Consolidated School
District MBIA
1,625 1,625 5.25%, 5/ 1/2022 0 1729 0 1729
- -
2043 11265 0 13308
0.64% Minnesota
Minnesota State Municipal Power Agency
1,000 1,000 5.25%, 10/ 1/2021 0 1056 0 1056
- -
St. Paul Housing & Redevelopment
Authority/MN
1,000 1,000 6.00%, 11/15/2030 1072 0 0 1072
- -
St Paul Port Authority Tax
160 160 6.00%, 3/ 1/2030 (d) 0 160 0 160
- -
1072 1216 0 2288
0.34% Mississippi
Biloxi Housing Authority/MS
150 150 6.25%, 9/ 1/2031 0 154 0 154
- -
State of Mississippi FSA
480 480 5.75%, 12/ 1/2013 0 507 0 507
- -
505 505 5.75%, 12/ 1/2014 0 532 0 532
- -
0 1193 0 1193
1.88% Missouri
Cape Girardeau County Industrial
Development Authority/MO
1,000 1,000 5.625, 6/1/2027 1024 0 0 1024
- -
Cape Girardeau County Building
Corp/MO MBIA
1,000 1,000 5.25%, 3/ 1/2026 0 1068 0 1068
- -
Carthage MO
160 160 5.88%, 4/ 1/2030 0 160 0 160
- -
750 750 6.00%, 4/1/2038 749 0 0 749
- -
City of Fenton MO
575 575 7.00%, 10/1/2021 657 0 0 657
- -
Missouri Housing Development Commission
720 720 5.05%, 9/ 1/2024 0 729 0 729
- -
Missouri State Health & Education
Facilities Authority MO
1,000 1,000 5.00%, 11/1/2018 1042 0 0 1042
- -
1,200 1,200 5.00%, 5/15/2020 0 1239 0 1239
- -
3472 3196 0 6668
0.28% Montana
City of Forsyth MT
1,000 1,000 4.65%, 8/1/2023 (d) 1003 0 0 1003
- -
0.61% Nebraska
Omaha Public Power District
2,000 2,000 6.15%, 2/1/2012 2179 0 0 2179
- -
0.63% Nevada
County of Clark NV
160 160 5.90%, 11/ 1/2032 0 160 0 160
- -
County of Clark NV FGIC
1,000 1,000 5.00%, 7/1/2036 1020 0 0 1020
- -
Reno NV AMBAC
1,000 1,000 5.125%, 6/1/2037 1067 0 0 1067
- -
2087 160 0 2247
0.60% New Hampshire
New Hampshire Health & Education
Facility FSA
2,000 2,000 5.50%, 8/ 1/2027 0 2145 0 2145
- -
3.66% New Jersey
Bergen County Improvement Authority
2,000 2,000 5.00%, 4/1/2032 2076 0 0 2076
- -
New Jersey Economic Development
Authority
500 500 5.63%, 6/15/2019 0 524 0 524
- -
2,000 2,000 5.25%, 3/ 1/2024 0 2116 0 2116
- -
160 160 5.13%, 7/ 1/2025 0 151 0 151
- -
1,000 1,000 5.75%, 4/1/2031 1086 0 0 1086
- -
1,000 1,000 5.50%, 6/15/2031 1037 0 0 1037
- -
New Jersey Economic Development
Authority FGIC
525 525 5.00%, 6/15/2011 0 551 0 551
- -
New Jersey State Educational
Facilities Authority/NJ AMBAC
1,340 1,340 5.25%, 9/1/2020 1425 0 0 1425
- -
New Jersey State Turnpike Authority
AMBAC
2,000 2,000 5.00%, 1/1/2035 2047 0 0 2047
- -
New Jersey State Turnpike Authority
FGIC
2,000 2,000 3.76%, 1/ 1/2018 (a) 0 2001 0 2001
- -
7671 5343 0 13014
6.06% New York
City of New York NY
750 750 6.25%, 8/ 1/2008 0 765 0 765
- -
3,000 3,000 5.00%, 8/ 1/2025 0 3086 0 3086
- -
Metropolitan Transportation Authority
1,265 1,265 4.75%, 7/1/2019 1327 0 0 1327
- -
Metropolitan Transportation Authority
FGIC
1,500 1,500 5.25%, 11/15/2031 1580 0 0 1580
- -
Nassau County Tobacco Settlement
Corporation
500 500 5.00%, 6/1/2035 485 0 0 485
- -
500 500 5.125%, 6/1/2046 486 0 0 486
- -
New York City Industrial Development
Agency
1,000 1,000 6.25%, 3/1/2015 1050 0 0 1050
- -
800 800 7.625%, 8/1/2025 877 0 0 877
- -
New York City Municipal Water Finance
Authority MBIA
2,500 2,500 6.005%, 6/15/2027 (a)(b) 2691 0 0 2691
- -
New York State Mortgage Agency
525 525 5.65, 4/1/2030 529 0 0 529
- -
New York State Dormitory Authority
1,000 1,000 5.50%, 7/1/2026 1011 0 0 1011
- -
160 160 5.50%, 7/ 1/2030 0 156 0 156
- -
New York State Dormitory Authority MBIA
1,000 1,000 6.00%, 5/15/2016 1094 0 0 1094
- -
1,500 1,500 5.25%, 10/ 1/2023 0 1591 0 1591
- -
New York State Housing Finance
Agency AMT
415 415 6.625%, 8/15/2012 416 0 0 416
- -
State of New York GO
1,000 1,000 5.75%, 3/15/2013 1081 0 0 1081
- -
Tobacco Settlement Financing
Authority AMBAC
2,200 2,200 5.25%, 6/ 1/2021 0 2324 0 2324
- -
TSASC Inc/NY
1,000 1,000 5.125%, 6/1/2042 976 0 0 976
- -
13603 7922 0 21525
1.18% North Carolina
City of Charlotte NC
1,000 1,000 5.50%, 8/1/2019 1076 0 0 1076
- -
Fayetteville Public Works
Commission/NC FSA
1,000 1,000 3.79%, 3/ 1/2024 (a) 0 1000 0 1000
- -
North Carolina Municipal Power
Agency No 1 Catawba/NC MBIA
2,000 2,000 5.25%, 1/1/2018 2118 0 0 2118
- -
3194 1000 0 4194
1.48% Ohio
Adams County Hospital
1,000 1,000 6.25%, 9/1/2020 1006 0 0 1006
- -
County of Cuyahoga OH
1,000 1,000 7.50%, 1/1/2030 1102 0 0 1102
- -
Ohio State Turnpike Commission
2,000 2,000 5.50%, 2/15/2026 0 2122 0 2122
- -
Ohio State University
1,000 1,000 5.125%, 12/1/2031 1032 0 0 1032
- -
3140 2122 0 5262
0.07% Oklahoma
Oklahoma Housing Finance Authority GNMA
230 230 7.997%, 8/1/2018 243 0 0 243
- -
1.43% Oregon
City of Portland OR AMBAC
1,000 1,000 5.75%, 6/15/2016 1082 0 0 1082
- -
City of Portland OR FSA
2,000 2,000 5.25%, 6/1/2020 2122 0 0 2122
- -
Oregon Health Sciences University MBIA
1,000 1,000 5.25%, 7/1/2022 1059 0 0 1059
- -
Oregon State Housing & Community
Service
790 790 5.65%, 7/ 1/2028 0 802 0 802
- -
4263 802 0 5065
4.08% Pennsylvania
Central Dauphin School District MBIA
1,000 1,000 6.75%, 2/ 1/2024 (d) 0 1205 0 1205
- -
City of Philadelphia PA FSA
2,405 2,405 6.62%, 7/1/2011 (a)(b) 2695 0 0 2695
- -
2,500 2,500 5.25%, 7/1/2029 2607 0 0 2607
- -
Fulton County Industustial Development
Authority Hospital Revenue
160 160 5.90%, 7/ 1/2040 0 160 0 160
- -
Pennsylvania Economic Development
Financing
1,000 1,000 5.10%, 10/ 1/2027 0 999 0 999
- -
Pennsylvania State University
1,000 1,000 5.00%, 9/ 1/2029 0 1032 0 1032
- -
Philadelphia Authority for Industrial
Development
160 160 6.25%, 5/ 1/2033 0 159 0 159
- -
Philadelphia Parking Authority AMBAC
820 820 5.25%, 2/15/2029 849 0 0 849
- -
Philadelphia Redevelopment Authority
FGIC
1,000 1,000 5.50%, 4/15/2017 1072 0 0 1072
- -
Westmoreland County Municipal
Authority FSA
3,490 3,490 5.25%, 8/15/2027 3717 0 3717
- -
7223 7272 0 14495
0.30% Puerto Rico
Puerto Rico Municipal Finance Agency
FSA
1,000 1,000 5.25%, 8/1/2021 1064 0 0 1064
- -
1.22% South Carolina
Lexington One School Facilities Corp
1,000 1,000 5.25%, 12/ 1/2029 0 1033 0 1033
- -
South Carolina Jobs-Economic
Development Authority AMBAC
1,000 1,000 5.20%, 11/1/2027 1053 0 0 1053
- -
South Carolina Jobs-Economic
Development CIFG
2,200 2,200 5.00%, 11/ 1/2030 0 2247 0 2247
- -
1053 3280 0 4333
0.36% South Dakota
South Dakota Health & Educational
Facilities Authority/SD
1,250 1,250 5.25%, 11/1/2034 1283 0 0 1283
- -
0.95% Tennessee
Chattanooga Health Educational &
Housing Facility Board/TN
590 590 5.50%, 10/1/2020 591 0 0 591
- -
Johnson City Health & Educational
Facilities Board
1,000 1,000 7.50%, 7/1/2033 1157 0 0 1157
- -
500 500 5.50%, 7/1/2036 518 0 0 518
- -
Shelby County Health Educational &
Housing Facilities Board
500 500 5.625%, 9/1/2026 496 0 0 496
- -
Tennessee Housing Development
Agency/TN AMT
625 625 5.70%, 7/1/2031 627 0 0 627
- -
3389 0 0 3389
7.11% Texas
Alliance Airport Authority/TX
500 500 1,000 4.85%, 4/ 1/2021 (d) 496 494 0 990
-
Brazos River Authority AMBAC
2,000 2,000 5.13%, 5/ 1/2019 0 2069 0 2069
- -
City of San Antonio TX FSA
2,090 2,090 5.50%, 5/15/2017 0 2243 0 2243
- -
City of Houston TX AMBAC
1,000 1,000 5.75%, 9/1/2015 1087 0 0 1087
- -
City of Houston TX FSA
85 5.75%, 3/1/2015 91 0 0 91
- - 85
Dallas-Fort Worth International
Airport Board
1,500 1,500 5.50%, 11/1/2031 1569 0 0 1569
- -
Dallas-Fort Worth International
Airport XLCA
2,000 2,000 5.00%, 11/ 1/2012 0 2059 0 2059
- -
Harris County-Houston Sports
Authority MBIA
2,000 2,000 5.25%, 11/15/2040 2070 0 0 2070
- -
Lower Colorado River Authority FGIC
1,000 1,000 5.00%, 5/15/2033 1014 0 0 1014
- -
Metro Health Facilities Development
Corp/TX
1,100 1,100 7.20%, 1/1/2021 1136 0 0 1136
- -
North Central Texas Health Facilities
Development Corp
1,000 1,000 5.125%, 5/15/2029 1013 0 0 1013
- -
1,000 1,000 5.25%, 8/15/2032 AMBAC 1038 0 0 1038
- -
Red River Authority/TX MBIA
1,000 1,000 6.00%, 6/ 1/2020 0 1021 0 1021
- -
San Marcos Consolidated Independent
School District
2,020 2,020 5.63%, 8/ 1/2025 0 2211 0 2211
- -
Sea Breeze Public Facility Corp
100 100 6.50%, 1/ 1/2046 0 100 0 100
- -
Texas State Department Of Housing &
Community Affairs
2,315 2,315 5.70%, 1/ 1/2033 0 2394 0 2394
- -
Texas Tech University MBIA
1,000 1,000 5.00%, 8/15/2025 1059 0 0 1059
- -
University of Texas/TX
2,000 2,000 5.25%, 8/15/2019 2113 0 0 2113
- -
12686 12591 0 25277
1.20% Virginia
Tobacco Settlement Financing Corp/VA
2,690 2,690 5.25%, 6/ 1/2019 0 2739 0 2739
- -
1,000 1,000 5.625%, 6/1/2037 1023 0 0 1023
- -
Virginia Beach Development Authority
500 500 5.375%, 11/1/2032 506 0 0 506
- -
1529 2739 0 4268
4.25% Washington
Franklin County Pasco School
District No 1 FSA
5,000 5,000 5.25%, 12/1/2019 5307 0 0 5307
- -
Grant County Public Utility
District FGIC
1,550 1,550 5.00%, 1/ 1/2024 0 1602 0 1602
- -
King County Kent School
District No 415 WA
4,500 4,500 6.30%, 12/1/2008 4692 0 0 4692
- -
State of Washington
3,000 3,000 6.40%, 6/1/2017 3494 0 0 3494
- -
13493 1602 0 15095
1.85% West Virginia
County of Braxton WV
2,000 2,000 6.13%, 4/ 1/2026 0 2069 0 2069
- -
Harrison County Community MBIA-IBC
2,500 2,500 6.875%, 4/15/2022 2506 0 0 2506
- -
Pleasants County W V Industrial
Development MBIA
2,000 2,000 6.15%, 5/ 1/2015 0 2017 0 2017
- -
2506 4086 0 6592
1.47% Wisconsin
County of Milwaukee WI FSA
4,000 4,000 5.25%, 12/ 1/2025 0 4206 0 4206
- -
Wisconsin Health & Educational
Facilities Authority
600 600 6.00%, 8/15/2019 626 0 0 626
- -
380 380 7.125%, 8/15/2007 AMBAC 381 0 0 381
- -
1007 4206 0 5213
TOTAL TAX-EXEMPT BONDS 196768 149035 0 345803
0.09% CONVERTIBLE BOND
0.09% UAL Corp
317 317 5.00%, 2/1/2021 329 0 0 329
- -
TOTAL CONVERTIBLE BONDS 329 0 0 329
Shares Shares Shares Shares
Held Held Held Held 0.73% OTHERS
0.73% Tax-Exempt Money Market
1,400 1,400 BlackRock Liquidity Funds MuniFund Port 0 1400 0 1400
- -
1,200 1,200 Merrill Lynch Funds For Institutions 0 1200 0 1200
- - Series - Institutional Tax-Exempt Fund
TOTAL OTHERS 0 2600 0 2600
98.12% Total Investments 197097 151635 0 348732
1.88% Other Assets in Excess of Liabilities, 2042 4636 0 6678
Net
100.00% TOTAL NET ASSETS 199139 156271 0 355410
<FN>
(a) Variable Rate
(b) Security is illiquid.
(c) Non-Income Producing Security
(d) Security purchased on a when-issued basis.
Unrealized Appreciation (Depreciation)
Unrealized Appreciation 11105 1747 0 12852
Unrealized Depreciation -289 -806 0 -1095
Net Unrealized Appreciation 10816 941 0 11757
(Depreciation)
Cost for federal income tax purposes 186281 150694 0 336975
</FN>
SCHEDULE OF FUTURES CONTRACTS
Number of Number of Number of Type Original Current Market Unrealized
Contracts Contracts Contracts Value Value (000s) Appreciation/
(000s) (Depreciation)
(000s)
Sell:
89 - 89 U.S. 5 Year Treasury Note, June 2006 $ 9347 $ 9270 $ 0 $ 77
41 - 41 U.S. 10 Year Treasury Note, June 2006 4340 4329 0 11
As of April 30, 2006, all securities held by the Acquired Funds would comply
with the investment restrictions of the Acquiring Fund.
Pro Forma Notes to Financial Statements
April 30, 2006
(unaudited)
1. Description of the Funds
Equity Income Fund I and Tax-Exempt Bond Fund I (the "Acquiring Funds"), are
series of Principal Investors Fund, 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 11, 2006, the Board of Directors of PIF Equity Income Fund and PIF
Tax-Exempt Bond Fund (the "Acquired Funds") approved a Plan of Reorganization
whereby, subject to approval by the shareholders of each Acquired Fund, PIF
Equity Income Fund I and PIF Tax-Exempt Bond Fund I, respectively, will acquire
all the assets of each Acquired Fund subject to the liabilities of such Acquired
Fund, in exchange for a number of shares equal in value to the pro rata net
assets of shares of the Acquired Funds (the "Reorganization"). In addition, PIF
Equity Income Fund I and PIF Tax-Exempt Bond Fund I will acquire all of the
assets of WM Equity Income Fund and WM Tax-Exempt Bond Fund (each a "WM Acquired
Fund"), respectively, subject to the liabilities of WM Equity Income Fund and WM
Tax-Exempt Bond Fund (the "WM Reorganization") 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 and the WM
Reorganization occurred at April 30, 2006. The unaudited pro forma schedules of
investments and statements of assets and liabilities reflect the financial
position of the WM Acquired Fund, the Acquired Funds and the Acquiring Funds at
April 30, 2006. The unaudited pro forma statements of operations reflect the
results of operations of the WM Acquired Fund, the Acquired Funds and the
Acquiring Funds for the twelve months ended April 30, 2006. 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 the WM
Acquired Fund, the Acquired Funds and the Acquiring Funds 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 the
Acquiring Funds for pre-combination periods will not be restated. 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 Funds incorporated by reference in the
Statements of Additional Information. Principal Management Corp. has agreed to
pay the expenses of the Reorganization so the Principal Investors Fund, Inc.
shareholders will not bear these costs.
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.
Pro Forma Notes to Financial Statements (continued)
April 30, 2006
(unaudited)
4. Security Valuation
Investments in securities in the pro forma financial statements are valued in
accordance with the descriptions in their respective prospectus and statements
of additional information.
The Acquiring Funds 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
electronic 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 Funds'
net asset values are ordinarily not reflected in the Funds' net asset values. If
events that occur after the close of the applicable foreign market or exchange
but prior to the calculation of the Funds' net asset values are determined to
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 the Funds invest in foreign securities listed on foreign exchanges
which trade on days on which the Funds do not determine net asset values, for
example weekends and other customary national U.S. holidays, the Funds' net
asset values 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 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 Funds.
5. Currency Translation
The Acquiring Funds' foreign holdings are translated to U.S. dollars using the
exchange rate at the daily close of the London Exchange. The identified cost of
the Funds' holdings are translated at approximate rates prevailing when
acquired. Income and expense amounts are translated at approximate rates
prevailing when received or paid, with daily accruals of such amounts reported
at approximate rates prevailing at the date of valuation. Since the carrying
amount of the foreign securities is determined based on the exchange rate and
market values at the close of the period, it is not practicable to isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities during the period.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between trade and settlement dates
on security transactions, and the difference between the amount of dividends and
foreign withholding taxes recorded on the books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized appreciation
(depreciation) on translation of assets and liabilities in foreign currencies
arise from changes in the exchange rate relating to assets and liabilities,
other than investments in securities, purchased and held in non-U.S. denominated
currencies.
6. Futures Contracts
The Acquiring Funds may enter into futures contracts for both hedging and
non-hedging purposes. 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.
Pro Forma Notes to Financial Statements (continued)
April 30, 2006
(unaudited)
7. Repurchase Agreements
The Acquiring Funds may invest in repurchase agreements that are fully
collateralized, typically by U.S. government or U.S. government agency
securities. When repurchase agreement investments are made as part of the Funds'
securities lending program, the collateral is in the possession of the Funds'
lending agent or a third party agent. The collateral is evaluated daily by the
lending agent to ensure the value is maintained, at a minimum, in an amount
equal to the principal amount plus accrued interest of each repurchase
agreement. 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.
8. Securities Lending
The Acquiring Funds may lend portfolio securities to approved brokerage firms to
earn additional income. Each applicable fund receives collateral (in the form of
U.S. government securities, U.S. government agency securities, letters of
credit, and/or cash) against the loaned securities and maintains collateral in
an amount not less than 100% of the market value of the loaned securities during
the period of the loan. Cash collateral is usually invested in short-term
securities. The market value of loaned securities is determined at the close of
business of the Funds and any additional required collateral is delivered to the
fund on the next business day. Although risk is mitigated by the collateral, the
fund could experience a delay in recovering its securities and possible loss of
income or value if the borrower fails to return them.
9. Capital Shares
The pro forma net asset value per share assumes issuance of shares of the
Acquiring Funds that would have been issued at April 30, 2006, in connection
with the Reorganization. The number of shares assumed to be issued is equal to
the net assets of the Acquired Funds, as of April 30, 2006, divided by the net
asset value per share of the Acquiring Funds as of April 30, 2006. The pro forma
number of shares outstanding, by class, for the combined fund can be found on
the statements of assets and liabilities.
10. Pro Forma Adjustments
The accompanying pro forma financial statements reflect changes in fund shares
as if the Reorganization had taken place on April 30, 2006. The expenses of the
Acquired Funds were adjusted assuming the fee structure of the Acquiring Funds
was in effect for the twelve months ended April 30, 2006.
11. Distributions
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.
The Acquired Funds will distribute substantially all of their net investment
income and any realized gains prior to the reorganization date.
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.
Item 16. Exhibits.
Unless otherwise stated, all filing references are to File No. 33-59474
1 (1) a. Articles of Amendment and Restatement (filed 4/12/96)
b. Articles of Amendment and Restatement (filed 9/22/00)
c. Articles of Amendment and Restatement dated 6/14/02 (filed 12/30/02)
d. Articles of Amendment and dated 5/23/05 (filed 9/8/05)
e. Articles of Amendment and dated 9/30/05 (filed 11/22/05)
(2) a. Articles of Amendment (filed 9/12/97)
b. Articles of Amendment dated 7/7/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(3) a. Certificate of Correction dated 9/14/00 (filed 9/22/00)
b. Certificate of Correction dated 12/13/00 (filed 10/12/01)
(4) a. Articles Supplementary dated 12/11/00 (filed 10/12/01)
b. Articles Supplementary dated 3/12/01 (filed 10/12/01)
c. Articles Supplementary dated 4/16/02 (filed 12/30/02)
d. Articles Supplementary dated 9/25/02 (filed 12/30/02)
e. Articles Supplementary dated 2/5/03 (filed 02/26/03)
f. Articles Supplementary dated 4/30/03 (filed 9/11/03)
g. Articles Supplementary dated 6/10/03 (filed 9/11/03)
h. Articles Supplementary dated 9/9/03 (filed 9/11/03)
i. Articles Supplementary dated 11/6/03 (filed 12/15/03)
j. Articles Supplementary dated 1/29/04 (filed 2/26/04)
k. Articles Supplementary dated 3/8/04 (filed 7/27/04)
l. Articles Supplementary dated 6/14/04 (filed 9/27/04)
m. Articles Supplementary dated 9/13/04 (filed 12/13/04)
n. Articles Supplementary dated 10/1/04 (filed 12/13/04)
o. Articles Supplementary dated 12/13/04 (filed 2/28/05)
p. Articles Supplementary dated 2/4/05 (filed 5/16/05)
q. Articles Supplementary dated 2/24/05 (filed 5/16/05)
r. Articles Supplementary dated 5/6/05 (filed 9/8/05)
s. Articles Supplementary dated 12/20/05 (filed 2/28/06)
t. Articles Supplementary dated 9/19/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
2 By-laws (filed 9/11/03)
3 Not Applicable
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. Management Agreement (filed 9/12/97)
b. 1st Amendment to the Management Agreement (filed 9/22/00)
c. Management Agreement (filed 12/5/00)
d. Amendment to Management Agreement dated 9/9/02 (filed 12/30/02)
e. Amendment to Management Agreement dated 3/11/02 (filed 02/26/03)
f. Amendment to Management Agreement dated 12/10/02 (filed 02/26/03)
g. Amendment to Management Agreement dated 10/22/03 (filed 12/15/03)
h. Amendment to Management Agreement dated 3/8/04 (filed 6/1/04)
i. Amendment to Management Agreement dated 6/14/04 (filed 9/27/04)
j. Amendment to Management Agreement dated 7/29/04 (filed 9/27/04)
k. Amendment to Management Agreement dated 9/13/04 (filed 9/27/04)
l. Amendment to Management Agreement dated 12/13/04 (filed 2/28/05)
m. Amendment to Management Agreement dated 1/1/05 (filed 2/28/05)
n. Amendment to Management Agreement dated 9/30/05 (11/22/05)
o. Form of Amendment to Management Agreement (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(2) a. Invista Sub-Advisory Agreement (filed 9/12/97)
b. 1st Amendment to the Invista Sub-Advisory Agreement (filed 2/25/02)
c. 2nd Amendment to the Invista Sub-Advisory Agreement (filed 2/25/02)
(3) a. American Century Sub-Advisory Agreement (filed 12/5/00)
b. Amended &Restated Sub-Advisory Agreement with Amer. Century (filed 9/11/03)
c. Amended &Restated Sub-Advisory Agreement with Amer. Century (filed 9/27/04)
d. Amended & Restated Sub-Adv Agreement with Amer. Century dated 6/13/05 (filed 9/8/05)
(4) a. Bernstein Sub-Advisory Agreement (filed 12/5/00)
b. Amendment to Bernstein Sub-Advisory Agreement dated 3/28/03 (filed 9/11/03)
c. Amended &Restated Bernstein Sub-Advisory Agreement dated 7/1/04 (filed 9/27/04)
(5) a. BT Sub-Advisory Agreement (filed 9/22/00)
(6) a. Federated Sub-Advisory Agreement (filed 12/5/00)
b. Federated Amended &Restated Sub-Advisory Agreement dated 10/31/03 (filed 12/15/03)
(7) a. Neuberger Berman Sub-Advisory Agreement (filed 12/5/00)
b. Amended &Restated Sub-Advisory Agreement with Neuberger Berman (filed 9/11/03)
c. Amended &Restated Sub-Advisory Agreement with Neuberger Berman dated 10/31/03 (filed 12/15/03)
d. Amended &Restated Sub-Advisory Agreement with Neuberger Berman dated 7/1/04 (filed 2/28/05)
(8) a. Morgan Stanley Sub-Advisory Agreement-PLCGI (filed 12/5/00)
b. Amended &Restated Sub-Advisory Agreement with MSAM dated 11/25/03 (filed 7/27/04)
c. Amended &Restated Sub-Advisory Agreement with MSAM dated 6/30/04 (filed 2/28/05)
(9) a. Principal Capital Income Investors Sub-Advisory Agreement (filed 2/27/01)
b. 1st Amendment to the PCII Sub-Advisory Agreement (filed 10/12/01)
c. 2nd Amendment to the PCII Sub-Advisory Agreement (filed 10/12/01)
d. 3rd Amendment to the PCII Sub-Advisory Agreement (filed 10/12/01)
(10) a. Principal Capital Real Estate Investors Sub-Advisory Agreement (filed 2/27/01)
b. 1st Amendment to the PCREI Sub-Advisory Agreement (filed 10/12/01)
c. 2nd Amendment to the PCREI Sub-Advisory Agreement (filed 10/12/01)
d. Amended &Restated Sub-Advisory Agreement with PCREI (filed 9/11/03)
e. Amended & Restated Sub-Adv Agreement with PREI dated 9/12/05 (filed 12/29/05)
f. Amended & Restated Sub-Adv Agreement with PREI dated 1/1/06 (Filed 2/28/06)
(11) a. Turner Sub-Advisory Agreement (filed 12/5/00)
(12) a. PCII Cash Management Sub-Advisory Agreement (filed 2/27/01)
b. Amendment to PCII Cash Management Sub-Advisory Agreement (filed 12/30/02)
c. Amended &Restated Cash Management Sub-Advisory Agreement dated 10/23/03 (filed 12/15/03)
(13) a. Ark Asset Management Sub-Advisory Agreement (filed 2/27/01)
b. Amended &Restated Sub-Advisory Agreement with Ark (filed 9/11/03)
(14) a. Morgan Stanley Sub-Advisory Agreement - PMCB (filed 2/27/01)
b. Amended &Restated Sub-Advisory Agreement with MSAM dated 11/25/03 (filed 7/27/04)
(15) a. Spectrum Sub-Advisory Agreement (filed 04/29/02)
b. Amended &Restated Sub-Advisory Agreement with Spectrum (filed 9/11/03)
(16) a. UBS Global Asset Management Sub-Advisory Agreement (filed 04/29/02)
b. Amended &Restated Sub-Advisory Agreement with UBS (filed 9/11/03)
c. Amended &Restated Sub-Advisory Agreement with UBS dated 4/1/04 filed 6/1/04)
(17) a. Dreyfus Sub-Advisory Agreement(filed 12/30/02)
b. Amended Dreyfus Sub-Advisory Agreement dated 11/25/03 (filed 12/15/03)
c. Amended Dreyfus Sub-Advisory Agreement dated 6/30/04 (filed 2/28/05)
(18) a. JP Morgan Sub-Advisory Agreement (filed 12/30/02)
b. Amended &Restated Sub-Advisory Agreement with JP Morgan (filed 9/11/03)
(19) a. Principal Global Investors Sub-Advisory Agreement (filed 12/30/02)
b. Amended and Restated PGI Sub-Advisory Agreement (filed 02/26/03)
c. Amended &Restated Sub-Advisory Agreement with PGI (filed 9/11/03)
d. Amended &Restated Sub-Advisory Agreement with PGI (filed 6/1/04)
e. Amended &Restated Sub-Advisory Agreement with PGI dated 7-04 (filed 9/27/04)
f. Amended &Restated Sub-Advisory Agreement with PGI dated 9-13-04 (filed 12/13/04)
g. Amended &Restated Sub-Advisory Agreement with PGI dated 12-13-05 (filed 2/28/06)
h. Amended &Restated Sub-Advisory Agreement with PGI dated 7-1-05 (filed 9/8/05)
i. Sub-Sub-Advisory Agreement with Spectrum dated 7-1-2005 (filed 12/29/05)
j. Sub-Sub-Advisory Agreement with Post dated 7-1-2005 (filed 12/29/05)
k. Amended &Restated Sub-Adv Agreement with PGI dated 3-1-06 (filed 2/28/06)
(20) a. Putnam Sub-Advisory Agreement(filed 12/30/02)
b. Amended &Restated Sub-Advisory Agreement with Putnam (filed 9/11/03)
(21) a. Goldman Sachs Sub-Advisory Agreement(filed 12/30/02)
b. Amended &Restated Sub-Advisory Agreement with Goldman Sachs (filed 9/11/03)
c. Amended &Restated Goldman Sachs Sub-Advisory Agreement dated 11/20/03 (filed 12/15/03)
d. Amended &Restated Goldman Sachs Sub-Advisory Agreement dated 6/30/04 (filed 2/28/05)
(22) a. Wellington Sub-Advisory Agreement (filed 12/30/02)
b. Amended &Restated Sub-Advisory Agreement with Wellington (filed 9/11/03)
(23) a. Fidelity Sub-Advisory Agreement (filed 2/26/04)
b. Fidelity Sub-Sub-Advisory Agreement (filed 12/15/03)
c. Amended &Restated Fidelity Sub-Advisory Agreement dated 12/29/04 (filed on 2/28/05)
(24) a. T. Rowe Price Sub-Advisory Agreement (filed 6/1/04)
b. Amended &Restated Sub-Advisory Agreement with T. Rowe Price (filed 9/27/04)
c. Amended & Restated Sub-Adv Agreement with T. Rowe Price dated 8/1/05 (filed 12/29/05)
(25) a. Grantham, Mayo, Van Otterloo Sub-Advisory Agreement (filed 6/1/04)
(26) a. Mazama Capital Management Sub-Advisory Agreement (filed 6/1/04)
(27) a. Dimensional Fund Advisors Sub-Advisory Agreement (filed 6/1/04)
(28) a. Emerald Advisors, Inc. Sub-Advisory Agreement (filed 9/27/04)
(29) a. Los Angeles Capital Management Sub-Advisory Agreement (filed 9/27/04)
b. Amended & Restated Sub-Adv Agreement with LA Capital dated 9/12/05 (filed 11/22/05)
(30) a. Post Advisory Group Sub-Advisory Agreement dated 12/29/04 (filed 2/28/05)
b. Amended & Restated Sub-Adv Agreement with Post dated 9/12/05 (filed 12/29/05)
(31) a. Mellon Equity Associates LLP Sub-Advisory Agreement dated 12/21/04 (filed 2/28/05)
b. Amended & Restated Sub-Adv Agreement with Mellon Equity dated 8/8/05 (filed 11/22/05)
(32) a. Columbus Circle Investors Sub-Advisory Agreement dated 1/5/05 (filed 9/8/05)
(33) a. Barrow Hanley Sub-Advisory Agreement dated 7/12/05 (filed 9/8/05)
(34) a. Vaughan Nelson Investment Management Sub-Advisory Agreement dated 9/21/05 (filed 11/22/05)
(35) a. Nuveen Sub-Advisory Agreement dated 3/1/06 (filed 2/28/06)
(36) a. Bank of New York Sub-Advisory Agreement dated 3/1/06 (filed 2/28/06)
(37) a. Form of WM Advisors, Inc. Sub-Advisory Agreement (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(38) a. Form of Van Kampen Sub-Advisory Agreement (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
7 (1) a. Distribution Agreement (filed 4/12/96)
b. 1st Amendment to the Distribution Agreement (filed 9/22/00)
c. Distribution Agreement (filed 9/22/00)
d. Distribution Plan and Agreement (Select Class)(filed 12/30/02)
e. Amended and Restated Distribution Plan and Agreement (Select Class)(filed 12/30/02)
f. Amended and Restated Distribution Plan and Agreement (Advisors Select Class)(filed 12/30/02)
g. Amended and Restated Distribution Plan and Agreement (Advisors Preferred Class)(filed 12/30/02)
h. Amended and Restated Distribution Plan and Agreement (Class J)(filed 12/30/02)
i. Amended and Restated Distribution Agreement (filed 12/30/02)
j. Amendment to Distribution Plan and Agreement (Advisors Preferred Class) (filed 02/26/03)
k. Amendment to Distribution Plan and Agreement (Advisors Select Class) (filed 02/26/03)
l. Amendment to Distribution Plan and Agreement (Select Class) (filed 02/26/03)
m. Amendment to Distribution Agreement dated 03/02 (filed 02/26/03)
n. Amendment to Distribution Agreement dated 12/02 (filed 02/26/03)
o. Amended &Restated Distribution Agreement dated 10/22/03 (filed 12/15/03)
p. Amended &Restated Distribution Agreement dated 6/14/04 (filed 9/27/04)
q. Amended & Restated Distribution Agreement dated 2/24/05 (filed 9/8/05)
(2) a. Selling Agreement--Advantage Classes (filed 9/11/03)
b. Selling Agreement--J Shares (filed 9/11/03)
c. Selling Agreement--Class A and Class B Shares (filed 9/8/05)
8 Not Applicable
9 (1) a. Domestic Portfolio Custodian Agreement with Bank of New York (filed 4/12/96)
b. Domestic Funds Custodian Agreement with Bank of New York (filed 12/5/00)
c. Domestic and Global Custodian Agreement with Bank of New York (filed 11/22/05)
(2) a. Global Portfolio Custodian Agreement with Chase Manhattan Bank (filed 4/12/96)
b. Global Funds Custodian Agreement with Chase Manhattan Bank (filed 12/5/00)
10 Rule 12b-1 Plan
(1) Advisors Preferred Plan (filed 9/22/2000)
a. Amended &Restated dated 9/9/02 (filed 12/30/02)
b. Amended &Restated dated 3/11/04 (filed 3/14/04)
c. Amended &Restated dated 6/14/04 (filed 9/27/04)
d. Amended &Restated dated 9/13/04 (filed 9/27/04)
e. Amended &Restated dated 12/13/04 (filed 2/28/05)
f. Amended & Restated dated 9/30/05 (filed 11/22/05)
(2) Advisors Select Plan (filed 9/22/2000)
a. Amended &Restated dated 9/9/02 (filed 12/30/02)
b. Amended &Restated dated 3/11/04 (filed 3/14/04)
c. Amended &Restated dated 6/14/04 (filed 9/27/04)
d. Amended &Restated dated 9/13/04 (filed 9/27/04)
e. Amended &Restated dated 12/13/04 (filed 2/28/05)
f. Amended & Restated dated 9/30/05 (filed 11/22/05)
(3) Select Plan (filed 12/30/02)
a. Amended &Restated dated 9/9/02 (filed 12/30/02)
b. Amended &Restated dated 3/11/04 (filed 3/14/04)
c. Amended &Restated dated 6/14/04 (filed 9/27/04)
d. Amended &Restated dated 9/13/04 (filed 9/27/04)
e. Amended &Restated dated 12/13/04 (filed 2/28/05)
f. Amended & Restated dated 9/30/05 (filed 11/22/05)
(4) Class J Plan (filed 12/30/02)
a. Amended &Restated dated 9/9/02 (filed 12/30/02)
b. Amended &Restated dated 9/13/04 (filed 9/27/04)
c. Amended &Restated dated 12/13/04 (filed 2/28/05)
d. Amended & Restated dated 9/30/05 (filed 11/22/05)
(5) Advisors Signature Plan (filed 12/13/04)
a. Amended &Restated dated 9/13/04 (filed 9/27/04)
b. Amended &Restated dated 12/13/04 (filed 2/28/05)
c. Amended & Restated dated 9/30/05 (filed 11/22/05)
(6) Class A Plan (filed 2/28/05)
a. Amended & Restated dated 9/30/05 (filed 11/22/05)
b. Amended & Restated dated 9/11/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(7) Class B Plan (filed 2/28/05)
a. Amended & Restated dated 9/30/05 (filed 11/22/05)
b. Amended & Restated dated 9/11/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(8) Class C Plan (filed 2/28/05)
a. Dated 9/11/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(n) Rule 18f-3 Plan (filed 2/28/05)
11 Opinion and Consent of counsel, regarding legality of issuance of shares and other matters *
12 Forms of Opinions and Consent of counsel on tax matters- To be filed by amendment
13 Not Applicable
14 Consent of Independent Registered Public Accountants
(a) Consent of Ernst & Young LLP *
15 Not Applicable
16(a) Powers of Attorney *
17 (a) Prospectuses of Principal Investors Fund dated March 1, 2006 (filed 3/20/06)
(b) Statement of Additional Information of Principal Investors Fund dated March 1, 2006 (filed 3/20/06)
(c) Statement of Additional Information of Principal Investors Fund dated October __, 2006 (filed 9/20/06)
(d) Annual Report of Principal Investors Fund, Inc. for the fiscal year ended October 31, 2005 (filed 12/21/05)
(e) Semi-Annual Report of Principal Investors Fund, Inc. for the period ended April 30, 2006 (filed 6/28/06)
<FN>
* Filed Herewith.
</FN>
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, the Registrant,
Principal Investors Fund, Inc., has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Des Moines and State of Iowa, on the 21th day of September, 2006.
Principal Investors Fund, Inc.
(Registrant)
By /s/ R. C. Eucher
R. C. Eucher
Director, President and
Chief Executive Officer
Attest: /s/ James F. Sager
James F. Sager
Assistant Secretary
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ R. C. Eucher Director, President and September 21,2006
R. C. Eucher Chief Executive Officer
(Principal Executive Officer)
(L. D. Zimpleman)* Director and Chairman September 21,2006
L. D. Zimpleman of the Board
/s/ J. R. Brown Vice President and September 21, 2006
J. R. Brown Chief Financial Officer
(Principal Accounting Officer)
(E. A. Ballantine)* Director September 21, 2006
E. A. Ballantine
(J. D. Davis)* Director September 21, 2006
J. D. Davis
(R. W. Gilbert)* Director September 21 , 2006
R. W. Gilbert
(M. A. Grimmett)* Director September 21, 2006
M. A. Grimmett
(F.S. Hirseh) Director September 21, 2006
F.S. Hirseh
(W. C. Kimball)* Director September 21, 2006
W. C. Kimball
(B. A. Lukavsky)* Director September 21 , 2006
B. A. Lukavsky
*By /s/ R. C. Eucher
R. C. Eucher
Director, President and Chief Executive Officer
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)
11 Opinion and Consent of counsel regarding legality of issuance of shares and other matters
14(a) Consent of Ernst & Young LLP, Independent Registered Public Accountants
16(a) Powers of Attorney