PRINCIPAL INVESTORS FUND, INC.
680 8th Street
Des Moines, Iowa 50392-0200
November ___, 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 10 a.m., Central Time.
At the Meeting, shareholders of the Partners LargeCap Growth Fund (the
"Acquired Fund") 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 Partners LargeCap Growth Fund II (the "Acquiring Fund").
Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject
to all the liabilities, of the Acquired Fund in exchange for shares of the
Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the
shareholders of the Acquired Fund; and (iii) the Acquired Fund will liquidate
and terminate (the "Reorganization"). As a result of the Reorganization, each
shareholder of the Acquired Fund will become a shareholder of the Acquiring
Fund. The total value of all shares of the Acquiring Fund issued in the
Reorganization will equal the total value of the net assets of the Acquired
Fund. The number of full and fractional shares of the Acquiring Fund received by
a shareholder of the Acquired Fund will be equal in value to the value of that
shareholder's shares of the Acquired Fund as of the close of regularly scheduled
trading on the New York Stock Exchange on the closing date of the
Reorganization. Holders of Advisors Preferred, Advisors Select, Advisors
Signature, Class J, Institutional, Preferred and Select shares of the Acquired
Fund will receive, respectively, Advisors Preferred, Advisors Select, Advisors
Signature, Class J, Institutional, Preferred and Select shares of the Acquiring
Fund. If approved by shareholders of the Acquired Fund, the Reorganization is
expected to occur as of the close of regularly scheduled trading on the New York
Stock Exchange on January 12, 2007. All share classes of the Acquired Fund will
vote in the aggregate and not by class with respect to the proposed
Reorganization.
The Board of Directors of PIF has unanimously approved the Reorganization
and concluded that it is in the best interests of the Acquired Fund and the
Acquiring Fund and that the interests of existing shareholders of the Acquired
Fund and the Acquiring Fund will not be diluted as a result of the
Reorganization. The investment performance of the Acquired Fund since its
inception in 2002 has lagged the performance of its benchmark indices as well as
an average of other mutual funds employing similar investment strategies. We
have already taken steps to remedy this situation. Effective October 1, 2006, we
replaced the Acquired Fund's sub-advisor with the sub-advisor that presently
manages the primary investments of the Acquiring Fund. The Reorganization is
another measure that we believe will benefit shareholders. With less than $150
million in assets and a below-average performance record, the Acquired Fund has
little prospect for growth. On the other hand, the Acquiring Fund has a
significantly larger asset base than the Acquired Fund and a performance record
that compares more favorably to its benchmark index as well as its peer group
average. Although past performance is no indication of future results, as
compared to the Acquired Fund, the Acquiring Fund has produced superior
performance returns over the one- and three-year periods ended August 31, 2006.
Moreover, the investment objective, strategies and risks of the Acquiring Fund
are identical to those of the Acquired Fund. Accordingly, after the
Reorganization, it should be reasonable for shareholders to have the same
investment expectations but with improved prospects for better performance. The
combination of the Acquired and Acquiring Funds' assets also may result in
greater potential for attendant reductions in overall expenses.
The value of your investment will not be affected by the Reorganization.
Furthermore, in the opinion of legal counsel, no gain or loss will be recognized
by any shareholder for federal income tax purposes as a result of the
Reorganization. Finally, none of the Acquired Fund, the Acquiring Fund or their
shareholders will incur any fees or expenses in connection with the
Reorganization (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 the 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 the
proposed Reorganization and recommends that you vote FOR the Proposal.
In order for shares to be voted at the Meeting, we urge you to read the
Proxy Statement/ Prospectus and then complete and mail your proxy 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 Reorganization,
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 Partners LargeCap Growth Fund:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the Partners LargeCap Growth Fund, a series of Principal Investors
Fund, Inc. ("PIF"), will be held at 680 8th Street, Des Moines, Iowa 50392-0200,
on December 15, 2006 at 10 a.m., Central Time. The Meeting is being held to
consider and vote on the following proposal as well as any other business that
may properly come before the Meeting or any adjournment thereof:
Proposal Approval of a Plan of Reorganization providing for the
reorganization of the Partners LargeCap Growth Fund into the
Partners LargeCap Growth Fund II.
A Proxy Statement/Prospectus providing information about the Proposal
to be voted on at the Meeting is included with this notice.
The Board of Directors of PIF recommends that shareholders vote FOR the
Proposal.
Approval of the Proposal will require the affirmative vote of the
holders of at least a "Majority of the Outstanding Voting Securities" (as
defined in the accompanying Proxy Statement/Prospectus) of the Partners LargeCap
Growth 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
November ___, 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 REORGANIZATION OF
THE PARTNERS LARGECAP GROWTH FUND INTO
THE PARTNERS LARGECAP GROWTH FUND II
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 10 a.m., Central Time (the "Meeting").
At the Meeting, shareholders of the Partners LargeCap Growth Fund, a
series of PIF (the "Acquired Fund"), will be asked to consider and approve a
proposed Plan of Reorganization (the "Plan") providing for the reorganization of
the Acquired Fund into the Partners LargeCap Growth Fund II, also a series of
PIF (the "Acquiring Fund").
Under the Plan: (i) the Acquiring Fund will acquire all the assets,
subject to all the liabilities, of the Acquired Fund in exchange for shares of
the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the
shareholders of the Acquired Fund; and (iii) the Acquired Fund will liquidate
and terminate (the "Reorganization"). As a result of the Reorganization, each
shareholder of the Acquired Fund will become a shareholder of the Acquiring
Fund. The total value of all shares of the Acquiring Fund issued in the
Reorganization will equal the total value of the net assets of the Acquired
Fund. The number of full and fractional shares of the Acquiring Fund received by
a shareholder of the Acquired Fund will be equal in value to the value of that
shareholder's shares of the Acquired Fund as of the close of regularly scheduled
trading on the New York Stock Exchange on the closing date of the
Reorganization. Holders of Advisors Preferred, Advisors Select, Advisors
Signature, Class J, Institutional, Preferred and Select shares of the Acquired
Fund will receive, respectively, Advisors Preferred, Advisors Select, Advisors
Signature, Class J, Institutional, Preferred and Select shares of the Acquiring
Fund. If approved by shareholders of the Acquired Fund, the Reorganization is
expected to occur as of the close of regularly scheduled trading on the New York
Stock Exchange on January 12, 2007 (the "Effective Time"). All share classes of
the Acquired Fund will vote in the aggregate and not by class. The terms and
conditions of the Reorganization are more fully described below in this Proxy
Statement/Prospectus and in the Plan of Reorganization, which is attached hereto
as Appendix A.
This Proxy Statement/Prospectus contains information shareholders
should know before voting on the Reorganization. Please read it carefully and
retain it for future reference. The Annual and Semi-Annual Reports to
Shareholders of PIF contain additional information about the investments of the
Acquired and Acquiring Funds, and the Annual Report contains discussions of the
market conditions and investment strategies that significantly affected 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 November __, 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 Fund, are 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 November___,
2006.
TABLE OF CONTENTS
Page
Introduction ..................................................................................
Overview of the Proposed Reorganization...............................................................
Proposal Approval of a Plan of Reorganization providing for the reorganization of the
Partners LargeCap Growth Fund into the Partners LargeCap Growth Fund II.......
Risks of Investing in the Funds.......................................................................
Certain Investment Strategies and Related Risks of the Acquiring Fund.............................
Information About the Reorganization..................................................................
Plan of Reorganization............................................................
Reason for the Reorganization.....................................................
Board Consideration of the Reorganization.........................................
Description of Securities to Be Issued............................................
Federal Income Tax Consequences...................................................
Capitalization ..................................................................................
Additional Information About the Funds ...............................................................
Multiple Classes of Shares........................................................
Costs of Investing in the Funds...................................................
Rule 12b-1 Fees...................................................................
Dividends and Distributions.......................................................
Pricing of Fund Shares............................................................
Purchases, Redemptions and Exchanges of Shares....................................
Frequent Purchases and Redemptions................................................
Voting Information....................................................................................
Outstanding Shares and Share Ownership................................................................
Financial Highlights..................................................................................
Financial Statements..................................................................................
Legal Matters.........................................................................................
Other Information.....................................................................................
Appendix A Plan of Reorganization........................................................... A-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 Fund to be held
at 680 8th Street, Des Moines, Iowa 50392-0200, on December 15, 2006, at 10
a.m., Central Time (the "Meeting"). The purpose of the Meeting is for
shareholders of the Acquired Fund to consider and vote upon the proposed
reorganization of the Acquired Fund into the Acquiring Fund. All shareholders of
record of the 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 Partners LargeCap Growth Fund and the
Partners LargeCap Growth Fund II. The shares of the Acquired and Acquiring Funds
are offered in a number of classes primarily to insurance company separate
accounts, retirement plans and individual retirement accounts. 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
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 the Acquired and Acquiring Funds as follows:
Acquired Fund Sub-Advisor
Partners LargeCap Growth Fund American Century Investment Management, Inc. ("American Century")
(effective October 1, 2006)
Acquiring Fund Sub-Advisors
Partners LargeCap Growth Fund II American Century
BNY Investment Advisors ("BNY")
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.
American Century was founded in 1958. Its office is located in the
American Century Tower at 4500 Main Street, Kansas City, Missouri 64111. As of
December 31, 2005, American Century managed $100.9 billion in assets. BNY, a
separately identifiable division of The Bank of New York, is located at 1633
Broadway, New York, New York 10019. Founded by Alexander Hamilton in 1784, The
Bank of New York is one of the largest commercial banks in the United States,
with over $102 billion in assets. The Bank of New York began offering investment
services in the 1830s and as of December 31, 2005, managed more than $102
billion in investments for institutions and individuals.
OVERVIEW OF THE PROPOSED REORGANIZATION
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 the Acquired
Fund into the Acquiring Fund. The Board of Directors concluded that the
Reorganization is in the best interests of the Acquired Fund and the Acquiring
Fund and that the interests of existing shareholders of the Acquired Fund and
the Acquiring Fund will not be diluted as a result of the Reorganization. The
Reorganization contemplates: (i) the transfer of all the assets, subject to all
of the liabilities, of the Acquired Fund to the Acquiring Fund in exchange for
shares of the Acquiring Fund; (ii) the distribution to Acquired Fund
shareholders of the Acquiring Fund shares; and (iii) the liquidation and
termination of the Acquired Fund.
As a result of the Reorganization, each shareholder of the Acquired Fund
will become a shareholder of the Acquiring Fund. In the Reorganization, the
Acquiring Fund will issue a number of shares with a total value equal to the
total value of the net assets of the Acquired Fund, and each shareholder of the
Acquired Fund will receive a number of full and fractional shares of the
Acquiring Fund with a value equal to the value of that shareholder's shares of
the Acquired Fund, as of the close of regularly scheduled trading on the New
York Stock Exchange on the closing date of the Reorganization (the "Effective
Time"). The closing date of the Reorganization is expected to be January 12,
2007. Holders of Advisors Preferred, Advisors Select, Advisors Signature, Class
J, Institutional, Preferred and Select shares of the Acquired Fund will receive,
respectively, Advisors Preferred, Advisors Select, Advisors Signature, Class J,
Institutional, Preferred and Select shares of the Acquiring Fund. All share
classes of the Acquired Fund will vote in the aggregate and not by class. The
terms and conditions of the Reorganization are more fully described below in
this Proxy Statement/Prospectus and in the Plan of Reorganization, which is
attached hereto as Appendix A.
The Reorganization will permit PIF to substitute for the Acquired Fund an
Acquiring Fund that the Board believes will better serve the interests of
shareholders. The investment performance of the Acquired Fund since its
inception in 2002 has lagged the performance of its benchmark indices as well as
an average of other mutual funds employing similar investment strategies.
Consequently, PMC recently recommended, and the Board approved, replacing the
Acquired Fund's sub-advisor with American Century, the sub-advisor that
presently manages the primary investments of the Acquiring Fund. This change
took effect on October 1, 2006. The Reorganization is another measure that PMC
and the Board believe will benefit shareholders. With less than $150 million in
assets and a below-average performance record, the Acquired Fund has little
prospect for growth. On the other hand, the Acquiring Fund has a significantly
larger asset base than the Acquired Fund and a performance record that compares
more favorably to its benchmark index as well as its peer group average.
Although past performance is no indication of future results, as compared to the
Acquired Fund, the Acquiring Fund has produced superior performance returns over
the one- and three-year periods ended August 31, 2006. Moreover, the investment
objective, strategies and risks of the Acquiring Fund are identical to those of
the Acquired Fund. Accordingly, after the Reorganization, it should be
reasonable for shareholders to have the same investment expectations but with
improved prospects for better performance. The combination of the Acquired and
Acquiring Funds' assets also may result in greater potential for attendant
reductions in overall expenses.
The factors that the Board considered in deciding to approve the
Reorganization are discussed below under "Information About the Reorganization -
Board Consideration of the Reorganization."
In the opinion of legal counsel, the Reorganization will qualify as a
tax-free reorganization and, for federal income tax purposes, no gain or loss
will be recognized as a result of the Reorganization by the Acquired or
Acquiring Fund shareholders. See "Information About the Reorganization - Federal
Income Tax Consequences."
The Reorganization will not result in any material change in the purchase
and redemption procedures followed with respect to the distribution of shares.
See "Additional Information About the Funds - Purchases, Redemptions and
Exchanges of Shares."
None of the Acquired Fund, Acquiring Fund or their shareholders will
incur any fees or expenses in connection with the Reorganization (other than
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; these
costs, however, are expected to be negligible because the Acquired Fund is
managed by the same sub-advisor as the Acquiring Fund and the sub-advisor
employs the same investment strategies for both Funds).
PROPOSAL
APPROVAL OF A PLAN OF REORGANIZATION PROVIDING FOR
THE REORGANIZATION OF THE PARTNERS LARGECAP GROWTH FUND
INTO THE PARTNERS LARGECAP GROWTH FUND II
Overview of the Reorganization
Shareholders of the Partners LargeCap Growth Fund (the "Acquired Fund")
are being asked to approve the reorganization of the Acquired Fund into the
Partners LargeCap Growth Fund II (the "Acquiring Fund"). For a summary
discussion of the form and consequences of, and the reasons for, the
Reorganization, see "Overview of the Proposed Reorganization."
Comparison of Acquired and Acquiring Funds
Partners LargeCap Growth Fund Partners LargeCap Growth Fund II
(Acquired Fund) (Acquiring Fund)
Approximate Net Assets as of 7/31/06 (unaudited):
$149,438,991 $859,561,800
Investment Adviser:
Principal Management Corporation ("PMC") PMC
Sub-Advisor and Portfolio Manager(s):
American Century Investment Management, Inc. ("American Century") serves
as sub-advisor to both the Acquired and Acquiring Funds. American Century
assumed responsibility for the day-to-day management of the Acquired Fund
effective October 1, 2006 and has been responsible for the day-to-day
management of the Acquiring Fund since its inception in December 2000.
When the Board approved American Century as the Acquired Fund's
sub-advisor, it also approved changing the investment strategies of the
Acquired Fund to make them identical to the investment strategies of the
Acquiring Fund. Since assuming responsibility for the management of the
Acquired Fund, American Century has realigned the Acquired Fund's
portfolio by disposing of investments that were not compatible with
Acquired Fund's new investment strategies and acquiring investments that
are compatible.
The American Century portfolio managers for the Acquired and Acquiring
Funds are:
--E.A. Prescott LeGard, CFA. Mr. LeGard is a Vice --Gregory J. Woodhams, CFA. Mr. Woodhams is a Vice
President and Portfolio Manager for American President and Senior Portfolio Manager for American
Century. Mr. LeGard joined the company in 1999. Century. Mr. Woodhams has worked in the financial
Before joining the company, he was an Equity industry since 1992 and joined American Century in
Analyst for USAA Investment Management where he 1997. Previously, he was Vice President and
analyzed technology companies. He has worked in Director of Equity Research at Texas Commerce
the investment industry since 1993. Mr. LeGard Bank. Mr. Woodhams holds a Bachelor's degree in
holds a BA degree in Economics from DePauw Economics from Rice University and a Master's
University. He has earned the right to use the degree in Economics from the University of
Chartered Financial Analyst designation. Wisconsin at Madison. He has earned the right to
use the Chartered Financial Analyst designation.
BNY Investment
Advisors ("BNY")
manages the
Acquiring Fund's
"cash buffer." BNY
has been managing
the Acquiring Fund's
cash buffer since
March 1, 2006.
The BNY portfolio managers are:
--Edward J. Von Sauers. Mr. Von Sauers joined BNY
Asset Management in 1987. As Division Head of
Short Term Money Management, he has overall
responsibility for $29 billion in short term fixed
income assets. Mr. Von Sauers is a member of the
Bank's Investment Policy Committee. Prior to
joining the Bank, he was a portfolio manager for
the New York State Power Authority. Mr. Von Sauers
earned both a BBA and an MBA in Finance from Pace
University.
--Kurt Zyla. Mr.
Zyla is the Managing
Director and
Division Head of
Index Fund
Management at BNY.
Prior to managing
the Division in
1998, he was an
index portfolio
manager and worked
in the Special
Investment Products
area, focusing on
portfolio
transitions/liquidations
and equity
derivative product
strategies. Before
joining BNY in 1989,
Mr. Zyla worked in
the Specialty
Chemical's Division
of Engelhard
Corporation in the
areas of technical
sales and product
management. He
earned a BS in
Chemical Engineering
from New Jersey
Institute of
Technology and an
MBA from New York
University's Stern
School of Business.
Investment Objective:
Both the Acquired and Acquiring Fund seek long-term growth of capital.
Principal Investment Strategies:
The principal investment strategies of the Acquired Fund recently were
changed to reflect the investment philosophy of the Acquired Fund's new
sub-advisor, American Century. These strategies are identical to those of
the Acquiring Fund. The only difference between the Acquired and Acquiring
Funds, in terms of portfolio management, is that the Acquiring Fund has an
additional sub-advisor, BNY, that manages the Acquiring Fund's cash
buffer, as described below.
Under normal market conditions, each Fund invests at least 80% of its
assets in equity securities of companies with large market capitalizations
(those with market capitalizations similar to companies in the Russell
1000 Growth Index (as of June 30, 2006, this range was between
approximately $1.6 billion and $364.7 billion)) at the time of purchase.
American Century selects stocks of companies it believes will increase in
value over time using a growth investment strategy it developed. This
strategy looks for companies with earnings and revenues that are not only
growing, but growing at a successively faster, or accelerating, pace.
Accelerating growth is shown, for example, by growth that exhibits a
higher positive rate of change this quarter than last or this year than
the year before. It also includes companies whose growth rates, although
still negative, are less negative than prior periods. The American Century
strategy is based on the premise that, over the long-term, the stocks of
companies with accelerating earnings and revenues have a greater than
average chance to increase in value.
American Century uses a bottom-up approach to select securities to buy for
each Fund. This means that American Century makes its investment decisions
based on the business fundamentals of the individual companies, rather
than on economic forecasts or the outlook for industries or sectors. Using
its extensive database, American Century tracks financial information for
thousands of companies to identify trends in the companies' earnings and
revenues. This information is used to help American Century select or hold
the securities of companies it believes will be able to sustain
accelerating growth and sell the securities of companies whose growth
begins to slow down.
American Century does not attempt to time the market. Instead, under
normal market conditions, it intends to keep each Fund essentially fully
invested in securities regardless of the movement of stock prices
generally. When American Century believes it is prudent, each Fund may
invest a portion of its assets in convertible debt securities,
equity-equivalent securities, foreign securities, short-term securities,
non-leveraged futures contracts and options and other similar securities.
Futures contracts, a type of derivative security, can help each Fund's
cash assets remain liquid while performing more like stocks. In addition,
up to 25% of each Fund's assets may be invested in foreign securities.
PMC has selected BNY as sub-advisor for the Acquiring Fund's "cash
buffer." The cash buffer is the receptacle for daily cash flows received
as a direct result of transactions (purchases and redemptions) placed by
shareholders. BNY will invest the Acquiring Fund's cash buffer in S&P 500
Index futures contracts with a nominal value equal to the underlying cash
buffer account (i.e., no leverage employed). PMC believes that, over the
long term, this strategy will enhance the investment performance of the
Fund.
Portfolio Turnover Rates:
The Acquired Fund's portfolio turnover rates were: The Acquiring Fund's portfolio turnover rates were:
-- 95.2% for the six months ended 4/30/06 -- 133.3% for the six months ended 4/30/06
(unaudited) (annualized); (unaudited) (annualized);
-- 87.9% for the fiscal year ended 10/31/05; and -- 95.2% for the fiscal year ended 10/31/05; and
-- 129.3% for the fiscal year ended 10/31/04. -- 124.7% for the fiscal year ended 10/31/04.
Hedging Strategies:
Each Fund is 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 options, futures contracts, options on
futures 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 of the Acquired and Acquiring Funds are
identical as both seek long-term growth of capital. Moreover, the principal
investment strategies of both Funds are identical as they pursue their
objectives by investing primarily in equity securities issued by companies with
large capitalizations using American Century's bottom-up approach to selecting
stocks. Both the Acquired and Acquiring Funds employ a growth stock investing
approach, seeking out large cap companies that American Century believes are
poised for growth based on analyses of various factors including financial
strength, competitive position and revenue and earnings growth. Both Funds also
may invest up to 25% of their assets in foreign securities. The only difference
between the Acquired and Acquiring Fund is that BNY manages the cash assets of
the Acquiring Fund whereas American Century manages the Acquired Fund's entire
portfolio, which includes the cash portion. BNY will invest the Acquiring Fund's
cash buffer in S&P Index futures contracts with a nominal value equal to the
underlying cash buffer account (i.e., no leverage employed). PMC believes that,
over the long term, this strategy will enhance the investment performance of the
Fund.
Additional information about the investment strategies and the types of
securities in which the Acquiring Fund may invest is discussed below under
"Certain Investment Strategies and Related Risks of the Acquiring Fund" as well
as in the Statement of Additional Information.
The investment objective of each Fund may be changed by the Board
without shareholder approval. Each Fund has adopted a non-fundamental policy
that requires it, under normal circumstances, to invest at least 80% of its net
assets in securities of large capitalization companies. Each Fund will provide
60 days' notice to shareholders prior to implementing a change in this policy.
The Statement of Additional Information provides further information
about the portfolio managers for the Funds, including information about
compensation, other accounts managed and ownership of fund shares.
Comparison of Principal Investment Risks
In deciding whether to approve the Reorganization, shareholders should
consider the amount and character of investment risk involved in the respective
investment objectives and strategies of the Acquired and Acquiring Funds.
Because the Funds have identical investment objectives and strategies as
described above, they have substantially the same risks. These include the
following risks:
-- Stock Market Volatility Risk -- Growth Stock Risk -- Foreign Securities Risk
-- Interest Rate Risk -- Hedging Strategy Risk
All of the above named risks are described below under "Risks of
Investing in the Funds" and more fully described in the PIF Prospectus and the
Statement of Additional Information.
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 Advisors Preferred, Advisors Select, Advisors Signature, Class
J, Institutional, Preferred and Select shares of the Acquired Fund will receive,
respectively, Advisors Preferred, Advisors Select, Advisors Signature, Class J,
Institutional, Preferred and Select shares of the Acquiring Fund. The fees and
expenses of the Acquired and Acquiring Funds are more fully described in the PIF
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. Each class of
shares of the Acquired Fund has the same shareholder fees as the corresponding
class of shares of the Acquiring Fund.
Advisors Advisors Advisors
Preferred Select Signature Class J Institutional Preferred Select
---------- --------- ------- ------------- --------- ------
Maximum sales charge
(load) imposed on
purchases None None None None None None None
(as a % of offering price)
Maximum Contingent
Deferred Sales Charge
(CDSC) (as a % of dollars None None None 1.00%(1) None None None
subject to charge)
Redemption or Exchange
Fee (as a % of amount
redeemed/ exchanged) None None None 1.00%(2) None None None
-----------------------
(1) A CDSC applies on certain redemptions made within 18 months following
purchase.
(2) 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.
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 Advisors Preferred, Advisors Select, Advisors Signature, Class J,
Institutional, Preferred and Select shares of the Acquired Fund for the fiscal
year ended October 31, 2005; (b) the expense ratios of the Advisors Preferred,
Advisors Select, Advisors Signature, Class J, Institutional, Preferred and
Select shares of the Acquiring Fund for the fiscal year ended October 31, 2005;
and (c) the pro forma expense ratios of the Advisors Preferred, Advisors Select,
Advisors Signature, Class J, Institutional, Preferred and Select shares of the
Acquiring Fund for the fiscal year ending October 31, 2005 assuming that the
Reorganization had taken place at the commencement of the fiscal year ended
October 31, 2005.
Annual Fund Operating Expenses
Total Fund Fee Waiver /
Management Other Operating Expense Net
Fees 12b-1 Fees Expenses Expenses Reimbursement Expenses
---- --------- -------- -------- ------------- --------
(a) Partners LargeCap Growth Fund Advisors 1.00% 0.25% 0.32%(1) 1.57%
Preferred
(Acquired Fund) Advisors 1.00% 0.30% 0.45%(1) 1.75%
Select
Advisors 1.00% 0.35% 0.53%(1) 1.88%
Signature
Class J 1.00% 0.50% 0.63% 2.13% 0.38%(2) 1.75%
Institutional 1.00% None None 1.00%
Preferred 1.00% None 0.26%(1) 1.26%
Select 1.00% 0.10% 0.28%(1) 1.38%
(b) Partners LargeCap Growth Fund Advisors 1.00% 0.25% 0.32%(1) 1.57%
II Preferred
(Acquiring Fund) Advisors 1.00% 0.30% 0.45%(1) 1.75%
Select
Advisors 1.00% 0.35% 0.53%(1) 1.88%
Signature
Class J 1.00% 0.50% 0.50% 2.00% 0.25%(2) 1.75%
Institutional 1.00% None None 1.00%
Preferred 1.00% None 0.26%(1) 1.26%
Select 1.00% 0.10% 0.28%(1) 1.38%
(c) Partners LargeCap Growth Fund Advisors 1.00% 0.25% 0.32%(1) 1.57%
II Preferred
(Acquiring Fund) Advisors 1.00% 0.30% 0.45%(1) 1.75%
(Pro forma assuming Select
Reorganization)
Advisors 1.00% 0.35% 0.53%(1) 1.88%
Signature
Class J 1.00% 0.50% 0.50% 2.00% 0.25%(2) 1.75%
Institutional 1.00% None None 1.00%
Preferred 1.00% None 0.26%(1) 1.26%
Select 1.00% 0.10% 0.28%(1) 1.38%
-----------------------
(1) The "other expenses" category for these classes of shares of the Acquired
and Acquiring Funds is comprised of:
Advisors Preferred Advisors Select Advisors Signature Preferred Select
Service Fee 0.17% 0.25% 0.25% 0.15% 0.15%
Administrative Service Fee 0.15% 0.20% 0.28% 0.11% 0.13%
(2) PMC has contractually agreed to limit the expenses of the Class J shares of
the Acquired and Acquiring Funds and, if necessary, pay expenses normally
payable by that Class through the period ending February 28, 2007. The
expense limit will maintain a total level of operating expenses (expressed
as a percent of average net assets attributable to Class J shares on an
annualized basis) not to exceed 1.75%.
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:
Partners LargeCap Growth Fund
(Acquired Fund) Advisors Preferred $160 $496 $855 $1,867
Advisors Select $178 $551 $949 $2,062
Advisors Signature $191 $591 $1,016 $2,201
Class J $278 $624 $1,103 $2,427
Institutional $102 $318 $552 $1,225
Preferred $128 $400 $692 $1,523
Select $140 $437 $755 $1,657
Partners LargeCap Growth Fund II
(Acquiring Fund) Advisors Preferred $160 $496 $855 $1,867
Advisors Select $178 $551 $949 $2,062
Advisors Signature $191 $591 $1,016 $2,201
Class J $278 $599 $1,051 $2,304
Institutional $102 $318 $552 $1,225
Preferred $128 $400 $692 $1,523
Select $140 $437 $755 $1,657
Partners LargeCap Growth Fund II
(Acquiring Fund) (Pro forma assuming Reorganization) Advisors Preferred $160 $496 $855 $1,867
Advisors Select $178 $551 $949 $2,062
Advisors Signature $191 $591 $1,016 $2,201
Class J $278 $599 $1,051 $2,304
Institutional $102 $318 $552 $1,225
Preferred $128 $400 $692 $1,523
Select $140 $437 $755 $1,657
If you do not sell your shares at the
end of the period:
Partners LargeCap Growth Fund (Acquired Fund) Class J $178 $624 $1,103 $2,427
Partners LargeCap Growth Fund II (Acquiring Fund) Class J $178 $599 $1,051 $2,304
Partners LargeCap Growth Fund II (Acquiring Fund) Class J $178 $599 $1,051 $2,304
(Pro forma assuming Reorganization)
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:
Partners LargeCap Growth Fund Partners LargeCap Growth Fund II
(Acquired Fund) (Acquiring Fund)
1.00% of the first $500 million; 1.00% of the first $500 million;
0.98% of the next $500 million; 0.98% of the next $500 million;
0.96% of the next $500 million; 0.96% of the next $500 million;
0.95% of the excess over $1.5 billion of 0.95% of the excess over $1.5
average daily net assets. billion of average daily net assets
American Century directly manages the assets of both the Acquired and
Acquiring Funds as their sub-advisor. BNY manages the cash buffer portion of the
Acquiring Fund's portfolio. For their services as sub-advisors to the Acquired
and Acquiring Funds, American Century and BNY are paid a sub-advisory fee by
PMC, not by the Acquired or Acquiring Fund.
A discussion of the basis of the Board of Directors' approval of the
advisory and sub-advisory agreements with respect to the Acquiring Fund, and the
advisory agreement 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 bar charts below show how each Fund's total return has varied
year-by-year, while the tables below show each Fund's performance 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 each Fund's risks. Past performance does not indicate future
results.
The bar chart for each Fund shows performance for its Institutional
shares. Performance for Institutional shares will be higher than performance for
other share classes of the Funds because Institutional shares have lower
expenses than the other share classes.
Year-By-Year Total Return (%) as of 12/31 Each Year
Partners LargeCap Growth Fund (Acquired Fund)
[INSERT BAR CHART ACQUIRED FUND]
-------------- ----------- ---------- ---------- ----------
N/A N/A 23.50% 2.67% 3.33%
-------------- ----------- ---------- ---------- ----------
-------------- ----------- ---------- ---------- ----------
2001 2002 2003 2004 2005
-------------- ----------- ---------- ---------- ----------
The year-to-date return as of September 30, 2006 is -1.79%
Highest return for a quarter
during the period of the bar chart above: Q2 `03 11.69%
Lowest return for a quarter
during the period of the bar chart above: Q3 `04 -5.38%
Partners LargeCap Growth Fund II (Acquiring Fund)
[INSERT BAR CHART ACQUIRING FUND]
-------------- ----------- ---------- ---------- -----------
-17.88% -25.95% 26.08% 9.31% 4.75%
-------------- ----------- ---------- ---------- -----------
-------------- ----------- ---------- ---------- -----------
2001 2002 2003 2004 2005
-------------- ----------- ---------- ---------- -----------
The year-to-date return as of September 30, 2006 is 3.56%
Highest return for a quarter during
the period of the bar chart above: Q4 '01 14.51%
Lowest return for a quarter during
the period of the bar chart above: Q1 '01 -19.60%
Average Annual Total Returns (%) for periods ended December 31, 2005
Past 1 Year Since Inception(1)
----------- ---------------
Partners LargeCap Growth Fund (Acquired Fund)
--Class J 1.59% 8.52%
--Advisors Preferred 2.75% 8.80%
--Advisors Select 2.59% 8.63%
--Advisors Signature 2.47% 8.46%(2)
--Institutional (before taxes) 3.33% 9.41%
(after taxes on distributions)(3) 3.21% 9.07%
(after taxes on distributions and sale of shares) 2.27% 8.08%
--Preferred 3.15% 9.18%
--Select 3.07% 9.06%
Russell 1000 Growth Index* 5.26% 13.23%
S&P 500 Index* 4.91% 14.39%
Morningstar Large Growth Category* 6.46% 14.01%
Past 1 Year Past 5 Years Since Inception(4)
----------- ------------ ---------------
Partners LargeCap Growth Fund II (Acquiring Fund)
--Class J 3.00% -3.37% -4.47%
--Advisors Preferred 4.14% -3.13% -4.23%
--Advisors Select 3.91% -3.29% -4.39%
--Advisors Signature 3.80% -3.42% -4.51%
--Institutional (before taxes) 4.75% -2.57% -3.67%
(after taxes on distributions)(3) 4.56% -2.66% -3.76%
(after taxes on distributions and sale of shares) 3.32% -2.17% -3.09%
--Preferred 4.47% -2.87% -3.96%
--Select 4.23% -2.96% -4.05%
Russell 1000 Growth Index* 5.26% -3.58% -3.58%
Morningstar Large Growth Category* 6.46% -3.36% -3.07%
------------------
* Index performance does not reflect deductions for fees, expenses or taxes.
(1) Lifetime results are measured from the date each class of shares of the
Acquired Fund, other than Advisors Signature, was first sold (December 30,
2002). See note (2) below regarding Advisors Signature shares of the
Acquired Fund.
(2) The Advisors Signature shares of the Acquired Fund were first sold on
November 1, 2004. The other classes of the Acquired Fund were first sold on
December 30, 2002. For periods prior to the date on which the Advisors
Signature class began operations, its returns are based on the performance
of the Acquired Fund's Institutional class shares adjusted to reflect the
fees and expenses of the Advisors Signature class. The adjustments result
in performance (for the periods prior to the date the Advisors Signature
class began operations) that is no higher than the historical performance
of the Institutional class shares.
(3) After-tax performance is shown for Institutional class shares only. The
after-tax returns for other share classes will vary. 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. The after-tax returns shown are not relevant to investors
who hold their Fund shares through tax-deferred arrangements such as 401(k)
plans or individual retirement accounts.
(4) The Class J shares of the Acquiring Fund were first sold on March 1, 2001,
the Advisors Signature shares of the Acquiring Fund were first sold on
November 1, 2004 and lifetime results for all share classes are measured
from the date the Acquiring Fund commenced operations. All classes of the
Acquiring Fund, except for Class J and Advisors Signature, were first sold
on December 6, 2000. For periods prior to the date on which each of the
Class J and Advisors Signature classes began operations, its returns are
based on the performance of the Acquiring Fund's Institutional class shares
adjusted to reflect the fees and expenses of the applicable class. The
adjustments result in performance (for the periods prior to the date the
applicable class began operations) that is no higher than the historical
performance of the Institutional class shares.
RISKS OF INVESTING IN THE FUNDS
The principal risks of investing in the Acquired Fund and the Acquiring
Fund are stated above. Each of these risks is summarized below. These and other
risks of investing in the Acquired and the Acquiring Funds are more fully
described in the PIF Prospectus and the PIF SAI.
Both Funds are subject to the risk that their principal market segment,
large capitalization growth-oriented stocks, may underperform compared to other
market segments or to the equity markets as a whole. The value of each Fund's
securities may fluctuate on a daily basis. As with all mutual funds, as the
values of each Fund's assets rise or fall, the Fund's share price changes. If an
investor sells Fund shares when their value is less than the price the investor
paid, the investor will lose money. As with any security, the securities in
which the Funds invest have associated risk. These include:
Stock Market Volatility. The net asset value of the Funds' shares is effected by
changes in the value of the securities it owns. The prices of equity securities
held by the Funds may decline in response to certain events including those
directly involving issuers of these securities, adverse conditions affecting the
general economy, or overall market declines. In the short term, stock prices can
fluctuate dramatically in response to these factors.
Growth Stock Risk. Because growth securities typically do not make dividend
payments to shareholders, investment returns are based on capital appreciation
making returns more dependent on market increases and decreases. Growth stocks
may therefore be more volatile than non-growth stocks to market changes.
Foreign Securities Risk. Foreign markets and currencies may not perform as well
as U.S. markets. Political and economic uncertainty in foreign countries, as
well as less public information about foreign investments, may negatively impact
each Fund's portfolio. Dividends and other income payable on foreign securities
may be subject to foreign taxes. Some investments may be made in currencies
other than the U.S. dollar that will fluctuate in value as a result of changes
in the currency exchange rate.
Interest Rate Risk. Changes in interest rates may adversely affect the value of
an investor's securities. When interest rates rise, the value of preferred
securities will generally fall. Conversely, a drop in interest rates will
generally cause an increase in the value of preferred securities. 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, the funds' appreciation may be limited by issuer call
options having more value during times of declining interest rates.
Hedging Strategy Risk. The Funds may use futures, options, swaps and other
derivative instruments to "hedge" or protect the portfolio from adverse
movements in securities prices and interest rates. The Funds may also use a
variety of currency hedging techniques, including forward currency contracts, to
manage exchange rate risk. The sub-advisor believes the use of these instruments
will benefit each Fund. However, a Fund's performance could be worse than if the
Fund had not used such instruments if the sub-advisor's judgment proves
incorrect. Futures contracts and options may not always be successful hedges;
their prices can be highly volatile; using them could lower a Fund's total
return; and the potential loss from the use of futures can exceed the Fund's
initial investment in such contracts.
CERTAIN INVESTMENT STRATEGIES AND
RELATED RISKS OF THE ACQUIRING FUND
This section provides information about certain investment strategies
and related risks of the Acquiring Fund. The Statement of Additional Information
contains additional information about investment strategies and their related
risks.
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.
Repurchase Agreements and Loaned Securities
The Acquiring Fund may invest a portion of its assets in repurchase
agreements, although this is not a principal investment strategy. Repurchase
agreements typically involve the purchase of debt securities from a financial
institution such as a bank, savings and loan association or broker-dealer. A
repurchase agreement provides that the fund sells back to the seller and that
the seller repurchases the underlying securities at a specified price on a
specific date. Repurchase agreements may be viewed as loans by 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.
The Acquiring Fund 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
The Acquiring 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 Acquiring Fund may 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. The 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 the 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 the fund and
may involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the other party
to the transaction does not perform as promised. There is also a risk of
government action through exchange controls that would restrict the ability of
the fund to deliver or receive currency.
Forward Commitments
The Acquiring Fund may enter into forward commitment agreements,
although this is not a principal investment strategy. These agreements call for
the fund to purchase or sell a security on a future date at a fixed price. The
Fund may also enter into contracts to sell its investments either on demand or
at a specific interval.
Warrants
The Acquiring Fund may invest in warrants, although this is not 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.
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, the
Acquiring Fund 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 Fund may enter into put or
call options, future contracts, options on futures contracts and
over-the-counter swap contracts (e.g., interest rate swaps, total return swaps
and credit default swaps) for both hedging and non-hedging purposes.
Generally, the Acquiring Fund may not invest in a derivative security
unless the reference index or the instrument to which it relates is an eligible
investment for the fund. The return on a derivative security may increase or
decrease, depending upon changes in the reference index or instrument to which
it relates. The risks associated with derivative investments include:
-- the risk that the underlying security, interest rate, market index
or other financial asset will not move in the direction the sub-advisor
anticipated;
-- the possibility that there may be no liquid secondary market which
may make it difficult or impossible to close out a position when desired;
--the risk that adverse price movements in an instrument can result in
a loss substantially greater than a fund's initial investment; and
--the counterparty may fail to perform its obligations.
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 Acquiring Fund treats convertible securities as both fixed-income
and equity securities for purposes of investment policies and limitations
because of their unique characteristics. The Fund may invest in convertible
securities without regard to their ratings.
Foreign Investing
The Acquiring fund 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 the Acquiring 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 the Acquiring Fund is unable to make
intended security purchases due to settlement problems, it may miss attractive
investment opportunities. In addition, the Acquiring 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 Acquiring Fund 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, the Acquiring
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.
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization
The Acquired Fund has entered into a Plan of Reorganization with the
Acquiring Fund. The terms of the Plan are summarized below. The summary is
qualified in its entirety by reference to the Plan, a copy of which is attached
as Appendix A to this Proxy Statement/Prospectus.
Under the Plan, the Acquiring Fund will acquire all the assets and
assume all the liabilities of the Acquired Fund. We expect that the closing date
will be January 12, 2007, assuming shareholder approval of the Plan, and that
the Effective Time of the Reorganization will be as of the close of regularly
scheduled trading on the New York Stock Exchange ("NYSE") (normally 3:00 p.m.,
Central Time) on that date. Each Fund will determine its net asset values as of
the close of trading on the NYSE using the procedures described in its then
current prospectus (the procedures applicable to the Acquired Fund and the
Acquiring Fund are identical). The Acquiring Fund will issue to the Acquired
Fund a number of shares of each share class with a total value equal to the
total value of the net assets of the corresponding share class of the Acquired
Fund outstanding at the Effective Time of the Reorganization.
Immediately after the Effective Time of the Reorganization, the
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 the Plan is
subject to the approval of the Plan by the shareholders of the Acquired Fund.
The Plan 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 the 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.
Under the Plan, the expenses of the Reorganization (other than 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) will be
borne by PMC. Trading costs associated with portfolio repositioning in
connection with the Reorganization are expected to be negligible because the
Acquired Fund is managed by the same sub-advisor as the Acquiring Fund, and the
sub-advisor employs the same investment strategies for both Funds If portfolio
repositioning occurs, it may result in the realization of taxable capital gains
which will be distributed to shareholders of the Acquired Fund prior to the
Reorganization. Expenses expected to be incurred in connection with the
Reorganization 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 the 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 (defined
below), recommends that shareholders vote FOR the Proposal.
Reasons for the Reorganization
The Reorganization will permit PIF to substitute for the Acquired Fund
an Acquiring Fund that the Board believes will better serve the interests of
shareholders. The investment performance of the Acquired Fund since its
inception in 2002 has lagged the performance of its benchmark indices as well as
an average of other mutual funds employing similar investment strategies.
Consequently, PMC recently recommended, and the Board approved, replacing the
Acquired Fund's sub-advisor with American Century, the sub-advisor that
presently manages the primary investments of the Acquiring Fund. This change
took effect on October 1, 2006. The Reorganization is another measure that PMC
and the Board believe will benefit shareholders. With less than $150 million in
assets and a below-average performance record, the Acquired Fund has little
prospect for growth. On the other hand, the Acquiring Fund has a significantly
larger asset base than the Acquired Fund and a performance record that compares
more favorably to its benchmark index as well as its peer group average.
Although past performance is no indication of future results, as compared to the
Acquired Fund, the Acquiring Fund has produced superior performance returns over
the one- and three-year periods ended August 31, 2006. Moreover, the investment
objective, strategies and risks of the Acquiring Fund are identical to those of
the Acquired Fund. Accordingly, after the Reorganization, it should be
reasonable for shareholders to have the same investment expectations but with
improved prospects for better performance. The combination of the Acquired and
Acquiring Funds' assets also may result in greater potential for attendant
reductions in overall expenses.
Board Consideration of the Reorganization
The Board of Directors, including the Directors who are not "interested
persons" (as defined in the 1940 Act) of the Acquired Fund (the "Independent
Directors"), considered the Reorganization at meetings held on June 12, 2006 and
September 11, 2006. The Board considered information about the Reorganization
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 the Reorganization. At the
September 11, 2006 meeting, the Board of Directors unanimously approved the
Reorganization after concluding that the Acquired Fund's participation in the
Reorganization is in the best interests of the Acquired Fund and the Acquiring
Fund and that the interests of existing shareholders of the Acquired Fund and
the Acquiring Fund will not be diluted as a result of the Reorganization.
In determining whether to approve the 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 identical investment objectives shared by each Fund as well as each
Fund's identical investment strategies and risks;
(2) the absence of any differences between each Fund's fundamental and
non-fundamental policies;
(3) the determination by the Board that it was in the best interests of the
Acquired Fund to approve the change in sub-advisor to American Century
prior to the Reorganization, and the estimated explicit trading costs
associated with disposing of any portfolio securities that would not be
compatible with the new sub-advisor's investment style and strategies
and reinvesting the proceeds in securities that would be compatible;
(4) estimated explicit trading costs associated with disposing of any
portfolio securities and reinvesting the proceeds in connection with
the Reorganization resulting from the completion of the realignment of
the portfolio;
(5) expense ratios and available information regarding the fees and
expenses of the Acquired Fund and the Acquiring Fund;
(6) comparative investment performance of and other information pertaining
to the Acquired Fund and the Acquiring Fund;
(7) the potential effect on the Acquired Fund's shareholders of investing
in a larger asset pool and the potential effect on the portfolio
management of the Acquiring Fund of such a larger asset base;
(8) the prospects for growth of and for achieving economies of scale by the
Acquired Fund in combination with the Acquiring 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 Fund, American Century, which serves as
the sub-advisor to both the Acquired and the Acquiring Fund, and BNY,
which manages the cash portion of the Acquiring Fund's portfolio;
(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 the
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 the Reorganization will not result in any dilution of
Acquired Fund shareholder values;
(15) the terms and conditions of the Plan; and
(16) possible alternatives to the Reorganization.
The Board's decision to recommend approval of the Reorganization was
based on a number of factors, including the following:
(1) it should be reasonable for shareholders to have the same investment
expectations after the Reorganization because the investment
objectives, strategies, policies and risks of each Fund are the same;
(2) American Century, as the sub-advisor with primary responsibility for
managing the assets of the Acquired and Acquiring Funds, may be
expected to continue to provide high quality investment advisory
services and personnel for the foreseeable future;
(3) the Acquiring Fund, which has a substantially larger asset base than
the Acquired Fund, has outperformed the Acquired Fund over the one- and
three-year time periods ended August 31, 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 the same total
expense ratios as the Acquired Fund (except in the case of Class J
shares where the gross expense ratio of the Acquired Fund is higher
than the Acquiring Fund's; PMC, however, has contractually agreed to
maintain the operating expenses of Class J shares of each Fund at 1.75%
through February 28, 2007).
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 of the
Acquired and Acquiring Funds is a separate series of PIF, and the Advisors
Preferred, Advisors Select, Advisors Signature, Class J, Institutional,
Preferred and Select shares of common stock of the Acquiring Fund to be issued
in connection with the Reorganization represent interests in the assets
belonging to that series and have identical dividend, liquidation and other
rights, except that expenses allocated to a particular series or class are borne
solely by that series or class and may cause differences in rights as described
herein. Expenses related to the distribution of, and other identified expenses
properly allocated to, the shares of a particular series or class are charged
to, and borne solely by, that series or class, and the bearing of expenses by a
particular series or class may be appropriately reflected in the net asset value
attributable to, and the dividend and liquidation rights of, that series or
class.
All shares of 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.
The share classes of the Acquired Fund have the same rights with
respect to the Acquired Fund that the share classes of the Acquiring Fund have
with respect to the Acquiring Fund.
Shares of both Funds, when issued, have no cumulative voting rights,
are fully paid and non-assessable, have no preemptive or conversion rights and
are freely transferable. Each fractional share has proportionately the same
rights as are provided for a full share.
Federal Income Tax Consequences
As a condition to the consummation of the Reorganization, PIF will have
received an opinion from Dykema Gossett PLLC substantially to the effect that,
based upon the facts and assumptions stated therein, 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 Fund
had no accumulated capital loss carryforwards.
Distribution of Income and Gains. Prior to the Reorganization, the
Acquired Fund, whose taxable year will end as a result of the Reorganization,
will declare to its shareholders of record one or more distributions of all of
its previously undistributed net investment income and net realized capital
gain, including capital gains on any securities disposed of in connection with
the Reorganization. Such distributions will be made to shareholders before the
Reorganization. An Acquired Fund shareholder will be required to include any
such distributions in such shareholder's taxable income. This may result in the
recognition of income that could have been deferred or might never have been
realized had the Reorganization not occurred.
The foregoing is only a summary of the principal federal income tax
consequences of the Reorganization and should not be considered to be tax
advice. There can be no assurance that the Internal Revenue Service will concur
on all or any of the issues discussed above. You may wish to consult with your
own tax 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
The following table shows the capitalization of each of the Acquired
Fund and the Acquiring Fund as of April 30, 2006, and the pro forma combined
capitalization of the Acquiring Fund as if the Reorganization had occurred as of
that date.
Net Asset
Value Shares
Net Assets Per Share Outstanding
(1) Partners LargeCap Growth Fund --Advisors Preferred 1,931,111 12.02 160,638
(Acquired Fund) --Advisors Select 2,405,535 11.96 201,193
--Advisors Signature 360,390 12.10 29,773
--Class J 9,928,665 11.91 833,319
--Institutional 164,742,893 12.25 13,450,801
--Preferred 32,082 12.17 2,636
--Select 18,055 12.12 1,490
--Total 179,418,731 14,679,850
(2) Partners LargeCap Growth Fund --Advisors Preferred 8,545,418 8.34 1,024,182
II (Acquiring Fund) --Advisors Select 14,239,877 8.27 1,722,029
--Advisors Signature 424,967 8.51 49,922
--Class J 12,402,641 8.09 1,532,229
--Institutional 803,034,731 8.61 93,318,899
--Preferred 20,756,828 8.48 2,447,828
--Select 20,140,144 8.44 2,387,628
--Class A 424,616 8.57 49,564
--Total 879,969,222 102,532,281
(3) Partners LargeCap Growth Fund --Advisors Preferred 10,476,529 8.34 1,256,179
II (pro forma assuming combination --Advisors Select 16,645,412 8.27 2,012,746
of (1) and (2)) --Advisors Signature 785,357 8.51 92,286
--Class J 22,331,306 8.09 2,760,359
--Institutional 967,777,624 8.61 112,401,582
--Preferred 20,788,910 8.48 2,451,522
--Select 20,158,199 8.44 2,388,412
--Class A 424,616 8.57 49,564
--Total 1,059,387,953 123,412,651
ADDITIONAL INFORMATION ABOUT THE FUNDS
Multiple Classes of Shares
The Board of Directors of PIF has adopted an 18f-3 Plan for both of the
Funds. Under these plans, each of the Funds currently offers the following seven
classes of shares: Advisors Signature, Advisors Select, Advisors Preferred,
Select; Preferred, Institutional, and Class J. The Acquiring Fund also offers
Class A shares. The Advisors Signature, Advisors Select, Advisors Preferred,
Select, Preferred, Institutional and Class J shares are the same except for
differences in class expenses, including any 12b-1 fees, and any applicable
sales charges, excessive trading and other fees. Additional share classes may be
offered in the future.
Costs of Investing in the Funds
Fees and Expenses of the Funds
The Advisors Signature, Advisors Select, Advisors Preferred, Select,
Preferred and Institutional classes of both Funds are available without any
front-end sales charge or contingent deferred sales charge ("CDSC"). There is no
sales charge on any shares purchased with reinvested dividends or other
distributions. These shares classes are available through employer-sponsored
retirement plans which may impose fees in addition to those charged by the
Funds.
The Class J shares of both Funds are sold without any front-end sales
charge. There is no sales charge on any shares purchased with reinvested
dividends or other distributions. Under certain circumstances, Class J shares
may be subject to a CDSC and to excessive trading fees, as described below.
If you sell your Class J shares within 18 months of purchase, a CDSC
may be imposed on the shares sold. The CDSC, if any, is determined by
multiplying by 1.00% the lesser of the market value at the time of redemption or
the initial purchase price of the shares sold. The CDSC is not imposed on
shares:
o that were purchased pursuant to the Small Amount Force Out program
(SAFO);
o redeemed due to a shareholder's death or disability (as defined in the
Internal Revenue Code);
o redeemed from retirement plans to satisfy minimum distribution rules
under the Internal Revenue Code;
o sold using a periodic withdrawal plan (up to 10% of the value of the
shares (as of the last business day of December of the prior year)
subject to a CDSC without paying the CDSC);
o that were purchased through the Principal Income IRA; or
o that were purchased through Principal Passage.
An excessive trading fee* of 1.00% is charged on redemptions or
exchanges of $30,000 or more if the Class J 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 the redemption
or exchange.
* The excessive trading fee does not apply to Class J shares
redeemed/exchanged from the PIF Money Market Fund.
Ongoing Fees
Each of the share classes of the Funds pays various ongoing fees to PMC
and others who provide services. Ongoing fees reduce the value of each share.
Because they are ongoing, they increase the cost of investing in the Funds.
All share classes of the Funds pay the following ongoing fees:
o Management Fee - Through the investment advisory agreement
with the Funds, PMC has agreed to provide investment advisory
services and corporate administrative services to the Funds.
o Portfolio Accounting Services - PMC has entered into an
agreement with the Funds under which PMC supplies portfolio
accounting services. Currently, there is no charge for these
services.
All share classes of the Funds except Preferred and Institutional, pay
the following ongoing fees:
o Distribution Fee - Each of the Funds has adopted a
distribution plan under Rule 12b-1 under the 1940 Act for its
Advisors Signature, Advisors Select, Advisors Preferred,
Select and Class J shares. Under the plan, each such share
class of each Fund pays a distribution fee based on the
average daily net asset value (NAV) of the Fund. These fees
pay distribution expenses for the sale of Fund shares by
Princor (the distributor of each Fund) and other selling
dealers. See "Rule 12b-1 Fees" below.
All share classes of the Funds, except Institutional and Class J, pay
the following ongoing fees:
o Service Fee - PMC has entered into a Service Agreement with
each of the Funds under which PMC performs personal services
to shareholders.
o Administrative Service Fee - PMC has entered into an
Administrative Services Agreement with each Fund under which
PMC provides transfer agent and corporate administrative
services to the Fund. In addition, PMC has assumed the
responsibility for communications with and recordkeeping
services for beneficial owners of Fund shares.
Class J shares of the Funds pay the following ongoing fee:
o Transfer Agent Fee - PMC has entered into a Transfer Agency
Agreement with the Funds under which PMC provides transfer
agent services to the Class J shares of the Funds. These
services are currently provided at cost.
Class J shares of the Funds also pay expenses of registering and
qualifying shares for sale, the cost of producing and distributing reports and
prospectuses to Class J shareholders and the cost of shareholder meetings held
solely for Class J shares.
PMC registers Class J shares with the states and each of the Funds pays
the cost associated with this activity under the terms of the Transfer Agency
Agreement for Class J Shares.
Rule 12b-1 Fees
PIF has adopted a Distribution and Service Plan under Rule 12b-1 under
the 1940 Act (each, a "12b-1 plan") for the Advisors Signature, Advisors Select,
Advisors Preferred, Select and Class J shares of each of the Funds.
For each of the Funds, the 12b-1 plan provides that the Fund makes payments from
its assets to Princor pursuant to the plan 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 Advisors
Signature, Advisors Select, Advisors Preferred, Select and Class J shares to the
public. Distribution services for which Princor is compensated under the 12b-1
plans include, but are not limited to:
o formulation and implementation of marketing and promotional activities;
o preparation, printing and distribution of sales literature;
o preparation, printing and distribution of prospectuses and Fund
reports to other than existing shareholders;
o obtaining such information with respect to marketing and promotional
activities as Princor deems advisable;
o making payments to dealers and others engaged in the sale of shares or
who engage in shareholder support services; and
o providing training, marketing and support with respect to the sale of
Funds' shares.
The 12b-1 plans also authorize Princor to enter into service agreements
with other selling dealers and with banks and other financial institutions to
provide shareholder services to existing 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.
Each Fund pays Princor a fee after the end of each month at a rate
stated as an annual percentage of the Fund's average daily net assets
attributable to the particular class of shares. For each such class of shares,
the 12b-1 plans provide for payments by the Funds to Princor at an annual rate
of up to:
Advisors Signature 0.35%
Advisors Select 0.30%
Advisors Preferred 0.25%
Select 0.10%
Class J 0.50%
Because they are ongoing, 12b-1 fees may, over time, exceed other types
of sales charges such as front-end charges or contingent deferred sales charges.
Dividends and Distributions
The Acquired Fund and the Acquiring Fund pay their net investment
income on an annual basis to shareholders of record on the business day prior to
the payment date. The payment date is the last business day of the year.
Net realized capital gains, if any, are distributed by the Acquired
Fund and the Acquiring Fund 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. Capital gains may be taxable at
different rates, depending on the length of time that a Fund holds its assets.
Dividend and capital gain distributions will be reinvested in shares of
the Fund from which the distribution is paid. However, shareholders may
authorize the distribution to be: (i) invested in shares of another PIF Fund
(Dividend Relay) (distributions of a Fund may be directed only to one receiving
PIF Fund); or (ii) paid in cash.
Generally, for federal income tax purposes, Fund distributions are
taxable as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long Fund shares have been held.
Special tax rules apply to Fund distributions to Individual Retirement Accounts
and other retirement plans. A tax advisor should be consulted to determine the
suitability of the Funds as an investment by such a plan and the tax treatment
of distributions by the Funds. A tax advisor can also provide information on the
potential impact of possible foreign, state and local taxes. A Fund's
investments in foreign securities may be subject to foreign withholding taxes.
In that case, the Fund's yield on those securities would be decreased.
Payment of income dividends and capital gains shortly after you buy
shares has the effect of reducing the share price by the amount of the payment.
Distributions from a Fund, whether received in cash or reinvested in additional
shares may be subject to federal (and state) income tax. For these reasons,
buying shares of a Fund shortly before it makes a distribution may be
disadvantageous to you.
Immediately prior to the Effective Time of the Reorganization, the
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 Fund's shareholders.
Pricing of Fund Shares
Each Fund's shares are bought and sold at the current share price. The
share price of each class of each Fund is calculated each day the New York Stock
Exchange ("NYSE") is open (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.
A Fund's securities may be traded on foreign securities markets that
generally complete trading at various times during the day prior to the close of
the NYSE. Generally, the values of foreign securities used in computing a Fund's
net asset value (NAV) are determined at the time the foreign market closes.
Foreign securities and currencies are converted to U.S. dollars using the
exchange rate in effect at the close of the London Exchange (generally 11:00
a.m. Eastern Time). Occasionally, events affecting the value of foreign
securities occur when the foreign market is closed and the NYSE is open. Each
Fund has adopted policies and procedures to "fair value" some or all securities
held by the Fund if significant events occur after the close of the market on
which the foreign securities are traded but before the Fund's NAV is calculated.
Significant events can be specific to a single security or can include events
that affect a particular foreign market or markets. A significant event can also
include a general market movement in the U.S. securities markets. If PMC
believes that the market value of any or all of the foreign securities is
materially affected by such an event, the securities will be valued, and the
Fund's NAV will be calculated, using the policy adopted by the Fund. These fair
valuation procedures are intended to discourage shareholders from investing in
the Fund for the purpose of engaging in market timing or arbitrage transactions.
The trading of foreign securities generally or in a particular country
or countries may not take place on all days the NYSE is open, or may trade on
days the NYSE is closed. Thus, the value of the foreign securities held by the
Fund may change on days when shareholders are unable to purchase or redeem
shares.
Certain securities issued by companies in emerging market countries may
have more than one quoted valuation at any point in time. These may be referred
to as local price and premium price. The premium price is often a negotiated
price that may not consistently represent a price at which a specific
transaction can be effected. 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.
Purchases, Redemptions and Exchanges of Shares
The purchase, redemption and exchange procedures with respect to a
particular class of shares of the Acquired and Acquiring Funds are the same.
Purchases
Advisors Preferred, Advisors Select, Advisors Signature, Preferred and Select
Shares
Shares may be purchased:
o via the internet.
o standard method of accepting data for plans with fewer than 1,000
current and terminated (within the last five years) members.
o available 7 days a week (7 a.m. to 9 p.m. Central Time).
o using a modem.
o plan contributions transferred electronically.
o standard method of accepting data for plans with more than 1,000
current and terminated (within the last five years) members.
o available 24 hours a day, 7 days a week.
To eliminate the need for safekeeping, the Funds will not issue
certificates for shares. The Funds may periodically close to new purchases of
shares or refuse any order to buy shares if PMC determines that doing so would
be in the best interests of the Fund and its shareholders.
Institutional Shares
Shares are purchased from Princor, the Fund's principal underwriter.
There are no sales charges on shares of the Funds. There are no restrictions on
amounts to be invested in Institutional shares of the Funds.
Shareholder accounts for each Fund are maintained under an open account
system. Under this system, an account is opened and maintained for each
investor. Each investment is confirmed by sending the investor a statement of
account showing the current purchase or sale and the total number of shares
owned. The statement of account is treated by each Fund as evidence of ownership
of Fund shares. Share certificates are not issued.
The Funds may reject or cancel any purchase orders for any reason. For
example, the Funds do not permit market timing because short-term or other
excessive trading into and out of the Funds may harm performance by disrupting
portfolio management strategies and by increasing expenses. Accordingly, the
Funds may reject any purchase orders from market timers or investors that, in
PMC's opinion, may be disruptive to the Funds. For these purposes, PMC may
consider an investor's trading history in the Funds or other PIF Funds and
accounts under common ownership or control.
Class J Shares
Fill out the Principal Investors Fund (or the IRA, SEP or SIMPLE)
application completely. You must include:
o the name you want to appear on the account;
o the PIF Fund(s) in which you want to invest;
o the amount of the investment;
o your Social Security number; and
o other required information.
Each Fund requires a minimum initial investment of $1,000. Subsequent
investment minimums are $100. However, if your subsequent investments are made
using an Automatic Investment Plan, the investment minimum is $50.
Notes:
o The Funds may reject or cancel any purchase orders for any
reason. For example, the Funds do not permit market timing
because short-term or other excessive trading into and out of the
Funds may harm performance by disrupting portfolio management
strategies and by increasing expenses. Accordingly, the Funds may
reject any purchase orders from market timers or investors that,
in PMC's opinion, may be disruptive to the Funds. For these
purposes, PMC may consider an investor's trading history in the
Funds or other PIF Funds and accounts under common ownership or
control.
o The minimum investment applies on a Fund level, not on the total
investment being made.
o You may buy Class J shares from any registered representative
whose broker/dealer has a selling agreement for Class J shares.
If you do not have a registered representative, please call
1-800-247-4123 for information on how to purchase Class J shares.
o Class J shares of the PIF MidCap Value, PIF Preferred Securities
and PIF SmallCap Value Funds are also available through Principal
Passage, a fee-based brokerage account.
To eliminate the need for safekeeping, neither Fund will issue
certificates for shares. Each Fund may periodically close to new purchases of
shares or refuse any order to buy shares if PMC determines that doing so would
be in the best interests of the Fund and its shareholders.
In order for us to process your purchase order on the day it is
received, we must receive the order (with complete information):
o on a day that the NYSE is open; and
o prior to the close of trading on the NYSE (normally 3 p.m.
Central Time).
Orders received after the close of the NYSE or on days that the NYSE is
not open will be processed on the next day that the NYSE is open for normal
trading.
Note: We consider your purchase of Fund shares by check to be your
authorization to make an ACH debit entry to your account.
-Invest by Mail
o Send a check and completed application to:
Principal Investors Fund
P. O. Box 10423
Des Moines Iowa 50306-9780
o Make your check payable to Principal Investors Fund.
o Your purchase will be priced at the next share price calculated after
PIF receives your paperwork, completed in a manner acceptable to us.
o When you purchase shares by check, you authorize us to process your
purchase electronically. If your check is processed electronically,
your checking account may be debited on the same day we receive the
check and it will not be returned with your checking account statement.
-Order by Telephone
o Registered representatives on behalf of shareholders of Class J shares
may call us between 7:00 a.m. and 7:00 p.m. Central Time on any day
that the NYSE is open.
o We must receive your payment for the order within three business days
(or the order will be canceled and you may be liable for any loss).
Notes:
o Phone orders are not available for qualified accounts or the PIF Money
Market Fund.
o Other restrictions may apply, please call us for details.
-Wire Money from Your Bank
o Call PIF for an account number and wiring instructions.
o For both initial and subsequent purchases, federal funds should be
wired to:
Wells Fargo, N.A.
San Francisco, CA
ABA No.: 121000248
For credit to: Principal Investors Fund, Inc.
Account No.: 3000499968
For credit: Principal ________ Fund, Class J
Shareholder Account No. __________________
Shareholder Registration __________________
o Give the number and instructions to your bank (which may charge a wire
fee).
o No wires are accepted on days when the NYSE is closed or when the
Federal Reserve is closed (because the bank that would receive your
wire is closed).
-Establish a Direct Deposit Plan
Direct Deposit allows you to deposit automatically all or part of your paycheck
(or government allotment) to your PIF account(s).
o Availability of this service must be approved by your payroll
department.
o Call PIF for an account number, Automated Clearing House (ACH)
instructions and the form needed to establish Direct Deposit.
o Give the Direct Deposit Authorization Form to your employer or the
governmental agency (either of which may charge a fee for this
service).
o Shares will be purchased on the day the ACH notification is received by
Wells Fargo, N.A.
o On days when the NYSE is closed, but the bank
receiving the ACH notification is open, your purchase will be priced at
the next calculated share price.
-Establish an Automatic Investment Plan
o You may make regular monthly investments with automatic deductions from
your bank or other financial institution account. You select the day
(not the 29th, 30th or 31st) of the month the deduction is to be made.
o The minimum initial investment is waived if you set up an Automatic
Investment Plan when you open your account.
o Minimum monthly purchase is $50 per Fund.
o Send completed application, check authorization form and voided check
(or voided deposit slip) to:
Principal Investors Fund
P. O. Box 10423
Des Moines Iowa 50306-0423
-Set Up a Dividend Relay
o Invest your dividends and capital gains from one Fund in shares of
another PIF Fund.
o You may acquire shares of a PIF Fund only if its shares are legally
offered in your state of residence.
o Distributions from a Fund may be directed to only one receiving PIF
Fund.
o The PIF Fund share class receiving the investment must be the same
class as the originating Fund.
o There is no sales charge or administrative charge for the Dividend
Relay.
o You can set up Dividend Relay:
o on the application for a new account; or
o by calling Principal Investors Fund if telephone services
apply to the originating account; or
o in writing (a signature guarantee may be required).
o You may discontinue your Dividend Relay election with a written notice
to PIF. The election may also be discontinued by calling PIF if
telephone services apply to the originating account. There may be a
delay of up to 10 days before the Dividend Relay plan is discontinued.
o The amount invested in the receiving PIF Fund must meet that Fund's
minimums. If it does not, the receiving PIF Fund reserves the right to
close the account if it is not brought up to the minimum investment
amount within 30 days of sending you a deficiency notice.
Redemptions
Advisors Preferred, Advisors Select, Advisors Signature, Preferred and
Select Shares
Subject to any restrictions imposed by a plan, shares may be sold back
to the Funds any day the NYSE is open. For more information about how to sell
shares of the Funds, including any charges that a plan may impose, please
consult the plan.
The Funds generally send payment for shares sold the business day after
the sell order is received. Under unusual circumstances, the Fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
Institutional Shares
You may redeem shares of the Funds upon request. There is no charge for
the redemption. Shares are redeemed at the NAV per share next computed after the
request is received by the Fund in proper and complete form.
Each Fund generally sends payment for shares sold the business day
after the sell order is received. Under unusual circumstances, each Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
Class J Shares
After you place a sell order in proper form, shares are sold using the
next share price calculated. The amount you receive will be reduced by any
applicable CDSC or excessive trading fee. There is no additional charge for a
sale of shares however, you will be charged a $6 wire fee if you have the sale
proceeds wired to your bank. Generally, the sale proceeds are sent out on the
next business day (a day when the NYSE is open for normal business) after the
sell order has been placed. It may take additional business days for your
financial institution to post this payment to your account at that financial
institution. At your request, the check will be sent overnight (a $15 overnight
fee will be deducted from your account unless other arrangements are made). A
Fund can only sell shares after your check making the Fund investment has
cleared your bank. To avoid the inconvenience of a delay in obtaining sale
proceeds, shares may be purchased with a cashier's check, money order or
certified check. A sell order from one owner is binding on all joint owners.
Distributions from IRA, SEP, SIMPLE and SAR-SEP accounts may be taken
as:
o lump sum of the entire interest in the account;
o partial interest in the account; or
o periodic payments of either a fixed amount or an amount based on
certain life expectancy calculations.
Tax penalties may apply to distributions before the participant reaches
age 59 1/2.
Selling shares may create a gain or a loss for federal (and state)
income tax purposes. You should maintain accurate records for use in preparing
your income tax returns.
Generally, sales proceeds checks are:
o payable to all owners on the account (as shown in the account
registration); and
o mailed to the address on the account (if not changed within last month)
or previously authorized bank account.
For other payment arrangements, please call PIF. You should also call
PIF for special instructions that may apply to sales from accounts:
o when an owner has died;
o for certain employee benefit plans; or
o owned by corporations, partnerships, agents or fiduciaries.
Payment for shares sold is generally sent the business day after the
sell order is received. Under unusual circumstances, each Fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
Excessive Trading Fee. Each Fund will impose a redemption fee when
$30,000 or more of Class J shares are 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 Fund and is intended to offset the trading costs, market
impact and other costs associated with short-term money movement in and out of
the Fund.
-Sell Shares By Mail
o Send a letter or distribution form (call us for the form) which is
signed by the owner/owners of the account to:
Principal Investors Fund
P. O. Box 10423
Des Moines Iowa 50306-0423
o Specify the Fund and account number.
o Specify the number of shares or the dollar amount to be sold.
o A medallion signature guarantee* will be required if the:
o sell order is for more than $100,000;
o check is being sent to an address other than the account
address;
o account address has been changed within one month of the sell
order; or
o check is payable to a party other than the account
shareholder(s) or Principal Life.
* If required, the signature(s) must be guaranteed by a commercial
bank, trust company, credit union, savings and loan, national
securities exchange member or brokerage firm. A signature
guaranteed by a notary public or savings bank is not acceptable.
-Sell Shares in Amounts of $100,000 or Less by Telephone
o The address on the account must not have been changed within the last
month and telephone privileges must apply to the account from which the
shares are being sold.
o If our phone lines are busy, you may need to send in a written sell
order.
o To sell shares the same day, the order must be received before the
close of normal trading on the NYSE (generally 3:00 p.m. Central Time).
o Telephone redemption privileges are NOT available for PIF 403(b) plans,
inherited IRAs and certain employee benefit plans.
o If previously authorized, checks can be sent to a shareholder's U.S.
bank account.
-Periodic Withdrawal Plans
You may set up a periodic withdrawal plan on a monthly, quarterly,
semiannual or annual basis to:
o sell enough shares to provide a fixed amount of money ($25
minimum amount);
o pay insurance or annuity premiums or deposits to Principal Life
(call us for details); and
o provide an easy method of making monthly installment payments (if
the service is available from your creditor who must supply the
necessary forms).
You can set up a periodic withdrawal plan by:
o completing the applicable section of the application; or
o sending us your written instructions; or
o calling us if you have telephone privileges on the account
(telephone privileges may not be available for all types of
accounts).
Your periodic withdrawal plan continues until:
o you instruct us to stop; or
o your Fund account balance is zero.
When you set up the withdrawal plan, you select which day you want the
sale made (if none selected, the sale will be made on the 15th of the month). If
the selected date is not a trading day, the sale will take place on the next
trading day (if that day falls in the month after your selected date, the
transaction will take place on the trading day before your selected date). If
telephone privileges apply to the account, you may change the date or amount by
telephoning us.
Sales made under your periodic withdrawal plan will reduce and may
eventually exhaust your account. The Funds do not normally accept purchase
payments while a periodic withdrawal plan is in effect (unless the purchase
represents a substantial addition to your account).
The Fund from which the periodic withdrawal is made makes no
recommendation as to either the number of shares or the fixed amount that you
withdraw.
10% Withdrawal Privilege. Sales may be subject to a CDSC. Up to 10% of
the value of your Class J share account may be withdrawn annually free of a
CDSC. If the withdrawal plan is set up when the account is opened, 10% of the
value of additional purchases made within 60 days may also be withdrawn free of
a CDSC. The amount of the 10% withdrawal privilege is reset as of the last
business day of December of each year based on the account's value as of that
day. The free withdrawal privilege not used in a calendar year is not added to
the free withdrawal privileges for any following year.
Exchanges
Advisors Preferred, Advisors Select, Advisors Signature, Preferred and
Select Shares
An exchange between PIF Funds is a sale of shares in one PIF Fund and
purchase of shares of another PIF Fund with the redemption proceeds. Subject to
any restrictions a plan imposes, shares in the Funds may be exchanged, without
charge, for the same class of any other PIF Fund, provided that:
o the class shares of such other PIF Fund are available in the plan
member's state of residence; and
o shares of such other PIF Fund are available through the plan.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity, and under other circumstances where the Board of Directors or PMC
believes it is in the best interests of a Fund, each Fund reserves the right to
revise or terminate the exchange privilege, limit the amount or number of
exchanges, reject any exchange or close the account. Notification of any such
action will be given to the extent required by law.
Institutional Shares
Shares in the Funds may be exchanged, without charge, for the same
class of any other PIF Fund. The exchange privilege is not intended as a vehicle
for short-term trading. Excessive exchange activity may interfere with portfolio
management and have an adverse effect on all shareholders. In order to limit
excessive exchange activity, and under other circumstances where the Board of
Directors or PMC believes it is in the best interest of a Fund, each Fund
reserves the right to review or terminate the exchange privilege, limit the
amount or number of exchanges, reject any exchange or close the account.
Notification of such action will be given to the extent required by law.
Class J Shares
Your shares in the Funds may be exchanged without a sales charge for
the same class of any other PIF Fund.*
o The CDSC, if any, is not charged on exchanges. However, the original
purchase date of the shares from which an exchange is made is used to
determine if newly acquired shares are subject to the CDSC when they
are sold.
o An excessive trading fee is imposed on exchanges of $30,000 or more if
the exchanged shares were purchased within 30 days of the date of the
exchange.
* Only the PIF MidCap Value, PIF Preferred Securities and PIF
SmallCap Value Funds are available through Principal Passage.
You may exchange shares by:
o sending a written request to:
Principal Investors Fund
P. O. Box 10423
Des Moines, Iowa 50306-0423
o completing an Exchange Authorization Form (call us at 1-800-247-4123
to obtain the form).
o via the Internet at www.principal.com.
o calling us, if you have telephone privileges on the account.
Automatic exchange election
This election authorizes an exchange from one PIF Fund to another on a
monthly, quarterly, semiannual or annual basis. You can set up an automatic
exchange by:
o completing the Automatic Exchange Election section of the application;
o calling us if telephone privileges apply to the account from which the
exchange is to be made; or
o sending us your written instructions.
Your automatic exchange continues until:
o you instruct us to stop by calling us if telephone privileges apply to
the account or by sending us your written instructions; or
o your Fund account balance is zero.
You may specify the day of the exchange (if none selected, the exchange
will be made on the 15th of the month). If the selected day is not a trading
day, the sale will take place on the next trading day (if that day falls in the
month after your selected date, the transaction will take place on the trading
day before your selected date). If telephone privileges apply to the account,
you may change the date or amount by telephoning us.
General
o An exchange by any joint owner is binding on all joint owners.
o If you do not have an existing account in the PIF Fund to which the
exchange is being made, a new account is established. The new account
has the same owner(s), dividend and capital gain options and dealer of
record as the account from which the shares are being exchanged.
o All exchanges are subject to the minimum investment and eligibility
requirements of the PIF Fund being acquired.
o You may acquire shares of a PIF Fund only if its shares are legally
offered in your state of residence.
o For an exchange to be effective the day we receive your instruction, we
must receive the instruction before the close of normal trading on the
NYSE (generally 3 p.m. Central Time).
When money is exchanged or transferred from one account registration or
tax identification number to another, the account holder is relinquishing his or
her rights to the money. Therefore exchanges and transfers can only be accepted
by telephone if the exchange (transfer) is between:
o accounts with identical ownership;
o an account with a single owner to one with joint ownership if the
owner of the single owner account is also an owner of the account with
joint ownership;
o a single owner to a UTMA account if the owner of the single owner
account is also the custodian on the UTMA account; or
o a single or jointly owned account to an IRA account to fund the yearly
IRA contribution of the owner (or one of the owners in the case of a
jointly owned account).
The exchange is treated as a sale of shares for federal (and state)
income tax purposes and may result in a capital gain or loss. Income tax rules
regarding the calculation of cost basis may make it undesirable in certain
circumstances to exchange shares within 90 days of their purchase.
Fund shares used to fund an employee benefit plan may be exchanged only
for shares of other PIF Funds available to employee benefit plans. Such an
exchange must be made by following the procedures provided in the employee
benefit plan and the written service agreement.
Each Fund reserves the right to revise or terminate the exchange privilege at
any time. Notice will be provided to shareholders of any such change, to the
extent required by law.
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 Funds have reserved the right to accept or reject, without prior
written notice, any exchange requests. In some instances, an exchange may be
completed prior to a determination of abusive trading. In those instances, we
will reverse the exchange. We will give the shareholder that requested the
exchange notice in writing in this instance.
For Advisors Preferred, Advisors Select, Advisors Signature, Preferred and
Select Shares
The retirement plan administrator of plans that invest in these classes
of shares of the Funds monitor trading activity to identify and take action
against abuses. While these procedures are designed to identify and protect
against abusive trading practices, there can be no certainty that abusive
trading will be identified and prevented in all instances. When abusive trading
is identified, these policies and procedures will be applied in a fair and
uniform manner. If we are not able to identify such abusive trading practices,
the abuses described above will negatively impact the Funds.
For Institutional and Class J Shares
The Board of Directors has 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.
For Institutional Shares
If PIF, or a Fund, deem abusive trading practices to be occurring with
respect to Institutional shares, PIF will take action that may include, but is
not limited to:
o Rejecting exchange instructions from the shareholder or other
person authorized by the shareholder to direct exchanges;
o Restricting submission of exchange requests by, for example, allowing
exchange requests to be submitted by 1st class U.S. mail only and
disallowing requests made via the internet, by facsimile, by overnight
courier or by telephone;
o Limiting the number of exchanges during a year;
o Requiring a holding period of a minimum of 30 days before permitting
exchanges among PIF Funds where there is evidence of at least one
round-trip exchange (exchange or redemption of shares that were
purchased within 30 days of the exchange/redemption); and
o Taking such other action as directed by the Fund.
For Class J Shares
Currently, the Funds impose an excessive trading fee on redemptions or
exchanges of $30,000 or more of Class J 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 Limiting 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.
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 the Acquired Fund will vote together on the proposed
Reorganization and on any other matter submitted to such shareholders. You are
entitled to one vote on each matter submitted to the shareholders of the
Acquired Fund for each share of the Fund that you hold, and fractional votes for
fractional shares held. The Proposal requires for approval the affirmative vote
of a "Majority of the Outstanding Voting Securities," which is a term defined in
the 1940 Act to mean the affirmative vote of the lesser of (1) 67% or more of
the voting securities of the Acquired Fund present at the Meeting, if the
holders of more than 50% of the outstanding voting securities of the Acquired
Fund are present in person or by proxy, or (2) more than 50% of the outstanding
voting securities of the Acquired Fund.
The number of votes eligible to be cast at the Meeting as of the Record
Date and other share ownership information are set forth below under the heading
"Outstanding Shares and Share Ownership" in this Proxy Statement/Prospectus.
Quorum requirements. A quorum must be present at the Meeting for the
transaction of business. The presence in person or by proxy of one-third of the
shares of the Acquired Fund outstanding at the close of business on the Record
Date constitutes a quorum for a meeting. 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 the 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 the Proposal.
In the event the necessary quorum to transact business or the vote
required to approve the Proposal is not obtained at the Meeting, the persons
named as proxies or any shareholder present at the Meeting may propose one or
more adjournments of the Meeting in accordance with applicable law to permit
further solicitation of proxies. Any such adjournment as to the Proposal or any
other matter will require the affirmative vote of the holders of a majority of
the shares of the Acquired Fund cast at the Meeting. The persons named as
proxies and any shareholder present at the Meeting will vote for or against any
adjournment in their discretion.
Solicitation procedures. 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 will be treated
as an expense related to the Reorganization and will be paid by PMC.
OUTSTANDING SHARES AND SHARE OWNERSHIP
The following table shows as of the Record Date the number of shares of
each class of the Acquired Fund outstanding and entitled to vote.
Share Class Number of Shares Outstanding
Advisors Preferred
Advisors Select
Advisors Signature
Class J
Institutional
Preferred
Select
As of the Record Date, the Directors and officers of PIF together owned
less than 1% of the outstanding shares of any class of the 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 Fund:
Share Class Name/Address of Shareholder Percentage of Ownership
Advisors Preferred
Advisors Select
Advisors Signature
Class J
Institutional
Preferred
Select
FINANCIAL HIGHLIGHTS
The financial highlights table for each of the Acquired Fund and the
Acquiring Fund is intended to help investors understand the financial
performance of each Fund for the past five fiscal years (or since inception in
the case of a Fund in operation for less than five years) and for the
semi-annual period ending April 30, 2006. Certain information reflects financial
results for a single share of a Fund. The total returns in the tables represent
the rate that an investor would have earned (or lost) on an investment in a
particular Fund (assuming reinvestment of all dividends and distributions).
Information for the fiscal years ended October 31, 2001 through October 31, 2005
has been audited by Ernst & Young LLP, Independent Registered Public Accounting
Firm, whose report, along with each Fund's financial statements, is included in
PIF's Annual Report to Shareholders for the fiscal year ended October 31, 2005.
Copies of this report are available on request as described above. Information
for the semi-annual period ended April 30, 2006 has not been audited.
FINANCIAL HIGHLIGHTS
PRINCIPAL INVESTORS FUND, INC.
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
2006(a) 2005 2004 2003(b)
---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND
Advisors Preferred shares
Net Asset Value, Beginning of Period...................... $ 11.66 $ 11.72 $ 11.97 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.01) (0.03) (0.06) (0.05)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.44 0.65 (0.19) 2.02
Total From Investment Operations 0.43 0.62 (0.25) 1.97
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) (0.68) - -
Total Dividends and Distributions (0.07) (0.68) - -
Net Asset Value, End of Period $ 12.02 $ 11.66 $ 11.72 $ 11.97
Total Return.............................................. 3.64%(d) 5.28% (2.09)% 19.70%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $1,931 $1,967 $144 $120
Ratio of Expenses to Average Net Assets.............. 1.57%(e) 1.57% 1.55% 1.54%(e)
Ratio of Gross Expenses to Average Net Assets........ -%(e) -% 1.57%(f) 1.57%(e),(f)
Ratio of Net Investment Income to Average Net Assets. (0.22)%(e) (0.22)% (0.53)% (0.51)%(e)
Portfolio Turnover Rate.............................. 95.2%(e) 87.9% 129.3% 64.8%(e)
2006(a) 2005 2004 2003(b)
---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND
Advisors Select shares
Net Asset Value, Beginning of Period...................... $ 11.60 $ 11.69 $ 11.95 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.02) (0.03) (0.10) (0.06)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.45 0.62 (0.16) 2.01
Total From Investment Operations 0.43 0.59 (0.26) 1.95
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) (0.68) - -
Total Dividends and Distributions (0.07) (0.68) - -
Net Asset Value, End of Period $ 11.96 $ 11.60 $ 11.69 $ 11.95
Total Return.............................................. 3.66%(d) 5.02% (2.18)% 19.50%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $2,406 $2,393 $2,251 $119
Ratio of Expenses to Average Net Assets.............. 1.75%(e) 1.75% 1.75% 1.72%(e)
Ratio of Gross Expenses to Average Net Assets........ -%(e) -% 1.75%(f) 1.75%(e),(f)
Ratio of Net Investment Income to Average Net Assets. (0.40)%(e) (0.27)% (0.88)% (0.69)%(e)
Portfolio Turnover Rate.............................. 95.2%(e) 87.9% 129.3% 64.8%(e)
2006(a) 2005
PARTNERS LARGECAP GROWTH FUND
Advisors Signature shares
Net Asset Value, Beginning of Period...................... $ 11.75 $ 11.79
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.03) (0.12)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.45 0.76
Total From Investment Operations 0.42 0.64
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) (0.68)
Total Dividends and Distributions (0.07) (0.68)
Net Asset Value, End of Period $ 12.10 $ 11.75
Total Return.............................................. 3.53%(d) 5.40%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $360 $317
Ratio of Expenses to Average Net Assets.............. 1.88%(e) 1.88%
Ratio of Net Investment Income to Average Net Assets. (0.53)%(e) (1.00)%
Portfolio Turnover Rate.............................. 95.2%(e) 87.9%
FINANCIAL HIGHLIGHTS(Continued)
PRINCIPAL INVESTORS FUND, INC.
(unaudited)
2006(a) 2005 2004 2003(b)
---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND
Class J shares
Net Asset Value, Beginning of Period...................... $ 11.56 $ 11.65 $ 11.93 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.02) (0.04) (0.09) (0.09)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.44 0.63 (0.19) 2.02
Total From Investment Operations 0.42 0.59 (0.28) 1.93
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) (0.68) - -
Total Dividends and Distributions (0.07) (0.68) - -
Net Asset Value, End of Period $ 11.91 $ 11.56 $ 11.65 $ 11.93
Total Return(g)........................................... 3.59%(d) 5.04% (2.35)% 19.30%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $9,929 $8,187 $5,451 $2,609
Ratio of Expenses to Average Net Assets.............. 1.75%(e) 1.75% 1.80% 1.94%(e)
Ratio of Gross Expenses to Average Net Assets(h)..... 1.98%(e) 2.13% 2.36%(f) 6.94%(e),(f)
Ratio of Net Investment Income to Average Net Assets. (0.40)%(e) (0.32)% (0.77)% (0.95)%(e)
Portfolio Turnover Rate.............................. 95.2%(e) 87.9% 129.3% 64.8%(e)
2006(a) 2005 2004 2003(b)
---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.85 $ 11.85 $ 12.03 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ 0.03 0.02 - 0.01
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.45 0.66 (0.18) 2.02
Total From Investment Operations 0.48 0.68 (0.18) 2.03
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.01) - - -
Distributions from Realized Gains.................... (0.07) (0.68) - -
Total Dividends and Distributions (0.08) (0.68) - -
Net Asset Value, End of Period $ 12.25 $ 11.85 $ 11.85 $ 12.03
Total Return.............................................. 4.04%(d) 5.75% (1.50)% 20.30%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $164,743 $330,258 $5,331 $5,414
Ratio of Expenses to Average Net Assets.............. 1.00%(e) 1.00% 0.98% 0.97%(e)
Ratio of Gross Expenses to Average Net Assets........ -%(e) -% 1.00%(f) 1.00%(e),(f)
Ratio of Net Investment Income to Average Net Assets. 0.41%(e) 0.13% 0.04% 0.06%(e)
Portfolio Turnover Rate.............................. 95.2%(e) 87.9% 129.3% 64.8%(e)
2006(a) 2005 2004 2003(b)
---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND
Preferred shares
Net Asset Value, Beginning of Period...................... $ 11.78 $ 11.79 $ 12.00 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ 0.01 0.04 (0.03) (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.45 0.63 (0.18) 2.02
Total From Investment Operations 0.46 0.67 (0.21) 2.00
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) (0.68) - -
Total Dividends and Distributions (0.07) (0.68) - -
Net Asset Value, End of Period $ 12.17 $ 11.78 $ 11.79 $ 12.00
Total Return.............................................. 3.86%(d) 5.69% (1.75)% 20.00%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $32 $31 $118 $120
Ratio of Expenses to Average Net Assets.............. 1.26%(e) 1.26% 1.24% 1.23%(e)
Ratio of Gross Expenses to Average Net Assets........ -%(e) -% 1.26%(f) 1.26%(e),(f)
Ratio of Net Investment Income to Average Net Assets. 0.10%(e) 0.38% (0.22)% (0.20)%(e)
Portfolio Turnover Rate.............................. 95.2%(e) 87.9% 129.3% 64.8%(e)
FINANCIAL HIGHLIGHTS(Continued)
PRINCIPAL INVESTORS FUND, INC.
(unaudited)
2006(a) 2005 2004 2003(b)
---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND
Select shares
Net Asset Value, Beginning of Period...................... $ 11.74 $ 11.77 $ 11.99 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ - 0.03 (0.04) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.45 0.62 (0.18) 2.02
Total From Investment Operations 0.45 0.65 (0.22) 1.99
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) (0.68) - -
Total Dividends and Distributions (0.07) (0.68) - -
Net Asset Value, End of Period $ 12.12 $ 11.74 $ 11.77 $ 11.99
Total Return.............................................. 3.79%(d) 5.52% (1.83)% 19.90%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $18 $17 $118 $120
Ratio of Expenses to Average Net Assets.............. 1.38%(e) 1.38% 1.36% 1.35%(e)
Ratio of Gross Expenses to Average Net Assets........ -%(e) -% 1.38%(f) 1.38%(e),(f)
Ratio of Net Investment Income to Average Net Assets. (0.04)%(e) 0.27% (0.34)% (0.32)%(e)
Portfolio Turnover Rate.............................. 95.2%(e) 87.9% 129.3% 64.8%(e)
(a) Six months ended April 30, 2006.
(b) Period from December 30, 2002, date operations commenced, through October
31, 2003.
(c) Calculated based on average shares outstanding during the period.
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Expense ratio without commission rebates.
(g) Total return is calculated without the contingent deferred sales charge.
(h) Expense ratio without the Manager's voluntary or contractual expense limit.
The voluntary expense limit decreased on March 1, 2004 and ceased on
February 28, 2006. The contractual expense limit began on March 1, 2006.
FINANCIAL HIGHLIGHTS(Continued)
PRINCIPAL INVESTORS FUND, INC.
(unaudited)
2006(a) 2005 2004 2003 2002 2001(b)
---- ---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Advisors Preferred shares
Net Asset Value, Beginning of Period...................... $ 7.94 $ 7.58 $ 7.18 $ 6.12 $ 7.41 $ 10.67
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.03) (0.02) (0.05) (0.04) (0.05) (0.05)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.52 0.53 0.45 1.10 (1.24) (3.21)
Total From Investment Operations 0.49 0.51 0.40 1.06 (1.29) (3.26)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.02) - - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - - -
Total Dividends and Distributions (0.09) (0.15) - - - -
Net Asset Value, End of Period $ 8.34 $ 7.94 $ 7.58 $ 7.18 $ 6.12 $ 7.41
Total Return.............................................. 6.18%( d) 6.76% 5.57% 17.32% (17.41)% (29.46)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $8,545 $8,540 $6,532 $4,761 $613 $741
Ratio of Expenses to Average Net Assets.............. 1.56%( e) 1.57% 1.57% 1.57% 1.57% 1.57%(e)
Ratio of Net Investment Income to Average Net Assets. (0.61)%(e) (0.27)% (0.66)% (0.60)% (0.64)% (0.75)%(e)
Portfolio Turnover Rate.............................. 133.3%(e) 95.2% 124.7% 193.9% 176.7% 153.6%(e)
2006(a) 2005 2004 2003 2002 2001(b)
---- ---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Advisors Select shares
Net Asset Value, Beginning of Period...................... $ 7.87 $ 7.54 $ 7.14 $ 6.10 $ 7.39 $ 10.67
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.03) (0.04) (0.06) (0.05) (0.06) (0.06)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.52 0.52 0.46 1.09 (1.23) (3.22)
Total From Investment Operations 0.49 0.48 0.40 1.04 (1.29) (3.28)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.02) - - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - - -
Total Dividends and Distributions (0.09) (0.15) - - - -
Net Asset Value, End of Period $ 8.27 $ 7.87 $ 7.54 $ 7.14 $ 6.10 $ 7.39
Total Return.............................................. 6.24%(d) 6.38% 5.60% 17.05% (17.46)% (29.65)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $14,240 $13,504 $7,582 $1,835 $611 $741
Ratio of Expenses to Average Net Assets.............. 1.74%(e) 1.75% 1.75% 1.75% 1.75% 1.75%(e)
Ratio of Net Investment Income to Average Net Assets. (0.79)%(e) (0.46)% (0.85)% (0.74)% (0.82)% (0.93)%(e)
Portfolio Turnover Rate.............................. 133.3%(e) 95.2% 124.7% 193.9% 176.7% 153.6%(e)
2006(a) 2005
PARTNERS LARGECAP GROWTH FUND II
Advisors Signature shares
Net Asset Value, Beginning of Period...................... $ 8.11 $ 7.76
Income from Investment Operations:
Net Investment Income (Operating Loss)(f)............ (0.04) (0.07)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.53 0.57
Total From Investment Operations 0.49 0.50
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.02)
Distributions from Realized Gains.................... (0.09) (0.13)
Total Dividends and Distributions (0.09) (0.15)
Net Asset Value, End of Period $ 8.51 $ 8.11
Total Return.............................................. 6.05%(d) 6.44%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $425 $164
Ratio of Expenses to Average Net Assets.............. 1.87%(e) 1.88%
Ratio of Net Investment Income to Average Net Assets. (0.91)%(e) (0.84)%
Portfolio Turnover Rate.............................. 133.3%(e) 95.2%
FINANCIAL HIGHLIGHTS(Continued)
PRINCIPAL INVESTORS FUND, INC.
(unaudited)
2006(a) 2005 2004 2003 2002 2001(g)
---- ---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Class J shares
Net Asset Value, Beginning of Period...................... $ 7.71 $ 7.38 $ 7.00 $ 5.99 $ 7.27 $ 8.37
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.03) (0.03) (0.06) (0.06) (0.21) (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.50 0.51 0.44 1.07 (1.07) (1.08)
Total From Investment Operations 0.47 0.48 0.38 1.01 (1.28) (1.10)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.02) - - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - - -
Total Dividends and Distributions (0.09) (0.15) - - - -
Net Asset Value, End of Period $ 8.09 $ 7.71 $ 7.38 $ 7.00 $ 5.99 $ 7.27
Total Return(h)........................................... 6.10%(d) 6.52% 5.43% 16.86% (17.61)% (13.76)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $12,403 $10,661 $7,723 $4,234 $2,425 $688
Ratio of Expenses to Average Net Assets.............. 1.75%(e) 1.75% 1.79% 1.95% 1.95% 1.93%(e)
Ratio of Gross Expenses to Average Net Assets(i)..... 1.91%(e) 2.00% 2.10% 2.97% -% -%(e)
Ratio of Net Investment Income to Average Net Assets. (0.80)%(e) (0.45)% (0.88)% (0.93)% (1.01)% (1.15)%(e)
Portfolio Turnover Rate.............................. 133.3%(e) 95.2% 124.7% 193.9% 176.7% 153.6%(e)
2006(a) 2005 2004 2003 2002 2001(b)
---- ---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.17 $ 7.76 $ 7.30 $ 6.19 $ 7.44 $ 10.67
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ - 0.01 (0.01) - - (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.54 0.56 0.47 1.11 (1.25) (3.21)
Total From Investment Operations 0.54 0.57 0.46 1.11 (1.25) (3.23)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.01) (0.03) - - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - - -
Total Dividends and Distributions (0.10) (0.16) - - - -
Net Asset Value, End of Period $ 8.61 $ 8.17 $ 7.76 $ 7.30 $ 6.19 $ 7.44
Total Return.............................................. 6.59%(d) 7.31% 6.30% 17.93% (16.80)% (29.18)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $803,035 $715,195 $170,809 $56,784 $3,266 $3,193
Ratio of Expenses to Average Net Assets.............. 0.99%(e) 1.00% 1.00% 1.00% 1.00% 1.00%(e)
Ratio of Net Investment Income to Average Net Assets. (0.04)%(e) 0.12% (0.10)% (0.05)% (0.07)% (0.23)%(e)
Portfolio Turnover Rate.............................. 133.3%(e) 95.2% 124.7% 193.9% 176.7% 153.6%(e)
2006(a) 2005 2004 2003 2002 2001(b)
---- ---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Preferred shares
Net Asset Value, Beginning of Period...................... $ 8.05 $ 7.67 $ 7.25 $ 6.15 $ 7.42 $ 10.67
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.01) - (0.03) (0.01) (0.01) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.53 0.54 0.45 1.11 (1.26) (3.22)
Total From Investment Operations 0.52 0.54 0.42 1.10 (1.27) (3.25)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.03) - - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - - -
Total Dividends and Distributions (0.09) (0.16) - - - -
Net Asset Value, End of Period $ 8.48 $ 8.05 $ 7.67 $ 7.25 $ 6.15 $ 7.42
Total Return.............................................. 6.47%(d) 6.97% 5.79% 17.89% (17.12)% (29.37)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $20,757 $20,415 $15,288 $974 $843 $743
Ratio of Expenses to Average Net Assets.............. 1.25%(e) 1.26% 1.26% 1.26% 1.26% 1.26%(e)
Ratio of Net Investment Income to Average Net Assets. (0.30)%(e) 0.05% (0.39)% (0.23)% (0.33)% (0.44)%(e)
Portfolio Turnover Rate.............................. 133.3%(e) 95.2% 124.7% 193.9% 176.7% 153.6%(e)
FINANCIAL HIGHLIGHTS(Continued)
PRINCIPAL INVESTORS FUND, INC.
(unaudited)
2006(a) 2005 2004 2003 2002 2001(b)
---- ---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Select shares
Net Asset Value, Beginning of Period...................... $ 8.02 $ 7.64 $ 7.22 $ 6.14 $ 7.42 $ 10.67
Income from Investment Operations:
Net Investment Income (Operating Loss)(c)............ (0.02) (0.02) (0.04) (0.02) (0.03) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.53 0.55 0.46 1.10 (1.25) (3.21)
Total From Investment Operations 0.51 0.53 0.42 1.08 (1.28) (3.25)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.02) - - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - - -
Total Dividends and Distributions (0.09) (0.15) - - - -
Net Asset Value, End of Period $ 8.44 $ 8.02 $ 7.64 $ 7.22 $ 6.14 $ 7.42
Total Return.............................................. 6.37%(d) 6.99% 5.82% 17.59% (17.25)% (29.37)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $20,140 $15,970 $1,940 $723 $615 $742
Ratio of Expenses to Average Net Assets.............. 1.37%(e) 1.38% 1.38% 1.38% 1.37% 1.38%(e)
Ratio of Net Investment Income to Average Net Assets. (0.42)%(e) (0.24)% (0.48)% (0.35)% (0.44)% (0.56)%(e)
Portfolio Turnover Rate.............................. 133.3%(e) 95.2% 124.7% 193.9% 176.7% 153.6%(e)
(a) Six months ended April 30, 2006.
(b) Period from December 6, 2000, date shares first offered, through October
31, 2001. Institutional and Preferred classes of shares each recognized
$.01 of net investment income per share from November 30, 2000 through
December 5, 2000. In addition, Advisors Preferred, Advisors Select,
Insitutional, Preferred and Select classes of shares incurred an unrealized
gain of $.67, $.67, $.66, $.66 and $.67 per share, respectively, during the
initial interim period.
(c) Effective November 1, 2002, calculated based on average shares outstanding
(d) Total return amounts have not been annualized. (e) Computed on an
annualized basis.
(f) Calculated based on average shares outstanding during the period.
(g) Period from March 1, 2001, date shares first offered, through October 31,
2001. Class J incurred an unrealized loss of $.12 per share from February
27, 2001 through February 28, 2001.
(h) Total return is calculated without the contingent deferred sales charge.
(i) Expense ratio without the Manager's voluntary or contractual expense limit.
The voluntary expense limit began on November 1, 2002. Expense limits were
decreased on March 1, 2004 and ceased on February 28, 2006. The contractual
expense limit began on March 1, 2006.
FINANCIAL STATEMENTS
The financial statements of PIF included in its Annual Report to
Shareholders for the fiscal year ended October 31, 2005 have been audited by
Ernst & Young LLP, Independent Registered Public Accounting Firm. These
financial statements, together with the unaudited financial statements of PIF,
included in its Semi-Annual Report to Shareholders for the six-month period
ended April 30, 2006, have been incorporated by reference into the Statement of
Additional Information insofar as such financial statements relate to the
Acquired and Acquiring Funds. Copies of these reports are available on request
as described above.
LEGAL MATTERS
Certain matters concerning the issuance of shares of the Acquiring Fund
will be passed upon by Michael D. Roughton, Esq., Counsel to PIF. Certain tax
consequences of the Reorganization will be passed upon by Dykema Gossett PLLC,
400 Renaissance Center, Detroit, Michigan 48243.
OTHER INFORMATION
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
November ___, 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.
A-2
APPENDIX A
PLAN OF REORGANIZATION
Partners LargeCap Growth Fund II and
Partners LargeCap Growth Fund
The Board of Directors of Principal Investors Fund, Inc., a Maryland
corporation (the "Fund"), deems it advisable that the Partners LargeCap Growth
Fund II of the Fund (the "Acquiring Fund") and the Partners LargeCap Growth 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. Advisors
Preferred, Advisors Select, Advisors Signature, Class J, Institutional,
Preferred and Select shares of the Acquiring Fund correspond to, respectively,
Advisors Preferred, Advisors Select, Advisors Signature, Class J, Institutional,
Preferred and Select shares of the Acquired Fund.
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:
Partners LargeCap Growth Fund Partners LargeCap Growth Fund II
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