As filed with the Securities and Exchange Commission on October 6, 2006
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
[ ] Pre-Effective Amendment No. __
[ ] Post-Effective Amendment No. __
PRINCIPAL INVESTORS FUND, INC.
(Exact name of Registrant as specified in charter)
680 8th Street, Des Moines, Iowa 50392-0200
(Address of Registrant's Principal Executive Offices)
800-247-4123
(Registrant's Telephone Number, Including Area Code)
Michael D. Roughton
Counsel, Principal Investors Fund, Inc.
711 High Street, Suite 405 West
Des Moines, Iowa 50392-0200
(Name and Address of Agent for Service)
Copies of all communications to:
John W. Blouch
Dykema Gossett PLLC
1300 I Street, N.W.
Washington, D.C. 20005-3353
202-906-8714; 202-906-8669 (Fax)
Approximate date of proposed public offering: As soon as practicable after this
Registration Statement becomes effective.
Title of Securities Being Registered: Advisors Signature Class, Preferred Class,
Advisors Preferred Class, Select Class, Advisors Select Class, Institutional
Class and Class J common stock, par value $.01 per share.
No filing fee is due because an indefinite number of shares have been registered
in reliance on Section 24(f) under the Investment Company Act of 1940, as
amended.
It is proposed that this filing will become effective on November 5, 2006,
pursuant to Rule 488.
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
[FORM OF PROXY CARD]
Principal Investors Fund, Inc.
Des Moines, Iowa 50392-0200
The accompanying Proxy Statement outlines important issues affecting your shares
in Partners LargeCap Growth Fund (the "Fund"). Help us save time and postage by
voting on the Internet. The Internet voting site is generally available 24 hours
a day and will ensure that your vote is confirmed and posted immediately. DO NOT
MAIL THE PROXY CARD IF YOU ARE VOTING BY INTERNET.
VOTING ON THE INTERNET
o Read the Proxy Statement and have this card at hand.
o Log onto https://vote.proxy-direct.com.
o Enter your Control Number and follow the on-screen instructions.
o Do not return this paper ballot.
VOTE YOUR PROXY TODAY!
SPECIAL MEETING OF SHAREHOLDERS DECEMBER 15, 2006
PRINCIPAL INVESTORS FUND, INC.
PARTNERS LARGECAP GROWTH FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder appoints Jill R. Brown, Ernest H. Gillum and Michael
J. Beer, and each of them separately, Proxies, with power of substitution, and
authorizes them to represent and to vote as designated on this ballot, at the
meeting of shareholders of the Fund to be held December 15, 2006 at 10 a.m.,
Central Time, and any adjournments thereof, all the shares of the Fund that the
undersigned shareholder would be entitled to vote if personally present.
Check the appropriate box on the ballot, date the ballot and sign exactly as
your name appears. Your signature acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Proxy Statement, both dated November __, 2006.
Shares will be voted as you instruct. If no direction is made, the proxy will be
voted FOR the proposal listed. In their discretion, the Proxies will also be
authorized to vote upon such other matters that may properly come before the
meeting.
Date________________, 2006
-------------------------------------
Signature of Shareholder(s) (if held jointly)
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS BALLOT. PLEASE MARK,
SIGN, DATE AND MAIL YOUR PROXY BALLOT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If
shares are held jointly, either party may sign. If executed by a corporation, an
authorized officer must sign. Executors, administrators and trustees should so
indicate when signing.
Please fill in boxes as shown using black or blue ink. PLEASE DO NOT USE FINE
POINT PENS.
The Board of Directors unanimously recommends that shareholders vote FOR the
Proposal. Sign the proxy ballot and return it as soon as possible in the
enclosed envelope.
PROPOSAL
For Against Abstain
1. Approval of a Plan of Reorganization [ ] [ ] [ ]
providing for the reorganization of the Partners
LargeCap Growth Fund into the Partners LargeCap Growth
Fund II.
PART B
INFORMATION REQUIRED IN
A STATEMENT OF ADDITIONAL INFORMATION
PRINCIPAL INVESTORS FUND, INC.
680 8[th] Street
Des Moines, Iowa 50392-0200
STATEMENT OF ADDITIONAL INFORMATION
Dated: November __, 2006
This Statement of Additional Information is available to the shareholders
of the Partners LargeCap Growth Fund (the "Acquired Fund"), in connection with
the proposed reorganization of the Acquired Fund into the Partners LargeCap
Growth Fund II (the "Acquiring Fund"), each of which is a separate series of
Principal Investors Fund, Inc. ( the "Reorganization").
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement/Prospectus dated November __, 2006,
relating to the Special Meeting of Shareholders of the Acquired Fund to be held
on December 15, 2006. The Proxy Statement/Prospectus, which describes the
proposed Reorganization, may be obtained without charge by writing to Principal
Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080, or by
calling toll free at 1-800-247-4123.
This Statement of Additional Information incorporates by reference the
following documents (or designated portions thereof) that have been filed with
the Securities and Exchange Commission:
(1) The Statement of Additional Information of Principal Investors Fund,
Inc. ("PIF") dated March 1, 2006, as supplemented;
(2) The financial statements of the Acquired Fund and the Acquiring Fund
included in PIF's Annual Report to Shareholders for the fiscal year ended
October 31, 2005, which have been audited by Ernst & Young LLP,
Independent Registered Public Accounting Firm, as filed on Form N-CSR on
December 21, 2005; and
(3) The unaudited financial statements of the Acquired Fund and the
Acquiring Fund included in PIF's Semi-Annual Report to Shareholders for
the six-month period ended April 30, 2006, as filed on Form N-CSRS on June
28, 2006.
The Annual and Semi-Annual Reports to Shareholders of PIF are available
upon request and without charge by calling toll-free at 1-800-247-4123.
PRO FORMA FINANCIAL STATEMENTS
Introductory Paragraph
On September 11, 2006, the Board of Directors of Principal Investors Fund,
Inc. approved a Plan of Reorganization whereby, subject to approval by the
shareholders of the Partners LargeCap Growth Fund (the "Acquired Fund"), the
Partners LargeCap Growth Fund II (the "Acquiring Fund") will acquire all the
assets of the Acquired Fund, subject to the liabilities of the Acquired Fund, in
exchange for a number of shares equal in value to the pro rata net assets of
shares of the Acquired Fund (the "Reorganization").
Shown below are unaudited pro forma financial statements for the combined
Acquiring Fund, assuming the Reorganization had been consummated as of April 30,
2006. The first table presents pro forma Statements of Assets and Liabilities
for the combined Acquiring Fund. The second table presents pro forma Statements
of Operations for the combined Acquiring Fund. The third table presents a pro
forma Schedule of Investments for the combined Acquiring Fund.
Please see the accompanying notes for additional information about the pro
forma financial statements. The pro forma schedules of investments and
statements of assets and liabilities and operations should be read in
conjunction with the historical financial statements of the Acquired Fund and
the Acquiring Fund incorporated by reference in the Statement of Additional
Information.
Statements of Assets and Liabilities
Principal Investors Fund, Inc.
April 30, 2006 (unaudited)
Combined
Partners LargeCap Partners LargeCap Pro Forma Partners LargeCap
Growth Fund Growth Fund II Adjustments Growth Fund II
Investment in securities--at cost $190,948,117 $829,330,091 $ - $1,020,278,208
Assets
Investment in securities--at value $192,165,779 (a) $881,544,394 (a) $ - $1,073,710,173(a)
Cash 314,132 13,126,901 - 13,441,033
Receivables: -
Capital Shares sold - 713,677 - 713,677
Dividends and interest 75,004 314,049 - 389,053
Expense reimbursement from Manager 383 811 - 1,194
Investment securities sold 3,241,403 5,190,176 - 8,431,579
Variabtion margin on futures contracts - 4,680 - 4,680
Total Assets 195,796,701 900,894,688 - 1,096,691,389
Liabilities
Accrued management and investment advisory
fees 29,905 143,962 - 173,867
Accrued administrative service fees 144 1,521 - 1,665
Accrued distribution fees 1,033 2,469 - 3,502
Accrued service fees 169 1,870 - 2,039
Accrued transfer and administrative fees 4,515 6,619 - 11,134
Accrued other expenses 382 290 - 672
Payables:
Capital Shares reacquired 1,921,878 - - 1,921,878
Foreign currency contracts - 413,891 - 413,891
Investment securities purchased 2,631,944 11,988,844 - 14,620,788
Collateral obligation on securities loaned,
at value 11,788,000 8,366,000 - 20,154,000
Total Liabilities 16,377,970 20,925,466 - 37,303,436
Net Assets Applicable to Outstanding Shares $179,418,731 $879,969,222 $ - $1,059,387,953
Net Assets Consist of:
Capital Shares and additional paid-in-capital $164,418,824 $785,311,147 $ - $ 949,729,971
Accumulated undistributed (overdistributed)
net investment income (operating loss) 293,084 (590,345) - (297,261)
Accumulated undistributed (overdistributed)
net realized gain (loss) 13,489,161 43,413,314 - 56,902,475
Net unrealized appreciation (depreciation)
of investments 1,217,662 52,248,997 - 53,466,659
Net unrealized appreciation (depreciation)
on translation
of assets and liabilities in foreign
currency - (413,891) - (413,891)
Total Net Assets $179,418,731 $879,969,222 $ - $1,059,387,953
Capital Stock (par value: $.01 a share):
Shares authorized 390,000,000 420,000,000 - 420,000,000
Net Asset Value Per Share:
Advisors Preferred: Net Assets $ 1,931,111 $ 8,545,418 $ - $ 10,476,529
Shares issued and outstanding 160,638 1,024,182 71,359(d) 1,256,179
Net asset value per share $ 12.02 $ 8.34 $ 8.34
Advisors Select: Net Assets $ 2,405,535 $14,239,877 $ - $ 16,645,412
Shares issued and outstanding 201,193.00 1,722,029 89,524(d) 2,012,746
Net asset value per share $ 11.96 $ 8.27 $ 8.27
Advisors Signature: Net Assets $ 360,390 $ 424,967 $ - $ 785,357
Shares issued and outstanding 29,773 49,922 12,591(d) 92,286
Net asset value per share $ 12.10 $ 8.51 $ 8.51
Class A: Net Assets N/A $ 424,616 $ - $ 424,616
Shares issued and outstanding 49,564 - 49,564
Net asset value per share $ 8.57 $ 8.57
Maximum offering price per share $ 9.09 (c) $ 9.09(c)
Class J: Net Assets $ 9,928,665 $12,402,641 $ - $ 22,331,306
Shares issued and outstanding 83,319 1,532,229 1,144,811 2,760,359
Net asset value per share (b) $ 11.91 $ 8.09 $ 8.09
$
Institutional: Net Assets $164,742,893 $803,034,731 - $ 967,777,624
Shares issued and outstanding 13,450,801 93,318,899 5,631,882(d) 112,401,582
Net asset value per share $ 12.25 $ 8.61 $ 8.61
Preferred: Net Assets $ 32,082 $20,756,828 $ - $ 20,788,910
Shares issued and outstanding 2,636 2,447,828 1,058(d) 2,451,522
Net asset value per share $ 12.17 $ 8.48 $ 8.48
Select: Net Assets $ 18,055 $20,140,144 $ - $ 20,158,199
Shares issued and outstanding 1,490 2,387,628 (706)(d) 2,388,412
Net asset value per share $ 12.12 $ 8.44 $ 8.44
(a) Includes fair market value of securities loaned, see "Securities
Lending" in Pro Forma Notes to Financial Statements.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
(c) Maximum offering price is equal to net asset value plus a
front-end sales charge of 5.75% of the offering price.
(d) Reflects new shares issued, net of retired shares of Partners
LargeCap Growth Fund.
STATEMENT OF OPERATIONS
Principal Investors Fund, Inc.
Twelve Months Ended April 30, 2006 (unaudited)
------------- ----------------------------------------- ------------- ------------- ------------ ---- --------------
Combined
Partners Partners
Partners LargeCap LargeCap
LargeCap Growth Fund Pro Forma Growth Fund
Growth Fund II Adjustments II
------------- ----------------------------------------- ------------- ------------- ------------ ---- --------------
Net Investment Income (Operating Loss)
Income:
$ $ $
Dividends 3,392,559 7,353,854 $ - 10,746,413
Interest 138,328 253,093 - 391,421
Securities Lending 5,642 12 - 5,654
------------ ------------- ------------ --------------
Total Income
3,536,529 7,606,959 - 11,143,488
Expenses:
Management and investment advisory fees 2,764,669 8,042,685 - 10,807,354
Distribution Fees - Advisors Preferred 6,712 22,272 - 28,984
Distribution Fees - Advisors Select 7,519 43,348 - 50,867
Distribution Fees - Advisors Signature 807 957 - 1,764
Distribution Fees - Class A N/A 447 - 447
Distribution Fees - Class J 42,379 54,558 - 96,937
Distribution Fees - Select 35 18,742 - 18,777
Administrative service fees - Advisors
Preferred 4,027 13,363 - 17,390
Administrative service fees - Advisors
Select 5,014 28,899 - 33,913
Administrative service fees - Advisors
Signature 646 765 - 1,411
Administrative service fees - Preferred 50 22,852 - 22,902
Administrative service fees - Select 45 24,363 - 24,408
Registration Fees - Class A N/A 20,893 - 20,893
Registration Fees - Class J 9,122 18,496 (9,122) (a) 18,496
Service fees - Advisors Preferred 4,563 15,145 - 19,708
Service fees - Advisors Select 6,266 36,124 - 42,390
Service fees - Advisors Signature 577 683 - 1,260
Service fees - Preferred 66 31,160 - 31,226
Service fees - Select 52 28,111 - 28,163
Shareholder Reports - Class A N/A 63 - 63
Shareholder Reports - Class J 3,011 3,121 - 6,132
Transfer and administrative fees -
Class A N/A 9,651 - 9,651
Transfer and administrative fees -
Class J 31,492 29,631 - 61,123
Other expenses 1,545 3,104 (1,545) (a) 3,104
------------ -------------
------------ --------------
Total Gross Expenses (10,667)
2,888,597 8,469,433 11,347,363
Less: Reimbursement from Manager -
Class A N/A 29,798 - 29,798
Less: Reimbursement from Manager -
Class J 22,451 23,125 - 45,576
------------ ------------- ------------ --------------
Total Net Expenses 2,866,146 8,416,510 (10,667) 11,271,989
------------ ------------- ------------ --------------
Net Investment Income (Operating Loss) 10,667
670,383 (809,551) (128,501)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net realized gain (loss) from:
Investment transactions 14,095,933 49,484,512 - 63,580,445
Futures contracts 1,083,419 41,379 - 1,124,798
Foreign currency transactions - 1,118,062 1,118,062
Change in unrealized appreciation/depreciation of:
Investments 1,268,528 44,223,851 - 45,492,379
Futures contracts 13,957 34,694 - 48,651
Translation of assets and liabilities
in foreign currencies - (446,178) - (446,178)
------------- ------------
------------ --------------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies 16,461,837 94,456,320 - 110,918,157
------------ ------------- ------------ --------------
Net Increase (Decrease) in Net Assets $ $ $ 10,667 $
Resulting from Operations 17,132,220 93,646,769 110,789,656
============ ============= ============ ==============
(a) To adjust expenses to reflect the Combined Fund's estimated fees and
expenses, based on elimination of duplicate services.
Schedule of Investments
Principal Investors Fund, Inc.
April 30, 2006 (unaudited)
Partners Partners
Partners LargeCap Partners LargeCap
LargeCap Growth LargeCap Growth Fund
Growth Fund Fund II Combined Growth Fund II Combined
-------------- ---------- ----------- ------------- -------------- ---------------
Shares Shares Shares
Held Held Held 98.75% COMMON STOCKS Value Value Value
-------------- ---------- ----------- ------------- -------------- ---------------
0.47% Advertising Sales
Lamar Advertising Co (a)(b) $ - $ 4,943,601 $ 4,943,601
- 89,900 89,900
2.12% Aerospace & Defense
Boeing Co
9,500 141,000 150,500 792,775 11,766,450 12,559,225
General Dynamics Corp
7,200 - 7,200 472,464 - 472,464
Northrop Grumman Corp (a)
3,900 - 3,900 260,910 - 260,910
Rockwell Collins Inc
3,000 157,900 160,900 171,600 9,031,880 9,203,480
------------- -------------- ---------------
1,697,749 20,798,330 22,496,079
------------- -------------- ---------------
2.17% Aerospace & Defense Equipment
Goodrich Corp
17,400 - 17,400 774,300 - 774,300
United Technologies Corp
6,700 346,900 353,600 420,827 21,788,789 22,209,616
------------- -------------- ---------------
1,195,127 21,788,789 22,983,916
------------- -------------- ---------------
1.77% Agricultural Chemicals
Monsanto Co
- 178,126 178,126 14,855,709 14,855,709
-
Potash Corp of Saskatchewan
- 41,500 41,500 - 3,929,220 3,929,220
------------- -------------- ---------------
- 18,784,929 18,784,929
------------- -------------- ---------------
1.63% Agricultural Operations
Archer-Daniels-Midland Co
- 473,600 473,600 - 17,210,624 17,210,624
1.68% Apparel Manufacturers
Carter's Inc (b)
- 33,300 33,300 - 2,243,088 2,243,088
Columbia Sportswear Co (a)(b)
1,400 - 1,400 71,246 - 71,246
Guess ? Inc (b)
- 51,000 51,000 - 2,021,130 2,021,130
Phillips-Van Heusen
- 48,205 48,205 - 1,937,841 1,937,841
Polo Ralph Lauren Corp
- 190,200 190,200 - 11,548,944 11,548,944
------------- -------------- ---------------
71,246 17,751,003 17,822,249
------------- -------------- ---------------
0.06% Appliances
Whirlpool Corp
6,700 - 6,700 601,325 - 601,325
3.71% Applications Software
Citrix Systems Inc (b)
- 109,000 109,000 - 4,351,280 4,351,280
Microsoft Corp
- 1,261,122 1,261,122 - 30,456,096 30,456,096
Red Hat Inc (b)
- 152,100 152,100 - 4,470,219 4,470,219
------------- -------------- ---------------
- 39,277,595 39,277,595
------------- -------------- ---------------
0.05% Auto - Medium & Heavy Duty
Trucks
Oshkosh Truck Corp
9,100 - 9,100 556,920 - 556,920
0.02% Auto/Truck Parts & Equipment
- Original
Johnson Controls Inc (a)
2,000 - 2,000 163,100 - 163,100
2.83% Beverages - Non-alcoholic
Coca-Cola Co/The
62,000 - 62,000 2,601,520 - 2,601,520
PepsiCo Inc
39,000 431,400 470,400 2,271,360 25,124,736 27,396,096
------------- -------------- ---------------
4,872,880 25,124,736 29,997,616
------------- -------------- ---------------
0.01% Beverages - Wine & Spirits
Brown-Forman Corp
1,400 - 1,400 104,300 - 104,300
0.08% Building - Residential &
Commercial
Centex Corp
800 - 800 44,480 - 44,480
DR Horton Inc
3,200 - 3,200 96,064 - 96,064
KB Home
6,000 - 6,000 369,420 - 369,420
Lennar Corp
2,200 - 2,200 120,846 120,846
-
Pulte Homes Inc (a)
700 - 700 26,145 - 26,145
Ryland Group Inc (a)
3,000 - 3,000 189,330 - 189,330
------------- -------------- ---------------
846,285 - 846,285
------------- -------------- ---------------
0.07% Building Products - Cement &
Aggregate
Martin Marietta Materials
6,800 - 6,800 Inc 721,888 - 721,888
0.01% Cable TV
Cablevision Systems Corp
5,800 - 5,800 117,566 - 117,566
0.00% Casino Hotels
MGM Mirage (a)(b)
700 - 700 31,430 - 31,430
0.07% Cellular Telecommunications
NII Holdings Inc (a)(b)
12,800 12,800 766,720 766,720
- -
0.00% Chemicals - Specialty
Tronox Inc (b)
60 - 1,038 1,038
60 -
0.02% Commercial Services
Iron Mountain Inc (b)
2,600 - 2,600 101,660 - 101,660
Weight Watchers International
1,500 - 1,500 Inc 74,025 - 74,025
------------- -------------- ---------------
175,685 - 175,685
------------- -------------- ---------------
0.14% Commercial Services -
Finance
Equifax Inc
11,600 - 11,600 447,064 - 447,064
Moody's Corp
6,300 - 6,300 390,663 - 390,663
Paychex Inc
15,700 15,700 634,123 634,123
- -
------------- -------------- ---------------
1,471,850 - 1,471,850
------------- -------------- ---------------
0.53% Computer Services
Affiliated Computer Services
7,300 - 7,300 Inc (b) 407,048 - 407,048
Ceridian Corp (b)
1,100 204,300 205,400 26,653 4,950,189 4,976,842
DST Systems Inc (a)(b)
3,600 - 3,600 221,472 - 221,472
------------- -------------- ---------------
655,173 4,950,189 5,605,362
------------- -------------- ---------------
4.00% Computers
Apple Computer Inc (b)
4,100 - 4,100 288,599 - 288,599
Dell Inc (b)
151,800 - 151,800 3,977,160 - 3,977,160
Hewlett-Packard Co
52,400 511,000 563,400 1,701,428 16,592,170 18,293,598
International Business
5,600 235,300 240,900 Machines Corp 461,104 19,374,602 19,835,706
------------- -------------- ---------------
6,428,291 35,966,772 42,395,063
------------- -------------- ---------------
0.20% Computers - Integrated
Systems
Brocade Communications
- 338,600 338,600 Systems Inc (b) - 2,085,776 2,085,776
1.91% Computers -Memory Devices
EMC Corp/Massachusetts (b)
- 809,600 809,600 - 10,937,696 10,937,696
Komag Inc (a)(b)
- 45,500 45,500 - 1,912,820 1,912,820
Seagate Technology
- 278,400 278,400 - 7,394,304 7,394,304
------------- -------------- ---------------
- 20,244,820 20,244,820
------------- -------------- ---------------
0.03% Computers - Peripheral
Equipment
Lexmark International Inc (b)
6,600 - 6,600 321,420 - 321,420
1.01% Consulting Services
Accenture Ltd
- 368,288 368,288 - 10,706,132 10,706,132
0.45% Containers - Metal & Glass
Crown Holdings Inc (b)
- 295,200 295,200 - 4,732,056 4,732,056
1.36% Cosmetics & Toiletries
Colgate-Palmolive Co
9,500 238,489 247,989 561,640 13,882,445 14,444,085
0.83% Data Processing & Management
Fair Isaac Corp
7,300 - 7,300 270,903 - 270,903
First Data Corp
20,900 - 20,900 996,721 - 996,721
Fiserv Inc (b)
7,400 - 7,400 333,592 - 333,592
Global Payments Inc
- 147,600 147,600 - 7,000,668 7,000,668
Total System Services Inc (a)
7,700 - 7,700 154,231 - 154,231
------------- -------------- ---------------
1,755,447 7,000,668 8,756,115
------------- -------------- ---------------
0.15% Diagnostic Equipment
Cytyc Corp (b)
59,700 59,700 1,543,245 1,543,245
- -
0.01% Distribution & Wholesale
Fastenal Co (a)
2,600 - 2,600 121,706 - 121,706
Ingram Micro Inc (b)
1,400 - 1,400 25,746
- 25,746
------------- -------------- ---------------
147,452 - 147,452
------------- -------------- ---------------
7.18% Diversified Manufacturing
Operations
Cooper Industries Ltd
- 136,500 136,500 - 12,482,925 12,482,925
General Electric Co
- 1,045,100 1,045,100 - 36,150,009 36,150,009
ITT Industries Inc
7,700 - 7,700 432,971 - 432,971
Roper Industries Inc
- 148,757 148,757 - 7,060,007 7,060,007
Textron Inc
- 221,302 221,302 - 19,906,115 19,906,115
------------- -------------- ---------------
432,971 75,599,056 76,032,027
------------- -------------- ---------------
0.78% E-Commerce - Services
eBay Inc (b)
- 238,900 238,900 - 8,220,549 8,220,549
0.05% Electric - Integrated
TXU Corp
9,900 - 9,900 491,337 - 491,337
2.03% Electric Products -
Miscellaneous
Emerson Electric Co
4,800 248,000 252,800 407,760 21,067,600 21,475,360
0.02% Electronic Components -
Miscellaneous
AVX Corp.
1,700 - 1,700 30,260 - 30,260
Jabil Circuit Inc
3,300 - 3,300 128,667 - 128,667
------------- -------------- ---------------
158,927 - 158,927
------------- -------------- ---------------
3.61% Electronic Components -
Semiconductors
Broadcom Corp (b)
34,450 147,000 181,450 1,416,239 6,043,170 7,459,409
Freescale Semiconductor Inc -
- 450,400 450,400 B Shares (b) - 14,264,168 14,264,168
Intel Corp
288,000 - 288,000 5,754,240 - 5,754,240
Intersil Corp
6,600 - 6,600 195,426 195,426
-
Microchip Technology Inc
8,500 - 8,500 316,710 - 316,710
National Semiconductor Corp
17,700 - 17,700 530,646 - 530,646
Nvidia Corp (b)
39,300 - 39,300 1,148,346 - 1,148,346
QLogic Corp (b)
- 109,200 109,200 - 2,272,452 2,272,452
Texas Instruments Inc
180,400 - 180,400 6,261,684 - 6,261,684
------------- -------------- ---------------
15,623,291 22,579,790 38,203,081
------------- -------------- ---------------
0.54% Electronic Design Automation
Cadence Design Systems Inc
- 303,900 303,900 (b) - 5,752,827 5,752,827
0.04% Electronic Forms
Adobe Systems Inc (b)
9,800 - 9,800 384,160 - 384,160
0.57% Electronic Measurement
Instruments
Agilent Technologies Inc (b)
40,300 - 40,300 1,548,326 - 1,548,326
Itron Inc (a)(b)
- 66,806 66,806 - 4,479,342 4,479,342
------------- -------------- ---------------
1,548,326 4,479,342 6,027,668
------------- -------------- ---------------
0.00% Electronic Parts Distribution
Avnet Inc (b)
1,900 - 1,900 49,685 49,685
-
0.04% Engineering - Research &
Development Services
Jacobs Engineering Group Inc
5,000 - 5,000 (b) 413,500 - 413,500
1.79% Enterprise Software &
Services
BEA Systems Inc (a)(b)
37,200 411,500 448,700 492,900 5,452,375 5,945,275
BMC Software Inc (b)
2,100 - 2,100 45,234 - 45,234
Oracle Corp (b)
- 595,400 595,400 - 8,686,886 8,686,886
SAP AG ADR
- 77,500 77,500 - 4,233,825 4,233,825
------------- -------------- ---------------
538,134 18,373,086 18,911,220
------------- -------------- ---------------
0.05% Fiduciary Banks
State Street Corp
8,600 - 8,600 561,752 561,752
-
0.00% Finance - Consumer Loans
Student Loan Corp
100 - 100 20,825
- 20,825
1.34% Finance - Credit Card
American Express Co
- 141,800 141,800 - 7,630,258 7,630,258
Capital One Financial Corp
75,700 75,700 6,558,648 6,558,648
- -
------------- -------------- ---------------
- 14,188,906 14,188,906
------------- -------------- ---------------
1.97% Finance - Investment Banker &
Broker
Bear Stearns Cos Inc/The
- 56,900 56,900 - 8,108,819 8,108,819
Charles Schwab Corp/The
174,600 - 174,600 3,125,340 - 3,125,340
E*Trade Financial Corp (b)
14,600 - 14,600 363,248 - 363,248
Goldman Sachs Group Inc
800 46,300 47,100 128,232 7,421,427 7,549,659
Lehman Brothers Holdings Inc
5,000 - 5,000 755,750 - 755,750
Merrill Lynch & Co Inc
4,400 - 4,400 335,544 - 335,544
TD Ameritrade Holding Corp
33,900 - 33,900 629,184 - 629,184
------------- -------------- ---------------
5,337,298 15,530,246 20,867,544
------------- -------------- ---------------
0.10% Finance - Mortgage
Loan/Banker
Fannie Mae
20,000 - 20,000 1,012,000 - 1,012,000
0.09% Financial Guarantee Insurance
AMBAC Financial Group Inc
5,200 - 5,200 428,272 - 428,272
MGIC Investment Corp
5,400 5,400 381,780 381,780
- -
PMI Group Inc/The
1,300 - 1,300 59,995 - 59,995
Radian Group Inc (a)
1,500 - 1,500 94,080 - 94,080
------------- -------------- ---------------
964,127 964,127
-
------------- -------------- ---------------
0.03% Food - Dairy Products
Dean Foods Co (b)
9,200 - 9,200 364,412 - 364,412
1.00% Food -
Miscellaneous/Diversified
General Mills Inc
- 214,500 214,500 - 10,583,430 10,583,430
Sara Lee Corp
2,600 - 2,600 46,462 - 46,462
------------- -------------- ---------------
46,462 10,583,430 10,629,892
------------- -------------- ---------------
0.10% Food - Retail
Kroger Co/The
48,500 - 48,500 982,610 - 982,610
Whole Foods Market Inc
1,900 - 1,900 116,622 - 116,622
------------- -------------- ---------------
1,099,232 - 1,099,232
------------- -------------- ---------------
0.08% Food - Wholesale &
Distribution
Supervalu Inc (a)
14,000 - 14,000 406,140 - 406,140
Sysco Corp (a)
15,500 - 15,500 463,295 - 463,295
------------- -------------- ---------------
869,435 - 869,435
------------- -------------- ---------------
0.19% Health Care Cost Containment
McKesson Corp
41,500 - 41,500 2,016,485 - 2,016,485
0.04% Home Decoration Products
Newell Rubbermaid Inc
15,200 - 15,200 416,784 416,784
-
0.02% Hotels & Motels
Marriott International Inc
2,300 - 2,300 168,061 - 168,061
0.02% Human Resources
Robert Half International
5,500 - 5,500 Inc 232,485 - 232,485
0.01% Instruments - Scientific
Applera Corp - Applied
2,200 - 2,200 Biosystems Group 63,448 - 63,448
0.04% Insurance Brokers
AON Corp
5,600 - 5,600 234,696 - 234,696
Marsh & McLennan Cos Inc
7,200 - 7,200 220,824 - 220,824
------------- -------------- ---------------
455,520 - 455,520
------------- -------------- ---------------
0.00% Internet Content -
Information & News
CNET Networks Inc (a)(b)
3,300 - 3,300 35,574 - 35,574
0.79% Investment Management &
Advisory Services
Federated Investors Inc
2,000 - 2,000 70,200 - 70,200
Franklin Resources Inc
11,100 66,700 77,800 1,033,632 6,211,104 7,244,736
Legg Mason Inc
8,700 - 8,700 1,030,776 - 1,030,776
------------- -------------- ---------------
2,134,608 6,211,104 8,345,712
------------- -------------- ---------------
0.27% Life & Health Insurance
Aflac Inc
42,700 - 42,700 2,029,958 2,029,958
-
Cigna Corp
3,200 - 3,200 342,400 - 342,400
Lincoln National Corp
4,900 - 4,900 284,592 - 284,592
Prudential Financial Inc
3,100 - 3,100 242,203 - 242,203
------------- -------------- ---------------
2,899,153 - 2,899,153
------------- -------------- ---------------
0.27% Machinery - Construction &
Mining
Caterpillar Inc
37,600 - 37,600 2,847,824 - 2,847,824
0.00% Machinery - Pumps
Flowserve Corp (b)
700 - 700 40,264 40,264
-
0.08% Medical - Outpatient & Home
Medical Care
Lincare Holdings Inc (b)
22,600 - 22,600 893,378 - 893,378
2.95% Medical - Biomedical/Gene
Amgen Inc (b)
15,200 257,792 272,992 1,029,040 17,452,518 18,481,558
Genentech Inc (b)
65,300 89,800 155,100 5,205,063 7,157,958 12,363,021
Invitrogen Corp (a)(b)
2,500 - 2,500 165,025 - 165,025
Millipore Corp (a)(b)
3,500 - 3,500 258,230 - 258,230
------------- -------------- ---------------
6,657,358 24,610,476 31,267,834
------------- -------------- ---------------
3.95% Medical - Drugs
Abbott Laboratories
31,800 - 31,800 1,359,132 - 1,359,132
Abraxis BioScience Inc (a)(b)
5,000 - 5,000 156,200 - 156,200
Allergan Inc
13,000 - 13,000 1,335,360 1,335,360
-
Bristol-Myers Squibb Co
2,100 - 2,100 53,298 - 53,298
Forest Laboratories Inc (b)
37,200 - 37,200 1,502,136 - 1,502,136
Merck & Co Inc
115,600 - 115,600 3,978,952 - 3,978,952
Novartis AG ADR
- 186,500 186,500 - 10,725,615 10,725,615
Novo-Nordisk A/S ADR (a)
- 90,900 90,900 5,849,415 5,849,415
-
Pfizer Inc
183,300 - 183,300 4,642,989 - 4,642,989
Roche Holding AG ADR
- 142,500 142,500 - 10,972,500 10,972,500
Wyeth
26,700 - 26,700 1,299,489 - 1,299,489
------------- -------------- ---------------
14,327,556 27,547,530 41,875,086
------------- -------------- ---------------
0.07% Medical - Generic Drugs
Barr Pharmaceuticals Inc (b)
11,700 - 11,700 708,435 708,435
-
0.94% Medical - HMO
Aetna Inc
49,900 - 49,900 1,921,150 - 1,921,150
Coventry Health Care Inc (b)
6,000 - 6,000 298,020 - 298,020
Health Net Inc (b)
16,200 - 16,200 659,340 - 659,340
Humana Inc (b)
6,800 - 6,800 307,224 - 307,224
UnitedHealth Group Inc
126,600 126,600 6,297,084 - 6,297,084
-
WellPoint Inc (b)
6,100 - 6,100 433,100 - 433,100
------------- -------------- ---------------
9,915,918 - 9,915,918
------------- -------------- ---------------
0.14% Medical - Hospitals
Community Health Systems Inc
100 - 100 (b) 3,624 - 3,624
HCA Inc
31,000 - 31,000 1,360,590 - 1,360,590
Universal Health Services
2,700 - 2,700 Inc 137,133 - 137,133
------------- -------------- ---------------
1,501,347 - 1,501,347
------------- -------------- ---------------
0.17% Medical - Wholesale Drug
Distribution
AmerisourceBergen Corp
9,200 - 9,200 396,980 - 396,980
Cardinal Health Inc
20,800 - 20,800 1,400,880 - 1,400,880
------------- -------------- ---------------
1,797,860 - 1,797,860
------------- -------------- ---------------
0.07% Medical Information Systems
Cerner Corp (a)(b)
17,500 - 17,500 693,875 - 693,875
1.42% Medical Instruments
DJ Orthopedics Inc (b)
- 53,400 53,400 - 2,123,184 2,123,184
Edwards Lifesciences Corp (b)
- 150,526 150,526 - 6,689,376 6,689,376
Kyphon Inc (a)(b)
2,100 - 2,100 87,255 - 87,255
Medtronic Inc
3,900 - 3,900 195,468 - 195,468
St Jude Medical Inc (b)
17,700 129,900 147,600 698,796 5,128,452 5,827,248
Techne Corp (b)
1,400 - 1,400 79,324 - 79,324
------------- -------------- ---------------
1,060,843 13,941,012 15,001,855
------------- -------------- ---------------
3.01% Medical Products
Baxter International Inc
- 352,400 352,400 - 13,285,480 13,285,480
Becton Dickinson & Co
- 245,906 245,906 - 15,501,914 15,501,914
Henry Schein Inc (b)
800 - 800 37,296 - 37,296
Johnson & Johnson
49,200 - 49,200 2,883,612 - 2,883,612
Mentor Corp (a)
2,400 - 2,400 103,992 - 103,992
Stryker Corp
600 - 600 26,250 - 26,250
Varian Medical Systems Inc
1,600 - 1,600 (b) 83,808 - 83,808
------------- -------------- ---------------
3,134,958 28,787,394 31,922,352
------------- -------------- ---------------
0.58% Metal - Diversified
Freeport-McMoRan Copper &
- 94,800 94,800 Gold Inc - 6,122,184 6,122,184
0.06% Motorcycle/Motor Scooter
Harley-Davidson Inc (a)
13,400 - 13,400 681,256 - 681,256
1.57% Multi-line Insurance
American International Group
54,000 195,500 249,500 Inc 3,523,500 12,756,375 16,279,875
Hanover Insurance Group Inc.
100 - 100 5,290 - 5,290
Loews Corp
3,000 - 3,000 318,450 - 318,450
------------- -------------- ---------------
3,847,240 12,756,375 16,603,615
------------- -------------- ---------------
2.52% Networking Products
Cisco Systems Inc (b)
- 1,274,900 1,274,900 - 26,709,155 26,709,155
0.00% Office Automation &
Equipment
Pitney Bowes Inc
200 - 200 8,370
- 8,370
0.02% Office Furnishings -
Original
Herman Miller Inc
700 - 700 21,553 - 21,553
HNI Corp (a)
4,100 - 4,100 216,808 - 216,808
------------- -------------- ---------------
238,361 - 238,361
------------- -------------- ---------------
1.80% Oil - Field Services
Baker Hughes Inc
14,600 - 14,600 1,180,118 - 1,180,118
BJ Services Co
19,200 - 19,200 730,560 - 730,560
Halliburton Co (a)
14,000 - 14,000 1,094,100 - 1,094,100
Schlumberger Ltd
- 232,100 232,100 - 16,047,394 16,047,394
------------- -------------- ---------------
3,004,778 16,047,394 19,052,172
------------- -------------- ---------------
0.04% Oil & Gas Drilling
Helmerich & Payne Inc
5,600 - 5,600 407,344 - 407,344
0.50% Oil Company - Exploration &
Production
Anadarko Petroleum Corp
3,200 42,900 46,100 335,424 4,496,778 4,832,202
Devon Energy Corp
4,500 - 4,500 270,495 - 270,495
Kerr-McGee Corp
300 - 300 29,958 - 29,958
Newfield Exploration Co
3,500 - 3,500 (a)(b) 156,100 - 156,100
------------- -------------- ---------------
791,977 4,496,778 5,288,755
------------- -------------- ---------------
1.51% Oil Company - Integrated
Amerada Hess Corp (a)
300 - 300 42,981 - 42,981
ConocoPhillips
34,344 - 34,344 2,297,614 - 2,297,614
Exxon Mobil Corp
38,600 - 38,600 2,434,888 - 2,434,888
Marathon Oil Corp
3,500 - 3,500 277,760 - 277,760
Occidental Petroleum Corp
5,100 101,100 106,200 523,974 10,387,014 10,910,988
------------- -------------- ---------------
5,577,217 10,387,014 15,964,231
------------- -------------- ---------------
0.53% Oil Field Machinery &
Equipment
Cooper Cameron Corp (b)
7,700 96,400 104,100 386,848 4,843,136 5,229,984
Grant Prideco Inc (b)
7,700 - 7,700 394,240 - 394,240
------------- -------------- ---------------
781,088 4,843,136 5,624,224
------------- -------------- ---------------
0.06% Oil Refining & Marketing
Sunoco Inc
7,200 - 7,200 583,488 - 583,488
0.60% Optical Supplies
Alcon Inc
- 63,000 63,000 - 6,407,730 6,407,730
1.64% Pharmacy Services
Caremark Rx Inc
10,300 109,900 120,200 469,165 5,005,945 5,475,110
Express Scripts Inc (b)
36,400 99,600 136,000 2,844,296 7,782,744 10,627,040
Medco Health Solutions Inc
14,300 - 14,300 (b) 761,189 - 761,189
Omnicare Inc (a)
9,100 - 9,100 516,061 - 516,061
------------- -------------- ---------------
4,590,711 12,788,689 17,379,400
------------- -------------- ---------------
0.16% Pipelines
Kinder Morgan Inc
16,500 - 16,500 1,452,330 - 1,452,330
Questar Corp
3,600 - 3,600 288,180 - 288,180
------------- -------------- ---------------
1,740,510 - 1,740,510
------------- -------------- ---------------
0.03% Power Converter & Supply
Equipment
American Power Conversion
12,500 - 12,500 Corp 278,000 - 278,000
0.21% Property & Casualty
Insurance
Chubb Corp
10,400 - 10,400 536,016 - 536,016
Progressive Corp/The
8,100 - 8,100 879,093 - 879,093
St Paul Travelers Cos
18,000 - 18,000 Inc/The 792,540 - 792,540
------------- -------------- ---------------
2,207,649 2,207,649
-
------------- -------------- ---------------
0.18% Publicly Traded Investment
Fund
iShares Russell 1000 Growth
- 36,700 36,700 Index Fund - 1,924,181 1,924,181
0.01% Quarrying
Vulcan Materials Co
800 - 800 67,968 - 67,968
1.66% Regional Banks
Wells Fargo & Co
- 256,600 256,600 - 17,625,854 17,625,854
0.48% Reinsurance
Endurance Specialty Holdings
- 84,000 84,000 Ltd - 2,600,640 2,600,640
PartnerRe Ltd
- 40,417 40,417 - 2,528,083 2,528,083
------------- -------------- ---------------
- 5,128,723 5,128,723
------------- -------------- ---------------
0.03% Rental - Auto & Equipment
Rent-A-Center Inc (b)
12,700 12,700 350,774 350,774
- -
0.03% Research & Development
Pharmaceutical Product
9,400 - 9,400 Development Inc 337,178 - 337,178
0.01% Respiratory Products
Respironics Inc (b)
3,400 - 3,400 124,508 - 124,508
3.13% Retail - Apparel & Shoe
Abercrombie & Fitch Co
1,300 - 1,300 78,949 - 78,949
AnnTaylor Stores Corp (b)
- 123,300 123,300 - 4,602,789 4,602,789
Bebe Stores Inc (a)
12,200 - 12,200 215,696 - 215,696
Chico's FAS Inc (b)
18,700 161,100 179,800 693,022 5,970,366 6,663,388
Dress Barn Inc (a)(b)
- 96,800 96,800 - 2,448,072 2,448,072
Foot Locker Inc
- 234,300 234,300 - 5,431,074 5,431,074
Men's Wearhouse Inc (a)
7,300 - 7,300 258,712 - 258,712
Nordstrom Inc
30,300 - 30,300 1,161,399 - 1,161,399
Payless Shoesource Inc (b)
- 197,100 197,100 - 4,527,387 4,527,387
Ross Stores Inc
- 253,600 253,600 - 7,770,304 7,770,304
------------- -------------- ---------------
2,407,778 30,749,992 33,157,770
------------- -------------- ---------------
0.17% Retail - Auto Parts
Advance Auto Parts Inc
20,100 - 20,100 808,422 - 808,422
Autozone Inc (b)
5,600 - 5,600 524,216 - 524,216
O'Reilly Automotive Inc (b)
13,200 - 13,200 447,216 - 447,216
------------- -------------- ---------------
1,779,854 - 1,779,854
------------- -------------- ---------------
0.02% Retail - Automobile
Autonation Inc (a)(b)
7,700 - 7,700 173,404 - 173,404
Copart Inc (a)(b)
600 - 600 16,110 - 16,110
------------- -------------- ---------------
189,514 - 189,514
------------- -------------- ---------------
0.14% Retail - Bedding
Bed Bath & Beyond Inc (b)
38,200 - 38,200 1,464,970 - 1,464,970
1.16% Retail - Building Products
Home Depot Inc
188,000 - 188,000 7,506,840 - 7,506,840
Lowe's Cos Inc
76,200 - 76,200 4,804,410 - 4,804,410
------------- -------------- ---------------
12,311,250 - 12,311,250
------------- -------------- ---------------
0.01% Retail - Consumer
Electronics
Best Buy Co Inc
2,800 - 2,800 158,648 - 158,648
1.70% Retail - Discount
BJ's Wholesale Club Inc (b)
100 - 100 3,062
- 3,062
Dollar General Corp
34,700 - 34,700 605,862 - 605,862
Dollar Tree Stores Inc (a)(b)
13,900 - 13,900 362,373 - 362,373
Target Corp
- 272,300 272,300 - 14,459,130 14,459,130
TJX Cos Inc
19,400 - 19,400 468,122 - 468,122
Wal-Mart Stores Inc
47,100 - 47,100 2,120,913 2,120,913
-
------------- -------------- ---------------
3,560,332 14,459,130 18,019,462
------------- -------------- ---------------
0.19% Retail - Drug Store
Walgreen Co
49,100 - 49,100 2,058,763 - 2,058,763
0.02% Retail - Gardening Products
Tractor Supply Co (b)
2,500 - 2,500 161,975 - 161,975
0.03% Retail - Jewelry
Tiffany & Co (a)
9,500 - 9,500 331,455 - 331,455
0.31% Retail - Mail Order
Williams-Sonoma Inc (a)
- 77,800 77,800 - 3,257,486 3,257,486
1.13% Retail - Major Department
Store
JC Penney Co Inc
- 182,700 182,700 - 11,959,542 11,959,542
0.06% Retail - Office Supplies
Office Depot Inc (b)
11,200 - 11,200 454,496 - 454,496
Staples Inc
5,200 - 5,200 137,332 - 137,332
------------- -------------- ---------------
591,828 - 591,828
------------- -------------- ---------------
0.34% Retail - Restaurants
Applebees International Inc
10,600 - 10,600 246,026 - 246,026
Brinker International Inc
8,300 - 8,300 325,028 - 325,028
Darden Restaurants Inc
16,300 - 16,300 645,480 - 645,480
McDonald's Corp
12,200 12,200 421,754 421,754
- -
Sonic Corp (a)(b)
6,900 - 6,900 233,979 - 233,979
Starbucks Corp (b)
5,100 - 5,100 190,077 - 190,077
Wendy's International Inc
17,500 - 17,500 1,081,150 - 1,081,150
Yum! Brands Inc
7,900 - 7,900 408,272 - 408,272
------------- -------------- ---------------
3,551,766 - 3,551,766
------------- -------------- ---------------
0.20% Retirement & Aged Care
Sunrise Senior Living Inc (b)
- 58,070 58,070 2,160,204 2,160,204
-
1.10% Semiconductor Component -
Integrated Circuits
Marvell Technology Group Ltd
- 61,500 61,500 (b) 3,511,035 3,511,035
-
Maxim Integrated Products
- 231,800 231,800 Inc - 8,173,268 8,173,268
------------- -------------- ---------------
- 11,684,303 11,684,303
------------- -------------- ---------------
0.75% Semiconductor Equipment
Applied Materials Inc
1,300 - 1,300 23,335 - 23,335
Novellus Systems Inc (b)
- 321,700 321,700 - 7,945,990 7,945,990
------------- -------------- ---------------
23,335 7,945,990 7,969,325
------------- -------------- ---------------
1.02% Steel - Producers
Carpenter Technology Corp
- 89,200 89,200 - 10,610,340 10,610,340
Nucor Corp
1,400 - 1,400 152,348 - 152,348
------------- -------------- ---------------
152,348 10,610,340 10,762,688
------------- -------------- ---------------
0.05% Telecommunication Equipment
Adtran Inc
8,300 - 8,300 208,662 - 208,662
Harris Corp
7,300 7,300 339,961 339,961
- -
------------- -------------- ---------------
548,623 - 548,623
------------- -------------- ---------------
0.51% Telecommunication Equipment -
Fiber Optics
Ciena Corp (b)
- 575,100 575,100 - 2,352,159 2,352,159
Corning Inc (a)(b)
112,300 - 112,300 3,102,849 - 3,102,849
------------- -------------- ---------------
3,102,849 2,352,159 5,455,008
------------- -------------- ---------------
0.00% Telephone - Integrated
CenturyTel Inc
100 - 100 3,770 - 3,770
0.06% Textile - Home Furnishings
Mohawk Industries Inc (b)
8,300 - 8,300 664,830 664,830
-
1.03% Therapeutics
Gilead Sciences Inc (b)
11,500 178,300 189,800 661,250 10,252,250 10,913,500
0.47% Tobacco
Altria Group Inc (a)
67,300 - 67,300 4,923,668 - 4,923,668
0.44% Transactional Software
VeriFone Holdings Inc (a)(b)
- 150,729 150,729 - 4,666,570 4,666,570
0.05% Transport - Rail
Burlington Northern Santa Fe
7,200 - 7,200 Corp 572,616 - 572,616
-
2.01% Transport - Services
-
CH Robinson Worldwide Inc
10,600 - 10,600 470,110 - 470,110
Expeditors International
1,300 - 1,300 Washington Inc (a) 111,293 - 111,293
FedEx Corp
3,500 - 3,500 402,955 - 402,955
United Parcel Service Inc
- 250,500 250,500 - 20,308,035 20,308,035
------------- -------------- ---------------
984,358 20,308,035 21,292,393
------------- -------------- ---------------
1.45% Web Portals
Google Inc (b)
5,200 31,600 36,800 2,173,288 13,206,904 15,380,192
3.71% Wireless Equipment
American Tower Corp (b)
- 266,600 266,600 - 9,101,724 9,101,724
Motorola Inc
209,600 270,600 480,200 4,474,960 5,777,310 10,252,270
Qualcomm Inc
45,100 346,400 391,500 2,315,434 17,784,176 20,099,610
------------- -------------- ---------------
6,790,394 32,663,210 39,453,604
------------- -------------- ---------------
-------------- ---------- ----------- -------- --------------------------------
TOTAL COMMON STOCKS
$180,377,779 $865,777,386 $1,046,155,165
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
Principal
Principal Principal
Amount Amount Amount 0.01% U.S. GOVERNMENT & GOVERNMENT Value Value Value
AGENCY OBLIGATIONS
-------------- ---------- ----------- ------------- -------------- ---------------
0.01% U.S. Treasury Bill
$ - $ $ 4.505%, 6/22/2006 (c) $ - $ 99,344 $ 99,344
100,000 100,000
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
TOTAL U.S. GOVERNMENT & $ - $ 99,344 $ 99,344
GOVERNMENT AGENCY OBLIGATIONS
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
0.69% SHORT TERM INVESTMENTS
0.69% Commercial Paper
Amsterdam Funding
$ - $ $ 4.84%, 5/ 1/2006 $ - $ 400,000 $ 400,000
400,000 400,000
Beethoven Funding Corp
4.84%, 5/11/2006
- 250,000 250,000 - 249,664 249,664
Belmont Funding
4.86%, 5/ 1/2006
- 400,000 400,000 400,000 400,000
-
Gemini Securitization LLC
4.83%, 5/ 1/2006
- 400,000 400,000 - 400,000 400,000
Greyhawk Funding LLC
4.83%, 5/ 1/2006
- 400,000 400,000 - 400,000 400,000
Investment in Joint Trading
Account; Federal Home Loan
Bank
4.65%, 5/ 1/2006
- 2,502,000 2,502,000 - 2,502,000 2,502,000
Paradigm Funding LLC
4.84%, 5/ 1/2006
- 400,000 400,000 - 400,000 400,000
Surrey Funding
4.85%, 5/ 1/2006
- 400,000 400,000 - 400,000 400,000
Three Crowns Funding LLC
4.84%, 5/ 1/2006
- 400,000 400,000 - 400,000 400,000
Waterfront Funding Corp
4.86%, 5/ 1/2006
- 1,350,000 1,350,000 - 1,350,000 1,350,000
Westpac Banking Corp
4.85%, 5/ 1/2006
- 400,000 400,000 - 400,000 400,000
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
TOTAL SHORT TERM INVESTMENTS $ - $ 7,301,664 $ 7,301,664
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
1.90% MONEY MARKET FUNDS
11,788,000 BNY Institutional Cash $ 8,366,000 $
8,366,000 20,154,000 Reserve Fund (d) $11,788,000 20,154,000
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
TOTAL MONEY MARKET FUNDS $ 8,366,000 $ 20,154,000
$11,788,000
-------------- ---------- ----------- -------- -------------------------------- ------------- -------------- ---------------
101.35% Total Investments
$192,165,779 $881,544,394 $1,073,710,173
-1.35% Liabilities in Excess of
Other Assets, Net (12,747,048) (1,575,172) (14,322,220)
------------- -------------- ---------------
100.00% TOTAL NET ASSETS
$179,418,731 $879,969,222 $1,059,387,953
============= ============== ===============
(a) Security or a portion of the security was on loan at the end of the period.
(b) Non-Income Producing Security
(c) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the end of the period, the value of
these securities totaled $99,344 or 0.01% of net assets.
(d) Security was purchased with the cash proceeds from securities loans.
Unrealized Appreciation
(Depreciation)
Unrealized Appreciation $ $ $
10,797,694 73,408,686 84,206,380
Unrealized Depreciation
(9,950,572) (21,658,149) (31,608,721)
------------- -------------- ---------------
Net Unrealized Appreciation
(Depreciation) 847,122 51,750,537 52,597,659
Cost for federal income tax
purposes 191,318,657 829,793,857 1,021,112,514
SCHEDULE OF FUTURES CONTRACTS
Current Unrealized
Number of Number Number Original Market
of of Appreciation/
Contracts Type Value Value
Contracts Contracts (Depreciation)
-------------- ---------- ----------- -------------------------------- ------------- -------------- ---------------
Buy:
S&P 500 eMini; June 2006 $ $ $
- 117 117 7,663,321 7,698,015 34,694
SCHEDULE OF FOREIGN CURRENCY CONTRACTS
Foreign Currency Net
Contracts Contracts Contracts Unrealized
to to to Delivery
Deliver Deliver Deliver Sale Contracts In Exchange Value Appreciation
Date For
-------------- ---------- ----------- ------------------------------- ---------------
-------------- ---------------
20,708,728 Swiss Francs 06/15/2006 $ $ $
- 20,708,728 16,352,826 16,716,058 (363,233)
21,458,074 Danish Kroner
- 21,458,074 02/28/2006 3,580,822 3,631,480 (50,658)
As of April 30, 2006, all securities held by the Acquired Fund would comply with
the investment restrictions of the Acquiring Fund.
Pro Forma Notes to Financial Statements
April 30, 2006
(unaudited)
1. Description of the Funds
Partners LargeCap Growth Fund II is a series of Principal Investors Fund, Inc.
(the "Fund"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company.
2. Basis of Combination
On September 11, 2006, the Board of Directors of Principal Investors Fund, Inc.,
Partners LargeCap Growth Fund approved an Agreement and Plan of Reorganization
(the "Reorganization") whereby, subject to approval by the shareholders of
Partners LargeCap Growth Fund, Partners LargeCap Growth Fund II will acquire all
the assets of Partners LargeCap Growth Fund subject to the liabilities of such
fund, in exchange for a number of shares equal to the pro rata net assets of
Partners LargeCap Growth Fund II.
The Reorganization will be accounted for as a tax-free reorganization of
investment companies. The pro forma combined financial statements are presented
for the information of the reader and may not necessarily be representative of
what the actual combined financial statements would have been had the
Reorganization occurred at April 30, 2006. The unaudited pro forma schedules of
investments and statements of assets and liabilities reflect the financial
position of Partners LargeCap Growth Fund and Partners LargeCap Growth Fund II
at April 30, 2006. The unaudited pro forma statements of operations reflect the
results of operations of Partners LargeCap Growth Fund and Partners LargeCap
Growth Fund II for the twelve months ended April 30, 2006. The statements have
been derived from the Funds' respective books and records utilized in
calculating daily net asset value at the dates indicated above for Partners
LargeCap Growth Fund and Partners LargeCap Growth Fund II under U.S. generally
accepted accounting principles. The historical cost of investment securities
will be carried forward to the surviving entity and results of operations of
Partners LargeCap Growth Fund II for pre-combination periods will not be
restated.
The pro forma schedules of investments and statements of assets and liabilities
and operations should be read in conjunction with the historical financial
statements of the Funds incorporated by reference in the Statements of
Additional Information.
3. Significant Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. Security Valuation
Partners LargeCap Growth Fund and Partners LargeCap Growth Fund II value
securities for which market quotations are readily available at market value,
which is determined using the last reported sale price. If no sales are
reported, as is regularly the case for some securities traded over-the-counter,
securities are valued using the last reported bid price or an evaluated bid
price provided by a pricing service. Pricing services use electronic modeling
techniques that incorporate security characteristics, market conditions and
dealer-supplied valuations to determine an evaluated bid price. When reliable
market quotations are not considered to be readily available, which may be the
case, for example, with respect to restricted securities, certain debt
securities, preferred stocks, and foreign securities, the investments are valued
at their fair value as determined in good faith by Principal Management
Corporation (the "Manager") under procedures established and periodically
reviewed by the Fund's Board of Directors.
The value of foreign securities used in computing the net asset value per share
is generally determined as of the close of the foreign exchange where the
security is principally traded. Events that occur after the close of the
applicable foreign market or exchange but prior to the calculation of the Funds'
net asset values are ordinarily not reflected in the Funds' net asset values. If
events that occur after the close of the applicable foreign market or exchange
but prior to the calculation of the Funds' net asset values are determined to
materially affect the value of a foreign security, then the security is valued
at its fair value as determined in good faith by the Manager under procedures
established and periodically reviewed by the Fund's Board of Directors. Many
factors are reviewed in the course of making a good faith determination of a
security's fair value, including, but not limited to, price movements in ADRs,
futures contracts, industry indices, general indices, and foreign currencies.
To the extent the Funds invest in foreign securities listed on foreign exchanges
which trade on days on which the Funds do not determine net asset values, for
example weekends and other customary national U.S. holidays, the Funds' net
asset values could be significantly affected on days when shareholders cannot
purchase or redeem shares.
Certain securities issued by companies in emerging market countries may have
more than one quoted valuation at any given point in time, sometimes referred to
as a "local" price and a "premium" price. The premium price is often a
negotiated price, which may not consistently represent a price at which a
specific transaction can be effected. It is the policy of the Funds to value
such securities at prices at which it is expected those shares may be sold, and
the Manager or any sub-advisor is authorized to make such determinations subject
to such oversight by the Fund's Board of Directors as may occasionally be
necessary.
Short-term securities are valued at amortized cost, which approximates market.
Under the amortized cost method, a security is valued by applying a constant
yield to maturity of the difference between the principal amount due at maturity
and the cost of the security to the Funds.
Pro Forma Notes to Financial Statements
April 30, 2006
(unaudited)
5. Currency Translation
Foreign holdings are translated to U.S. dollars using the exchange rate at the
daily close of the London Exchange. The identified cost of the Funds' holdings
are translated at approximate rates prevailing when acquired. Income and expense
amounts are translated at approximate rates prevailing when received or paid,
with daily accruals of such amounts reported at approximate rates prevailing at
the date of valuation. Since the carrying amount of the foreign securities is
determined based on the exchange rate and market values at the close of the
period, it is not practicable to isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of securities during the
period.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between trade and settlement dates
on security transactions, and the difference between the amount of dividends and
foreign withholding taxes recorded on the books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized appreciation
(depreciation) on translation of assets and liabilities in foreign currencies
arise from changes in the exchange rate relating to assets and liabilities,
other than investments in securities, purchased and held in non-U.S. denominated
currencies.
6. Futures Contracts
Partners LargeCap Growth Fund and Partners LargeCap Growth Fund II may enter
into futures contracts for both hedging and non-hedging purposes. Initial margin
deposits are made by cash deposits or segregation of specific securities as may
be required by the exchange on which the transaction was conducted. Pursuant to
the contracts, the Funds agree to receive from or pay to the broker, an amount
of cash equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by the
Funds as a variation margin receivable or payable on futures contracts. During
the period the futures contracts are open, daily changes in the value of the
contracts are recognized as unrealized gains or losses. These unrealized gains
or losses are included as a component of net unrealized appreciation
(depreciation) of investments on the statements of assets and liabilities. When
the contracts are closed, the Funds recognize a realized gain or loss equal to
the difference between the proceeds from, or cost of, the closing transaction
and the Funds' cost basis in the contract.
7. Foreign Currency Contracts
At April 30, 2006, Partners LargeCap Growth Fund II owned forward contracts to
sell foreign currencies at a specified future date at a fixed exchange rate.
Forward foreign currency contracts are valued at the forward rate, and are
marked-to-market daily. The change in market value is recorded by the Funds as
an unrealized gain or loss. When the contract is closed, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate the
fluctuations in underlying prices of the Funds' portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Funds could
be exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts. The foreign currency contracts outstanding as of
April 30, 2006 are included in the schedules of investments.
8. Capital Shares
The pro forma net asset value per share assumes issuance of shares of Partners
LargeCap Growth Fund II that would have been issued at April 30, 2006, in
connection with the Reorganization. The number of shares assumed to be issued is
equal to the net assets of Partners LargeCap Growth Fund, as of April 30, 2006,
divided by the net asset value per share of the Partners LargeCap Growth Fund II
as of April 30, 2006. The pro forma number of shares outstanding, by class, for
the combined fund can be found on the statement of assets and liabilities.
9. Pro Forma Adjustments
The accompanying pro forma financial statements reflect changes in fund shares
as if the Reorganization had taken place on April 30, 2006. The expenses of the
Partners LargeCap Growth Fund were adjusted assuming the fee structure of the
Partners LargeCap Growth Fund II was in effect for the twelve months ended April
30, 2006.
10. Distributions
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders.
PART C
OTHER INFORMATION
Item 15. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect
to any proceedings against a present or former director, officer, agent or
employee (a "corporate representative") of the Registrant, the Registrant may
indemnify the corporate representative against judgments, fines, penalties, and
amounts paid in settlement, and against expenses, including attorneys' fees, if
such expenses were actually incurred by the corporate representative in
connection with the proceeding, unless it is established that:
(i) The act or omission of the corporate representative was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The corporate representative actually received an improper personal
benefit in money, property, or services; or
(iii)In the case of any criminal proceeding, the corporate representative
had reasonable cause to believe that the act or omission was unlawful.
If a proceeding is brought by or on behalf of the Registrant, however, the
Registrant may not indemnify a corporate representative who has been adjudged to
be liable to the Registrant. Under the Registrant's Articles of Incorporation
and Bylaws, directors and officers of the Registrant are entitled to
indemnification by the Registrant to the fullest extent permitted under Maryland
law and the Investment Company Act of 1940. Reference is made to Article VI,
Section 7 of the Registrant's Articles of Incorporation, Article 12 of the
Registrant's Bylaws and Section 2-418 of the Maryland General Corporation Law.
The Registrant has agreed to indemnify, defend and hold the Distributor,
its officers and directors, and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act of 1933, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act of 1933, or under common law or otherwise, arising out of or
based upon any untrue statement of a material fact contained in the Registrant's
registration statement or prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission made in conformity with
information furnished in writing by the Distributor to the Registrant for use in
the Registrant's registration statement or prospectus: provided, however, that
this indemnity agreement, to the extent that it might require indemnity of any
person who is also an officer or director of the Registrant or who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933, shall
not inure to the benefit of such officer, director or controlling person unless
a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent that such result would not be against public
policy as expressed in the Securities Act of 1933, and further provided, that in
no event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Registrant or to its security holders
to which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of its duties,
or by reason of its reckless disregard of its obligations under this Agreement.
The Registrant's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Registrant being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Registrant.
Item 16. Exhibits.
Unless otherwise stated, all filing references are to File No. 33-59474
1 (1) a. Articles of Amendment and Restatement (filed 4/12/96)
b. Articles of Amendment and Restatement (filed 9/22/00)
c. Articles of Amendment and Restatement dated 6/14/02 (filed 12/30/02)
d. Articles of Amendment and dated 5/23/05 (filed 9/8/05)
e. Articles of Amendment and dated 9/30/05 (filed 11/22/05)
(2) a. Articles of Amendment (filed 9/12/97)
b. Articles of Amendment dated 7/7/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(3) a. Certificate of Correction dated 9/14/00 (filed 9/22/00)
b. Certificate of Correction dated 12/13/00 (filed 10/12/01)
(4) a. Articles Supplementary dated 12/11/00 (filed 10/12/01)
b. Articles Supplementary dated 3/12/01 (filed 10/12/01)
c. Articles Supplementary dated 4/16/02 (filed 12/30/02)
d. Articles Supplementary dated 9/25/02 (filed 12/30/02)
e. Articles Supplementary dated 2/5/03 (filed 02/26/03)
f. Articles Supplementary dated 4/30/03 (filed 9/11/03)
g. Articles Supplementary dated 6/10/03 (filed 9/11/03)
h. Articles Supplementary dated 9/9/03 (filed 9/11/03)
i. Articles Supplementary dated 11/6/03 (filed 12/15/03)
j. Articles Supplementary dated 1/29/04 (filed 2/26/04)
k. Articles Supplementary dated 3/8/04 (filed 7/27/04)
l. Articles Supplementary dated 6/14/04 (filed 9/27/04)
m. Articles Supplementary dated 9/13/04 (filed 12/13/04)
n. Articles Supplementary dated 10/1/04 (filed 12/13/04)
o. Articles Supplementary dated 12/13/04 (filed 2/28/05)
p. Articles Supplementary dated 2/4/05 (filed 5/16/05)
q. Articles Supplementary dated 2/24/05 (filed 5/16/05)
r. Articles Supplementary dated 5/6/05 (filed 9/8/05)
s. Articles Supplementary dated 12/20/05 (filed 2/28/06)
t. Articles Supplementary dated 9/19/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
2 By-laws (filed 9/11/03)
3 Not Applicable
4 Plan of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus).
5 Included in Exhibits 1 and 2 hereto.
6 (1) a. Management Agreement (filed 9/12/97)
b. 1st Amendment to the Management Agreement (filed 9/22/00)
c. Management Agreement (filed 12/5/00)
d. Amendment to Management Agreement dated 9/9/02 (filed 12/30/02)
e. Amendment to Management Agreement dated 3/11/02 (filed 02/26/03)
f. Amendment to Management Agreement dated 12/10/02 (filed 02/26/03)
g. Amendment to Management Agreement dated 10/22/03 (filed 12/15/03)
h. Amendment to Management Agreement dated 3/8/04 (filed 6/1/04)
i. Amendment to Management Agreement dated 6/14/04 (filed 9/27/04)
j. Amendment to Management Agreement dated 7/29/04 (filed 9/27/04)
k. Amendment to Management Agreement dated 9/13/04 (filed 9/27/04)
l. Amendment to Management Agreement dated 12/13/04 (filed 2/28/05)
m. Amendment to Management Agreement dated 1/1/05 (filed 2/28/05)
n. Amendment to Management Agreement dated 9/30/05 (11/22/05)
o. Form of Amendment to Management Agreement (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(2) a. Invista Sub-Advisory Agreement (filed 9/12/97)
b. 1st Amendment to the Invista Sub-Advisory Agreement (filed 2/25/02)
c. 2nd Amendment to the Invista Sub-Advisory Agreement (filed 2/25/02)
(3) a. American Century Sub-Advisory Agreement (filed 12/5/00)
b. Amended & Restated Sub-Advisory Agreement with Amer. Century (filed 9/11/03)
c. Amended & Restated Sub-Advisory Agreement with Amer. Century (filed 9/27/04)
d. Amended & Restated Sub-Advisory Agreement with Amer. Century dated 6/13/05 (filed 9/8/05)
e. Amended & Restated Sub-Advisory Agreement with Amer. Century *
(4) a. Bernstein Sub-Advisory Agreement (filed 12/5/00)
b. Amendment to Bernstein Sub-Advisory Agreement dated 3/28/03 (filed 9/11/03)
c. Amended & Restated Bernstein Sub-Advisory Agreement dated 7/1/04 (filed 9/27/04)
(5) a. BT Sub-Advisory Agreement (filed 9/22/00)
(6) a. Federated Sub-Advisory Agreement (filed 12/5/00)
b. Federated Amended & Restated Sub-Advisory Agreement dated 10/31/03 (filed 12/15/03)
(7) a. Neuberger Berman Sub-Advisory Agreement (filed 12/5/00)
b. Amended & Restated Sub-Advisory Agreement with Neuberger Berman (filed 9/11/03)
c. Amended & Restated Sub-Advisory Agreement with Neuberger Berman dated 10/31/03 (filed 12/15/03)
d. Amended & Restated Sub-Advisory Agreement with Neuberger Berman dated 7/1/04 (filed 2/28/05)
(8) a. Morgan Stanley Sub-Advisory Agreement-PLCGI (filed 12/5/00)
b. Amended & Restated Sub-Advisory Agreement with MSAM dated 11/25/03 (filed 7/27/04)
c. Amended & Restated Sub-Advisory Agreement with MSAM dated 6/30/04 (filed 2/28/05)
(9) a. Principal Capital Income Investors Sub-Advisory Agreement (filed 2/27/01)
b. 1st Amendment to the PCII Sub-Advisory Agreement (filed 10/12/01)
c. 2nd Amendment to the PCII Sub-Advisory Agreement (filed 10/12/01)
d. 3rd Amendment to the PCII Sub-Advisory Agreement (filed 10/12/01)
(10) a. Principal Capital Real Estate Investors Sub-Advisory Agreement (filed 2/27/01)
b. 1st Amendment to the PCREI Sub-Advisory Agreement (filed 10/12/01)
c. 2nd Amendment to the PCREI Sub-Advisory Agreement (filed 10/12/01)
d. Amended & Restated Sub-Advisory Agreement with PCREI (filed 9/11/03)
e. Amended & Restated Sub-Advisory Agreement with PREI dated 9/12/05 (filed 12/29/05)
f. Amended & Restated Sub-Advisory Agreement with PREI dated 1/1/06 (Filed 2/28/06)
(11) a. Turner Sub-Advisory Agreement (filed 12/5/00)
(12) a. PCII Cash Management Sub-Advisory Agreement (filed 2/27/01)
b. Amendment to PCII Cash Management Sub-Advisory Agreement (filed 12/30/02)
c. Amended & Restated Cash Management Sub-Advisory Agreement dated 10/23/03 (filed 12/15/03)
(13) a. Ark Asset Management Sub-Advisory Agreement (filed 2/27/01)
b. Amended & Restated Sub-Advisory Agreement with Ark (filed 9/11/03)
(14) a. Morgan Stanley Sub-Advisory Agreement - PMCB (filed 2/27/01)
b. Amended & Restated Sub-Advisory Agreement with MSAM dated 11/25/03 (filed 7/27/04)
(15) a. Spectrum Sub-Advisory Agreement (filed 04/29/02)
b. Amended & Restated Sub-Advisory Agreement with Spectrum (filed 9/11/03)
(16) a. UBS Global Asset Management Sub-Advisory Agreement (filed 04/29/02)
b. Amended & Restated Sub-Advisory Agreement with UBS (filed 9/11/03)
c. Amended & Restated Sub-Advisory Agreement with UBS dated 4/1/04 filed 6/1/04)
(17) a. Dreyfus Sub-Advisory Agreement(filed 12/30/02)
b. Amended Dreyfus Sub-Advisory Agreement dated 11/25/03 (filed 12/15/03)
c. Amended Dreyfus Sub-Advisory Agreement dated 6/30/04 (filed 2/28/05)
(18) a. JP Morgan Sub-Advisory Agreement (filed 12/30/02)
b. Amended & Restated Sub-Advisory Agreement with JP Morgan (filed 9/11/03)
(19) a. Principal Global Investors Sub-Advisory Agreement (filed 12/30/02)
b. Amended and Restated PGI Sub-Advisory Agreement (filed 02/26/03)
c. Amended & Restated Sub-Advisory Agreement with PGI (filed 9/11/03)
d. Amended & Restated Sub-Advisory Agreement with PGI (filed 6/1/04)
e. Amended & Restated Sub-Advisory Agreement with PGI dated 7-04 (filed 9/27/04)
f. Amended & Restated Sub-Advisory Agreement with PGI dated 9-13-04 (filed 12/13/04)
g. Amended & Restated Sub-Advisory Agreement with PGI dated 12-13-05 (filed 2/28/06)
h. Amended & Restated Sub-Advisory Agreement with PGI dated 7-1-05 (filed 9/8/05)
i. Sub-Sub-Advisory Agreement with Spectrum dated 7-1-2005 (filed 12/29/05)
j. Sub-Sub-Advisory Agreement with Post dated 7-1-2005 (filed 12/29/05)
k. Amended & Restated Sub-Advisory Agreement with PGI dated 3-1-06 (filed 2/28/06)
(20) a. Putnam Sub-Advisory Agreement(filed 12/30/02)
b. Amended & Restated Sub-Advisory Agreement with Putnam (filed 9/11/03)
(21) a. Goldman Sachs Sub-Advisory Agreement(filed 12/30/02)
b. Amended & Restated Sub-Advisory Agreement with Goldman Sachs (filed 9/11/03)
c. Amended & Restated Goldman Sachs Sub-Advisory Agreement dated 11/20/03 (filed 12/15/03)
d. Amended & Restated Goldman Sachs Sub-Advisory Agreement dated 6/30/04 (filed 2/28/05)
(22) a. Wellington Sub-Advisory Agreement (filed 12/30/02)
b. Amended & Restated Sub-Advisory Agreement with Wellington (filed 9/11/03)
(23) a. Fidelity Sub-Advisory Agreement (filed 2/26/04)
b. Fidelity Sub-Sub-Advisory Agreement (filed 12/15/03)
c. Amended & Restated Fidelity Sub-Advisory Agreement dated 12/29/04 (filed on 2/28/05)
(24) a. T. Rowe Price Sub-Advisory Agreement (filed 6/1/04)
b. Amended & Restated Sub-Advisory Agreement with T. Rowe Price (filed 9/27/04)
c. Amended & Restated Sub-Advisory Agreement with T. Rowe Price dated 8/1/05 (filed 12/29/05)
(25) a. Grantham, Mayo, Van Otterloo Sub-Advisory Agreement (filed 6/1/04)
(26) a. Mazama Capital Management Sub-Advisory Agreement (filed 6/1/04)
(27) a. Dimensional Fund Advisors Sub-Advisory Agreement (filed 6/1/04)
(28) a. Emerald Advisors, Inc. Sub-Advisory Agreement (filed 9/27/04)
(29) a. Los Angeles Capital Management Sub-Advisory Agreement (filed 9/27/04)
b. Amended & Restated Sub-Advisory Agreement with LA Capital dated 9/12/05 (filed 11/22/05)
(30) a. Post Advisory Group Sub-Advisory Agreement dated 12/29/04 (filed 2/28/05)
b. Amended & Restated Sub-Adv Agreement with Post dated 9/12/05 (filed 12/29/05)
(31) a. Mellon Equity Associates LLP Sub-Advisory Agreement dated 12/21/04 (filed 2/28/05)
b. Amended & Restated Sub-Advisory Agreement with Mellon Equity dated 8/8/05 (filed 11/22/05)
(32) a. Columbus Circle Investors Sub-Advisory Agreement dated 1/5/05 (filed 9/8/05)
(33) a. Barrow Hanley Sub-Advisory Agreement dated 7/12/05 (filed 9/8/05)
(34) a. Vaughan Nelson Investment Management Sub-Advisory Agreement dated 9/21/05 (filed 11/22/05)
(35) a. Nuveen Sub-Advisory Agreement dated 3/1/06 (filed 2/28/06)
(36) a. Bank of New York Sub-Advisory Agreement dated 3/1/06 (filed 2/28/06)
(37) a. Form of WM Advisors, Inc. Sub-Advisory Agreement (filed 9/20/06 as an exhibit to Form N-14, file no.333-137477)
(38) a. Form of Van Kampen Sub-Advisory Agreement (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
7 (1) a. Distribution Agreement (filed 4/12/96)
b. 1st Amendment to the Distribution Agreement (filed 9/22/00)
c. Distribution Agreement (filed 9/22/00)
d. Distribution Plan and Agreement (Select Class)(filed 12/30/02)
e. Amended and Restated Distribution Plan and Agreement (Select Class)(filed 12/30/02)
f. Amended and Restated Distribution Plan and Agreement (Advisors Select Class)(filed 12/30/02)
g. Amended and Restated Distribution Plan and Agreement (Advisors Preferred Class)(filed 12/30/02)
h. Amended and Restated Distribution Plan and Agreement (Class J)(filed 12/30/02)
i. Amended and Restated Distribution Agreement (filed 12/30/02)
j. Amendment to Distribution Plan and Agreement (Advisors Preferred Class) (filed 02/26/03)
k. Amendment to Distribution Plan and Agreement (Advisors Select Class) (filed 02/26/03)
l. Amendment to Distribution Plan and Agreement (Select Class) (filed 02/26/03)
m. Amendment to Distribution Agreement dated 03/02 (filed 02/26/03)
n. Amendment to Distribution Agreement dated 12/02 (filed 02/26/03)
o. Amended & Restated Distribution Agreement dated 10/22/03 (filed 12/15/03)
p. Amended & Restated Distribution Agreement dated 6/14/04 (filed 9/27/04)
q. Amended & Restated Distribution Agreement dated 2/24/05 (filed 9/8/05)
(2) a. Selling Agreement--Advantage Classes (filed 9/11/03)
b. Selling Agreement--J Shares (filed 9/11/03)
c. Selling Agreement--Class A and Class B Shares (filed 9/8/05)
8 Not Applicable
9 (1) a. Domestic Portfolio Custodian Agreement with Bank of New York (filed 4/12/96)
b. Domestic Funds Custodian Agreement with Bank of New York (filed 12/5/00)
c. Domestic and Global Custodian Agreement with Bank of New York (filed 11/22/05)
(2) a. Global Portfolio Custodian Agreement with Chase Manhattan Bank (filed 4/12/96)
b. Global Funds Custodian Agreement with Chase Manhattan Bank (filed 12/5/00)
10 Rule 12b-1 Plan
(1) Advisors Preferred Plan (filed 9/22/2000)
a. Amended & Restated dated 9/9/02 (filed 12/30/02)
b. Amended & Restated dated 3/11/04 (filed 3/14/04)
c. Amended & Restated dated 6/14/04 (filed 9/27/04)
d. Amended & Restated dated 9/13/04 (filed 9/27/04)
e. Amended & Restated dated 12/13/04 (filed 2/28/05)
f. Amended & Restated dated 9/30/05 (filed 11/22/05)
g. Amended & Restated dated 9/11/06 *
(2) Advisors Select Plan (filed 9/22/2000)
a. Amended & Restated dated 9/9/02 (filed 12/30/02)
b. Amended & Restated dated 3/11/04 (filed 3/14/04)
c. Amended & Restated dated 6/14/04 (filed 9/27/04)
d. Amended & Restated dated 9/13/04 (filed 9/27/04)
e. Amended & Restated dated 12/13/04 (filed 2/28/05)
f. Amended & Restated dated 9/30/05 (filed 11/22/05)
g. Amended & Restated dated 9/11/06 *
(3) Select Plan (filed 12/30/02)
a. Amended & Restated dated 9/9/02 (filed 12/30/02)
b. Amended & Restated dated 3/11/04 (filed 3/14/04)
c. Amended & Restated dated 6/14/04 (filed 9/27/04)
d. Amended & Restated dated 9/13/04 (filed 9/27/04)
e. Amended & Restated dated 12/13/04 (filed 2/28/05)
f. Amended & Restated dated 9/30/05 (filed 11/22/05)
g. Amended & Restated dated 9/11/06 *
(4) Class J Plan (filed 12/30/02)
a. Amended & Restated dated 9/9/02 (filed 12/30/02)
b. Amended & Restated dated 9/13/04 (filed 9/27/04)
c. Amended & Restated dated 12/13/04 (filed 2/28/05)
d. Amended & Restated dated 9/30/05 (filed 11/22/05)
e. Amended & Restated dated 9/11/06 *
(5) Advisors Signature Plan (filed 12/13/04)
a. Amended & Restated dated 9/13/04 (filed 9/27/04)
b. Amended & Restated dated 12/13/04 (filed 2/28/05)
c. Amended & Restated dated 9/30/05 (filed 11/22/05)
d. Amended & Restated dated 9/11/06 *
(6) Class A Plan (filed 2/28/05)
a. Amended & Restated dated 9/30/05 (filed 11/22/05)
b. Amended & Restated dated 9/11/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(7) Class B Plan (filed 2/28/05)
a. Amended & Restated dated 9/30/05 (filed 11/22/05)
b. Amended & Restated dated 9/11/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(8) Class C Plan (filed 2/28/05)
a. Dated 9/11/06 (filed 9/20/06 as an exhibit to Form N-14, file no. 333-137477)
(n) Rule 18f-3 Plan (filed 2/28/05)
11 Opinion and Consent of counsel, regarding legality of issuance of shares and other matters *
12 Forms of Opinions and Consent of counsel on tax matters- To be filed by amendment
13 Not Applicable
14 Consent of Independent Registered Public Accountants
(a) Consent of Ernst & Young LLP *
15 Not Applicable
16 (a) Powers of Attorney *
17 (a) Prospectuses of Principal Investors Fund dated March 1, 2006 (filed 3/20/06)
(b) Statement of Additional Information of Principal Investors Fund dated March 1, 2006 (filed 3/20/06)
(c) Annual Report of Principal Investors Fund, Inc. for the fiscal year ended October 31, 2005 (filed 12/21/05)
(d) Semi-Annual Report of Principal Investors Fund, Inc. for the period ended April 30, 2006 (filed 6/28/06)
* Filed Herewith.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file a post-effective amendment to
this Registration Statement which will include an opinion of counsel regarding
the tax consequences of the proposed reorganization.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Principal Investors Fund, Inc., has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Des Moines and State of Iowa, on the 5th day of October, 2006.
Principal Investors Fund, Inc.
(Registrant)
By /s/ R. C. Eucher
R. C. Eucher
Director, President and
Chief Executive Officer
Attest: /s/ James F. Sager
James F. Sager
Assistant Secretary
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ R. C. Eucher Director, President and October 5, 2006
R. C. Eucher Chief Executive Officer
(Principal Executive Officer)
(L. D. Zimpleman)* Director and Chairman October 5, 2006
L. D. Zimpleman of the Board
/s/ J. R. Brown Vice President and October 5, 2006
J. R. Brown Chief Financial Officer
(Principal Accounting Officer)
(E. A. Ballantine)* Director October 5, 2006
E. A. Ballantine
(J. D. Davis)* Director October 5, 2006
J. D. Davis
(R. W. Gilbert)* Director October 5, 2006
R. W. Gilbert
(M. A. Grimmett)* Director October 5, 2006
M. A. Grimmett
(F.S. Hirsch) Director October 5, 2006
F.S. Hirsch
(W. C. Kimball)* Director October 5, 2006
W. C. Kimball
(B. A. Lukavsky)* Director October 5 , 2006
B. A. Lukavsky
*By /s/ R. C. Eucher
R. C. Eucher
Director, President and Chief Executive Officer
Pursuant to Powers of Attorney filed herewith.
EXHIBIT INDEX
Exhibit No. Description
4 Plan of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus)
6(3)(e) Amended & Restated Sub-Advisory Agreement with Amer. Century
10(1)(g) Amended & Restated Distribution Plan and Agreement Advisors Preferred Plan dated 9/11/06
10(2)(g) Amended & Restated Distribution Plan and Agreement Advisors Select Plan dated 9/11/06
10(3)(g) Amended & Restated Distribution Plan and Agreement Select Plan dated 9/11/06
10(4)(e) Amended & Restated Distribution Plan and Agreement Class J dated 9/11/06
10(5)(d) Amended & Restated Distribution Plan and Agreement Advisors Signature dated 9/11/06
11 Opinion and Consent of counsel regarding legality of issuance of shares and other matters
14(a) Consent of Ernst & Young LLP, Independent Registered Public Accountants
16(a) Powers of Attorney