As filed with the Securities and Exchange Commission on March 16, 2010. |
Registration No. 333-164920 |
U.S. SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
FORM N-14 |
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] |
[XX] Pre-Effective Amendment No. 1 |
[ ] Post-Effective Amendment No. |
PRINCIPAL FUNDS, INC. |
f/k/a Principal Investors Fund, Inc. |
(Exact name of Registrant as specified in charter) |
680 8th Street, Des Moines, Iowa 50392-2080 |
(Address of Registrant's Principal Executive Offices) |
515-248-3842 |
(Registrant's Telephone Number, Including Area Code) |
Michael D. Roughton |
Counsel, Principal Funds, Inc. |
711 High Street |
Des Moines, Iowa 50392-2080 |
(Name and Address of Agent for Service) |
Copies of all communications to: |
John W. Blouch |
Dykema Gossett PLLC |
1300 I Street, N.W. |
Washington, D.C. 20005-3353 |
202-906-8714; 202-906-8669 (Fax) |
Approximate date of proposed public offering: As soon as practicable after this Registration Statement |
becomes effective. |
Title of Securities Being Registered: Institutional, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and |
Class R-5 Shares common stock, par value $.01 per share. |
No filing fee is due because an indefinite number of shares have been registered in reliance on Section 24(f) |
under the Investment Company Act of 1940, as amended. |
EXPLANATORY NOTE |
Rule 461 Request for Acceleration: Attached to this filing is a transmittal letter in which the Registrant and the |
Principal Underwriter request accelerated effectiveness to March 18, 2010 or as soon thereafter as practicable. |
PRINCIPAL FUNDS, INC. |
680 8th Street |
Des Moines, Iowa 50392-2080 |
March 24, 2010 |
Dear Shareholder: |
A Special Meeting of Shareholders of Principal Funds, Inc. (PFI) will be held at 680 8th Street, Des Moines, Iowa 50392-2080, on |
May 10, 2010 at 10 a.m., Central Time. |
At the meeting, shareholders of the High Quality Intermediate-Term Bond Fund (the Acquired Fund) will be asked to consider and |
approve a Plan of Acquisition (the Plan) providing for the reorganization of the High Quality Intermediate-Term Bond Fund into the Bond |
Market Index Fund (the Acquiring Fund). Each of these Funds is a separate series or fund of PFI. |
Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund in exchange for |
shares of the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the shareholders of the Acquired Fund; and (iii) the |
Acquired Fund will liquidate and terminate (the Reorganization). As a result of the Reorganization, each shareholder of the Acquired Fund |
will become a shareholder of the Acquiring Fund. The total value of all shares of the Acquiring Fund issued in the Reorganization will equal |
the total value of the net assets of the Acquired Fund. The number of full and fractional shares of the Acquiring Fund received by a |
shareholder of the Acquired Fund will be equal in value to the value of that shareholders shares of the Acquired Fund as of the close of |
regularly scheduled trading on the New York Stock Exchange (NYSE) on the closing date of the Reorganization. Holders of Class J, Class |
R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquired Fund will receive, respectively, Class J, Class |
R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquiring Fund. The Reorganization is expected to |
occur as of the close of regularly scheduled trading on the NYSE on May 14, 2010. All share classes of the Acquired Fund will vote in the |
aggregate and not by class with respect to the Reorganization. |
The Board of Directors of PFI believes that the Reorganization will serve the best interests of shareholders of both the Acquired and |
Acquiring Funds. The Funds have the same investment objectives in that they both seek to provide current income. The Funds also have |
substantially similar principal policies and risks in that both invest primarily in investment grade fixed-income securities, although the |
Acquiring Fund is an index fund that is passively managed and tracks the performance of the Barclays Capital U.S. Aggregate Bond Index |
(the Index) while the Acquired Fund is actively managed and seeks to outperform the Index as its benchmark index. The Acquiring Fund |
has lower advisory fee rates and is expected to have lower expense ratios following the Reorganization. Moreover, the Reorganization may |
be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient management. |
Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. |
The value of your investment will not be affected by the Reorganization. Furthermore, in the opinion of legal counsel, no gain or loss |
will be recognized by any shareholder for federal income tax purposes as a result of the Reorganization. |
***** |
Enclosed you will find a Notice of Special Meeting of Shareholders, a Proxy Statement/Prospectus, and a proxy card for shares of the |
Acquired Fund you owned as of March 8, 2010, the record date for the Meeting. The Proxy Statement/Prospectus provides background |
information and describes in detail the matters to be voted on at the Meeting. |
The Board of Directors has unanimously voted in favor of the proposed Reorganization and recommends that you vote FOR the |
Proposal. |
In order for shares to be voted at the Meeting, we urge you to read the Proxy Statement/Prospectus and then complete and mail |
your proxy card(s) in the enclosed postage-paid envelope, allowing sufficient time for receipt by us by May 7, 2010. As a convenience, |
we offer three options by which to vote your shares: |
By Internet: Follow the instructions located on your proxy card. |
By Phone: The phone number is located on your proxy card. Be sure you have your control number, as printed on your proxy card, |
available at the time you call. |
By Mail: Sign your proxy card and enclose it in the postage-paid envelope provided in this proxy package. |
We appreciate your taking the time to respond to this important matter. Your vote is important. If you have any questions regarding the |
Reorganization, please call our shareholder services department toll free at 1-800-222-5852. |
PRINCIPAL FUNDS, INC. | |
680 8th Street | |
Des Moines, Iowa 50392-2080 | |
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS | |
To the Shareholders of the High Quality Intermediate-Term Bond Fund: | |
Notice is hereby given that a Special Meeting of Shareholders (the Meeting) of the High Quality Intermediate-Term Bond Fund, a | |
separate series of Principal Funds, Inc. (PFI), will be held at 680 8th Street, Des Moines, Iowa 50392-2080, on May 10, 2010 at 10 a.m., | |
Central Time. A Proxy Statement/Prospectus providing information about the following proposal to be voted on at the Meeting is included | |
with this notice. The Meeting is being held to consider and vote on such proposal as well as any other business that may properly come | |
before the Meeting or any adjournment thereof: | |
Proposal: | Approval of a Plan of Acquisition providing for the reorganization of the High Quality Intermediate-Term Bond Fund |
(the Fund) into the Bond Market Index Fund. | |
The Board of Directors of PFI recommends that shareholders of the Fund vote FOR the Proposal. | |
Approval of the Proposal will require the affirmative vote of the holders of at least a Majority of the Outstanding Voting Securities (as | |
defined in the accompanying Proxy Statement/Prospectus) of the Fund. | |
Each shareholder of record at the close of business on March 8, 2010 is entitled to receive notice of and to vote at the Meeting. | |
Please read the attached Proxy Statement/Prospectus. | |
By order of the Board of Directors | |
Nora M. Everett | |
President and Chief Executive Officer | |
March 24, 2010 | |
Des Moines, Iowa |
PRINCIPAL FUNDS, INC. |
680 8th Street |
Des Moines, Iowa 50392-2080 |
|
PROXY STATEMENT/PROSPECTUS |
SPECIAL MEETING OF SHAREHOLDERS |
TO BE HELD MAY 10, 2010 |
RELATING TO THE REORGANIZATION OF: |
THE HIGH QUALITY INTERMEDIATE-TERM BOND FUND INTO |
THE BOND MARKET INDEX FUND |
This Proxy Statement/Prospectus is furnished in connection with the solicitation by the Board of Directors (the Board or Directors) |
of Principal Funds, Inc. (PFI) of proxies to be used at a Special Meeting of Shareholders of PFI to be held at 680 8th Street, Des Moines, |
Iowa 50392-2080, on May 10, 2010, at 10 a.m., Central Time (the Meeting). |
At the Meeting, shareholders of the High Quality Intermediate-Term Bond Fund (the Acquired Fund) will be asked to consider and |
approve a proposed Plan of Acquisition (the Plan) providing for the reorganization of the Acquired Fund into the Bond Market Index Fund |
(the Acquiring Fund). |
Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject to all the liabilities of the Acquired Fund in exchange for |
shares of the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the Shareholders of the Acquired Fund; and (iii) the |
Acquired Fund will liquidate and terminate (the Reorganization). As a result of the Reorganization, each shareholder of the Acquired Fund |
will become a shareholder of the Acquiring Fund. The total value of all shares of the Acquiring Fund issued in the Reorganization will equal |
the total value of the net assets of the Acquired Fund. The number of full and fractional shares of the Acquiring Fund received by a |
shareholder of the Acquired Fund will be equal in value to the value of that shareholders shares of the Acquired Fund as of the close of |
regularly scheduled trading on the New York Stock Exchange (NYSE) on the closing date of the Reorganization. Holders of Class J, Class |
R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquired Fund will receive, respectively, Class J, Class |
R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquiring Fund. If approved by shareholders of the |
Acquired Fund, the Reorganization is expected to occur immediately after the close of regularly scheduled trading on the NYSE on May 14, |
2010 (the Effective Time). All share classes of the Acquired Fund will vote in the aggregate and not by class. The terms and conditions of |
the Reorganization are more fully described below in this Proxy Statement/Prospectus and the Form of Plan of Acquisition which is attached |
hereto as Appendix A. |
This Proxy Statement/Prospectus contains information shareholders should know before voting on the Reorganization. Please read it |
carefully and retain it for future reference. The Annual and Semi-Annual Reports to Shareholders of PFI contain additional information about |
the investments of the Acquired Fund, and the Annual Report contains discussions of the market conditions and investment strategies that |
significantly affected the Acquired Fund during the fiscal year ended October 31, 2009. Copies of these reports may be obtained at no charge |
by calling our shareholder services department toll free at 1-800-247-4123. |
A Statement of Additional Information dated March 24, 2010 (the Statement of Additional Information) relating to this Proxy |
Statement/Prospectus has been filed with the Securities and Exchange Commission (SEC) and is incorporated by reference into this Proxy |
Statement/Prospectus. PFIs Prospectuses, dated March 1, 2009 and December 21, 2009 and as supplemented (collectively the PFI |
Prospectus), (File Nos. 33-59474 and 811-07572) and the Statements of Additional Information for PFI, dated March 1, 2010 and December |
2009 and as supplemented (collectively PFI SAI), have been filed with the SEC and, insofar as they relate to the High Quality |
Intermediate-Term Bond Fund, are incorporated by reference into this Proxy Statement/Prospectus. Copies of these documents may be |
obtained without charge by writing to PFI at the address noted above or by calling our shareholder services department toll free at 1-800-222- |
5852. You may also call our shareholder services department toll fee at 1-800-222-5852 if you have any questions regarding the |
Reorganization. |
PFI is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (the |
1940 Act) and files reports, proxy materials and other information with the SEC. Such reports, proxy materials and other information may |
be inspected and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 (information on the |
operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-5850). Such materials are also available on the |
SECs 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 SECs Public Reference Room. |
The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Proxy |
Statement/Prospectus. Any representation to the contrary is a criminal offense. |
The date of this Proxy Statement/Prospectus is March 24, 2010. |
TABLE OF CONTENTS | ||
Page | ||
INTRODUCTION | 3 | |
THE REORGANIZATION | 3 | |
PROPOSAL: | APPROVAL OF A PLAN OF ACQUISITION PROVIDING FOR THE REORGANIZATION | |
OF THE HIGH QUALITY INTERMEDIATE -TERM BOND FUND INTO THE | ||
BOND MARKET INDEX FUND | 4 | |
Comparison of Acquired and Acquiring Funds | 4 | |
Comparison of Investment Objectives and Strategies | 4 | |
Fees and Expenses of the Funds | 6 | |
Comparison of Principal Investment Risks | 8 | |
Performance | 9 | |
INFORMATION ABOUT THE REORGANIZATION | 10 | |
Plan of Acquisition | 10 | |
Reasons for the Reorganization | 10 | |
Board Consideration of the Reorganization | 10 | |
Description of the Securities to Be Issued | 11 | |
Federal Income Tax Consequences | 11 | |
CAPITALIZATION | 12 | |
ADDITIONAL INFORMATION ABOUT THE FUNDS | 13 | |
Certain Investment Strategies and Related Risks of the Funds | 13 | |
Multiple Classes of Shares | 16 | |
Costs of Investing in the Funds | 16 | |
Distribution Plans and Intermediary Compensation | 17 | |
Other Payments to Financial Intermediaries | 18 | |
Pricing of Fund Shares | 19 | |
Purchase of Fund Shares | 20 | |
Redemption of Fund Shares | 22 | |
Exchange of Fund Shares | 24 | |
Frequent Purchases and Redemptions | 25 | |
Dividends and Distributions | 26 | |
Tax Considerations | 26 | |
Portfolio Holdings Information | 27 | |
VOTING INFORMATION | 27 | |
OUTSTANDING SHARES AND SHARE OWNERSHIP | 28 | |
FINANCIAL HIGHLIGHTS | 30 | |
FINANCIAL STATEMENTS | 34 | |
LEGAL MATTERS | 34 | |
OTHER INFORMATION | 34 | |
APPENDIX A Form of Plan of Acquisition | A-1 | |
APPENDIX B Description of Index | B-1 |
2
INTRODUCTION | |
This Proxy Statement/Prospectus is being furnished to shareholders of the Acquired Fund to provide information regarding the Plan and | |
the Reorganization. | |
Principal Funds, Inc. PFI is a Maryland corporation and an open-end management investment company registered with the SEC under | |
the 1940 Act. PFI currently offers 66 separate series or funds (the PFI Funds), including the Acquired and Acquiring Funds. The sponsor | |
of PFI is Principal Life Insurance Company (Principal Life), and the investment advisor to the PFI Funds is Principal Management | |
Corporation (PMC). Principal Funds Distributor, Inc. (the Distributor or PFD) is the distributor for all share classes of the Acquired | |
and Acquiring Funds. Principal Life, an insurance company organized in 1879 under the laws of Iowa, PMC and PFD are indirect, wholly- | |
owned subsidiaries of Principal Financial Group, Inc. (PFG). Their address is the Principal Financial Group, Des Moines, Iowa 50392- | |
2080. | |
Investment Management. Pursuant to an investment advisory agreement with PFI with respect to the Acquired and Acquiring Funds, | |
PMC provides investment advisory services and certain corporate administrative services to the Funds. As permitted by the investment | |
advisory agreement, PMC has entered into sub-advisory agreements with respect to the Acquired and Acquiring Funds as follows: | |
Acquired Fund | Sub-Advisor |
High Quality Intermediate-Term Bond Fund | Principal Global Investors, LLC (PGI)* |
Acquiring Fund | Sub-Advisor |
Bond Market Index Fund | Mellon Capital Management Corporation (Mellon Capital) |
* Spectrum Asset Management Inc. (Spectrum) serves as a sub-sub-advisor to the Acquired Fund and manages a portion of its | |
assets. | |
PMC and each sub-advisor and the sub-sub-advisor are registered with the SEC as investment advisors under the Investment Advisers | |
Act of 1940. | |
PGI is located at 801 Grand Avenue, Des Moines, IA 50392. PGI is an affiliate of PFG. | |
Mellon Capital is located at 50 Fremont Street, Suite 3900, San Francisco, CA 94105. Mellon Capital is a wholly owned subsidiary of | |
Mellon Financial Corporation. | |
Spectrum is located at 4 High Ridge Park, Stamford, CT 06905. Spectrum is an affiliate of PFG. | |
THE REORGANIZATION | |
At its meeting held on December 14, 2009, the Board, including all the Directors who are not interested persons (as defined in the | |
1940 Act) of PFI (the Independent Directors), approved the Reorganization pursuant to the Plan providing for the combination of the | |
Acquired Fund into the Acquiring Fund. The Board concluded that the Reorganization is in the best interests of the Acquired Fund and the | |
Acquiring Fund and that the interests of existing shareholders of the Funds will not be diluted as a result of the Reorganization. The factors | |
that the Board considered in deciding to approve the Reorganization are discussed below under Information About the Reorganization | |
Board Consideration of the Reorganization. | |
The Reorganization contemplates: (i) the transfer of all the assets, subject to all of the liabilities, of the Acquired Fund to the Acquiring | |
Fund in exchange for shares of the Acquiring Fund; (ii) the distribution to Acquired Fund shareholders of the Acquiring Fund shares; and (iii) | |
the liquidation and termination of the Acquired Fund. As a result of the Reorganization, each shareholder of the Acquired Fund will become | |
a shareholder of the Acquiring Fund. In the Reorganization, the Acquiring Fund will issue a number of shares with a total value equal to the | |
total value of the net assets of the Acquired Fund, and each shareholder of the Acquired Fund will receive a number of full and fractional | |
shares of the Acquiring Fund with a value equal to the value of that shareholders shares of the Acquired Fund, as of the close of regularly | |
scheduled trading on the NYSE on the closing date of the Reorganization (the Effective Time). The closing date of the Reorganization is | |
expected to be May 14, 2009. Holders of Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the | |
Acquired Fund will receive, respectively, Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the | |
Acquiring Fund. The terms and conditions of the Reorganization are more fully described below in this Proxy Statement/Prospectus and in | |
the Form of Plan of Acquisition, which is attached hereto as Appendix A. | |
The Board of Directors of PFI believes that the Reorganization will serve the best interests of shareholders of both the Acquired and | |
Acquiring Funds. The Funds have the same investment objectives in that they both seek to provide current income. The Funds also have | |
similar principal policies and risks in that both invest primarily in fixed-income securities held in the Barclays Capital U.S. Aggregate Bond | |
Index (the Index) with the Acquiring Fund attempting to match the Index and the Acquired Fund attempting to outperform the Index. The | |
Acquiring Fund has lower advisory fee rates and is expected to have lower expense ratios following the Reorganization. Moreover, the | |
Reorganization may be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient | |
management. Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. | |
In the opinion of legal counsel, the Reorganization will qualify as a tax-free reorganization and, for federal income tax purposes, no gain | |
or loss will be recognized as a result of the Reorganization by the Acquired or Acquiring Fund shareholders. See Information About the | |
Reorganization Federal Income Tax Consequences. | |
The Reorganization will not result in any material change in the purchase and redemption procedures followed with respect to the | |
distribution of shares. See Additional Information About the Funds Purchases, Redemptions and Exchanges of Shares. |
3
The Acquired Fund is expected to achieve the greatest benefit from the Reorganization and, therefore, will pay all expenses and out-of- | ||
pocket fees incurred in connection with the Reorganization, including printing, mailing, and legal fees. These expenses and fees are expected | ||
to total $30,759. Assuming the Acquiring Fund experiences the expense ratios shown in the Annual Fund Operating Expenses table, | ||
shareholders of the Acquired Fund may expect the Acquiring Fund to recover the estimated expenses of the Reorganization in one year. | ||
Further, the Acquired Fund will also pay any trading costs associated with disposing of any portfolio securities of the Acquired Fund that | ||
would not be compatible with the investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities that | ||
would be compatible. 56% of the portfolio securities of the Acquired Fund are expected to be disposed of. The estimated loss, including | ||
trading costs, would be $3,118,000 on a U.S. GAAP basis. The estimated per share capital loss would be $0.55. | ||
PROPOSAL: | ||
APPROVAL OF A PLAN OF ACQUISITION PROVIDING | ||
FOR THE REORGANIZATION OF THE | ||
HIGH-QUALITY INTERMEDIATE TERM BOND FUND | ||
INTO THE BOND MARKET INDEX FUND | ||
Shareholders of the High-Quality Intermediate Term Bond Fund (the Acquired Fund) are being asked to approve the reorganization of | ||
the Acquired Fund into the Bond Market Index Fund (the Acquiring Fund.) | ||
Comparison of Acquired and Acquiring Funds | ||
The following table provides comparative information with respect to the Acquired and Acquiring Funds. As indicated in the table, the | ||
Funds have the same investment objectives in that both seek to provide current income. The Funds also have substantially similar principal | ||
policies and risks in that both invest primarily in investment grade fixed-income securities. The Funds differ principally in that the Acquiring | ||
Fund is an index fund that is passively managed and tracks the performance of the Barclays Capital U.S. Aggregate Bond Index (the | ||
Index), while the Acquired Fund is actively managed and seeks to outperform the Index as its benchmark index. Both Funds may utilize | ||
derivatives but the Acquired Fund, and not the Acquiring Fund, may use derivatives as a principal investment strategy. | ||
High-Quality Intermediate Term Bond Fund | Bond Market Index Fund | |
(Acquired Fund) | (Acquiring Fund) | |
Approximate Net Assets as of January 31, 2010 (unaudited): | ||
$46,658,000 | $62,415,000 | |
Investment Advisor: | PMC | |
Sub-Advisors and Portfolio Managers: | ||
PGI | Mellon Capital | |
William C. Armstrong has been with PGI since 1992. He earned a | David C. Kwan, CFA. Mr. Kwan is Managing Director, Fixed | |
Bachelors degree from Kearney State College and a Masters | Income Management and Trading. He joined Mellon Capital in | |
degree from the University of Iowa. Mr. Armstrong has earned the | 1990. He earned a B.S. in Electrical Engineering and Computer | |
right to use the Chartered Financial Analyst designation. | Science from University of California at Berkeley and an MBA | |
Timothy R. Warrick has been with PGI since 1990. He earned a | from University of California at Berkeley. He has earned the right | |
Bachelors degree in Accounting and Economics from Simpson | to use the Chartered Financial Analyst designation. | |
College and an MBA in Finance from Drake University. Mr. | Zandra Zelaya, CFA. Ms. Zelaya is Vice President, Portfolio | |
Warrick has earned the right to use the Chartered Financial | Manager, Fixed-Income. She joined Mellon Capital in 1997. She | |
Analyst designation. | earned a Bachelors of Science at California State University | |
Hayward in Finance. She has earned the right to the use the | ||
Spectrum (Sub-sub-advisor) | Charted Financial Analyst designation. | |
Mark A. Lieb founded Spectrum in 1987. He earned a BA in | ||
Economics from Central Connecticut State University and an | ||
MBA in Finance from the University of Hartford. | ||
L. Phillip Jacoby has been with Spectrum since 1995. He earned a | ||
BS in Finance from Boston University. | ||
Comparison of Investment Objectives and Strategies | ||
Investment Objective: | ||
Both the Acquired and Acquiring funds seek to provide current income. | ||
Principal Investment Strategies: | ||
The Fund invests primarily in intermediate term high-quality | Under normal circumstances, the Fund invests at least 80% of its | |
fixed-income securities. Under normal circumstances, the Fund | net assets (plus any borrowings for investment purposes) in debt | |
maintains an effective maturity of four years or less and a dollar- | securities that are held in the Barclays Capital U.S. Aggregate | |
weighted effective maturity of greater than three and less than ten | Bond Index. The Barclays Capital U.S. Aggregate Bond Index | |
years. In determining the average effective maturity of the Funds | represents securities that are domestic, taxable, and dollar | |
assets, the maturity date of a callable security or prepayable | denominated. The index covers the U.S. investment grade fixed |
4
securities may be adjusted to reflect PGIs judgment regarding the | rate bond market, with index components for government and | |
likelihood of the security being called or prepaid. The Fund | corporate securities, mortgage pass-through securities, and asset- | |
considers the term bond to mean any debt security. Under | backed securities. These major sectors are subdivided into more | |
normal circumstances, the Fund invests at least 80% of its assets | specific indices that are calculated and reported on a regular basis. | |
in: | The Fund considers the term bond to mean any debt security. | |
| securities issued or guaranteed by the U.S. government or its | The Fund uses an indexing strategy or passive investment |
agencies or instrumentalities; | approach designed to track the performance of the Barclays | |
| asset-backed securities and mortgage-backed securities | Capital U.S. Aggregate Bond Index. The Fund maintains a dollar- |
representing an interest in a pool of mortgage loans or other | weighted average maturity, duration and yield consistent with that | |
assets; | of the Index. | |
| debt securities and taxable municipal bonds rated, at the time | |
of purchase, AAA, AA, or A by Standard & Poors Rating | Because of the difficulty and expense of executing relatively small | |
Service (S&P) or Aaa, Aa, or A by Moodys Investors | bond trades, the Fund may not always be invested in the less | |
Service, Inc. (Moodys) or, if not rated, in PGIs opinion, | heavily weighted Barclays Capital U.S. Aggregate Bond Index | |
of comparable quality; and | bonds. In addition, the Fund's ability to match the performance of | |
| securities issued or guaranteed by the governments of Canada | the Barclays Capital U.S. Aggregate Bond Index is affected to |
(provincial or federal government) or the United Kingdom | some degree by the size and timing of cash flows into and out of | |
payable in U.S. dollars. | the Fund. The Fund is managed to attempt to minimize such | |
effects. | ||
The rest of the Funds assets may be invested in: | ||
| preferred securities and/or common stock and preferred stock | Mellon Capital attempts to mirror the investment performance of |
that may be convertible (may be exchanged for a fixed | the Barclays Capital U.S. Aggregate Bond Index by allocating the | |
number of shares of common stock of the same issuer) or | Fund's assets in approximately the same weightings as the | |
may be non-convertible; | Barclays U.S. Capital Aggregate Bond Index; however, it is | |
| foreign securities; or | unlikely that a perfect correlation of 1.00 will be achieved. |
| securities rated less than the three highest grades of S&P or | |
Moodys but not lower than BBB- (S&P) or Baa3 (Moodys) | ||
(i.e. less than investment grade). | ||
The Fund may enter into dollar roll transactions, which may | ||
involve leverage. The Fund may utilize derivative | ||
strategies, which are financial contracts whose value depends | ||
upon, or is derived from, the value of an underlying asset, | ||
reference rate, or index, and may relate to stocks, bonds, interest | ||
rates, currencies or currency exchange rates, and related indexes. | ||
Derivative strategies may include certain options transactions, | ||
financial futures contracts, swaps, currency forwards, and related | ||
options for purposes such as earning income and enhancing | ||
returns, managing or adjusting the risk profile of the Fund, | ||
replacing more traditional direct investments, or obtaining | ||
exposure to certain markets. The Fund may actively trade portfolio | ||
securities in an attempt to achieve its investment objective. |
Hedging and Other Strategies: |
Each of the Funds may invest in inverse floating rate obligations, may engage in hedging transactions through the use of financial futures |
and options thereon and may also purchase and sell securities on a when-issued or forward commitment basis, invest in mortgage-backed |
securities, enter into repurchase agreements, invest in stand-by commitments, engage in swap agreements, and lend portfolio securities. |
Each of the Funds may invest in floating rate and variable rate obligations, including participation interests therein. |
Temporary Defensive Investing: |
For temporary defensive purposes in times of unusual or adverse market, economic, or political conditions, each Fund may invest up to |
100% of its assets in cash and cash equivalents. In taking such defensive measures, either Fund may fail to achieve its investment |
objective. |
Fundamental Investment Restrictions: |
Each of the Funds is subject to nearly identical fundamental investment restrictions; the difference being that the Acquiring Fund is |
permitted to participate in any future PFI interfund lending program. Such restrictions may not be changed without the approval of the |
shareholders of the Funds. These fundamental restrictions deal with such matters as the issuance of senior securities, purchasing or selling |
real estate or commodities, borrowing money, making loans, underwriting securities of other issuers, diversification or concentration of |
investments, and short sales of securities. The fundamental investment restrictions of the Funds are described in the Statement of |
Additional Information. |
The investment objective of each Fund may be changed by the Board of Directors of PFI without shareholder approval. |
Additional information about the investment strategies and the types of securities in which the Funds may invest is discussed below |
under Certain Investment Strategies and Related Risks of the Funds as well as in the Statement of Additional Information. |
The Statement of Additional Information provides further information about the portfolio manager(s) for each Fund, including |
information about compensation, other accounts managed and ownership of Fund shares. |
5
Fees and Expenses of the Funds | |
The tables below compare the fees and expenses of the shares of the Acquired and Acquiring Funds. In the Reorganization, the holders | |
of Class R-1, Class R-2, Class R-3, Class R-4, class R-5 ("Retirement Class shares"), Class J, and Institutional Class shares of the Acquired | |
Fund will receive, respectively, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, Class J, and Institutional Class shares of the Acquiring | |
Fund. | |
Shareholder Fees (fees paid directly from your investment) | |
The following table shows the fees and expenses you may pay when you buy and redeem Class J shares of the Funds. These fees and | |
expenses are more fully described under "Additional Information About the Funds Costs of Investing in the Funds." The Retirement Class | |
and Institutional Class shares are not subject to sales charges or redemption fees. | |
Class J | |
Maximum Deferred Sales Charge (Load) | 1.00%(1) |
(as a percentage of dollars subject to charge) | |
(1) A CDSC may apply on certain redemptions made within 18 months. | |
Fees and Expenses as a % of average daily net assets | |
The following table shows: (a) the ratios of expenses to average net assets of the Acquired Fund for the fiscal year ended October 31, | |
2009; (b) the estimated ratios of expenses to average net assets of the Acquiring Fund for the fiscal year ended August 31, 2010; and (c) the | |
pro forma expense ratios of the Acquiring Fund for the fiscal year ending August 31, 2010 assuming that the Reorganization had taken place | |
at the commencement of the fiscal year ending August 31, 2010. | |
Annual Fund Operating Expenses |
Total | ||||||
Operating | Total | |||||
Management | 12b-1 | Other | Expense | Expense | Operating | |
Fees | Fees | Expenses | Ratio | Reimbursement | Expenses | |
(a) High Quality Intermediate-Term Bond Fund (Acquired Fund) | ||||||
Class J | 0.40% | 0.45% | 0.39% | 1.24% | N/A | 1.24% |
Class R-1 | 0.40% | 0.35% | 0.56% | 1.31% | N/A | 1.31% |
Class R-2 | 0.40% | 0.30% | 0.48% | 1.18% | N/A | 1.18% |
Class R-3 | 0.40% | 0.25% | 0.35% | 1.00% | N/A | 1.00% |
Class R-4 | 0.40% | 0.10% | 0.31% | 0.81% | N/A | 0.81% |
Class R-5 | 0.40% | N/A | 0.29% | 0.69% | N/A | 0.69% |
Institutional | 0.40% | N/A | 0.63% | 1.03% | N/A | 1.03% |
(b) Bond Market Index Fund (Acquiring Fund) | ||||||
Class J | 0.25% | 0.45% | 0.37% | 1.07% | N/A | 1.07% |
Class R-1 | 0.25% | 0.35% | 0.57% | 1.17% | | 1.17% |
Class R-2 | 0.25% | 0.30% | 0.49% | 1.04% | | 1.04% |
Class R-3 | 0.25% | 0.25% | 0.36% | 0.86% | | 0.86% |
Class R-4 | 0.25% | 0.10% | 0.32% | 0.67% | | 0.67% |
Class R-5 | 0.25% | N/A | 0.30% | 0.55% | | 0.55% |
Institutional | 0.25% | N/A | 0.09% | 0.34% | 0.04% | 0.30% |
(c) Bond Market Index Fund (Acquiring Fund) | ||||||
(Pro forma assuming Reorganization) | ||||||
Class J | 0.25% | 0.45% | 0.39% | 1.09% | N/A | 1.09% |
Class R-1 | 0.25% | 0.35% | 0.57% | 1.17% | | 1.17% |
Class R-2 | 0.25% | 0.30% | 0.49% | 1.04% | | 1.04% |
Class R-3 | 0.25% | 0.25% | 0.36% | 0.86% | | 0.86% |
Class R-4 | 0.25% | 0.10% | 0.32% | 0.67% | | 0.67% |
Class R-5 | 0.25% | N/A | 0.30% | 0.55% | | 0.55% |
Institutional | 0.25% | N/A | 0.07% | 0.32% | 0.02% | 0.30% |
The Distributor has voluntarily agreed to limit the Acquired and Acquiring Funds 12b-1 fees normally payable by the Fund. The |
expense limit will maintain the level of 12b-1 fees (expressed as a percent of average net assets on an annualized basis) not to exceed 0.40% |
for Class J shares. The expense limit may be terminated at any time. |
PMC has contractually agreed to limit the Acquiring Funds expenses attributable to Class R-1, Class R-2, Class R-3, Class R-4, Class |
R-5, and Institutional Class shares, and if necessary, pay expenses normally payable by the Acquiring Fund, excluding interest expense, |
through the period ending December 31, 2010. The expense limit will maintain a total level of operating expenses (expressed as a percent of |
average net assets on an annualized basis) not to exceed 1.18% for Class R-1, 1.05% for Class R-2, 0.87% for Class R-3, 0.68% for Class R- |
4, 0.56% for Class R-5, and 0.30% for Institutional shares. |
6
PMC has voluntarily agreed to limit the Acquired Funds expenses attributable to Institutional Class shares and, if necessary, pay |
expenses normally payable by the Fund excluding interest expense. The expense limit will maintain a total level of operating expenses |
(expressed as a percent of average net assets on an annualized basis) not to exceed 0.45%. The expense limit may be terminated at any time. |
The costs associated with the Reorganization are not reflected in the Annual Fund Operating Expenses table. The Acquired Fund will |
pay the costs associated with the Reorganization which are estimated to be $30,759. |
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 also take into account the relevant contractual expense limit until the date of expiration. The examples |
should not be considered a representation of future expense of the Acquired or Acquiring fund. Actual expense may be greater or |
less than those shown. |
If you sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
High Quality Intermediate-Term Bond Fund | |||||
(Acquired Fund) | Class J | $226 | $393 | $681 | $1,500 |
Class R-1 | 133 | 415 | 718 | 1,579 | |
Class R-2 | 120 | 375 | 649 | 1,432 | |
Class R-3 | 102 | 318 | 552 | 1,225 | |
Class R-4 | 83 | 259 | 450 | 1,002 | |
Class R-5 | 70 | 221 | 384 | 859 | |
Institutional | 105 | 328 | 569 | 1,259 | |
Bond Market Index Fund (Acquiring Fund) | Class J | 209 | 340 | 590 | 1,306 |
Class R-1 | 119 | 372 | 644 | 1,420 | |
Class R-2 | 106 | 331 | 574 | 1,271 | |
Class R-3 | 88 | 274 | 477 | 1,061 | |
Class R-4 | 68 | 214 | 373 | 835 | |
Class R-5 | 56 | 176 | 307 | 689 | |
Institutional | 31 | 105 | 186 | 426 | |
Bond Market Index Fund (Acquiring Fund) | |||||
(Pro forma assuming Reorganization) | Class J | 211 | 347 | 601 | 1,329 |
Class R-1 | 119 | 372 | 644 | 1,420 | |
Class R-2 | 106 | 331 | 574 | 1,271 | |
Class R-3 | 88 | 274 | 477 | 1,061 | |
Class R-4 | 68 | 214 | 373 | 835 | |
Class R-5 | 56 | 176 | 307 | 689 | |
Institutional | 31 | 101 | 177 | 404 | |
If you do not sell your shares at the end of the period: | 1 Year | 3 Years | 5 Years | 10 Years | |
High Quality Intermediate-Term Bond Fund | |||||
(Acquired Fund) | Class J | $126 | $393 | $681 | $1,500 |
Class R-1 | 133 | 415 | 718 | 1,579 | |
Class R-2 | 120 | 375 | 649 | 1,432 | |
Class R-3 | 102 | 318 | 552 | 1,225 | |
Class R-4 | 83 | 259 | 450 | 1,002 | |
Class R-5 | 70 | 221 | 384 | 859 | |
Institutional | 105 | 328 | 569 | 1,259 | |
Bond Market Index Fund (Acquiring Fund) | Class J | 109 | 340 | 590 | 1,306 |
Class R-1 | 119 | 372 | 644 | 1,420 | |
Class R-2 | 106 | 331 | 574 | 1,271 | |
Class R-3 | 88 | 274 | 477 | 1,061 | |
Class R-4 | 68 | 214 | 373 | 835 | |
Class R-5 | 56 | 176 | 307 | 689 | |
Institutional | 31 | 105 | 186 | 426 | |
Bond Market Index Fund (Acquiring Fund) | |||||
(Pro forma assuming Reorganization) | Class J | 111 | 347 | 601 | 1,329 |
Class R-1 | 119 | 372 | 644 | 1,420 | |
Class R-2 | 106 | 331 | 574 | 1,271 | |
Class R-3 | 88 | 274 | 477 | 1,061 | |
Class R-4 | 68 | 214 | 373 | 835 | |
Class R-5 | 56 | 176 | 307 | 689 | |
Institutional | 31 | 101 | 177 | 404 |
7
Investment Management Fees/Sub-Advisory Arrangements | |
The Funds each pay their investment advisor, PMC, an advisory fee which for each Fund is calculated as a percentage of the Funds | |
average daily net assets pursuant to the following fee schedule: | |
High Quality Intermediate-Term Bond Fund | Bond Market Index Fund |
(Acquired Fund) | (Acquiring Fund) |
0.40% of the first $500 million; | |
0.38% of the next $500 million; | 0.25% on all assets. |
0.36% of the next $500 million; and | |
0.35% of the excess over $1.5 billion. | |
As sub-advisors to the Funds, PGI and Mellon Capital are paid sub-advisory fees for their services. These sub-advisory fees are paid by | |
PMC, not by the Funds. PGI pays Spectrum a fee for its services. | |
A discussion of the basis of the Boards approval of the advisory and sub-advisory agreements with respect to the Acquired and | |
Acquiring Funds is available in PFIs Annual Report to Shareholders for the fiscal year ended October 31, 2009. | |
Comparison of Principal Investment Risks | |
In deciding whether to approve the Reorganization, shareholders should consider the amount and character of investment risk involved | |
in the respective investment objectives and strategies of the Acquired and Acquiring Funds. Because the Funds have the same investment | |
objectives and substantially similar principal policies, the Funds risks are substantially similar. As described below, the Funds also have | |
some different risks. | |
Risks Applicable to both Funds: | |
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of | |
fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment | |
obligations. | |
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; | |
nationalization, expropriation or confiscatory taxation; changes in foreign exchange rates and foreign exchange restrictions; settlement | |
delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. | |
companies). | |
Municipal Securities Risk. Principal and interest payments on municipal securities may not be guaranteed by the issuing body and may | |
be payable only from a particular source. That source may not perform as expected and payment obligations may not be made or made on | |
time. | |
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in | |
interest rates. The longer a fund's average portfolio duration, the more sensitive the fund will be to changes in interest rates. | |
Prepayment Risk. Unscheduled prepayments on mortgage-backed and asset-backed securities may have to be reinvested at lower rates. | |
A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value | |
over time. | |
Real Estate Securities Risk. Real estate securities (including real estate investment trusts ("REITs")) are subject to the risks associated | |
with direct ownership of real estate, including declines in value, adverse economic conditions, increases in expenses, regulatory changes and | |
environmental problems. A REIT could fail to qualify for tax-free passthrough of income under the Internal Revenue Code, and Fund | |
shareholders will indirectly bear their proportionate share of the expenses of REITs in which the Fund invests. | |
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other | |
fixed-income securities. | |
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored or chartered enterprises such as the | |
Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or | |
guaranteed by the U.S. Treasury. | |
Risks Applicable to the Acquired Fund: | |
Active Trading Risk. Actively trading portfolio securities may result in high portfolio turnover rates and increase brokerage costs, | |
accelerate realization of taxable gains and adversely impact fund performance. | |
Derivatives Risk. Transactions in derivatives (such as options, futures, and swaps) may increase volatility, cause the liquidation of | |
portfolio positions when not advantageous to do so and produce disproportionate losses. | |
Risk Applicable to the Acquiring Fund: | |
Underlying Fund Risk. An underlying fund to a fund of funds may experience relatively large redemptions or investments as the fund | |
of funds periodically reallocates or rebalances its assets. These transactions may cause the underlying fund to sell portfolio securities to meet | |
such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction | |
costs and adversely affect underlying fund performance. |
8
Performance |
The bar chart below shows how each the Acquired Funds total return has varied year-by-year, while the table below shows the each |
Funds performance over time (along with the returns of a broad-based market index for reference). Since the Acquiring Fund began |
operations on December 31, 2009, only limited performance information is available A Fund's past performance is not necessarily an |
indication of how the Fund will perform in the future. |
Highest return for a quarter during the period of the bar chart above: | Q2 '09 | 7.64% | |
Lowest return for a quarter during the period of the bar chart above: | Q3 '08 | -11.07% | |
Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2009 | |||
1 Year | 5 Years | Life of Fund | |
High Quality Intermediate-Term Bond Fund (Acquired Fund) | |||
--Institutional Class (before taxes) (3) | 11.05% | -0.12% | 2.84% |
(after taxes on distributions) (1) (3) | 9.26% | -1.91% | 0.96% |
(after taxes on distributions and sale of shares) (1) (3) | 7.33% | -1.09% | 1.35% |
--Class R-1 (4) | 10.01% | -1.00% | 1.91% |
--Class R-2 | 10.20% | -0.86% | 2.06% |
--Class R-3 | 10.46% | -0.69% | 2.24% |
--Class R-4 | 10.66% | -0.51% | 2.42% |
--Class R-5 | 10.73% | -0.37% | 2.56% |
--Class J (3) | 9.15% | -0.82% | 2.00% |
Barclay Capital Aggregate Bond Index (2) | 5.93% | 4.97% | 5.57% |
Bond Market Index Fund (Acquiring Fund) | |||
--Institutional Class (before taxes) | -0.10% | ||
(after taxes on distributions) (1) | -0.10% | ||
(after taxes on distributions and sale of shares) (1) | -0.07% | ||
--Class R-1 | -0.10% | ||
--Class R-2 | -0.10% | ||
--Class R-3 | -0.10% | ||
--Class R-4 | -0.10% | ||
--Class R-5 | -0.10% | ||
--Class J | -1.11% | ||
Barclays Capital U.S. Aggregate Bond Index (2) | 5.57% |
(1) After-tax returns are shown for Institutional Class shares only and would be different for the other share classes. They are calculated using the historical highest |
individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation |
and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax- deferred arrangements such |
as 401(k) plans or individual retirement accounts. |
(2) Index performance does not reflect deductions for fees, expenses, or taxes. |
(3) Class J and Institutional Class shares of the Acquiring Fund were first sold on March 1, 2001. The returns for periods prior to that date are based on the |
performance of the Funds R-3 Class shares adjusted to reflect the fees and expenses of Class J or Institutional Class shares. The adjustments result in |
performance for such periods that is no higher than the historical performance of the R-3 Class shares. R-3 Class shares were first sold on December 6, 2000. |
(4) Class R-1 shares were first sold November 1, 2004. The returns for periods prior to that date are based on the performance of the Funds R-3 Class shares |
adjusted to reflect the fees and expenses of Class R-1 shares. The adjustments result in performance for such periods that is no higher than the historical |
performance of the R-3 Class shares. R-3 Class shares were first sold on December 6, 2000. |
9
INFORMATION ABOUT THE REORGANIZATION | |
Plan of Acquisition | |
The terms of the Plan are summarized below. The summary is qualified in its entirety by reference to the Form of the Plan which is | |
attached as Appendix A to this Proxy Statement/Prospectus. | |
Under the Plan, the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund. We expect that the | |
closing date will be May 14, 2010, or such earlier or later date as PMC may determine, and that the Effective Time of the Reorganization will | |
be as of the close of regularly scheduled trading on the NYSE (normally 3:00 p.m., Central Time) on that date. Each Fund will determine its | |
net asset values as of the close of trading on the NYSE using the procedures described in its then current prospectus (the procedures | |
applicable to the Acquired Fund and the Acquiring Fund are identical). The Acquiring Fund will issue to the Acquired Fund a number of | |
shares of each share class with a total value equal to the total value of the net assets of the corresponding share class of the Acquired Fund | |
outstanding at the Effective Time. | |
Immediately after the Effective Time, the Acquired Fund will distribute to its shareholders Acquiring Fund shares of the same class as | |
the Acquired Fund shares each shareholder owns in exchange for all Acquired Fund shares of that class. Acquired Fund shareholders will | |
receive a number of full and fractional shares of the Acquiring Fund that are equal in value to the value of the shares of the Acquired Fund | |
that are surrendered in the exchange. In connection with the exchange, the Acquiring Fund will credit on its books an appropriate number of | |
its shares to the account of each Acquired Fund shareholder, and the Acquired Fund will cancel on its books all its shares registered to the | |
account of that shareholder. After the Effective Time, the Acquired Fund will be dissolved in accordance with applicable law. | |
The Plan may be amended, but no amendment may be made which in the opinion of the Board would materially adversely affect the | |
interests of the shareholders of the Acquired Fund. The Board may abandon and terminate the Plan at any time before the Effective Time if it | |
believes that consummation of the transactions contemplated by the Plan would not be in the best interests of the shareholders of either of the | |
Funds. | |
Under the Plan, the Acquired Fund will pay all expenses and out-of-pocket fees incurred in connection with the Reorganization. | |
If the Plan is not consummated for any reason, the Board will consider other possible courses of action. | |
Reasons for the Reorganization | |
The Board of Directors of PFI believes that the Reorganization will serve the best interests of shareholders of both the Acquired and | |
Acquiring Funds. The Funds have the same investment objectives in that they both seek to provide current income. The Funds also have | |
substantially similar principal policies and risks in that both invest primarily in investment grade fixed-income securities, although the | |
Acquiring Fund is an index fund that is passively managed and tracks the performance of the Barclays Capital U.S. Aggregate Bond Index | |
(the Index) while the Acquired Fund is actively managed and seeks to outperform the Index as its benchmark index. The Acquiring Fund | |
has lower advisory fee rates and is expected to have lower expense ratios following the Reorganization. Moreover, the Reorganization may | |
be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient management. | |
Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds. | |
Board Consideration of the Reorganization | |
Due to the lack of demand and scale for the Acquired Fund, t he Board, including the Independent Directors, considered the | |
Reorganization pursuant to the Plan at its meeting on December 14, 2009. The Board considered information presented by PMC, and the | |
Independent Directors were assisted by independent legal counsel. The Board requested and evaluated such information as it deemed | |
necessary to consider the Reorganization. At the meeting, the Board unanimously approved the Reorganization after concluding that | |
participation in the Reorganization is in the best interests of the Acquired Fund and the Acquiring Fund and that the interests of existing | |
shareholders of the Funds will not be diluted as a result of the Reorganization. | |
In determining whether to approve the Reorganization, the Board made inquiry into a number of matters and considered, among others, | |
the following factors, in no order of priority: | |
(1) | the investment objectives and principal investment strategies and risks of the Funds; |
(2) | nearly identical fundamental investment restrictions; |
(3) | estimated trading costs associated with disposing of any portfolio securities of the Acquired Fund and reinvesting the proceeds in |
connection with the Reorganization; | |
(4) | expense ratios and available information regarding the fees and expenses of the Funds; |
(5) | composite performance information of Mellon Capital; |
(6) | the prospects for growth of and for achieving economies of scale by the Acquired Fund in combination with the Acquiring Fund; |
(7) | the absence of any material differences in the rights of shareholders of the Funds; |
(8) | the financial strength, investment experience and resources of Mellon Capital, which currently serves as sub-advisor to the |
Acquiring Fund; | |
(9) | any direct or indirect benefits expected to be derived by PMC and its affiliates from the Reorganization; |
(10) | the direct or indirect federal income tax consequences of the Reorganization, including the expected tax-free nature of the |
Reorganization and the impact of any federal income tax loss carry forwards and the estimated capital gain or loss expected to be | |
incurred in connection with disposing of any portfolio securities that would not be compatible with the investment objectives and | |
strategies of the Acquiring Fund; | |
(11) | the fact that the Reorganization will not result in any dilution of Acquired or Acquiring Fund shareholder values; |
(12) | the terms and conditions of the Plan; and |
10
(13) possible alternatives to the Reorganization. | |
The Boards decision to recommend approval of the Reorganization was based on a number of factors, including the following: | |
(1) | it should be reasonable for shareholders of the Acquired Fund to have similar investment expectations after the Reorganization |
because the Funds have the same investment objectives and substantially similar principal investment strategies and risks; | |
(2) | Mellon Capital as sub-advisor responsible for managing the assets of the Acquiring Fund may be expected to provide high quality |
investment advisory services and personnel for the foreseeable future; | |
(3) | the Acquiring Fund has lower advisory fee rates and, following the Reorganization, the combined Acquired and Acquiring Fund is |
expected to have lower overall expense ratios than the Acquired Fund; | |
(4) | the combination of the Acquired and Acquiring Funds may be expected to afford shareholders of the Acquired Fund on an ongoing |
basis greater prospects for growth and efficient management; and | |
Description of the Securities to Be Issued | |
PFI is a Maryland corporation that is authorized to issue its shares of common stock in separate series and separate classes of series. | |
Each of the Acquired and Acquiring Funds is a separate series of PFI, and the Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 | |
and Institutional Class shares of common stock of the Acquiring Fund to be issued in connection with the Reorganization represent interests | |
in the assets belonging to that series and have identical dividend, liquidation and other rights, except that expenses allocated to a particular | |
series or class are borne solely by that series or class and may cause differences in rights as described herein. Expenses related to the | |
distribution of, and other identified expenses properly allocated to, the shares of a particular series or class are charged to, and borne solely | |
by, that series or class, and the bearing of expenses by a particular series or class may be appropriately reflected in the net asset value | |
attributable to, and the dividend and liquidation rights of, that series or class. | |
All shares of PFI have equal voting rights and are voted in the aggregate and not by separate series or class of shares except that shares | |
are voted by series or class: (i) when expressly required by Maryland law or the 1940 Act and (ii) on any matter submitted to shareholders | |
which the Board has determined affects the interests of only a particular series or class. | |
The share classes of the Acquired Fund have the same rights with respect to the Acquired Fund that the share classes of the Acquiring | |
Fund have with respect to the Acquiring Fund. | |
Shares of both Funds, when issued, have no cumulative voting rights, are fully paid and non-assessable, have no preemptive or | |
conversion rights and are freely transferable. Each fractional share has proportionately the same rights as are provided for a full share. | |
Federal Income Tax Consequences | |
To be considered a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the Code), a | |
reorganization must exhibit a continuity of business enterprise. Because the Acquiring Fund will use a portion of the Acquired Funds assets | |
in its business and will continue the Acquired Funds historic business, the combination of the Acquired Fund into the Acquiring Fund will | |
exhibit a continuity of business enterprise. Therefore, the combination will be considered a tax-free reorganization under applicable | |
provisions of the Code. In the opinion of tax counsel to PFI, no gain or loss will be recognized by either of the Funds or their shareholders in | |
connection with the combination, the tax cost basis of the Acquiring Fund shares received by shareholders of the Acquired Fund will equal | |
the tax cost basis of their shares in the Acquired Fund, and their holding periods for the Acquiring Fund shares will include their holding | |
periods for the Acquired Fund shares. | |
Capital Loss Carryforward. As of October 31, 2009, the Acquired Fund had an accumulated capital loss carryforward of approximately | |
$26,713,000. After the Reorganization, these losses will be available to the Acquiring Fund to offset its capital gains, although the amount of | |
offsetting losses in any given year may be limited. As a result of this limitation, it is possible that the Acquiring Fund may not be able to use | |
these losses as rapidly as the Acquired Fund might have, and part of these losses may not be useable at all. The ability of the Acquiring Fund | |
to utilize the accumulated capital loss carryforward in the future depends upon a variety of factors that cannot be known in advance, | |
including the existence of capital gains against which these losses may be offset. In addition, the benefits of any capital loss carryforward | |
currently are available only to shareholders of the Acquired Fund. After the Reorganization, however, these benefits will inure to the benefit | |
of all shareholders of the Acquiring Fund. | |
Distribution of Income and Gains. Prior to the Reorganization, the Acquired Fund, whose taxable year will end as a result of the | |
Reorganization, will declare to its shareholders of record one or more distributions of all of its previously undistributed net investment | |
income and net realized capital gain, including capital gains on any securities disposed of in connection with the Reorganization. Such | |
distributions will be made to shareholders before the Reorganization. An Acquired Fund shareholder will be required to include any such | |
distributions in such shareholders taxable income. This may result in the recognition of income that could have been deferred or might never | |
have been realized had the Reorganization not occurred. | |
The foregoing is only a summary of the principal federal income tax consequences of the Reorganization and should not be considered | |
to be tax advice. There can be no assurance that the Internal Revenue Service will concur on all or any of the issues discussed above. You | |
may wish to consult with your own tax advisors regarding the federal, state, and local tax consequences with respect to the foregoing matters | |
and any other considerations which may apply in your particular circumstances. |
11
CAPITALIZATION |
The following tables show as of January 31, 2010: (i) the capitalization of the Acquired Fund; (ii) the capitalization of the Acquiring |
Fund; and (iii) the pro forma combined capitalization of the Acquiring Fund, adjusted to reflect the estimated expenses of the Reorganization, |
as if the Reorganization had occurred as of that date. As of January 31, 2010, the Acquired Fund outstanding six classes of shares: Class R-1, |
Class R-2, Class R-3, Class R-4, Class R5, and Institutional Class The Acquiring Fund will first issue Class J shares on March 16, 2010. |
The Acquired Fund will pay all expenses and out-of-pocket fees incurred in connection with the Reorganization including printing, |
mailing, and legal fees. The expenses and fees the Acquired Fund will pay are expected to total $30,759. |
Further, the Acquired Fund will also pay any trading costs associated with disposing of any portfolio securities of the Acquired Fund |
that would not be compatible with the investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities |
that would be compatible. The estimated loss, including trading costs, would be $3,118,000 on a U.S. GAAP basis. The estimated per share |
capital loss would be $0.55. |
Shares | ||||
Share | Net Assets | Net Asset | Outstanding | |
Fund | Classes | (000s) | Value Per Share | (000s) |
High Quality Intermediate-Term Bond Fund | Class J | $27,336 | $8.23 | 3,320 |
(Acquired Fund) | R-1 | 1,904 | 8.24 | 231 |
R-2 | 2,906 | 8.17 | 356 | |
R-3 | 7,224 | 8.18 | 883 | |
R-4 | 2,012 | 8.17 | 246 | |
R-5 | 5,000 | 8.19 | 611 | |
Institutional | 276 | 8.26 | 33 | |
Total | $46,658 | 5,680 | ||
Bond Market Index Fund | Class J | -- | -- | -- |
(Acquiring Fund) | R-1 | $10 | 10.11 | 1 |
R-2 | 10 | 10.11 | 1 | |
R-3 | 10 | 10.11 | 1 | |
R-4 | 10 | 10.11 | 1 | |
R-5 | 10 | 10.12 | 1 | |
Institutional | 62,365 | 10.12 | 6,165 | |
Total | 62,415 | 6,170 | ||
Reduction in net assets and decrease in net asset | Class J | $(18) | ($0.01) | (2) |
value per share of the Acquired Fund to reflect | R-1 | (1) | * | ** |
the estimated expenses of the Reorganization | R-2 | (2) | ($0.01) | ** |
R-3 | (5) | ($0.01) | (1) | |
R-4 | (2) | ($0.01) | ** | |
R-5 | (3) | * | ** | |
Institutional | ** | * | ** | |
Decrease in shares outstanding of the Acquired | Class J | (619) | ||
Fund to reflect the exchange for shares of the | R-1 | (43) | ||
Acquiring Fund | R-2 | (69) | ||
R-3 | (168) | |||
R-4 | (47) | |||
R-5 | (117) | |||
Institutional | (6) | |||
Bond Market Index Fund | Class J | 27,318 | 10.12^ | 2,699 |
(Acquiring Fund) | R-1 | 1,913 | 10.11 | 189 |
(Pro Forma Assuming Reorganization) | R-2 | 2,914 | 10.11 | 288 |
R-3 | 7,229 | 10.11 | 715 | |
R-4 | 2,020 | 10.11 | 200 | |
R-5 | 5,007 | 10.12 | 495 | |
Institutional | 62,641 | 10.12 | 6,192 | |
Total | $109,042 | 10,778 | ||
* Less than .005 per share. | ||||
** Less than 500 shares. | ||||
^ Net asset value per share reflects Institutional shares net asset value as of January 31, 2010. |
12
ADDITIONAL INFORMATION ABOUT THE FUNDS |
Certain Investment Strategies and Related Risks of the Funds |
This section provides information about certain investment strategies and related risks of the Funds. The Statement of Additional |
Information contains additional information about investment strategies and their related risks. |
Some of the principal investment risks vary between the Funds and the variations are described above. The value of each Funds |
securities may fluctuate on a daily basis. As with all mutual funds, as the values of each Funds assets rise or fall, the Funds share price |
changes. If an investor sells Fund shares when their value is less than the price the investor paid, the investor will lose money. As with any |
security, the securities in which the Funds invest have associated risk. |
Market Volatility |
Equity securities include common stocks, preferred stocks, convertible securities, depositary receipts, rights, and warrants. Common |
stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a companys 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 companys products or |
services. A stocks 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 companys 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 companys 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 companys stock will usually react more strongly than its bonds and other |
debt to actual or perceived changes in the companys financial condition or prospects. Stocks of smaller companies may be more vulnerable |
to adverse developments than those of larger companies. |
Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors. The issuer |
generally pays the investor a fixed, variable or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt |
securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values. |
Interest Rate Changes. Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise |
when interest rates fall and fall when interest rates rise. Longer term bonds and zero coupon bonds are generally more sensitive to interest |
rate changes. |
Credit Risk. Fixed-income security prices are also affected by the credit quality of the issuer. Investment grade debt securities are |
medium and high quality securities. Some bonds, such as lower grade or junk bonds, may have speculative characteristics and may be |
particularly sensitive to economic conditions and the financial condition of the issuers. |
Repurchase Agreements and Loaned Securities |
The Funds may invest a portion of their assets in repurchase agreements, although this is not a principal investment strategy. Repurchase |
agreements typically involve the purchase of debt securities from a financial institution such as a bank, savings and loan association, or |
broker-dealer. A repurchase agreement provides that the Fund sells back to the seller and that the seller repurchases the underlying securities |
at a specified price on a specific date. Repurchase agreements may be viewed as loans by the Fund collateralized by the underlying securities. |
This arrangement results in a fixed rate of return that is not subject to market fluctuation while the Fund holds the security. In the event of a |
default or bankruptcy by a selling financial institution, the affected Fund bears a risk of loss. To minimize such risks, the Funds enter into |
repurchase agreements only with large, well-capitalized and well-established financial institutions. In addition, the value of the securities |
collateralizing the repurchase agreement is, and during the entire term of the repurchase agreement remains, at least equal to the repurchase |
price, including accrued interest. |
The Funds may lend their portfolio securities to unaffiliated broker-dealers and other unaffiliated qualified financial institutions. These |
transactions involve risk of loss to a fund if the counterparty should fail to return such securities to the fund upon demand or if the |
counterpartys collateral invested by the fund declines in value as a result of investment losses. |
Currency Contracts |
The Funds may enter into currency contracts, currency futures contracts and options, and options on currencies for hedging and other |
purposes. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a |
price set in the contract. A Fund will not hedge currency exposure to an extent greater than the aggregate market value of the securities held |
or to be purchased by the Fund (denominated or generally quoted or currently convertible into the currency). |
Hedging is a technique used in an attempt to reduce risk. If a Funds Sub-Advisor hedges market conditions incorrectly or employs a |
strategy that does not correlate well with the Funds investment, these techniques could result in a loss. These techniques may increase the |
volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques |
could result in a loss if the other party to the transaction does not perform as promised. There is also a risk of government action through |
exchange controls that would restrict the ability of the Fund to deliver or receive currency. |
Forward Commitments |
The Funds may enter into forward commitment agreements, although this is not a principal investment strategy. These agreements call |
for a fund to purchase or sell a security on a future date at a fixed price. The Funds may also enter into contracts to sell their investments |
either on demand or at a specific interval. |
13
Temporary Defensive Measures | |
From time to time, as part of its investment strategy, each Fund may invest without limit in cash and cash equivalents for temporary | |
defensive purposes in response to adverse market, economic or political conditions. To the extent that the Fund is in a defensive position, it | |
may lose the benefit of upswings and limit its ability to meet its investment objective. For this purpose, cash equivalents include: bank notes, | |
bank certificates of deposit, bankers acceptances, repurchase agreements, commercial paper, and commercial paper master notes which are | |
floating rate debt instruments without a fixed maturity. In addition, each Fund may purchase U.S. government securities, preferred stocks and | |
debt securities, whether or not convertible into or carrying rights for common stock. | |
There is no limit on the extent to which the Funds may take temporary defensive measures. In taking such measures, the Funds may fail | |
to achieve their investment objectives. | |
Warrants | |
Each of the Funds may invest in warrants though none of the Funds use such investments as a principal investment strategy. A warrant is | |
a certificate granting its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market | |
price. | |
Real Estate Investment Trusts | |
The Funds may invest in real estate investment trust securities, herein referred to as REITs. REITs involve certain unique risks in | |
addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack | |
of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the | |
underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent | |
upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self- | |
liquidation. As an investor in a REIT, the Fund will be subject to the REITs expenses, including management fees, and will remain subject | |
to the Funds advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the | |
special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act. | |
Investment in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited | |
financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than | |
larger company securities. | |
Convertible Securities | |
Convertible securities are fixed-income securities that a Fund has the right to exchange for equity securities at a specified conversion | |
price. The option allows the Fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For | |
example, the Fund may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. | |
If the market value of the shares of common stock reached $12, the Fund could realize an additional $2 per share by converting its fixed- | |
income securities. | |
Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued | |
the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than | |
non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. | |
However, convertible securities permit the Fund to realize some of the potential appreciation of the underlying equity securities with less risk | |
of losing its initial investment. | |
The Funds treat convertible securities as both fixed-income and equity securities for purposes of investment policies and limitations | |
because of their unique characteristics. The Funds may invest in convertible securities without regard to their ratings. | |
Foreign Investing | |
The Funds may invest in securities of foreign companies but not as a principal investment strategy. For the purpose of this restriction, | |
foreign companies are: | |
| companies with their principal place of business or principal office outside the U.S. or |
| companies for which the principal securities trading market is outside the U.S. |
Foreign companies may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. | |
companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Securities of | |
many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities | |
exchanges may be generally higher than those on U.S. exchanges. | |
Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets there have been | |
times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these | |
transactions. Delays in settlement could result in temporary periods when a portion of Fund assets is not invested and earning no return. If a | |
Fund is unable to make intended security purchases due to settlement problems, the Fund may miss attractive investment opportunities. In | |
addition, a Fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security. | |
With respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, | |
or diplomatic developments that could affect a Funds 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. |
14
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 Funds portfolio. A Fund may have difficulty meeting a large number | |
of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers. | |
A Fund may choose to invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership | |
of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but | |
are subject to the foreign securities to which they relate. | |
Investments in companies of developing (also called emerging) countries are subject to higher risks than investments in companies in | |
more developed countries. These risks include: | |
| increased social, political, and economic instability; |
| a smaller market for these securities and low or nonexistent volume of trading that results in a lack of liquidity and in greater price |
volatility; | |
| lack of publicly available information, including reports of payments of dividends or interest on outstanding securities; |
| foreign government policies that may restrict opportunities, including restrictions on investment in issuers or industries deemed |
sensitive to national interests; | |
| relatively new capital market structure or market-oriented economy; |
| the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political or social events |
in these countries; | |
| restrictions that may make it difficult or impossible for the Fund to vote proxies, exercise shareholder rights, pursue legal remedies, |
and obtain judgments in foreign courts; and | |
| possible losses through the holding of securities in domestic and foreign custodial banks and depositories. |
In addition, many developing countries have experienced substantial and, in some periods, extremely high rates of inflation for many | |
years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities | |
markets of those countries. | |
Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or | |
approval in some developing countries. A Fund could be adversely affected by delays in or a refusal to grant any required governmental | |
registration or approval for repatriation. | |
Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and | |
may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other | |
protectionist measures imposed or negotiated by the countries with which they trade. | |
Small and Medium Capitalization Companies | |
The Funds may invest in securities of companies with mid-sized market capitalizations. Market capitalization is defined as total current | |
market value of a companys 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 | |
companys 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 companys management and less emphasis on fundamental valuation factors than | |
would be the case for more mature growth companies. | |
Derivatives | |
To the extent permitted by its investment objectives and policies, the Funds may invest in securities that are commonly referred to as | |
derivative securities. Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a security, asset, or | |
market index. Certain derivative securities are described more accurately as index/structured securities. Index/structured securities are | |
derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, | |
indices or other financial indicators (reference indices). | |
Some derivatives, such as mortgage-related and other asset-backed securities, are in many respects like any other investment, although | |
they may be more volatile or less liquid than more traditional debt securities. | |
There are many different types of derivatives and many different ways to use them. Futures and options are commonly used for | |
traditional hedging purposes to attempt to protect a fund from exposure to changing interest rates, securities prices, or currency exchange | |
rates and for cash management purposes as a low-cost method of gaining exposure to a particular securities market without investing directly | |
in those securities. A fund may enter into put or call options, future contracts, options on futures contracts and over-the-counter swap | |
contracts (e.g., interest rate swaps, total return swaps and credit default swaps) for both hedging and non-hedging purposes. |
15
Generally, the Fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible | |
investment for the particular Fund. The return on a derivative security may increase or decrease, depending upon changes in the reference | |
index or instrument to which it relates. The risks associated with derivative investments include: | |
| the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the sub- |
advisor anticipated; | |
| the possibility that there may be no liquid secondary market which may make it difficult or impossible to close out a position when |
desired; | |
| the risk that adverse price movements in an instrument can result in a loss substantially greater than a funds initial investment; and |
| the counterparty may fail to perform its obligations. |
Multiple Classes of Shares | |
The Board of Directors of PFI has adopted an 18f-3 Plan for each of the Funds. Under these plans, each of the Funds currently offers the | |
following shares: Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, Class J and Institutional Class. The shares are the same except for | |
differences in class expenses, including any Rule 12b-1 fees and any applicable sales charges, excessive trading and other fees. Additional | |
share classes may be offered in the future by the Acquiring Fund. | |
Costs of Investing in the Funds | |
Fees and Expenses of the Funds | |
The fees and expenses of the Funds are described below. Depending on the class of your shares, you may incur one-time or ongoing fees | |
or both. One-time fees include sales or redemption fees. Ongoing fees are the operating expenses of a Fund and include fees paid to the | |
Funds manager, underwriter and others who provide ongoing services to the Fund. The Class R-1, R-2, R-3, R-4, and Class R-5 shares are | |
collectively referred to herein as the "Retirement Class shares." | |
Fees and expenses are important because they lower your earnings. However, lower costs do not guarantee higher earnings. For | |
example, a fund with no front-end sales charge may have higher ongoing expenses than a fund with such a sales charge. | |
One-time fees | |
Institutional and Retirement Class Shares: | |
Institutional Class and Retirement Class Shares are sold without a front-end sales charge and do not have a contingent deferred sales | |
charge. There is no sales charge on Institutional Class or Retirement Class shares of the Funds purchased with reinvested dividends or other | |
distributions. | |
Class J | |
The Class J shares of the Funds are sold without a front-end sales charge. There is no sales charge on shares purchased with reinvested | |
dividends or other distributions. | |
If you sell your Class J shares within 18 months of purchase, a contingent deferred sales charge (CDSC) may be imposed on the shares | |
sold. The CDSC, if any, is determined by multiplying by 1.00% the lesser of the market value at the time of redemption or the initial | |
purchase price of the shares sold. | |
The CDSC is not imposed on shares: | |
| that were purchased pursuant to the Small Amount Force Out program (SAFO); |
| redeemed within 90 days after an account is re-registered due to a shareholders death; or |
| redeemed due to a shareholders disability (as defined in the Internal Revenue Code) provided the shares were purchased prior to |
the disability; | |
| redeemed from retirement plans to satisfy minimum distribution rules under the Internal Revenue Code; |
| sold using a systematic withdrawal plan (up to 1% per month (measured cumulatively with respect to nonmonthly plans) of the |
value of the Fund account at the time, and beginning on the date, the systematic withdrawal plan is established); | |
| that were redeemed from retirement plans to satisfy excess contribution rules under the Internal Revenue Code; or |
An excessive trading fee of 1.00% is charged on redemptions or exchanges of $30,000 or more if the shares were purchased within 30 | |
days of the redemption or exchanges. The fee does not apply to redemptions made: through a systematic withdrawal plan; due to a | |
shareholders death or disability (as defined in the Internal Revenue Code); or to satisfy minimum distribution rules imposed by the | |
Internal Revenue Code. The fee is calculated as a percentage of market value of the shares redeemed or exchanged at the time of the | |
shares redemption. | |
Ongoing fees | |
Ongoing Fees reduce the value of each share. Because they are ongoing, they increase the cost of investing in the Funds. | |
Each Fund pays ongoing fees to PMC and others who provide services to the Fund. These fees include: | |
| Management Fee Through the Management Agreement with the Fund, PMC has agreed to provide investment advisory services |
and administrative services to the Fund. | |
| Other Expenses A portion of expenses that are allocated to all classes of the Fund. |
| Distribution Fee Each of the Funds has adopted a distribution plan under Rule 12b-1 of the 1940 Act for its Retirement Class |
shares and Class J shares of each Fund pay a distribution fee based on the average daily net asset value (NAV) of the Fund. These | |
fees pay distribution and other expenses for the sale of Fund shares and for services provided to shareholders. Over time, these fees | |
may exceed other types of sales charges. |
16
| Transfer Agent Fee. Principal Shareholder Services, Inc. (PSS) has entered into a Transfer Agency Agreement with the Fund |
under which PSS provides transfer agent services to the Funds at cost. | |
Retirement Class Shares Only | |
| Service Fee PMC has entered into a Services Agreement with PFI under which PMC performs personal services for shareholders. |
| Administrative Service Fee PMC has entered into an Administrative Services Agreement with PFI under which PMC provides |
transfer agent and corporate administrative services to the Fund. In addition, PMC has assumed the responsibility for | |
communications with and recordkeeping services for beneficial owners of Fund shares. | |
Class J and Institutional Class shares of the Funds also pay expenses of registering and qualifying shares for sale, the cost of producing | |
and distributing reports and prospectuses to shareholders, and the cost of shareholder meetings held solely for Class J and Institutional Class | |
shares respectively. | |
Distribution Plans and Intermediary Compensation | |
Institutional Class Shares | |
Neither Fund has adopted a 12b-1 Plan for Institutional Class shares. | |
Retirement Class Shares | |
PFI has adopted Distribution and Service Plans under Rule 12b-1 under the 1940 Act (a 12b-1 plan) for the Class R-1, R-2, R-3, and | |
R-4 shares of each Fund. Under the 12b-1 plan, the Funds will make payments from their assets attributable to the particular share class to | |
PFD .for distribution-related expenses and for providing services to shareholders of that share class. Payments under the 12b-1 plans will not | |
automatically terminate for funds that are closed to new investors or to additional purchases by existing shareholders. The Board will | |
determine whether to terminate, modify, or leave unchanged the 12b-1 plan for any fund at the time the Board directs the implementation of | |
the closure of the fund. Because Rule 12b-1 fees are ongoing fees, over time they will increase the cost of an investment in the Funds and | |
may cost more than paying other types of sales charges. | |
The maximum annual Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for each of the above | |
classes of the Funds are set forth below: |
Share Class | 12b-1 Fee |
R-1 | 0.35% |
R-2 | 0.30% |
R-3 | 0.25% |
R-4 | 0.10% |
Retirement Plan Services. Each Fund pays a Service Fee and Administrative Services Fee to PMC for providing services to retirement |
plan shareholders. PMC typically pays some or all of these fees to Principal Life Insurance Company, which has entered into an agreement to |
provide these services to the retirement plan shareholders. PMC may also enter into agreements with other intermediaries to provide these |
services, and pay some or all of the Fees to such intermediaries. |
Plan recordkeepers, who may have affiliated financial intermediaries that sell shares of the funds, may be paid additional amounts. In |
addition, financial intermediaries may be affiliates of entities that receive compensation from the Distributor for maintaining retirement plan |
platforms that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. |
The amounts paid to plan recordkeepers for recordkeeping services, and their related service requirements may vary across fund groups |
and share classes. This may create an incentive for financial intermediaries and their Investment Representatives to recommend one fund |
complex over another or one class of shares over another. |
Class J Shares |
Each Fund has adopted a 12b-1 plan for its Class J shares. Under the 12b-1 Plans, the Funds may make payments from assets attributable |
to the particular share class to the Distributor for distribution related expenses and for providing services to shareholders of that share class. |
Because Rule 12b-1 fees are ongoing fees, over time they will increase the cost of an investment in the Funds and may cost more than paying |
other types of sales charges. |
The maximum annual Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for each of the above class |
of the Acquiring Fund is set forth below: |
Share Class | 12b-1 Fee |
Class J | 0.45% |
The proceeds from the Rule 12b-1 fees paid by Class J shareholders, together with any applicable contingent deferred sales charge, are |
paid to the Distributor. The Distributor generally uses these fees to finance any activity that is primarily intended to result in the sale of |
shares. Examples of such expenses include compensation to salespeople and selected dealers (including financing the commission paid to the |
dealer at the time of the sale), printing of prospectuses and statements of additional information and reports for other than existing |
shareholders, and preparing and conducting sales seminars. The Distributor also uses the fees to provide services to existing shareholders, |
including without limitation, services such as furnishing information as to the status of shareholder accounts, responding to telephone and |
written inquiries of shareholders, and assisting shareholders with tax information. |
17
Other Payments to Financial Intermediaries |
If one mutual fund sponsor makes greater payments than another, your Financial Professional and his or her intermediary may have an |
incentive to recommend one fund complex over another. Similarly, if your Financial Professional or his or her intermediary receives more |
distribution assistance for one share class versus another, then they may have an incentive to recommend that share class. |
Financial Professionals who deal with investors on an individual basis are typically associated with an intermediary. Financial |
Professionals may receive some or all of the amounts paid to the intermediary with which he or she is associated. You can ask your Financial |
Professional for information about any payments he or she or the intermediary receives from the Distributor, its affiliates or the Fund and any |
services provided. |
As of December 1, 2009, the Distributor anticipates that intermediaries that will receive additional payments as described in the |
additional payments section above (other than: Rule 12b-1 Fees; Commissions, Finders Fees and Ongoing Payments; APF Fees; and |
Expense Reimbursement) include, but are not limited to, the following: |
Acsencus | MSCS Financial Services |
ADP Retirement Services | New York State Deferred Compensation Plan |
Alerus Retirement Solutions | Newport Retirement Plan Services |
American Century Investments | National Financial Services |
American General Life Insurance | Next Financial |
Ameriprise | NFP Securities |
Associated Financial Group | North Ridge Securities |
Benefit Plan Administrators | Northwestern Mutual |
Cadaret Grant | NRP Financial |
Charles Schwab & Co. | NYLife Distributors LLC |
Charles Schwab Trust Company | Pershing |
Chase Investments Services Corp. | Plan Administrators, Inc. |
Citigroup Global Markets | Principal Global Investors |
Commonwealth Financial Network | Principal Life Insurance Company |
CompuSys | Principal Trust Company |
CPI | ProEquities |
Daily Access Corporation | Prudential |
Digital Retirement Solutions | Raymond James |
Edward Jones | RBC Capital Markets |
ePlan Services | RBC Dain Rauscher |
Expert Plan | Reliance Trust Company |
Farmers Financial | Robert W. Baird & Co. |
Fidelity | Royal Alliance Associates, Inc. |
Financial Data Services | SagePoint Financial, Inc. |
Financial Network Investment Corp | Saxony Securities |
First Allied Securities | Scottrade |
First American Bank | Securian Financial Services |
First Clearing | Securities America |
Foothill Securities | SII Investments |
FSC Securities | Southwest Securities |
G.A. Reppie | Standard Retirement Services |
Geneos Wealth Management | Stifel Nicolaus & Company |
Genesis Employee Benefit | SunAmerica |
GPC Securities, Inc. | T. Rowe Price Retirement Plan Services |
Gunn Allen Financial | TD Ameritrade |
GWFS Equities | Texas Pension Consultants |
Howe Bames Investment | The Investment Center |
ICMA-Retirement Corp. | Thrivent Financial |
ING Financial Partners | Thrivent Investment Management |
Investacorp | TransAm Securities |
J.W. Cole Financial | Triad Advisors |
James T. Borello & Co. | U.S. Wealth Advisors |
Janney Montgomery Scott | UBS Financial Services |
JP Morgan | Unison |
Key Investments | Uvest Financial Services |
Lincoln Financial | Vanguard Brokerage Services |
Lincoln Investment Planning | VSR Financial Services |
LPL | Wachovia |
Mercer HR Services | Wedbush Morgan Securities |
Merrill Lynch | Wells Fargo |
MidAtlantic Capital | Wilmington Trust |
Morgan Keegan | Workman Securities |
Morgan Stanley | WRP Investments |
Morgan Stanley Smith Barney |
To obtain a current list of such firms, call 1-800-222-5852. |
Please speak with your Financial Professional to learn more about the total amounts paid to your Financial Professional and his or her |
intermediary by the Funds, the Distributor and its affiliates, and by sponsors of other mutual funds he or she may recommend to you. You |
should also carefully review disclosures made by your Financial Professional at the time of purchase. |
18
Although a Fund may use brokers who sell shares of the Funds to effect portfolio transactions, the sale of shares is not considered as a | |
factor by the Funds Sub-Advisors when selecting brokers to effect portfolio transactions. | |
Your intermediary may charge fees and commissions, including processing fees, in addition to those described in this prospectus. The | |
amount and applicability of any such fee is determined and disclosed separately by the intermediary. You should ask your Financial | |
Professional for information about any fees and/or commissions that are charged. | |
Additionally, the Distributor and its affiliates will, in some cases, provide payments to reimburse directly or indirectly the costs incurred | |
by intermediaries and their associated Financial Professionals in connection with educational seminars and training and marketing efforts | |
related to the Funds for the intermediaries employees and representatives and/or their clients and potential clients. The costs and expenses | |
associated with these efforts may include travel, lodging, entertainment, and meals. The Distributor will also, in some cases, provide payment | |
or reimbursement for expenses associated with qualifying dealers conferences, transactions (ticket) charges, and general marketing | |
expenses. | |
Pricing of Fund Shares | |
Each Funds shares are bought and sold at the current share price. The share price of each class of each Fund is calculated each day the | |
NYSE is open (shares are not priced on the days on which the NYSE is closed for trading, generally New Years Day, Martin Luther King, | |
Jr. Day, Washingtons Birthday/Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and | |
Christmas). The share price is determined as of the close of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy | |
or sell shares is received, the share price used to fill the order is the next price calculated after the order is received in good order by us at our | |
transaction processing center in Canton, Massachusetts. In order for us to process your purchase order on the day it is received, we must | |
receive the order (with complete information): | |
| on a day that the NYSE is open and |
| prior to the close of trading on the NYSE (normally 3 p.m. Central Time). |
Orders received after the close of the NYSE or on days that the NYSE is not open will be processed on the next day that the NYSE is | |
open for normal trading. | |
If we receive an application or purchase request for a new mutual fund account or subsequent purchase into an existing account that is | |
accompanied by a check and the application or purchase request does not contain complete information, we may hold the application (and | |
check) for up to two business days while we attempt to obtain the necessary information. If we receive the necessary information within two | |
business days, we will process the order using the next share price calculated. If we do not receive the information within two business days, | |
the application and check will be returned to you. | |
For all PFI Funds, the share price is calculated by: | |
| taking the current market value of the total assets of the Fund |
| subtracting liabilities of the Fund |
| dividing the remainder proportionately into the classes of the Fund |
| subtracting the liability of each class |
| dividing the remainder by the total number of shares outstanding for that class. |
NOTES: | |
| If market quotations are not readily available for a security owned by a Fund, its fair value is determined using a policy adopted by |
the Directors. Fair valuation pricing is subjective and creates the possibility that the fair value determined for a security may differ | |
materially from the value that could be realized upon the sale of the security. | |
| A Funds 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 Funds Net Asset Value (NAV) | |
are the market quotations as of the close of the foreign market. Foreign securities and currencies are also converted to U.S. dollars | |
using the exchange rate in effect at the close of the NYSE. Occasionally, events affecting the value of foreign securities occur when | |
the foreign market is closed and the NYSE is open. The Fund has adopted policies and procedures to fair value some or all | |
securities held by a Fund if significant events occur after the close of the market on which the foreign securities are traded but | |
before the Funds NAV is calculated. | |
Significant events can be specific to a single security or can include events that affect a particular foreign market or markets. A | |
significant event can also include a general market movement in the U.S. securities markets. If the Manager believes that the market value of | |
any or all of the foreign securities is materially affected by such an event, the securities will be valued, and the Funds NAV will be | |
calculated, using the policy adopted by the Fund. These fair valuation procedures are intended to discourage shareholders from investing in | |
the Fund for the purpose of engaging in market timing or arbitrage transactions. | |
The trading of foreign securities generally or in a particular country or countries may not take place on all days the NYSE is open, or | |
may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the Fund may change on days when shareholders are | |
unable to purchase or redeem shares. | |
| Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any point in time. |
These may be referred to as local price and premium price. The premium price is often a negotiated price that may not consistently | |
represent a price at which a specific transaction can be effected. The Fund has a policy to value such securities at a price at which | |
the Sub-Advisor expects the securities may be sold. |
19
Purchase of Fund Shares | ||
Institutional Class Shares | ||
Only eligible purchasers may buy Institutional Class shares of the Funds. At the present time, eligible purchasers include but are not | ||
limited to: | ||
| retirement and pension plans to which Principal Life Insurance Company (Principal Life) provides recordkeeping services; | |
| separate accounts of Principal Life; | |
| Principal Life or any of its subsidiaries or affiliates; | |
| any fund distributed by Principal Funds Distributor, Inc. if the fund seeks to achieve its investment objective by investing primarily in | |
shares of mutual funds; | ||
| clients of Principal Global Investors, LLC.; | |
| sponsors, recordkeepers, or administrators of wrap account or mutual fund asset allocation programs or participants in those programs; | |
| certain pension plans; | |
| certain retirement account investment vehicles administered by foreign or domestic pension plans; | |
| an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial | |
institution, pursuant to a written agreement; and | ||
| certain institutional clients that have been approved by Principal Life for purposes of providing plan record keeping. | |
PMC reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please | ||
check with your financial advisor or our home office for state availability. | ||
Shares may be purchased from the Distributor. There are no sales charges on Institutional Class shares of the Fund. There are no | ||
restrictions on amounts to be invested in Institutional Class shares of the Fund. Shareholder accounts for the Fund are maintained under an | ||
open account system. Under this system, an account is opened and maintained for each investor (generally an omnibus account or an | ||
institutional investor). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and | ||
the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates | ||
are not issued. The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market | ||
timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management | ||
strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PMCs | ||
opinion, may be disruptive to the Fund. For these purposes, PMC may consider an investors trading history in the Fund or other Funds | ||
sponsored by Principal Life and accounts under common ownership or control. | ||
Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to | ||
refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, | ||
money orders, travelers' checks, credit card checks, and foreign checks. PMC may recommend to the Board, and the Board may elect, to | ||
close certain funds to new and existing investors. | ||
NOTE: | No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than | |
those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon | ||
as having been provided or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD. | ||
Retirement Class Shares | ||
The Retirement Class shares may be purchased through retirement plans, though not all plans offer each Fund. Such plans may impose | ||
fees in addition to those charged by the Funds. The services or share classes available to you may vary depending upon how you wish to | ||
purchase shares of the Fund. Each share class represents investments in the same portfolio of securities, but each class has its own expense | ||
structure, allowing you to choose the class that best meets your situation (not all classes are available to all plans). Each investors financial | ||
considerations are different. You should speak with your financial professional to help you decide which share class is best for you. | ||
Only eligible purchasers may buy Retirement Class shares of the Funds. At the present time, eligible purchasers include but are not | ||
limited to: | ||
| retirement and pension plans to which Principal Life Insurance Company ("Principal Life") provides recordkeeping services; | |
| separate accounts of Principal Life; | |
| Principal Life or any of its subsidiaries or affiliates; | |
| any fund distributed by Principal Funds Distributor, Inc. if the fund seeks to achieve its investment objective by investing primarily in | |
shares of mutual funds; | ||
| clients of Principal Global Investors, LLC.; | |
| certain pension plans; | |
| certain retirement account investment vehicles administered by foreign or domestic pension plans; | |
| an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial | |
institution, pursuant to a written agreement; and | ||
| certain retirement plan clients that have an approved organization for purposes of providing plan record keeping services. | |
PMC reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please | ||
check with your financial advisor or our home office for state availability. |
20
Shares may be purchased from Principal Funds Distributor, Inc. The Distributor is an affiliate of Principal Life Insurance Company and | ||
with it are subsidiaries of Principal Financial Group, Inc. and members of the Principal Financial Group. There are no sales charges on R-1, | ||
R-2, R-3, R-4, and R-5 Class shares of the Fund. Shareholder accounts for the Fund are maintained under an open account system. Under this | ||
system, an account is opened and maintained for each investor (generally an omnibus account or an plan level account). Each investment is | ||
confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The | ||
statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates are not issued. | ||
The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market timing | ||
because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies | ||
and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PMC's opinion, | ||
may be disruptive to the Fund. For these purposes, PMC may consider an investor's trading history in the Fund or other Funds sponsored by | ||
Principal Life and accounts under common ownership or control. | ||
Payments may be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to | ||
refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, | ||
money orders, travelers' checks, credit card checks, and foreign checks. | ||
PMC may recommend to the Board, and the Board may elect, to close certain funds to new and existing investors. | ||
NOTE: | No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than | |
those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon | ||
as having been provided or made by Principal Funds, a Fund, PMC, any Sub-Advisor, or Principal Funds Distributor, Inc. | ||
Class J Shares | ||
Class J shares are currently available only through registered representatives of: | ||
| Princor who are also employees of Principal Life (These registered representatives are sales counselors of Principal Connection, a | |
distribution channel used to directly market certain products and services of the companies of the Principal Financial Group.); | ||
| selected broker-dealers selling Class J shares in conjunction with health savings accounts; and | |
| selected broker-dealers that have entered into a selling agreement to offer Class J shares. | |
For more information about Class J shares of the Funds, please call the Connection at 1-800-247-8000, extension 411. | ||
Fill out the Principal Funds (or the IRA, SEP or SIMPLE) application completely. You must include: | ||
| the name you want to appear on the account; | |
| the Principal Funds in which you want to invest; | |
| the amount of the investment; | |
| your Social Security number; and | |
| other required information. | |
Each Fund requires a minimum initial investment of $1,000. Subsequent investment minimums are $100. | ||
| PFI may reject or cancel any purchase orders for any reason. For example, PFI does not intend to permit market timing because | |
short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management | ||
strategies and by increasing expenses. Accordingly, PFI may reject any purchase orders from market timers or investors that, in | ||
PMCs opinion, may be disruptive to the Funds. For these purposes, PMC may consider an investor's trading history in the Funds | ||
or other Funds sponsored by Principal Life and accounts under common ownership or control. PMC may recommend to the Board, | ||
and the Board may elect, to close certain funds to new and existing investors. | ||
| If you are making an initial purchase of Principal Funds of $1,000,000 or more and have selected Class J shares, the purchase will | |
be of Class A shares of the Fund(s) you have selected. If you are making subsequent purchases into your existing Principal Funds | ||
Class J share accounts and the combined value of the subsequent investment and your existing Class A, Class B, Class C, and Class | ||
J share accounts combined for Rights of Accumulation purposes exceeds $1,000,000, the subsequent investment will be applied to | ||
purchase Class A shares of the Fund(s) you have selected. Purchases made by you, your spouse or domestic partner, your children, | ||
the children of your spouse or domestic partner up to and including the age of 25 and/or a trust created by or primarily for the | ||
benefit of such persons (together a Qualified Purchaser) will be combined along with the value of existing Class A, B, C, and J | ||
shares of Principal Funds owned by such persons, to determine the applicable sales charge. Class A shares of Money Market Fund | ||
are not included in the calculation unless they were acquired in exchange from other Principal Funds shares. | ||
| The minimum investment applies on a per Fund level, not on the total investment being made. | |
To eliminate the need for safekeeping, Principal Funds will not issue certificates for shares. Principal Funds may periodically close to | ||
new purchases of shares or refuse any order to buy shares if PMC determines that doing so would be in the best interests of Principal Funds | ||
and its shareholders. Accounts with foreign addresses cannot be established. If an existing shareholder with a U.S. address moves to a foreign | ||
location and updates the address on the shareholder's account, we are unable to process any purchases or exchanges on that account. | ||
Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to | ||
refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, | ||
starter checks, money orders, travelers' checks, credit card checks, and foreign checks. | ||
Payment. Payment for shares of Principal Funds purchased as a direct rollover IRA is made by the retirement plan trustees. Payment for | ||
other shares is generally made via personal check or cashiers check. We consider your purchase of Fund shares by check to be your | ||
authorization to make an automated clearing house (ACH) debit entry to your account. Shares purchased by check may be sold only after | ||
the check has cleared your bank, which may take up to 7 calendar days. |
21
Your Financial Professional can help you buy shares of Principal Funds by mail, through bank wire, direct deposit or Automatic | |
Investment Plan. Contact Principal Funds at 1-800-222-5852 to obtain bank wire instructions. No wires are accepted on days when the NYSE | |
is closed or when the Federal Reserve is closed (because the bank that would receive your wire is closed). | |
Direct Deposit | |
Your Financial Professional can help you make a Direct Deposit from your paycheck (if your employer approves) or from a government | |
allotment. Direct Deposit allows you to deposit automatically all or part of your paycheck (or government allotment) to your Principal Funds | |
account(s). You will receive a Direct Deposit Authorization Form to give to your employer or the governmental agency (either of which may | |
charge a fee for this service). Shares will be purchased on the day the ACH notification is received by the transfer agents bank. On days | |
when the NYSE is closed, but the bank receiving the ACH notification is open, your purchase will be priced at the next calculated share | |
price. | |
Automatic Investment Plan | |
Your Financial Professional can help you establish an Automatic Investment Plan. You may make regular monthly investments with | |
automatic deductions from your bank or other financial institution account. You select the day of the month the deduction is to be made. If | |
that date is a non-trading day, we will process the deduction on the next trading day. If the next trading day falls in the next month or year, | |
we will process the deduction on the day prior to your selected day. The minimum initial investment is waived if you set up an Automatic | |
Investment Plan when you open your account. Minimum monthly purchase is $100 per Fund. | |
NOTE: No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than those | |
contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon as having been provided | |
or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD. | |
Redemption of Fund Shares | |
Institutional Class Shares | |
Institutional Class Shares of the Funds may be redeemed upon request. There is no charge for the redemption. Shares are redeemed at | |
the NAV per share next computed after the request is received by a Fund in proper and complete form. The Funds generally send payment for | |
shares sold the business day after the sell order is received. Under unusual circumstances, the Funds may suspend redemptions, or postpone | |
payment for more than seven days, as permitted by federal securities law. | |
Retirement Class Shares | |
Subject to any restrictions imposed by a plan, Retirement Class shares may be sold back to the Funds any day the NYSE is open. For | |
more information about how to sell shares of a Fund, including any charges that a plan may impose, please consult the plan. | |
The Funds generally sends payment for shares sold the business day after the sell order is received. Under unusual circumstances, the | |
Funds may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. | |
Distributions in Kind. Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may | |
determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in | |
cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution in | |
kind of securities from the Funds portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might | |
incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the | |
same method the Fund uses to value its portfolio securities as described in this prospectus. | |
Redemption fees. The Fund board of directors has determined that it is not necessary to impose a fee upon the redemption of fund shares, | |
because the Fund has adopted transfer restrictions as described in Exchange of Fund Shares. | |
Class J Shares | |
After you place a sell order in proper form, shares are sold using the next share price calculated. The amount you receive will be reduced | |
by any applicable CDSC or excessive trading fee. There is no additional charge for a sale of shares; however, you will be charged a $10 wire | |
fee if you have the sale proceeds wired to your bank. Generally, the sale proceeds are sent out on the next business day* after the sell order | |
has been placed. It may take additional business days for your financial institution to post this payment to your account at that financial | |
institution. At your request, the check will be sent overnight (a $15 overnight fee will be deducted from your account unless other | |
arrangements are made). A Fund can only sell shares after your check making the Fund investment has cleared your bank, which may take up | |
to 7 calendar days. A sell order from one owner is binding on all joint owners. | |
* a day when the NYSE is open for normal business | |
Distributions from IRA, SEP, SIMPLE, and SAR-SEP accounts may be taken as: | |
| lump sum of the entire interest in the account, |
| partial interest in the account, or |
| periodic payments of either a fixed amount or an amount based on certain life expectancy calculations. |
Tax penalties may apply to distributions before the participant reaches age 59 1/2. | |
Selling shares may create a gain or a loss for federal (and state) income tax purposes. You should maintain accurate records for use in | |
preparing your income tax returns. |
22
Generally, sales proceeds checks are: | |
| payable to all owners on the account (as shown in the account registration) and |
| mailed to the address on the account (if not changed within last 15 days) or previously authorized bank account. |
For other payment arrangements, please call Principal Funds. You should also call Principal Funds for special instructions that may | |
apply to sales from accounts: | |
| when an owner has died; |
| for certain employee benefit plans; or |
| owned by corporations, partnerships, agents, or fiduciaries. |
Payment for shares sold is generally sent the business day after the sell order is received. Under unusual circumstances, Fund may | |
suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. | |
Within 60 calendar days after the sale of J shares, you may reinvest the amount of the sale proceeds into any Principal Funds Class J | |
shares fund; shares purchased by redemption proceeds are not subject to the eighteen month CDSC. It is the responsibility of the shareholder | |
to notify the Fund at the time of repurchase if the purchase proceeds are from a redemption of the Fund within the past 60 days. | |
The transaction is considered a sale for federal (and state) income tax purposes even if the proceeds are reinvested. | |
If a loss is realized on the sale, the reinvestment may be subject to the wash sale rules resulting in the postponement of the recognition | |
of the loss for tax purposes. | |
CDSC-Free withdrawal privilege. Sales may be subject to a CDSC. Redemption of Class J shares made through a systematic withdrawal | |
plan in an amount of up to 1.00% per month (measured cumulatively with respect to nonmonthly plans) of the value of the Fund account at | |
the time, and beginning on the date, the systematic withdrawal plan is established) may be made without a CDSC. The free withdrawal | |
privilege not used in a calendar year is not added to the free withdrawal privileges for any following year. | |
Sell shares by mail: | |
| Send a distribution form (available at www.PrincipalFunds.com or by calling 1-800-222-5852) which is signed by the |
owner/owners of the account to: | |
Principal Funds | |
P.O. Box 55904 | |
Boston, MA 02205 | |
| Medallion Signature Guarantee* will be required if the: |
| sell order is for more than $100,000; |
| wire or ACH is being sent to a shareholder's U.S. bank account not previously authorized or the request does not include a voided |
check or deposit slip indicating a common owner between the bank account and mutual fund account; | |
| check is being sent to an address other than the account address; |
| account address has been changed within 15 days of the sell order; or |
| check is payable to a party other than the account shareholder(s), Principal Life or a retirement plan trustee or custodian that has |
agreed in writing to accept a transfer of assets from the Fund. | |
* If required, the signature(s) must be guaranteed by a commercial bank, trust company, credit union, savings and loan, national securities | |
exchange member or brokerage firm. A signature guarantee by a notary public or savings bank is not acceptable. | |
Sell shares in amounts of $100,000 or less by telephone | |
| The combined amount requested from all funds to which the redemption request relates is $100,000 or less. |
| The address on the account must not have been changed within the last 15 days and telephone privileges must apply to the account |
from which the shares are being sold. | |
Sales made under your systematic withdrawal plan will reduce and may eventually exhaust your account. The Funds do not normally | |
accept purchase payments while a systematic withdrawal plan is in effect (unless the purchase represents a substantial addition to your | |
account). | |
The Fund from which the systematic withdrawal is made makes no recommendation as to either the number of shares or the fixed | |
amount that you withdraw. | |
Excessive Trading Fee. An excessive trading fee may apply to redemptions made within 30 days of purchase as described in "Frequent | |
Purchases and Redemptions." If excessive trading is deemed to be occurring, additional restrictive actions may be taken, as described below. | |
Distributions in Kind. Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may | |
determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in | |
cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution in | |
kind of securities from the Funds portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might | |
incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the | |
same method the Fund uses to value its portfolio securities as described in this prospectus. |
23
Exchange of Fund Shares | ||
Institutional Class and Retirement Class Shares | ||
An exchange between Funds is a redemption of shares of one Fund and a concurrent purchase of shares in another Fund with the | ||
redemption proceeds. A shareholder, including a beneficial owner of shares held in nominee name or a participant in a participant-directed | ||
employee benefit plan, may exchange Fund shares under certain circumstances. In addition to any restrictions an intermediary or an | ||
employee benefit plan imposes, Fund shares may be exchanged, without charge, for shares of any other Fund of the Principal Funds, | ||
provided that: | ||
| the shareholder has not exchanged shares of the Fund within 30 days preceding the exchange, unless the shareholder is exchanging | |
into the Money Market Fund, | ||
| the share class of such other Fund is available through the plan, and | |
| the share class of such other Fund is available in the shareholders state of residence. | |
All exchanges completed on the same day are considered a single exchange for purposes of this exchange limitation. In addition, the | ||
Fund will reject an order to purchase shares of any Fund if the shareholder redeemed shares from that Fund within the preceding 30-day | ||
period. The 30-day exchange or purchase restriction does not apply to exchanges or purchases made on a scheduled basis such as scheduled | ||
periodic portfolio rebalancing transactions. | ||
If Fund shares are purchased through an intermediary that is unable or unwilling to impose the 30-day exchange restriction described | ||
above, Fund management may waive this restriction in lieu of the exchange limitation that the intermediary is able to impose if, in | ||
managements judgment, such limitation is reasonably likely to prevent excessive trading in Fund shares. In order to prevent excessive | ||
exchanges, and under other circumstances where the Fund Board of Directors or the Manager believes it is in the best interests of the Fund, | ||
the Fund reserves the right to revise or terminate this exchange privilege, limit the amount or further limit the number of exchanges, reject | ||
any exchange or close an account. | ||
Class J Shares | ||
Your shares in the Funds may be exchanged without a CDSC for the same share class of any other Principal Funds. However, the | ||
original purchase date of the shares from which an exchange is made is used to determine if newly acquired shares are subject to a CDSC | ||
when they are sold. The Fund reserves the to right to revise or terminate the exchange privilege at any time. Notice will be provided to | ||
shareholders of any such change, to the extent required by law. | ||
You may exchange shares by: | ||
| sending a written request to: | |
Principal Funds | ||
P.O. Box 55904 | ||
Boston, MA 02205 | ||
| completing an Exchange Authorization Form (available on www.principalfunds.com or by calling 1-800-222-5852). | |
| via the Internet at www.principalfunds.com. | |
| calling us, if you have telephone privileges on the account. | |
Automatic Exchange Election | ||
This election authorizes an exchange from one Principal Funds to another on a monthly, quarterly, semiannual or annual basis. You can | ||
set up an automatic exchange by: | ||
| completing an automatic Exchange Election form available on www.principalfunds.com, | |
| completing the Automatic Exchange Election section of the application, | |
| calling us if telephone privileges apply to the account from which the exchange is to be made, or | |
| sending us your written instructions. | |
Your automatic exchange continues until: | ||
| you instruct us to stop by calling us if telephone privileges apply to the account or by sending us your written instructions; or | |
| your Fund account balance is zero. | |
You may specify the day of the exchange (if none is selected, the exchange will be made on the 15th of the month). If the selected day is | ||
not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year prior to your selected date, the | ||
transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the | ||
date or amount by telephoning us. | ||
General | ||
| An exchange by any joint owner is binding on all joint owners. | |
| If you do not have an existing account in the Fund to which the exchange is being made, a new account is established. The new account | |
has the same owner(s), dividend and capital gain options and dealer of record as the account from which the shares are being exchanged. | ||
| All exchanges are subject to the minimum investment and eligibility requirements of the Fund being acquired. | |
| You may acquire shares of a Fund only if its shares are legally offered in your state of residence. | |
| For an exchange to be effective the day we receive your instruction, we must receive the instruction in good order at our transaction | |
processing center in Canton, Massachusetts before the close of normal trading on the NYSE (generally 3 p.m. Central Time). |
24
When money is exchanged or transferred from one account registration or tax identification number to another, the account holder is | |
relinquishing his or her rights to the money. Therefore exchanges and transfers can only be accepted by telephone if the exchange (transfer) is | |
between: | |
| accounts with identical ownership, |
| an account with a single owner to one with joint ownership if the owner of the single owner account is also an owner of the account |
with joint ownership, | |
| a single owner to a Uniform Transfer to Minors Act ("UTMA") account if the owner of the single owner account is also the |
custodian on the UTMA account, or | |
| a single or jointly owned account to an IRA account to fund the yearly IRA contribution of the owner (or one of the owners in the |
case of a jointly owned account). | |
The exchange is treated as a sale of shares for federal (and state) income tax purposes and may result in a capital gain or loss. Income tax | |
rules regarding the calculation of cost basis may make it undesirable in certain circumstances to exchange shares within 90 days of their | |
purchase. | |
Fund shares used to fund an employee benefit plan may be exchanged only for shares of other Principal Funds available to employee | |
benefit plans. Such an exchange must be made by following the procedures provided in the employee benefit plan and the written service | |
agreement. | |
Excessive Trading Fee. An excessive trading fee may apply to exchanges made within 30 days of purchase as described in Frequent | |
Purchases and Redemptions. If excessive trading is deemed to be occurring, additional restrictive actions may be taken, as described below. | |
Frequent Purchases and Redemptions | |
The Funds are not designed for, and do not knowingly accommodate, frequent purchases and redemptions of fund shares by investors. If | |
you intend to trade frequently and/or use market timing investment strategies, you should not purchase these Funds. | |
Frequent purchases and redemptions pose a risk to the Funds because they may: | |
| Disrupt the management of the Funds by: |
| forcing the Funds to hold short-term (liquid) assets rather than investing for long-term growth, which results in lost investment |
opportunities for the Fund; and | |
| causing unplanned portfolio turnover; |
| hurt the portfolio performance of the Funds; and |
| increase expenses of the Funds due to: |
| increased broker-dealer commissions and |
| increased recordkeeping and related costs. |
The Board of Directors of the Fund has adopted policies and procedures with respect to frequent purchases and redemptions of shares of | |
the Funds. The Funds monitor shareholder trading activity to identify and take action against abuses. While our policies and procedures are | |
designed to identify and protect against abusive trading practices, there can be no certainty that we will identify and prevent abusive trading | |
in all instances. If we are not able to identify such excessive trading practices, the Funds and their shareholders may be harmed. When we do | |
identify abusive trading, we will apply our policies and procedures in a fair and uniform manner. | |
Institutional Class Shares | |
If we, or a Fund, deem abusive trading practices to be occurring, we will take action that may include, but is not limited to: | |
| Rejecting exchange instructions from the shareholder or other person authorized by the shareholder to direct exchanges; |
| Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by 1st class U.S. mail |
only and disallowing requests made by facsimile, overnight courier, telephone or via the internet; | |
| Limiting the number of exchanges during a year; |
| Requiring a holding period of a minimum of 30 days before permitting exchanges among the Funds where there is evidence of at |
least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption); | |
and | |
| Taking such other action as directed by the Fund. |
The Funds have reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an | |
exchange may be completed prior to a determination of abusive trading. In those instances, we will reverse the exchange. We will give you | |
notice in writing in this instance. | |
Retirement Class Shares | |
The Funds have adopted an exchange frequency restriction, described above in Exchange of Fund Shares to limit excessive trading in | |
fund shares. | |
Class J Shares | |
Currently the Funds impose an excessive trading fee on redemptions or exchanges of $30,000 or more of a Fund's Class J shares | |
redeemed within 30 days after they are purchased. The fee does not apply to redemptions or exchanges made pursuant to an Automatic | |
Exchange Election or Systematic Withdrawal Plan through an Automatic Exchange Election or a Systematic Withdrawal Plan; due to a | |
shareholder's death or disability (as defined in the Internal Revenue Code); to satisfy minimum distribution rules imposed by the Internal | |
Revenue Code; or where the application of the fee would cause a Fund to fail to be considered a qualified default investment alternative | |
under the Employee Retirement Income Security Act of 1976, as amended, and the rules and regulations thereunder. The fee is equal to |
25
1.00% of the total redemption or exchange amount. The fee is paid to the Funds and is intended to offset the trading costs, market impact, and | ||
other costs associated with short-term money movement in and out of the Funds. | ||
The imposition of the excessive trading fee may be waived if an intermediary, such as a retirement plan recordkeeper, through which | ||
Fund shares are made available to shareholders is unable or unwilling to impose the fee, but is able to implement other procedures the Fund | ||
believes are reasonably designed to prevent excessive trading in Fund shares. In addition, if a Fund deems frequent trading and redemptions | ||
to be occurring, action will be taken that may include, but is not limited to: | ||
| Increasing the excessive trading fee to 2%, | |
| Increasing the excessive trading fee period from 30 days to as much as 90 days, | |
| Applying the excessive trading fee to redemptions or exchanges of less than $30,000, | |
| Limiting the number of permissible exchanges available to shareholders identified as "excessive traders," | |
| Limit exchange requests to be in writing and submitted through the United States Postal Service (in which case, requests for | |
exchanges by fax, telephone or internet will not be accepted), and | ||
| Taking such other action as directed by the Fund. | |
Dividends and Distributions | ||
Dividends are based on estimates of income, expenses, and shareholder activity for the Fund. Actual income, expenses, and shareholder | ||
activity may differ from estimates; consequently, differences, if any, will be included in the calculation of subsequent dividends. The Funds | ||
pay their net investment income to shareholders of record on the business day prior to the payment date. The Acquired and Acquiring Funds | ||
pay their net investment income on an annual basis. The payment date is annually in December. | ||
Net realized capital gains, if any, are distributed annually in December. Payments are made to shareholders of record on the business | ||
day prior to the payable date. Capital gains may be taxable at different rates, depending on the length of time that the Fund holds its assets. | ||
Dividend and capital gains distributions will be reinvested, without a sales charge, in shares of the Fund from which the distribution is | ||
paid. However, you may authorize the distribution to be: | ||
| invested in shares of another PFI Fund without a sales charge (distributions of a Fund may be directed only to one receiving Fund); | |
or | ||
| paid in cash, if the amount is $10 or more. | |
Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, except that any distributions of long-term | ||
capital gains will be taxed as such regardless of how long Fund shares have been held. Special tax rules apply to Fund distributions to | ||
Individual Retirement Accounts and other retirement plans. A tax advisor should be consulted to determine the suitability of the Fund as an | ||
investment by such a plan and the tax treatment of distributions by the Fund. A tax advisor can also provide information on the potential | ||
impact of possible foreign, state, and local taxes. A Funds investments in foreign securities may be subject to foreign withholding taxes. In | ||
that case, the Funds yield on those securities would be decreased. | ||
To the extent that distributions the Funds pay are derived from a source other than net income (such as a return of capital), a notice will | ||
be included in your quarterly statement pursuant to Section 19(a) of the 1940 Act and Rule 19a-1 disclosing the source of such distributions. | ||
Furthermore, such notices shall be posted monthly on our web site at www.principalfunds.com. You may request a copy of all such notices, | ||
free of charge, by telephoning 1-800-222-5852. The amounts and sources of distributions included in such notices are estimates only and you | ||
should not rely upon them for purposes of reporting income taxes. The Fund will send shareholders a Form 1099-DIV for the calendar year | ||
that will tell shareholders how to report these distributions for federal income tax purposes. | ||
NOTES: | ||
| A Funds payment of income dividends and capital gains has the effect of reducing the share price by the amount of the payment. | |
| Distributions from a Fund, whether received in cash or reinvested in additional shares, may be subject to federal (and state) income tax. | |
| For these reasons, buying shares of a Fund shortly before it makes a distribution may be disadvantageous to you. | |
Tax Considerations | ||
Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on | ||
dividends and capital gains distributions whether such dividends or distributions are paid in cash or reinvested in additional shares. Special | ||
tax rules apply to distributions to IRAs and other retirement accounts. You should consult a tax advisor to determine the suitability of the | ||
Fund as an investment by such a plan and the tax treatment of Fund distributions. | ||
Generally, dividends paid by the Funds from interest, dividends, or net short-term capital gains will be taxed as ordinary income. | ||
Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such | ||
(generally at a 15% tax rate), regardless of how long you have held your shares. For taxable years beginning before January 1, 2011, | ||
distributions of investment income properly designated by the Fund as derived from qualified dividend income will be taxed at the rates | ||
applicable to long-term capital gains. | ||
A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to | ||
that shareholder, would be taxable to that shareholder as described above, subject to a holding period requirement for dividends designated as | ||
qualified dividend income. | ||
Because of tax law requirements, you must provide the Funds with an accurate and certified taxpayer identification number (for | ||
individuals, generally a Social Security number) to avoid back-up withholding, which is currently imposed at a rate of 28%. | ||
Early in each calendar year, each Fund will notify you of the amount and tax status of distributions paid to you for the preceding year. |
26
Any gain resulting from the sale, redemption, or exchange of your shares will generally also be subject to tax. You should consult your |
tax advisor for more information on your own tax situation, including possible foreign, state, and local taxes. |
Investments by a Fund in foreign securities may be subject to foreign withholding taxes. In that case, the Funds yield on those securities |
would be decreased. Shareholders of the Funds that invest in foreign securities may be entitled to claim a credit or deduction with respect to |
foreign taxes. In addition, the Funds investments in foreign securities or foreign currencies may increase or accelerate the Funds recognition |
of ordinary income and may affect the timing or amount of the Funds distributions. |
Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash |
generated by such instruments. As a result, the Fund could be required at times to liquidate other investments in order to satisfy its |
distribution requirements under the Code. The Funds use of derivatives will also affect the amount, timing, and character of the Funds |
distributions. |
The information contained in this Proxy Statement/Prospectus is not a complete description of the federal, state, local, or foreign tax |
consequences of investing in the Fund. You should consult your tax advisor before investing in the Fund. |
Portfolio Holdings Information |
A description of the PFIs policies and procedures with respect to disclosure of the Funds portfolio securities is available in the |
Statement of Additional Information. |
VOTING INFORMATION |
Voting procedures. If you complete and return the enclosed proxy ballot, the persons named as proxies will vote your shares as you |
indicate or for approval of each matter for which there is no indication. You may revoke your proxy at any time prior to the proxys exercise |
by: (i) sending written notice to the Secretary of Principal Funds, Inc. at Principal Financial Group, Des Moines, Iowa 50392-2080, prior to |
the Meeting; (ii) subsequent execution and return of another proxy prior to the Meeting; or (iii) being present and voting in person at the |
Meeting after giving oral notice of the revocation to the Chairman of the Meeting. |
Voting rights. Only shareholders of record at the close of business on March 8, 2010 (the Record Date), are entitled to vote. The |
shareholders of each class of shares of the Acquired Fund will vote together on the proposed Reorganization and on any other matter |
submitted to such shareholders. You are entitled to one vote on each matter submitted to the shareholders of the Acquired Fund for each |
share of the Fund that you hold, and fractional votes for fractional shares held. The Proposal requires for approval the affirmative vote of a |
Majority of the Outstanding Voting Securities, which is a term defined in the 1940 Act to mean, with respect to the Acquired Fund, the |
affirmative vote of the lesser of (1) 67% or more of the voting securities of the Fund present at the Meeting, if the holders of more than 50% |
of the outstanding voting securities of the Fund are present in person or by proxy, or (2) more than 50% of the outstanding voting securities |
of the Fund. |
The number of votes eligible to be cast at the Meeting as of the Record Date and other share ownership information are set forth below |
under the heading Outstanding Shares and Share Ownership in this Proxy Statement/Prospectus. |
Quorum requirements. A quorum must be present at the Meeting for the transaction of business. The presence in person or by proxy of |
one-third of the shares of the Acquired Fund outstanding at the close of business on the Record Date constitutes a quorum for a meeting of |
that Fund. Abstentions and broker non-votes (proxies from brokers or nominees indicating that they have not received instructions from the |
beneficial owners on an item for which the broker or nominee does not have discretionary power) are counted toward a quorum but do not |
represent votes cast for any issue. Under the 1940 Act, the affirmative vote necessary to approve a Proposal may be determined with |
reference to a percentage of votes present at the Meeting, which would have the effect of counting abstentions as if they were votes against a |
Proposal. |
In the event the necessary quorum to transact business or the vote required to approve a proposal is not obtained at the Meeting, the |
persons named as proxies or any shareholder present at the Meeting may propose one or more adjournments of the Meeting in accordance |
with applicable law to permit further solicitation of proxies. Any such adjournment as to the Proposal or any other matter will require the |
affirmative vote of the holders of a majority of the shares of the Acquired Fund cast at the Meeting. The persons named as proxies and any |
shareholder present at the Meeting will vote for or against any adjournment in their discretion. |
Solicitation procedures. PFI intends to solicit proxies by mail. Officers or employees of PFI, PMC or their affiliates may make additional |
solicitations by telephone, internet, facsimile or personal contact. They will not be specially compensated for these services. Brokerage |
houses, banks and other fiduciaries may be requested to forward soliciting materials to their principals and to obtain authorization for the |
execution of proxies. For those services, they will be reimbursed by PMC for their out-of-pocket expenses. |
Expenses of the Meeting. The expenses of the Meeting will be treated as an expense related to the Reorganization and will be paid by the |
Acquired Fund. |
27
OUTSTANDING SHARES AND SHARE OWNERSHIP |
The following table shows as of March 8, 2010, the Record Date, the number of each class of shares outstanding and eligible to vote for |
each Acquired Fund and the number of shares outstanding for each class of shares of the Acquiring Fund. |
Acquired Fund | Acquiring Fund | ||
Share Class | Shares Outstanding | Share Class | Shares Outstanding |
High Quality Intermediate-Term Bond Fund | Bond Market Index Fund | ||
Institutional | 32,855.770 | Institutional | 23,215,284.948 |
Class J | 3,302,928.343 | Class J | 0.000 |
Class R-1 | 236,818.970 | Class R-1 | 1,000.000 |
Class R-2 | 374,711.013 | Class R-2 | 1,000.000 |
Class R-3 | 888,666.442 | Class R-3 | 1,000.000 |
Class R-4 | 245,709.346 | Class R-4 | 1,000.000 |
Class R-5 | 566,668.563 | Class R-5 | 1,000.000 |
As of the Record Date, the Directors and Officers of PFI together owned less than 1% of the outstanding shares of any class of shares of |
the Acquired or Acquiring Funds. |
As of March 8, 2010, the following persons owned of record, or were known by PFI to own beneficially, 5% or more of the outstanding |
shares of any class of shares of the Acquired Fund as indicated below: |
Percentage | ||
Share Class | Name and Address of Shareholder | of Ownership |
High Quality Intermediate-Term Bond Fund | ||
Institutional | PERSHING LLC | 84.60% |
1 PERSHING PLZ | ||
JERSEY CITY NJ 07399-0001 | ||
Institutional | FIRST CLEARING, LLC | 8.30% |
A/C 5062-3843 SUZANNE ROPER | ||
22 SPARROW WALK | ||
NEWTOWN PA 18940-9284 | ||
R-1 | DCGT AS TTEE AND/OR CUST | 6.00% |
FBO PRINCIPAL FINANCIAL GROUP | ||
NON-QUALIFIED PRIN ADVTG OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
R-1 | DELAWARE CHARTER GUARANTEE & TRUST | 94.00% |
FBO VARIOUS QUALIFIED PLANS | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 | ||
R-2 | DCGT AS TTEE AND/OR CUST | 97.53% |
FBO PRINCIPAL FINANCIAL GROUP QUALIFIED | ||
PRIN ADVTG OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 | ||
R-3 | DCGT AS TTEE AND/OR CUST | 80.78% |
FBO PRINCIPAL FINANCIAL GROUP QUALIFIED | ||
PRIN ADVTG OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 |
28
R-4 | DCGT AS TTEE AND/OR CUST | 100.00% |
FBO PRINCIPAL FINANCIAL GROUP QUALIFIED | ||
PRIN ADVTG OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 | ||
R-5 | DCGT AS TTEE AND/OR CUST | 5.72% |
FBO PRINCIPAL FINANCIAL GROUP | ||
NON-QUALIFIED PRIN ADVTG OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 | ||
R-5 | DCGT AS TTEE AND/OR CUST | 66.23% |
FBO PRINCIPAL FINANCIAL GROUP QUALIFIED | ||
PRIN ADVTG OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 |
As of March 8, 2010, the following persons owned of record, or were known by PFI to own beneficially, 5% or more of the outstanding |
shares of any class of shares of the Acquiring Fund as indicated below: |
Bond Market Index Fund | ||
Institutional | LIFETIME 2010 FUND | 15.54% |
ATTN MUTUAL FUND ACCOUNTING-H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
Institutional | LIFETIME 2020 FUND | 34.28% |
ATTN MUTUAL FUND ACCOUNTING-H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
Institutional | LIFETIME 2030 FUND | 18.15% |
ATTN MUTUAL FUND ACCOUNTING- H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
Institutional | LIFETIME STRATEGIC INCOME FUND | 8.34% |
ATTN MUTUAL FUND ACCOUNTING- H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
R-1 | PRINCIPAL MANAGEMENT CORPORATION | 100.00% |
PRINCIPAL FINANCIAL GROUP | ||
ATTN: SUBSIDIARY ACCOUNT N002-E020 | ||
711 HIGH ST | ||
DES MOINES IA 50392-9992 | ||
R-2 | PRINCIPAL MANAGEMENT CORPORATION | 100.00% |
PRINCIPAL FINANCIAL GROUP | ||
ATTN: SUBSIDIARY ACCOUNT N002-E020 | ||
711 HIGH ST | ||
DES MOINES IA 50392-9992 |
29
R-3 | PRINCIPAL MANAGEMENT CORPORATION | 100.00% |
PRINCIPAL FINANCIAL GROUP | ||
ATTN: SUBSIDIARY ACCOUNT N002-E020 | ||
711 HIGH ST | ||
DES MOINES IA 50392-9992 | ||
R-4 | PRINCIPAL MANAGEMENT CORPORATION | 100.00% |
PRINCIPAL FINANCIAL GROUP | ||
ATTN: SUBSIDIARY ACCOUNT N002-E020 | ||
711 HIGH ST | ||
DES MOINES IA 50392-9992 | ||
R-5 | PRINCIPAL MANAGEMENT CORPORATION | 100.00% |
PRINCIPAL FINANCIAL GROUP | ||
ATTN: SUBSIDIARY ACCOUNT N002-E020 | ||
711 HIGH ST | ||
DES MOINES IA 50392-9992 |
FINANCIAL HIGHLIGHTS |
The financial highlights table for the Acquired Fund is intended to help investors understand the financial performance of the Fund for |
the past five fiscal years. 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 2005 through 2009 for the Acquired Fund has been audited by Ernst & Young LLP, |
Independent Registered Public Accounting Firm, whose report, along with the Acquired Funds financial statement, is included in PFIs |
Annual Report to Shareholders for the fiscal year ended October 31, 2009. Copies of this report are available on request as described above. |
30
FINANCIAL HIGHLIGHTS |
PRINCIPAL FUNDS, INC. |
Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted): |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
Class J shares | |||||
Net Asset Value, Beginning of Period | $ 8.64 | $ 10.72 | $ 10.79 | $ 10.59 | $ 10.68 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .27 | 0.44 | 0.46 | 0.42 | 0 .33 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .08 | (2 .07) | (0 .16) | 0.04 | (0 .25) |
Total From Investment Operations | 0 .35 | (1 .63) | 0.30 | 0.46 | 0 .08 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .64) | (0 .45) | (0 .37) | (0 .25) | (0 .11) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .64) | (0 .45) | (0 .37) | (0 .26) | (0 .17) |
Net Asset Value, End of Period | $ 8.35 | $ 8.64 | $ 10.72 | $ 10.79 | $ 10.59 |
Total Return(b) | 4 .77% | (15 .89)% | 2 .85% | 4.46% | 0 .80% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 26,081 | $ 26,729 | $ 34,054 | $ 36,023 | $ 36,958 |
Ratio of Expenses to Average Net Assets | 1 .19% | 1 .08% | 1 .13% | 1.35% | 1 .35% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 1.18% | 1 .08% |
Ratio of Gross Expenses to Average Net Assets(d) | 1 .24% | | | 1.49% | 1 .52% |
Ratio of Net Investment Income to Average Net Assets | 3 .43% | 4 .36% | 4 .38% | 4.01% | 3 .08% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
Institutional shares | |||||
Net Asset Value, Beginning of Period | $ 8.70 | $ 10.80 | $ 10.86 | $ 10.66 | $ 10.71 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .38 | 0.50 | 0.55 | 0.50 | 0 .41 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .04 | (2 .08) | (0 .17) | 0.03 | (0 .26) |
Total From Investment Operations | 0 .42 | (1 .58) | 0.38 | 0.53 | 0 .15 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .70) | (0 .52) | (0 .44) | (0 .32) | (0 .14) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .70) | (0 .52) | (0 .44) | (0 .33) | (0 .20) |
Net Asset Value, End of Period | $ 8.42 | $ 8.70 | $ 10.80 | $ 10.86 | $ 10.66 |
Total Return | 5 .67% | (15 .34)% | 3 .63% | 5.12% | 1 .46% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 309 | $ 34,727 | $ 29,755 | $ 13,377 | $ 2,494 |
Ratio of Expenses to Average Net Assets | 0 .45% | 0 .43% | 0 .40% | 0.65% | 0 .72% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.40% | 0 .40% |
Ratio of Gross Expenses to Average Net Assets(f) | 1 .03% | | | | |
Ratio of Net Investment Income to Average Net Assets | 4 .85% | 5 .02% | 5 .13% | 4.76% | 3 .90% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
R-1 shares | |||||
Net Asset Value, Beginning of Period | $ 8.64 | $ 10.74 | $ 10.80 | $ 10.60 | $ 10.69 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .25 | 0.41 | 0.45 | 0.41 | 0 .32 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .10 | (2 .08) | (0 .17) | 0.03 | (0 .24) |
Total From Investment Operations | 0 .35 | (1 .67) | 0.28 | 0.44 | 0 .08 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .63) | (0 .43) | (0 .34) | (0 .23) | (0 .11) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .63) | (0 .43) | (0 .34) | (0 .24) | (0 .17) |
Net Asset Value, End of Period | $ 8.36 | $ 8.64 | $ 10.74 | $ 10.80 | $ 10.60 |
Total Return | 4 .72% | (16 .18)% | 2 .71% | 4.20% | 0 .79% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 1,619 | $ 1,407 | $ 1,283 | $ 681 | $ 102 |
Ratio of Expenses to Average Net Assets | 1 .31% | 1 .31% | 1 .28% | 1.54% | 1 .61% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 1.28% | 1 .28% |
Ratio of Net Investment Income to Average Net Assets | 3 .25% | 4 .12% | 4 .25% | 3.88% | 2 .99% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
FINANCIAL HIGHLIGHTS (Continued) |
PRINCIPAL FUNDS, INC. |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
R-2 shares | |||||
Net Asset Value, Beginning of Period | $ 8.57 | $ 10.64 | $ 10.70 | $ 10.51 | $ 10.61 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .27 | 0.44 | 0.46 | 0.41 | 0 .32 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .08 | (2 .06) | (0 .16) | 0.03 | (0 .24) |
Total From Investment Operations | 0 .35 | (1 .62) | 0.30 | 0.44 | 0 .08 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .64) | (0 .45) | (0 .36) | (0 .24) | (0 .12) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .64) | (0 .45) | (0 .36) | (0 .25) | (0 .18) |
Net Asset Value, End of Period | $ 8.28 | $ 8.57 | $ 10.64 | $ 10.70 | $ 10.51 |
Total Return | 4 .75% | (15 .93)% | 2 .88% | 4.29% | 0 .74% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 3,426 | $ 3,630 | $ 51,729 | $ 4,737 | $ 5,503 |
Ratio of Expenses to Average Net Assets | 1 .18% | 1 .18% | 1 .15% | 1.46% | 1 .44% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 1.15% | 1 .15% |
Ratio of Net Investment Income to Average Net Assets | 3 .50% | 4 .28% | 4 .35% | 3.91% | 3 .04% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
R-3 shares | |||||
Net Asset Value, Beginning of Period | $ 8.59 | $ 10.67 | $ 10.73 | $ 10.53 | $ 10.62 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .29 | 0.44 | 0.48 | 0.43 | 0 .33 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .07 | (2 .06) | (0 .16) | 0.04 | (0 .24) |
Total From Investment Operations | 0 .36 | (1 .62) | 0.32 | 0.47 | 0 .09 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .65) | (0 .46) | (0 .38) | (0 .26) | (0 .12) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .65) | (0 .46) | (0 .38) | (0 .27) | (0 .18) |
Net Asset Value, End of Period | $ 8.30 | $ 8.59 | $ 10.67 | $ 10.73 | $ 10.53 |
Total Return | 4 .95% | (15 .84)% | 3 .06% | 4.57% | 0 .90% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 5,878 | $ 9,053 | $ 9,052 | $ 47,919 | $ 39,642 |
Ratio of Expenses to Average Net Assets | 1 .00% | 1 .00% | 0 .97% | 1.28% | 1 .23% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.97% | 0 .97% |
Ratio of Net Investment Income to Average Net Assets | 3 .76% | 4 .44% | 4 .55% | 4.09% | 3 .15% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
R-4 shares | |||||
Net Asset Value, Beginning of Period | $ 8.59 | $ 10.68 | $ 10.74 | $ 10.54 | $ 10.62 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .29 | 0.46 | 0.50 | 0.45 | 0 .37 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .09 | (2 .07) | (0 .16) | 0.04 | (0 .26) |
Total From Investment Operations | 0 .38 | (1 .61) | 0.34 | 0.49 | 0 .11 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .67) | (0 .48) | (0 .40) | (0 .28) | (0 .13) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .67) | (0 .48) | (0 .40) | (0 .29) | (0 .19) |
Net Asset Value, End of Period | $ 8.30 | $ 8.59 | $ 10.68 | $ 10.74 | $ 10.54 |
Total Return | 5 .18% | (15 .75)% | 3 .26% | 4.76% | 1 .06% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 2,058 | $ 2,401 | $ 3,982 | $ 1,748 | $ 881 |
Ratio of Expenses to Average Net Assets | 0 .81% | 0 .81% | 0 .78% | 1.06% | 1 .12% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.78% | 0 .78% |
Ratio of Net Investment Income to Average Net Assets | 3 .82% | 4 .62% | 4 .75% | 4.32% | 3 .55% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
FINANCIAL HIGHLIGHTS (Continued) |
PRINCIPAL FUNDS, INC. |
2009 | 2008 | 2007 | 2006 | 2005 | |
HIGH QUALITY INTERMEDIATE-TERM BOND FUND | |||||
R-5 shares | |||||
Net Asset Value, Beginning of Period | $ 8.62 | $ 10.70 | $ 10.77 | $ 10.57 | $ 10.64 |
Income from Investment Operations: | |||||
Net Investment Income (Loss)(a) | 0 .32 | 0.47 | 0.51 | 0.46 | 0 .37 |
Net Realized and Unrealized Gain (Loss) on Investments | 0 .07 | (2 .05) | (0 .17) | 0.05 | (0 .25) |
Total From Investment Operations | 0 .39 | (1 .58) | 0.34 | 0.51 | 0 .12 |
Less Dividends and Distributions: | |||||
Dividends from Net Investment Income | (0 .68) | (0 .50) | (0 .41) | (0 .30) | (0 .13) |
Distributions from Realized Gains | | | | (0 .01) | (0 .06) |
Total Dividends and Distributions | (0 .68) | (0 .50) | (0 .41) | (0 .31) | (0 .19) |
Net Asset Value, End of Period | $ 8.33 | $ 8.62 | $ 10.70 | $ 10.77 | $ 10.57 |
Total Return | 5 .30% | (15 .52)% | 3 .28% | 4.89% | 1 .19% |
Ratio/Supplemental Data: | |||||
Net Assets, End of Period (in thousands) | $ 4,961 | $ 7,426 | $ 45,071 | $ 33,012 | $ 25,333 |
Ratio of Expenses to Average Net Assets | 0 .69% | 0 .69% | 0 .66% | 0.96% | 0 .92% |
Ratio of Expenses to Average Net Assets (Excluding Reverse | |||||
Repurchase Agreement Expense)(c) | N/A | N/A | N/A | 0.66% | 0 .66% |
Ratio of Net Investment Income to Average Net Assets | 4 .11% | 4 .71% | 4 .87% | 4.41% | 3 .48% |
Portfolio Turnover Rate | 380 .0% | 308 .8% | 257 .3% | 268.6% | 177 .4%(e) |
(a) Calculated based on average shares outstanding during the period. |
(b) Total return is calculated without the contingent deferred sales charge. |
(c) Excludes interest expense paid on borrowings through reverse repurchase agreements. |
(d) Excludes expense reimbursement from Manager and/or Underwriter. |
(e) Portfolio turnover rate excludes approximately $15,223,000 of securities from the acquisition of High Quality Long-Term Bond Fund. |
(f) Excludes expense reimbursement from Manager. |
FINANCIAL STATEMENTS |
The financial statements of the Acquired Fund included in PFIs Annual Report to Shareholders for the fiscal year ended October 31, |
2009 are incorporated by reference into the Statement of Additional Information and have been so incorporated by reference in reliance on |
the report of Ernst & Young LLP, Independent Registered Public Accounting Firm. Copies of the Annual Report are available upon request |
as described above. |
LEGAL MATTERS |
Certain matters concerning the issuance of shares of the Acquiring Fund will be passed upon by Michael D. Roughton, Esq., Counsel to |
PFI. Certain tax consequences of the Reorganization will be passed upon for the Acquiring Fund by Randy Lee Bergstrom, Esq., Assistant |
Tax Counsel to PFI, and for the Acquired Fund by Carolyn F. Kolks, Esq., Assistant Tax Counsel to PFI. |
OTHER INFORMATION |
PFI is not required to hold annual meetings of shareholders and, therefore, it cannot be determined when the next meeting of |
shareholders will be held. Shareholder proposals to be presented at any future meeting of shareholders of any PFI Fund must be received by |
PFI a reasonable time before its solicitation of proxies for that meeting in order for such proposals to be considered for inclusion in the proxy |
materials related to that meeting. |
BY ORDER OF THE BOARD OF DIRECTORS |
March 24, 2010 |
Des Moines, Iowa |
34
Appendix A |
FORM OF PLAN OF ACQUISITION |
High Quality Intermediate-Term Bond Fund and |
Bond Market Index Fund |
The Board of Directors of Principal Funds, Inc., a Maryland corporation (the Fund), deems it advisable that Bond Market Index |
Fund series of the Fund (Bond Market Index) acquire all of the assets of High Quality Intermediate-Term Bond Fund series of the Fund |
(High Quality Intermediate-Term Bond) in exchange for the assumption by Bond Market Index of all of the liabilities of High Quality |
Intermediate-Term Bond and shares issued by Bond Market Index which are thereafter to be distributed by High Quality Intermediate- |
Term Bond pro rata to its shareholders in complete liquidation and termination of High Quality Intermediate-Term Bond and in exchange |
for all of High Quality Intermediate-Term Bond s outstanding shares. |
High Quality Intermediate-Term Bond will transfer to Bond Market Index, and Bond Market Index will acquire from High Quality |
Intermediate-Term Bond, all of the assets of High Quality Intermediate-Term Bond on the Closing Date and will assume from High |
Quality Intermediate-Term Bond all of the liabilities of High Quality Intermediate-Term Bond in exchange for the issuance of the number |
of shares of Bond Market Index determined as provided in the following paragraphs, which shares will be subsequently distributed pro rata |
to the shareholders of High Quality Intermediate-Term Bond in complete liquidation and termination of High Quality Intermediate-Term |
Bond and in exchange for all of High Quality Intermediate-Term Bond s outstanding shares. High Quality Intermediate-Term Bond will |
not issue, sell or transfer any of its shares after the Closing Date, and only redemption requests received by High Quality Intermediate- |
Term Bond in proper form prior to the Closing Date shall be fulfilled by High Quality Intermediate-Term Bond. Redemption requests |
received by High Quality Intermediate-Term Bond thereafter will be treated as requests for redemption of those shares of Bond Market |
Index allocable to the shareholder in question. |
High Quality Intermediate-Term Bond will declare, and Bond Market Index may declare, to its shareholders of record on or prior to |
the Closing Date a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its |
shareholders all of its income (computed without regard to any deduction for dividends paid) and all of its net realized capital gains, if any, |
as of the Closing Date. |
On the Closing Date, Bond Market Index will issue to High Quality Intermediate-Term Bond a number of full and fractional shares of |
Bond Market Index, taken at their then net asset value, having an aggregate net asset value equal to the aggregate value of the net assets of |
High Quality Intermediate-Term Bond. The aggregate value of the net assets of High Quality Intermediate-Term Bond and Bond Market |
Index shall be determined in accordance with the then current Prospectus of the Fund as of close of regularly scheduled trading on the New |
York Stock Exchange on the Closing Date. |
The closing of the transactions contemplated in this Plan (the Closing) shall be held at the offices of Principal Management |
Corporation, 680 8th Street, Des Moines, Iowa 50392 at 3:00 p.m. Central Time on May 14, 2010, or on such earlier or later date as fund |
management may determine. The date on which the Closing is to be held as provided in this Plan shall be known as the Closing Date. |
In the event that on the Closing Date (a) the New York Stock Exchange is closed for other than customary weekend and holiday |
closings or (b) trading on said Exchange is restricted or (c) an emergency exists as a result of which it is not reasonably practicable for |
Bond Market Index or High Quality Intermediate-Term Bond to fairly determine the value of its assets, the Closing Date shall be postponed |
until the first business day after the day on which trading shall have been fully resumed. |
As soon as practicable after the Closing, High Quality Intermediate-Term Bond shall (a) distribute on a pro rata basis to the |
shareholders of record of High Quality Intermediate-Term Bond at the close of business on the Closing Date the shares of Bond Market |
Index received by High Quality Intermediate-Term Bond at the Closing in exchange for all of High Quality Intermediate-Term Bonds |
outstanding shares, and (b) be liquidated in accordance with applicable law and the Funds Articles of Incorporation. |
For purposes of the distribution of shares of Bond Market Index to shareholders of High Quality Intermediate-Term Bond, Bond |
Market Index shall credit its books an appropriate number its shares to the Fund of each shareholder of High Quality Intermediate-Term |
Bond. No certificates will be issued for shares of Bond Market Index. After the Closing Date and until surrendered, each outstanding |
certificate, if any, which, prior to the Closing Date, represented shares of High Quality Intermediate-Term Bond, shall be deemed for all |
purposes of the Funds Articles of Incorporation and Bylaws to evidence the appropriate number of shares of Bond Market Index to be |
credited on the books of Bond Market Index in respect of such shares of High Quality Intermediate-Term Bond as provided above. |
Prior to the Closing Date, High Quality Intermediate-Term Bond shall deliver to Bond Market Index a list setting forth the assets to be |
assigned, delivered and transferred to Bond Market Index, including the securities then owned by High Quality Intermediate-Term Bond |
and the respective federal income tax bases (on an identified cost basis) thereof, and the liabilities to be assumed by Bond Market Index |
pursuant to this Plan. |
All of High Quality Intermediate-Term Bonds portfolio securities shall be delivered by High Quality Intermediate-Term Bonds |
custodian on the Closing Date to Bond Market Index or its custodian, either endorsed in proper form for transfer in such condition as to |
constitute good delivery thereof in accordance with the practice of brokers or, if such securities are held in a securities depository within |
A-1
the meaning of Rule 17f-4 under the Investment Company Act of 1940, transferred to an Fund in the name of Bond Market Index or its |
custodian with said depository. All cash to be delivered pursuant to this Plan shall be transferred from High Quality Intermediate-Term |
Bonds at its custodian to Bond Market Indexs at its custodian. If on the Closing Date High Quality Intermediate-Term Bond is unable to |
make good delivery to Bond Market Indexs custodian of any of High Quality Intermediate-Term Bonds portfolio securities because such |
securities have not yet been delivered to High Quality Intermediate-Term Bonds custodian by its brokers or by the transfer agent for such |
securities, then the delivery requirement with respect to such securities shall be waived, and High Quality Intermediate-Term Bond shall |
deliver to Bond Market Indexs custodian on or by said Closing Date with respect to said undelivered securities executed copies of an |
agreement of assignment in a form satisfactory to Bond Market Index, and a due bill or due bills in form and substance satisfactory to the |
custodian, together with such other documents including brokers confirmations, as may be reasonably required by Bond Market Index. |
This Plan may be abandoned and terminated, whether before or after action thereon by the shareholders of High Quality Intermediate- |
Term Bond and notwithstanding favorable action by such shareholders, if the Board of Directors believe that the consummation of the |
transactions contemplated hereunder would not be in the best interests of the shareholders of either Fund. This Plan may be amended by |
the Board of Directors at any time, except that after approval by the shareholders of High Quality Intermediate-Term Bond no amendment |
may be made with respect to the Plan which in the opinion of the Board of Directors materially adversely affects the interests of the |
shareholders of High Quality Intermediate-Term Bond. |
Except as expressly provided otherwise in this Plan, High Quality Intermediate-Term Bond will pay or cause to be paid all out-of- |
pocket fees and expenses incurred in connection with the transactions contemplated under this Plan. |
IN WITNESS WHEREOF, each of the parties hereto has caused this Plan to be executed by its President or its Executive Vice President |
as of the 4th day of February, 2010. |
PRINCIPAL FUNDS, INC. |
on behalf of the following Acquired Fund: |
High Quality Intermediate-Term Bond Fund |
By: |
Nora M. Everett, President |
PRINCIPAL FUNDS, INC. |
on behalf of the following Acquiring Fund: |
Bond Market Index Fund |
By: |
Michael J. Beer, Executive Vice President |
A-2
Appendix B |
DESCRIPTION OF INDEX |
The performance tables included in this Information Statement/Prospectus provide performance information of the following index. This |
index is described in this Appendix. An investment cannot be made directly in the index the index's performance figures do not include any |
commissions or sales charges that would be paid by investors purchasing the securities represented by the indices. |
Barclays Capital Aggregate Bond Index represents securities that are domestic, taxable, and dollar denominated. The index covers the |
U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through |
securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a |
regular basis. This index was formally known as Lehman Brothers Aggregate Bond Index. |
B-1
PART B | |
INFORMATION REQUIRED IN | |
A STATEMENT OF ADDITIONAL INFORMATION | |
PRINCIPAL FUNDS, INC. | |
680 8th Street | |
Des Moines, Iowa 50392-2080 | |
STATEMENT OF ADDITIONAL INFORMATION | |
Dated: March 24, 2010 | |
This Statement of Additional Information is available to the shareholders of the High Quality Intermediate- | |
Term Bond Fund (the "Acquired Fund"), in connection with the proposed reorganization of the Acquired Fund | |
into the Bond Market Index Fund (the "Acquiring Fund") (the "Reorganization"). Each of the Acquired and | |
Acquiring Funds is a separate series of Principal Funds, Inc. ("PFI"). | |
This Statement of Additional Information is not a prospectus and should be read in conjunction with the | |
Proxy Statement/Prospectus dated March 24, 2010, relating to the Special Meeting of Shareholders of the | |
Acquired Fund to be held on May 10, 2010. The Proxy Statement/Prospectus, which describes the proposed | |
Reorganization, may be obtained without charge by writing to Principal Management Corporation, 680 8th | |
Street, Des Moines, Iowa 50392-2080, or by calling toll free at 1-800-222-5852. | |
TABLE OF CONTENTS | |
(1) Statement of Additional Information of PFI dated March 1, 2010, as supplemented. | |
(2) Audited Financial Statements of PFI for the fiscal year ended October 31, 2009, related to the Acquired | |
Fund. | |
(3) The unaudited financial statements of the Acquired Fund included in PFI's Semi-Annual Report to | |
Shareholders for the six-month period ended April 30, 2009. | |
(4) Pro Forma Financial Information for the combination of the Acquired Fund into the Acquiring Fund. | |
INFORMATION INCORPORATED BY REFERENCE | |
This Statement of Additional Information incorporates by reference the following documents (or designated | |
portions thereof) that have been filed with the Securities and Exchange Commission (File Nos. 33-59474; and | |
811-07572). | |
(1) | The Statement of Additional Information of Principal Funds, Inc. ("PFI") dated March 1, 2009, (including |
Supplements dated March 20, 2009, May 4, 2009, June 19, 2009, August 10, 2009, August 25, 2009, | |
September 21, 2009, September 30, 2009, November 12, 2009, December 17, 2009 and February 5, 2010, | |
and filed via EDGAR on each of those respective dates). | |
(2) | The financial statements of the Acquired Fund included in PFI's Annual Report to Shareholders for the |
fiscal year ended October 31, 2009, which have been audited by Ernst & Young LLP, Independent | |
Registered Public Accounting Firm, as filed on Form N-CSR on December 30, 2009; and | |
(3) | The unaudited financial statements of the Acquired Fund included in PFI's Semi-Annual Report to |
Shareholders for the six-month period ended April 30, 2009, as filed on Form N-CSRS on July 6, 2009. | |
The Annual and Semi-Annual Reports to Shareholders of PFI are available upon request and without charge | |
by calling toll-free at 1-800-222-5852. |
PRO FORMA FINANCIAL STATEMENTS |
The unaudited pro forma information provided herein should be read in conjunction with the annual report of |
Principal Funds, Inc. High Quality Intermediate-Term Bond Fund dated October 31, 2009. |
On December 14, 2009, the Board of Directors of Principal Funds, Inc., High Quality Intermediate-Term Bond |
Fund approved an Agreement and Plan of Reorganization (the Reorganization) whereby, Bond Market Index |
Fund will acquire all the assets of High Quality Intermediate-Term Bond Fund subject to the liabilities of such |
fund, in exchange for a number of shares equal to the pro rata net assets of Bond Market Index Fund. |
The unaudited pro forma information set forth below for the period ended January 31, 2010 is intended to |
present ratios and supplemental data as if the acquisition of the High Quality Intermediate-Term Bond Fund (the |
Acquired Fund), by the Bond Market Index Fund (the Acquiring Fund), had been consummated at |
January 31, 2009. |
Principal Management Corporation is the investment advisor for both the Acquired and the Acquiring Funds. |
The management fees payable by the Acquired Fund to Principal Management Corporation are as follows: |
0.40% of the first $500 million of the funds average daily net assets, 0.38% on the next $500 million of such |
assets, 0.36% on the next $500 million of such assets, and 0.35% of the excess over $1.5 billion of such assets. |
The management fees payable by the Acquiring Fund to Principal Management Corporation are 0.25% of the |
funds average daily net assets. |
As of January 31, 2010, the net assets of: (i) the Acquired Fund were approximately $46,658,000 and (ii) the |
Acquiring Fund were approximately $62,415,000. The net assets of the combined fund as of January 31, 2010 |
would have been approximately $109,042,000, reflecting a reduction of $30,759 due to estimated reorganization |
costs. The estimated reorganization costs do not reflect commission costs due to portfolio realignment. |
On a pro forma basis for the period ended January 31, 2010, the proposed reorganization would result in the |
following approximate decreases to expenses charged: |
Management fees | $75,000 |
Custodian fees | 8,800 |
Directors expense | 1,300 |
Professional fees | 5,300 |
Other expense | 1,100 |
Registration fees Institutional | 25,000 |
No significant accounting policies will change as a result of the proposed reorganization. |
Securities held by the Acquired Fund may be sold in connection with the Reorganization in order to meet the |
investment objectives and strategies of the Acquiring Fund. The Acquired Fund will pay any trading costs |
associated with disposing of any portfolio securities of the Acquired Fund that would not be compatible with the |
investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities that would |
be compatible. The estimated loss, including trading costs, would be $3,118,000 on a U.S. GAAP basis. The |
estimated per share capital loss would be $0.55. |
The Reorganization will be accounted for as a tax-free reorganization of investment companies. In a tax-free |
reorganization no gain or loss will be recognized by the Acquired Fund or its shareholders as a result of the |
Acquisition. The historical cost of investment securities will be carried forward to the surviving entity and |
results of operations of Bond Market Index Fund for pre-combination periods will not be restated. |
At October 31, 2009, the High Quality Intermediate-Term Bond Fund had a capital loss carryforward of |
approximately $26,713,000. At January 31, 2010, the Bond Market Index Fund had no capital loss carryforward. |
PART C | ||
OTHER INFORMATION | ||
Item 15. | Indemnification | |
Under Section 2-418 of the Maryland General Corporation Law, with respect to any | ||
proceedings against a present or former director, officer, agent or employee (a "corporate | ||
representative") of the Registrant, the Registrant may indemnify the corporate representative | ||
against judgments, fines, penalties, and amounts paid in settlement, and against expenses, | ||
including attorneys' fees, if such expenses were actually incurred by the corporate representative | ||
in connection with the proceeding, unless it is established that: | ||
(i) | The act or omission of the corporate representative was material to the matter | |
giving rise to the proceeding; and | ||
1. | Was committed in bad faith; or | |
2. | Was the result of active and deliberate dishonesty; or | |
(ii) | The corporate representative actually received an improper personal benefit in | |
money, property, or services; or | ||
(iii) | In the case of any criminal proceeding, the corporate representative had | |
reasonable cause to believe that the act or omission was unlawful. | ||
If a proceeding is brought by or on behalf of the Registrant, however, the Registrant may | ||
not indemnify a corporate representative who has been adjudged to be liable to the Registrant. | ||
Under the Registrant's Articles of Incorporation and Bylaws, directors and officers of the | ||
Registrant are entitled to indemnification by the Registrant to the fullest extent permitted under | ||
Maryland law and the Investment Company Act of 1940. Reference is made to Article VI, | ||
Section 7 of the Registrant's Articles of Incorporation, Article 12 of the Registrant's Bylaws and | ||
Section 2-418 of the Maryland General Corporation Law. | ||
The Registrant has agreed to indemnify, defend and hold the Distributor, its officers and | ||
directors, and any person who controls the Distributor within the meaning of Section 15 of the | ||
Securities Act of 1933, free and harmless from and against any and all claims, demands, | ||
liabilities and expenses (including the cost of investigating or defending such claims, demands or | ||
liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers, | ||
directors or any such controlling person may incur under the Securities Act of 1933, or under | ||
common law or otherwise, arising out of or based upon any untrue statement of a material fact | ||
contained in the Registrant's registration statement or prospectus or arising out of or based upon | ||
any alleged omission to state a material fact required to be stated in either thereof or necessary | ||
to make the statements in either thereof not misleading, except insofar as such claims, demands, | ||
liabilities or expenses arise out of or are based upon any such untrue statement or omission | ||
made in conformity with information furnished in writing by the Distributor to the Registrant for use | ||
in the Registrant's registration statement or prospectus: provided, however, that this indemnity | ||
agreement, to the extent that it might require indemnity of any person who is also an officer or | ||
director of the Registrant or who controls the Registrant within the meaning of Section 15 of the | ||
Securities Act of 1933, shall not inure to the benefit of such officer, director or controlling person | ||
unless a court of competent jurisdiction shall determine, or it shall have been determined by | ||
controlling precedent that such result would not be against public policy as expressed in the | ||
Securities Act of 1933, and further provided, that in no event shall anything contained herein be | ||
so construed as to protect the Distributor against any liability to the Registrant or to its security | ||
holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad | ||
faith, or gross negligence, in the performance of its duties, or by reason of its reckless disregard |
of its obligations under this Agreement. The Registrant's agreement to indemnify the Distributor, | ||
its officers and directors and any such controlling person as aforesaid is expressly conditioned | ||
upon the Registrant being promptly notified of any action brought against the Distributor, its | ||
officers or directors, or any such controlling person, such notification to be given by letter or | ||
telegram addressed to the Registrant. | ||
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be | ||
permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing | ||
provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and | ||
Exchange Commission such indemnification is against public policy as expressed in the Act and | ||
is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities | ||
(other than the payment by the registrant of expenses incurred or paid by a director, officer or | ||
controlling person of the registrant in the successful defense of any action, suit or proceeding) is | ||
asserted by such director, officer or controlling person in connection with the securities being | ||
registered, the registrant will, unless in the opinion of its counsel the matter has been settled by | ||
controlling precedent, submit to a court of appropriate jurisdiction the question whether such | ||
indemnification by it is against public policy as expressed in the Act and will be governed by the | ||
final adjudication of such issue. | ||
Item 16. Exhibits. | ||
Unless otherwise stated, all filing references are to File No. 33-59474 | ||
Item 16. Exhibits. | ||
(1) a. | Articles of Amendment and Restatement -- Filed as Ex-99.B1.A on 04/12/1996 (Accession | |
No. 0000898745-96-000012) | ||
b. | Articles of Amendment and Restatement -- Filed as Ex-99.A1.B on 09/22/00 (Accession No | |
0000898745-00-500024) | ||
c. | Articles of Amendment and Restatement dated 6/14/02 -- Filed as Ex-99.A.1.C on 12/30/02 | |
(Accession No. 0001126871-02-000036) | ||
d. | Articles of Amendment dated 5/23/05 -- Filed as Ex-99.A on 09/08/05 (Accession No. | |
0000898786-05-000254) | ||
e. | Articles of Amendment dated 9/30/05 -- Filed as Ex-99.A on 11/22/05 (Accession No. | |
0000870786-05-000263) | ||
f. | Articles of Amendment dated 7/7/06 (Incorporated by reference from exhibit #1(2)b to | |
registration statement No. 333-137477 filed on Form N-14 on 9/20/06 Accession No. | ||
0000009713-06-000062) | ||
g. | Articles of Amendment -- Filed as Ex-99.B1 on 09/12/97 (Accession No. 0000898745-97- | |
000023) | ||
h. | Articles of Amendment dated 06/04/08 -- Filed as Ex-99.A on 07/17/08 (Accession No. | |
0000009713-08-000060) | ||
i. | Articles of Amendment dated 06/30/09 Filed as Ex-99.A(1)h on 10/07/09 (Accession No. | |
0000898745-09-000489) | ||
j. | Certificate of Correction dated 9/14/00 -- Filed as Ex-99.A3 on 09/22/00 (Accession No. | |
0000898745-00-500024) | ||
k. | Certificate of Correction dated 12/13/00 -- Filed as Ex-99.A3 on 10/12/01 (Accession No. | |
0001127048-01-500041) | ||
l. | Articles Supplementary dated 12/11/00 -- Filed as Ex-99.A.4A on 02/25/02 (Accession No. | |
0000870786-02-000051) | ||
m. | Articles Supplementary dated 3/12/01 Filed as EX-99.A.4B on 02/25/02 (Accession No. | |
0000870786-02-000051) | ||
n. | Articles Supplementary dated 4/16/02 -- Filed as Ex-99.A.4.C on 12/30/02 (Accession No. | |
0001126871-02-000036) |
o. | Articles Supplementary dated 9/25/02 -- Filed as Ex-99.A.4.D on 12/30/02 (Accession No. | |
0001126871-02-000036) | ||
p. | Articles Supplementary dated 2/5/03 Filed as Ex-99.A on 02/25/03 (Accession No. | |
0000870786-03-000031) | ||
q. | Articles Supplementary dated 4/30/03 -- Filed as Ex-99.A4F on 09/11/03 (Accession No. | |
0000870786-03-000169) | ||
r. | Articles Supplementary dated 6/10/03 -- Filed as Ex-99.A4G on 09/11/03 (Accession No. | |
0000870786-03-000169) | ||
s. | Articles Supplementary dated 9/9/03 -- Filed as Ex-99.A4H on 09/11/03 (Accession No. | |
0000870786-03-000169) | ||
t. | Articles Supplementary dated 11/6/03 Filed as Ex-99.A on 12/15/03 (Accession No. | |
0000870786-03-000202) | ||
u. | Articles Supplementary dated 1/29/04-- Filed as Ex-99.A on 02/26/04 (Accession No. | |
0001127048-04-000033) | ||
v. | Articles Supplementary dated 3/8/04-- Filed as Ex-99.A on 07/27/04 (Accession No. | |
0000870786-04-000163) | ||
w. | Articles Supplementary dated 6/14/04 Filed as Ex-99.A on 09/27/2004 (Accession No. | |
0000870786-04-000207) | ||
x. | Articles Supplementary dated 9/13/04 Filed as Ex-99.A on 12/13/04 (Accession No. | |
0000870786-04-000242) | ||
y. | Articles Supplementary dated 10/1/04 Filed as Ex-99.A on 12/13/04 (Accession No. | |
0000870786-04-000242) | ||
z. | Articles Supplementary dated 12/13/04 -- Filed as Ex-99.A on 02/28/05 (Accession No. | |
0000870786-05-000065) | ||
aa. Articles Supplementary dated 2/4/05 Filed as Ex-99.A on 05/16/05 (Accession No. | ||
0000870786-05-000194) | ||
bb. Articles Supplementary dated 2/24/05 Filed as Ex-99.A on 05/16/05 (Accession No. | ||
0000870786-05-000194) | ||
cc. Articles Supplementary dated 5/6/05 Filed as Ex-99.A on 09/08/05 (Accession No. | ||
0000870786-05-000254) | ||
dd. Articles Supplementary dated 12/20/05 (filed 2/28/06) | ||
ee. Articles Supplementary dated 9/20/06 (Incorporated by reference from exhibit #1(4)t to | ||
registration statement No. 333-137477 filed on Form N-14 on 9/20/06 Accession No. | ||
0000009713-06-000062) | ||
ff. | Articles Supplementary dated 1/12/07 -- Filed as Ex-99.A on 01/16/07 (Accession No. | |
0000898745-07-000011) | ||
gg. Articles Supplementary dated 1/22/07 -- Filed as Ex-99.A on 07/18/07 (Accession No. | ||
0000898745-07-000086) | ||
hh. Articles Supplementary dated 7/24/07 -- Filed as Ex-99.A on 09/28/07 (Accession No. | ||
0000898745-07-000152) | ||
ii. | Articles Supplementary dated 09/13/07 -- Filed as Ex-99.A on 12/14/07 (Accession No. | |
0000898745-07-000184) | ||
jj. | Articles Supplementary dated 1/3/08 -- Filed as Ex-99.A.4.Y on 02/20/08 (Accession No. | |
0000950137-08-002501 | ||
kk. Articles Supplementary dated 3/13/08 -- Filed as Ex-99.A4Z on 05/01/08 (Accession No. | ||
0000950137-08-006512) | ||
ll. | Articles Supplementary dated 06/23/08 -- Filed as Ex-99.A on 07/17/08 (Accession No. | |
0000009713-08-000060) | ||
mm.Articles Supplementary dated 09/10/08 Initial Capital Agreement dtd 5/1/08 -- Filed as Ex- | ||
99.A.4 on 12/12/08 (Accession No. 0000898745-08-000166) | ||
nn. Articles Supplementary dated 10/31/08 Filed as Ex-99.A.4 on 12/12/08 (Accession No. | ||
0000898745-08-000166) | ||
oo. Articles Supplementary dated 01/13/09 Filed as Ex-99.A(4)dd on 10/07/09 (Accession No. | ||
0000898745-09-000489) | ||
pp. Articles Supplementary dated 03/10/09 Filed as Ex-99.A(4)ee on 10/07/09 (Accession No. | ||
0000898745-09-000489) |
qq. Articles Supplementary dated 05/01/09 Filed as Ex-99.A(4)ff on 10/07/09 (Accession No. | ||||
0000898745-09-000489) | ||||
rr. | Articles Supplementary dated 06/19/09 Filed as Ex-99.A(4)gg on 10/07/09 (Accession No. | |||
0000898745-09-000489) | ||||
(2) | By-laws Filed as Ex-99(b) on 12/30/09 (Accession No. 0000898745-09-000572) | |||
(3) | N/A | |||
(4) Form of Plan of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus) | ||||
(5) | Included in Exhibits 1 and 2 hereto. | |||
(6) | (1) | a. | Amended & Restated Management Agreement dated 07/01/09 Filed as Ex-99.D(1)u | |
on 10/07/09 (Accession No. 0000898745-09-000489) | ||||
(2) | a. | Amended & Restated Sub-Adv Agreement with Mellon Capital dated 02/17/09 -- Filed | ||
as Ex-99.D(21)d on 12/18/09 (Accession No. 0000898745-09-000546) | ||||
(3) | a. | Amended & Restated Sub-Adv Agreement with PGI dtd 07/01/09 Filed as Ex- | ||
99.D(23)m on 10/07/09 (Accession No. 0000898745-09-000489) | ||||
(4) | a. | Amended & Restated Sub-Adv Agreement with Spectrum dated 9/12/05 -- Filed as Ex- | ||
99.D on 12/29/05 (Accession No. 0000898745-05-000035) | ||||
(7) | (1) | a. | Distribution Agreement (Class A, Class B, Class C, Class J, Preferred Class, Advisors | |
Preferred Class, Select Class, Advisors Select Class, Advisors Signature Class, | ||||
Institutional Class and Class S Shares dated 5/1/08 Filed as Ex-99.E on 07/29/09 | ||||
(Accession No. 0000898745-09-000354) | ||||
(2) | a. | Selling Agreement--Advantage Classes -- Filed as Ex-99.E2A on 09/11/03 (Accession | ||
No. 0000870786-03-000169) | ||||
b. | Selling Agreement--J Shares -- Filed as Ex-99.E2B on 09/11/03 (Accession No. | |||
0000870786-03-000169) | ||||
(8) | N/A | |||
(9) | (1) | a. | Domestic Portfolio Custodian Agreement with Bank of New York -- Filed as Ex-99.B8.A | |
on 04/12/1996 (Accession No. 0000898745-96-000012) | ||||
b. | Domestic Funds Custodian Agreement with Bank of New York -- Filed as Ex-99.G1.B on | |||
12/05/00 (Accession No. 0000898745-00-000021) | ||||
c. | Domestic and Global Custodian Agreement with Bank of New York -- Filed as Ex-99.G | |||
on 11/22/05 (Accession No. 0000870786-05-000263) | ||||
(10)Rule 12b-1 Plan | ||||
(1) | Class J Plan | |||
a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.H on 12/30/02 (Accession No. | |||
0001126871-02-000036) | ||||
b. | Amended & Restated dtd 9/13/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | |||
0000870786-04-000207) | ||||
c. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. | |||
0000870786-05-000065) | ||||
d. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. | |||
0000870786-05-000263) |
e. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(4)e to | ||
registration | |||
statement No. 333-137477 filed on Form N-14 on 10/6/06) | |||
f. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. | ||
0000898745-07-000011) | |||
g. | Amended & Restated dtd 1/1/08 Filed as Ex-99.M.4G on 02/28/08 (Accession No. | ||
0000950137-08-002501) | |||
h. | Amended & Restated dtd 1/1/08 -- Filed as Ex-99.M4H on 05/01/08 (Accession No. | ||
0000950137-08-006512) | |||
i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M4H on 05/01/08 (Accession No. | ||
0000950137-08-006512) | |||
(2) | R-1 f/k/a Advisors Signature Plan Filed as Ex-99.M on 12/13/04 (Accession No. | ||
0000870786-04-000242) | |||
a. | Amended & Restated dtd 9/13/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
b. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. | ||
0000870786-05-000065) | |||
c. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. | ||
0000870786-05-000263) | |||
d. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(5)d to | ||
registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. | |||
0000898745-06-000145) | |||
e. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. | ||
0000898745-07-000011) | |||
f. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M5F on 05/01/08 (Accession No. | ||
0000950137-08-006512) | |||
g. | Amended & Restated Distribution Plan and Agreement Class R-1 dtd 6/24/08 Filed as | ||
Ex-99.M1J on 09/30/08 (Accession No. 0000898745-08-000083 | |||
h. | Amended & Restated Distribution Plan and Agreement Class R-1 dtd 09/16/09 Filed | ||
as Ex-99.M(5)h on 10/07/09 (Accession No. 0000898745-09-000489) | |||
(3) | R-2 f/k/a Advisors Select Plan -- Filed as Ex-99.M2 on 09/22/00 (Accession No. | ||
0000898745-00-500024) | |||
a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.F on 12/30/02 (Accession No. | ||
0001126871-02-000036) | |||
b. | Amended & Restated dtd 3/11/04 Filed as Ex-99.M on 03/16/04 (Accession No. | ||
0000870786-04-000044) | |||
c. | Amended & Restated dtd 6/14/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
d. | Amended & Restated dtd 9/13/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
e. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. | ||
0000870786-05-000065) | |||
f. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. | ||
0000870786-05-000263) | |||
g. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(2)g to | ||
registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. | |||
0000898745-06-000142) | |||
h. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. | ||
0000898745-07-000011) | |||
i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M2I on 05/01/08 (Accession No. | ||
0000950137-08-006512) | |||
j. | Amended & Restated Distribution Plan and Agreement Class R-2 dtd 6/24/08 Filed as | ||
Ex-99.M2J on 09/30/08 (Accession No. 0000898745-08-000083) |
k. | Amended & Restated Distribution Plan and Agreement Class R-2 dtd 09/16/09 Filed | ||
as Ex-99.M(6)k on 10/07/09 (Accession No. 0000898745-09-000489) | |||
(4) | R-3 f/k/a Advisors Preferred Plan -- Filed as Ex-99.M1 on 09/22/00 (Accession No. | ||
0000898745-00-500024) | |||
a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.G on 12/30/02 (Accession No. | ||
0001126871-02-000036) | |||
b. | Amended & Restated dtd 3/11/04 -- Filed as Ex-99.M on 03/16/04 (Accession No. | ||
0000870786-04-00044) | |||
c. | Amended & Restated dtd 6/14/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
d. | Amended & Restated dtd 9/13/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
e. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. | ||
0000870786-05-000065) | |||
f. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. | ||
0000870786-05-000263) | |||
g. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(1)g | ||
to registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. | |||
0000898745-06-00145) | |||
h. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. | ||
0000898745-07-000011) | |||
i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M1I on 05/01/08 (Accession No. | ||
0000950137-08-006512) | |||
j. | Amended & Restated Distribution Plan and Agreement Class R-3 dtd 6/24/08 Filed as | ||
Ex-99.M3J on 09/30/08 (Accession No. 0000898745-08-000083 | |||
i. | Amended & Restated Distribution Plan and Agreement Class R-3 dtd 09/16/09 Filed | ||
as Ex-99.M(7)i on 10/07/09 (Accession No. 0000898745-09-000489) | |||
(5) | R-4 f/k/a Select Plan -- Filed as Ex-99.E.1.D on 12/30/02 (Accession No. 0001126871-02- | ||
000036) | |||
a. | Amended & Restated dtd 9/9/02 -- Filed as Ex-99.E.1.E on 12/30/02 (Accession No. | ||
0001126871-02-000036) | |||
b. | Amended & Restated dtd 3/11/04 Filed as Ex-99.M on 03/16/04 (Accession No. | ||
0000870786-04-000044) | |||
c. | Amended & Restated dtd 6/14/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
d. | Amended & Restated dtd 9/13/04 Filed as Ex-99.M on 09/27/2004 (Accession No. | ||
0000870786-04-000207) | |||
e. | Amended & Restated dtd 12/13/04 -- Filed as Ex-99.M on 02/28/05 (Accession No. | ||
0000870786-05-000065) | |||
f. | Amended & Restated dtd 9/30/05 -- Filed as Ex-99.M on 11/22/05 (Accession No. | ||
0000870786-05-000263) | |||
g. | Amended & Restated dtd 9/11/06 (Incorporated by reference from exhibit #10(3)g to | ||
registration statement No. 333-137477 filed on Form N-14 on 10/6/06 Accession No. | |||
0000898745-06-000145) | |||
h. | Amended & Restated dtd 1/12/07 -- Filed as Ex-99.M on 01/16/07 (Accession No. | ||
0000898745-07-000011) | |||
i. | Amended & Restated dtd 3/11/08 -- Filed as Ex-99.M3I on 05/01/08 (Accession No. | ||
0000950137-08-006512) | |||
j. | Amended & Restated Distribution Plan and Agreement Class R-4 dtd 6/24/08 Filed as | ||
Ex-99.M5G on 09/30/08 (Accession No. 0000898745-08-000083 | |||
k. | Amended & Restated Distribution Plan and Agreement Class R-4 dtd 09/16/09 Filed | ||
as Ex-99.M(8)k on 10/07/09 (Accession No. 0000898745-09-000489) |
(11) | Opinion and Consent of counsel, regarding legality of issuance of shares and other matters | |||
Filed as Ex-99.11 on 02/16/10 on form N-14 (Accession No. 0000898745-10-000029) | ||||
(12) | Opinion and Consent of _______________________________________________on tax matters ** | |||
(13) | N/A | |||
(14) | Consent of Independent Registered Public Accountants | |||
(a) | Consent of Ernst & Young LLP dtd March 12, 2010* | |||
(15 ) N/A | ||||
(16) | (a) | Powers of Attorney Ex-99.16(a) on 02/16/10 on form N-14 (Accession No. 0000898745- | ||
10-000029) | ||||
(17) | (a) | Prospectuses dated 03/01/09, as supplemented | ||
(1) | The Prospectus for Class J shares, dated March 1, 2009, included in Post-Effective | |||
Amendment No. 70 to the registration statement on Form N-1A (File No. 33-59474) | ||||
filed on March 2, 2009; | ||||
(2) | The Prospectus for Institutional Class shares, dated March 1, 2009, included in | |||
Post-Effective Amendment No. 68 to the registration statement on Form N-1A (File | ||||
No. 33-59474) filed on March 2, 2009; | ||||
(3) | The Prospectus for R-1, R-2, R-3, R-4, and R-5 Class shares, dated March 1, 2009, | |||
included in Post-Effective Amendment No. 69 to the registration statement on Form | ||||
N-1A (File No. 33-59474) filed on March 2, 2009; | ||||
(4) | Supplements to the Class J shares Prospectus dated and filed March 20, 2009, April | |||
8, 2009, April 9, 2009, May 4, 2009, May 21, 2009, June 19, 2009, August 25, 2009, | ||||
September 18, 2009, September 30, 2009, October 16, 2009, November 12, 2009, | ||||
December 17, 2009, and January 11, 2010; | ||||
(5) | Supplements to the Institutional Class shares Prospectus dated and filed March 20, | |||
2009, April 8, 2009, April 9, 2009, April 10, 2009, May 4, 2009, May 21, 2009, June | ||||
19, 2009, July 30, 2009, August 25, 2009, September 18, 2009, October 16, 2009 | ||||
November 12, 2009, December 17, 2009, and January 11, 2010; | ||||
(6) | Supplements to the R-1, R-2, R-3, R-4, and R-5 Class shares Prospectus dated and | |||
filed March 20, 2009, April 8, 2009, April 9, 2009, May 4, 2009, May 21, 2009, June | ||||
19, 2009, August 25, 2009, September 18, 2009, October 16, 2009, November 12, | ||||
2009, December 17, 2009, and January 11, 2010; | ||||
(b) | Statement of Additional Information dated March 1, 2009, included in Post-Effective | |||
Amendment No. 66 to the registration statement on Form N-1A (File No. 33-59474) filed | ||||
on February 27, 2009; and supplements thereto dated and filed on March 20, 2009, May | ||||
4, 2009, June 19, 2009, August 10, 2009, August 25, 2009, September 21, 2009, | ||||
September 30, 2009, November 12, 2009, and December 17, 2009. | ||||
(c) | Annual Report of Principal Funds, Inc. for the fiscal year ended October 31, 2009 (filed | |||
on Form N-CSR on December 30, 2009) | ||||
* | Filed herein. | |||
** | To be filed by amendment. |
Item 17. Undertakings |
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities |
registered through the use of a prospectus which is a part of this Registration Statement by any |
person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the |
Securities Act of 1933, the reoffering prospectus will contain the information called for by the |
applicable registration form for re-offerings by persons who may be deemed underwriters, in |
addition to the information called for by the other items of the applicable form. |
(2) The undersigned Registrant agrees that every prospectus that is filed under |
paragraph (1) above will be filed as part of an amendment to the Registration Statement and will |
not be used until the amendment is effective, and that, in determining any liability under the |
Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration |
statement for the securities offered therein, and the offering of the securities at that time shall be |
deemed to be the initial bona fide offering of them. |
(3) The undersigned Registrant agrees to file a post-effective amendment to this |
Registration Statement which will include an opinion of counsel regarding the tax consequences |
of the proposed reorganization. |
SIGNATURES |
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the |
Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly |
authorized in the City of Des Moines and State of Iowa, on the 16th of March, 2010. |
Principal Funds, Inc. |
(Registrant) |
/s/ R. C. Eucher |
R. C. Eucher |
Chairman of the Board |
Attest: |
/s/ Beth C. Wilson |
Beth C. Wilson |
Vice President and Secretary |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by |
the following persons in the capacities and on the dates indicated. |
Signature | Title | Date |
/s/ R. C. Eucher | ||
Chairman of the Board | March 16, 2010 | |
R. C. Eucher | ||
/s/ L. A. Rasmussen | ||
Vice President, | March 16, 2010 | |
L. A. Rasmussen | Controller and Chief | |
Financial Officer | ||
(Principal Financial | ||
Officer and Controller) | ||
/s/ N. M. Everett | ||
President and | March 16, 2010 | |
N. M. Everett | Chief Executive Officer | |
(Principal Executive Officer) | ||
/s/ M. J. Beer | ||
Executive Vice President | March 16, 2010 | |
M. J. Beer | ||
(E. Ballantine)* | ||
Director | March 16, 2010 | |
E. Ballantine | ||
(K. Blake)* | ||
Director | March 16, 2010 | |
K. Blake | ||
(C. Damos)* | ||
Director | March 16, 2010 | |
C. Damos | ||
(R. W. Gilbert)* | ||
Director | March 16, 2010 | |
R. W. Gilbert | ||
(M. A. Grimmett)* | ||
Director | March 16, 2010 | |
M. A. Grimmett | ||
(F. S. Hirsch)* | ||
Director | March 16, 2010 | |
F. S. Hirsch | ||
(W. C. Kimball)* | ||
Director | March 16, 2010 | |
W. C. Kimball | ||
(B. A. Lukavsky)* | ||
Director | March 16, 2010 | |
B. A. Lukavsky |
(W. G. Papesh)* | |||
Director | March 16, 2010 | ||
W. G. Papesh | |||
(D. Pavelich)* | |||
Director | March 16, 2010 | ||
D. Pavelich | |||
/s/ M. J. Beer | |||
*By | |||
M. J. Beer * | |||
Executive Vice President | |||
*Pursuant to Powers of Attorney previously filed on | |||
February 16, 2010 |
EXHIBIT INDEX | ||
Exhibit No. | Description | |
4 | Form of Plan of Reorganization (filed herewith as Appendix A to the Proxy | |
Statement/Prospectus) | ||
12 | Opinion and Consent of ___________________________________ - on tax matters** | |
14(a) | Consent of Ernst & Young LLP, Independent Registered Public Accountants dtd 03/12/2010 | |
** to be filed by amendment |
O2GQS1RLZHV60[
M6'<&N3OK#4;;3H7L?M&\22A?+4JPR&8$CJ`TA4D'C&,]ZW+82-K\S_PK:QK+
MCIOW,0/K@_J*`-2BN67^T7UB=5.HQ0S).A=@6"L&`0J/NCC.,8R.I)J[B^'A
MB<6JS+=!7\O<[,YYZC?\V<=`>G2@#4O;VWL(#- 0W`D.F*DCR1,!OWY()QC-6K+S=,U74A<03R"[F$L,D41<,-H&
MTD?=(QWP/>@#3M;^VO)98K>3>\.TN-I&-PR.HYR/2K5 &5R_F,8U+-G:HP2#R`!DD8&!D`TUO[-
M_/V7<#?9\^=B0'RL9SN].AZ^AIT5W;3QQ20W$4B2DK&R."'(SD`]^A_(U@7L
M;7,\#VUI<)%:*F^-H"GDA9H6VH`,/\L;?=W?=&.HRL^GO?&ZNX4GCEFN5^SL
MR;"HQ#EV5AGY6BW8.,[1T8'=D`4`;5%Z$7E9+,RD,,[N^3C
MT]ZW:*`*>F6K6MN_F8\V:5YG`.0"QSC\!@?A5RBB@`HHHH`****`"BBB@`HH
MHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB
M@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`(%O(6?8A=_F*[DC9
MER#@CG(`R<[8!J5["NZ6..Z:6TDNHHX8V1LIM^3JVXG>.0!TZ'/`!LT5EZ
M?J4U[+#&%CX1GFD`.&7
!HMK1#]T`-N<,N,=,CIT-`%B"3SK>.7&-ZAL>F
M14E(JA5"J`%`P`.@I:`"BH[B>.VMY;B9ML42%W;&<`#)/%/!!`(Z&@!:*A>Y
MBCE2)V*L[!5RIPQ()P#T/"FIJ`"BBB@`HHHH`****`"BBB@`HHHH`****`"B
MBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`***
M*`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH
M`****`"BBB@`HHHH`****`"BBB@"&Z:1(&,4+3'H41PK$=\$XY_$?6LJWMGA
MCLH/*:-OM+3(CL&:-,$G< SWJ:[:):(DFZUE9HY9C&O#1\\*V2,XZ=SS5"QU&\
M5`C,GGR32IND=G1#Y[CU&0`,#H>@XH`Z:BN;.H:D]T[)+;;H(9BPPQ1]C@#C
M/!([Y./>K][*9[JQ@DDDAMYXW=C'(4+,-N$W#!'!8\?W:`-6BL/3[_;>?9XK
M@7%GO8+*[%B,("5W'K@YZY/;M52/Q%>/;V4XCA9)/($ZK&?E,F/XBPQC<.,-
M^'8`Z>BN4CO;YY=-CAN`C.80[2;GWYCE/(W#^[V[XZXQ6SI>HOJ$CC:@6%0L
MNTY(FYW+^&!^=`&E17,V6JWPM\*T3);VT4SF569WW,X(SGC[HYP?\([;5M6C
MMA&!'1+19W02
M*&^7*;D(!R??'2G_`-M1%F5+:X<^88H]NW]ZX!)"Y;T!.3@4L>M6\GE@1S!Y
M6*(I49+JQ5EZ]5P2?;D9H`R+C0[A-T=K`8[9HH3+'%Y>97!??PV5)Y3);@XZ
MUJ6=L]IH$D+K(F$6?<@$\3!]L77/\2C!``VU
7:P1O;P-#&D4A<-G&225&/NCC%4[;0+VW:VNA
M>[[I9VEFC;'ED/\`?`.W=TQC)[#I0!9M_$EE